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TMI Blog2015 (4) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... t's case, the issue sought to be raised in order passed u/s 263 of the Act was not on the basis of material thrown up by search u/s 132 of the Act and cannot be subject matter of addition while framing assessment u/s.153A of the Act." 2.1 The undisputed fact is that for all the Assessment Years the Assessment was completed u/s.153A r.w.s. 143(3) of IT Act. The impugned Assessment Orders for A.Y. 2004-05 to 2008-09 were all dated 30th of December, 2011. A search u/s.132 was carried out in the group of cases of "Baroda bushing and insulator" including the Assessee on 10th of September, 2009. Consequent upon the search the proceedings u/s.153A were initiated. Facts as per the lead Year 2004-05 were that the income disclosed as per the return filed in compliance of notice u/s.153A was Rs. 12,09,260/-. It was also observed by the AO that a return of income was filed earlier u/s.139(1) of IT Act and disclosed an income of Rs. 23,130/-. According to AO, the additional income as disclosed in compliance of notice u/s.153A was the undisclosed income of the Assessee. The AO has noted that the Assessee was a "partnership firm" and the manufacturing unit was 100% EOU. The Assessee has manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above contentions. PARTERSHIP DEED DID NOT PROVIDE FOR ANY PAYMENT OF INTEREST AND REMUNERATION 4.1 This partnership firm came into existence with effect from 1.4.1995 under a Deed of Partnership executed by the partners on 8th April, 1995. Whereas clause 7 and 8 of the said Partnership Deed did authorise payment of interest and remuneration to partners, a Supplementary Deed of Partnership was executed on 24.4.1995 categorically providing as under (emphasis supplied): "NOW therefore, it is mutually agreed between the Partners to make the modification and amendments in the aforesaid deed of Partnership as appearing hereinafterIT( (1) That in Para -7 and 8 of the Partnership deed executed on 8th April, 1995 the following modifications shall be made and it shall be read now as under: (A) CAPITAL AND INTEREST (PARA-7):: It is mutually agreed between the partners that with effect from 01-04-1995 i.e., since inception, interest on capital balance of the Partners would not be paid/charged from the said Partnership firm. However, the Partners may paid/charged interest on capital at the rate prescribed u/s. 40(b)(iv) in future as per the Income-Tax Rules as may be in force f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO to disallow that interest and remuneration in each year from the business income eligible for deduction u/s.10B of IT Act in the following manner: "5. The arguments of the assessee have been carefully considered. The fact remains that in this case the partners were entitled for interest and remuneration as per the original partnership deed dated 08/04/1995. However, subsequently a supplementary deed was executed on 24/04/1995 mentioning that no interest and remuneration will be payable to the partners. It is further observed that vide partnership deed dated 01/04/2009 provision of interest and remuneration was made for the partners again. From the above circumstances, it is clear that the only aim of amending partnership deed on 24/04/1995 was to claim higher deduction u/s. 10B(7)of the I.T. Act. This was a colourable device with a view to claim higher deduction u/s. 10B(7) of the I.T. Act. The A.O. should have lifted corporate veil and examined the real substance of this transaction which he failed to do so. Moreover, in view of the provisions of section 80IA (10) r.w.s. 10B(7) of the I.T. Act, the Assessing Officer was required to disallow interest and remuneration which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 20.03.2006 (Tribunal Ahd) 4. ITO, Vapi Vs. M/s. Mundra Packagin Inds. & M/s. Mass Enterprise, in ITA Nos.1645 to 1649/Ahd/2005 order dated 29.08.2005 (Tribunal Ahd) 5. CIT Vs. Mundra Packaging Industries in Tax Appeal Nos. 615 & 617 of 2006 order dated 11.10.2006 (Gujarat High Court) 6. CIT Vs. Mass Enterprise in Tax Appeal Nos.549 & 550 of 2006 order dated 27.09.2006 (Gujarat High Court) 7. ITO Vs. M/s Twina Polyplast Unit in ITA Nos. 2776 & 3139/Ahd/2010 order dated 21.11.2014 (Tribunal Ahd) 8. Cadila Healthcare Ltd. Vs. CIT Ahmedabad-I, in ITA Nos.1096/Ahd/2013 & 910/Ahd/2014 order dated 17.10.2014 (Tribunal Ahd)" 6. On the other hand, From the side of the Revenue-Department, learned CIT-D.R., Mr. O.P. Vaishnav appeared and raised an objection that the original partnership deed was not properly examined by the Revenue Authorities and the AO has also not seen the reason for emanating the clauses of the said partnership deed, therefore, the order of the AO was an erroneous order. Learned D.R. has also pleaded that the case laws which have been cited by the Assessee were in respect of the regular assessment but not in respect of the jurisdiction of a learned Commissioner f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of interest or remuneration to any partner should be authorized by the terms of the partnership deed. Meaning thereby a firm is entitled for the claim of remuneration and interest paid to partners only if the same is authorized in the partnership deed. If a partnership deed is silent about the payment of interest and remuneration to partners then naturally the Assessee firm is not entitled for the claim of deduction of such payments. Rather in this case, instead of not providing any such clause in the partnership deed, it was specifically clarified in the clauses that no interest or remuneration shall be paid to the partners. In this situation when the act is not prescribing any compulsory thrusting of the remuneration and interest upon the partners and that the partnership deed has not authorized to make payment of interest and remuneration to partners then the Learned Commissioner is not justified to force the Assessee to make such payments to the partners. In the absence of any compulsion in the language of the statute, we hereby hold that learned Commissioner was not justified in directing the AO to compute the deduction u/s.10B after deducting the interest and remuneratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustries was later on affirmed by Hon'ble Gujarat High Court in Tax Appeal No.615 and 617 of 2006 by an order dated 11.12.2006. In the said order the Revenue has also raised a ground that the Assessee has adopted such means for the purpose of tax evasion through a colourable devise as held in the case of Mc. Dowell and Company, 154 ITR 48 (SC). In a latest decision dated 21.11.2014 ITAT 'D' Bench Ahmedabad in the case of M/s. Twina Polyplast Unit (ITA No.2776 and 3139/Ahd/2010 order dated 21.11.2014) has held that even if the clauses of the partnership deed are vague and not specific about the method of calculation of remuneration the same cannot be forced upon the Assessee. 7.4 Before we conclude, it is worth to mention that the learned Commissioner has not restored the issue for examination to the file of the AO but held that the interest and remuneration was to be taken into account for the purpose of the calculation of the business income eligible for the deduction u/s.10B of IT Act. This is not a case where learned Commissioner wanted a relook the issue by the Revenue Department but directed in absolute terms to recompute the claim hence in the interest of justice, we hereby ..... X X X X Extracts X X X X X X X X Extracts X X X X
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