2024 (1) TMI 688 - AT - Income Tax

Disallowance u/s 10AA - AO disallowed the part of claim by taking a view that the assessee has not charged any interest on capital contribution and remunerations to its partner - AO worked out the disallowance of interest on capital of partner and remuneration and restricted the claim of deduction u/s 10AA subtracting on account of remuneration to partners and interest on capital contribution by partners - HELD THAT - The only objection of ld. CIT-DR for the revenue was that before the Assessing Officer, the assessee claimed notarized supplementary deed. On such objection, we directed the ld. AR of the assessee to show the original or supplementary partnership deed. Supplementary partnership deed was brought before the Bench and copy thereof was provided to the ld. CIT-DR for the revenue. On perusal of such supplementary partnership deed, we find that before assessing officer, the assessee has filed copy of said partnership deed attested by Notary Shri M.S. Ratnu, advocate, Jodhpur. On comparing the contents of supplementary partnership deed with copy thereof on record, original was returned to the assessee s counsel. We are of the considered view that the grounds of appeal raised by assessee are covered in favour of assessee. Hence, the disallowance of interest capital and remuneration from the allowable profit under Section 10AA, is deleted. Accordingly, the Assessing Officer is directed to allow full relief to the assessee. Hence, grounds No. 1 to 4 of the appeal are allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance under Section 10AA related to interest on partners' capital and remuneration.
3. Treatment of income on payment of employees' contribution to PF/ESI after the due date.

Condonation of Delay:
The Tribunal condoned the delay of 38 days in filing the appeal, noting that the delay was neither deliberate nor intentional. The assessee was exploring legal options, which caused the delay. The Tribunal found reasonable cause for the delay and allowed the appeal to proceed.

Disallowance under Section 10AA:
The assessee, a partnership firm engaged in manufacturing and trading of Tobacco products, claimed a deduction under Section 10AA of Rs. 7.61 crores. The Assessing Officer (A.O.) disallowed Rs. 4.38 crores, arguing that the assessee did not charge interest on capital and remuneration to partners as per the original partnership deed dated 05/12/2013. The assessee contended that a supplementary deed dated 19/06/2014 omitted these charges. The CIT(A) upheld the A.O.'s decision, relying on previous Tribunal decisions.

The Tribunal found that the assessee's case was covered by the decision of the Hon'ble Jurisdictional High Court in PCIT Vs. Alidhra Taxspin Engineers, which held that mere incorporation of interest and remuneration clauses in the partnership deed does not make them mandatory. Since the assessee had a supplementary deed mutually agreeing not to charge these amounts, the disallowance was deleted. The Tribunal directed the A.O. to allow the full deduction under Section 10AA.

Treatment of PF/ESI Contributions:
The assessee did not press the ground related to the treatment of Rs. 19,178/- on payment of employees' contribution to PF/ESI after the due date. Consequently, this ground of appeal was dismissed.

Conclusion:
The appeal was partly allowed, with the Tribunal deleting the disallowance under Section 10AA and dismissing the ground related to PF/ESI contributions. The order was announced in open court on 18th September 2023.