2023 (1) TMI 649 - AT - Income Tax

Exemption from partnership firm u/s 10(2A) - HELD THAT - On going through the financial statements of the partnership firm, the firm has earned income during the impugned assessment year, which has been divided by both the partners. In the computation of income of the partnership firm, there was no income under the head business and profession , since the partnership firm was showing loss in the earlier years, which has been brought forwarded and while computing tax of the partnership firm, the same profit has been set off. As per the income-tax Act, there was no distributable profits but in real theory in the impugned assessment year, partnership firm has earned profit. We also gone through the previous year s financial statements i.e assessment year 2016-17 and 2017-18. In the assessment year 2016-17, the partnership firm has suffered a loss, which has been divided by both the partners equally and the loss has been included in the financial statements and while computing taxable income of the assessee, the same has been added back under the head other additions , which is evident from the computation of income filed by the assessee as directed by the bench. Assessee has not got any undue benefits. Assessee is eligible to claim exemption as per sec. 10(2A) of the Act on the profit received from the partnership firm. In view of this, the computation of income filed by the assessee is correct. Accordingly, appeal of the assessee is allowed.

Summary

Issues:
1. Denial of exemption under section 10(2A) of the Income Tax Act 1961.
2. Disallowance of losses carried forward from previous years.
3. Upholding the charge of interest under sections 234A, 234B, and 234C of the Income Tax Act 1961.

Analysis:
1. The appeal pertained to the denial of exemption under section 10(2A) of the Income Tax Act 1961 by the National e-Assessment Center. The assessee declared a total income of Rs.34,02,778/-, claiming exemption from a partnership firm amounting to Rs.39,25,098/-. However, the exemption was denied, leading to the denial of the claimed loss from business and profession as well. The CIT(A) upheld the denial, stating that the assessee shared profits before setting off losses brought forward, which was impermissible. The appeal before the Tribunal argued that the partnership firm had earned income, which was divided between partners, making the assessee eligible for the exemption. The Tribunal, after examining the financial statements and computations, allowed the appeal, holding that the assessee was entitled to claim exemption under section 10(2A) based on the actual profit earned by the partnership firm.

2. The issue of disallowance of losses carried forward from previous years was also raised in the appeal. The CIT(A) had dismissed the appeal, stating that since the partnership firm had no distributable profit after setting off losses, the assessee could not claim exemption under section 10(2A). However, the Tribunal, after considering the financial statements and computations, found that the partnership firm had indeed earned a profit during the relevant assessment year. The Tribunal observed that while there were losses in previous years, they were appropriately accounted for, and the assessee had not received any undue benefits. Consequently, the Tribunal allowed the appeal, holding that the assessee could claim exemption under section 10(2A) on the profit received from the partnership firm.

3. The final issue involved the charge of interest under sections 234A, 234B, and 234C of the Income Tax Act 1961. The CIT(A) had upheld the charge of interest, which was one of the grounds of appeal before the Tribunal. However, the Tribunal's decision primarily focused on the denial of exemption and the disallowance of losses carried forward. As the Tribunal allowed the appeal on these grounds, the issue of interest under sections 234A, 234B, and 234C was not explicitly discussed in the detailed analysis provided in the judgment. Therefore, it can be inferred that the Tribunal's decision on the main issues effectively addressed the concerns raised by the assessee regarding the charge of interest.

In conclusion, the Appellate Tribunal, after a thorough examination of the facts, financial statements, and computations, allowed the appeal of the assessee, overturning the decisions of the lower authorities. The Tribunal held that the assessee was eligible to claim exemption under section 10(2A) and that the losses carried forward from previous years were appropriately accounted for. The judgment provided a detailed analysis of the contentions raised by both parties, ultimately resulting in a favorable outcome for the assessee.