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Computation of deduction under section 32AB of the Income-tax Act. Analysis: The appeals involved a common issue related to the computation of deduction under section 32AB of the Income-tax Act. The assessees contended that interest paid to partners should be included in the profit for computing the deduction under section 32AB. The Assessing Officer and the First Appellate Authority rejected this claim, stating that the mechanism provided in sub-section (3) of section 32AB did not include interest paid to partners. The assessees relied on the proviso to section 32AB(1) and the Guidance Note on Audit under section 32AB issued by the Institute of Chartered Accountants of India. The Note clarified that interest paid to partners should be added back to the profit if debited to the Profit and Loss Account. The Circular No. 495 also emphasized that deduction under section 32AB should be allowed only in the hands of the firm, not the partners. The assessees argued that the interest paid to partners was an apportionment of the firm's profit, already taxed in the partners' hands, and should be eligible for deduction under section 32AB. They also highlighted Form No. 11A, showing interest paid to partners as part of the firm's profits. The Departmental Representative supported the lower authorities' decision, stating that the statutory provisions did not mention adding interest paid to partners to the firm's profit for section 32AB deduction. The DR questioned the authority of the Guidance Note to override statutory provisions and requested clarification from the CBDT, which was not provided within the stipulated time. The Tribunal noted that the Guidance Note, issued after discussions with CBDT, clarified that deduction under section 32AB should be allowed from the profit of the business. The insertion of the proviso to section 32AB and Circular No. 495 emphasized that the deduction was only allowable in the hands of the firm, not the partners. The Tribunal observed that interest, salary, etc., paid to partners were to be added to the firm's income and had already been taxed in the partners' hands. Considering the lack of clarity in the statute regarding partnership firms, the Tribunal found the Guidance Note by the Institute of Chartered Accountants of India to be a reasonable interpretation, supported by CBDT, and allowed the assessees' claim to add back interest paid to partners for computing deduction under section 32AB. The Tribunal concluded that the claim of the assessees should be accepted, and the amount of interest debited to the Profit and Loss Account needed to be added back to the firm's profits for computing the deduction under section 32AB of the Income-tax Act. The Tribunal's decision was based on the interpretation provided by the Guidance Note and the lack of clarity in the statutory provisions regarding partnership firms and apportionment of profits among partners.
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