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TMI Blog2016 (5) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... ceding paragraphs are rendered academic. - Decided in favour of assessee - ITA No. 198 /Ahd/2016 - - - Dated:- 3-5-2016 - Shri S. S. Godara, Judicial Member And Shri Manish Borad, Accountant Member For the Petitioner : Shri Narendra Singh, Sr. D.R. For the Respondent : Shri Mehul Shah, A.R. ORDER Per : S. S. Godara, Judicial Member This assessee s appeal for A.Y. 2010-11, arises from order of the CIT(A), Valsad dated 05-01-2016 in appeal no. CIT(A)/VLS/274/14-15, in proceedings under section 143(3) of the Income Tax Act, 1961; in short the Act . Assessment Year 2010-11 2. The assessee raises two substantive grounds in the instant appeal. The first one challenges legality of the impugned reopening taken recourse to by the Assessing Officer and affirmed in the lower appellate proceedings. Latter substantive ground pleads that the CIT(A) has erred in confirming the Assessing Officer s action in disallowing section 80IB deduction of ₹ 2,95,49,204/- thereby restricting its original claim of ₹ 6,48,19,921/- to ₹ 3,52,70,717/-. 3. We come to relevant facts first. This assessee/a firm manufactures textile machinery, their parts and also ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. The assessee firm was engaged in the business of manufacturing of Textile Machineries and their parths and labour job filed its return of income 29/09/2010 declaring income of ₹ 250656697/- after claiming deduction of ₹ 64819921/- u/s 80IB for the AY 2010-11. The income was assessed to ₹ 251076114/- u/s 143(3) on 29/011/2013. As per the copy of partnership deed dated 13/2/2003 the assessee is a partnership firm consisting of four partners, viz. Shri Chandrkaht C. Gondalia , Shri Prashant H. Gondalia, Shri Suresh S. Gondalia and Sudhaben A. Gondalia with profit/loss sharing ratio of 25% each. As per the convents of the partnership deed that interest shall be paid on the partners capital and shall not exceed the limits as laid down in section 40(b)(iv) of the Income Tax Act. As per the convents of the partnership deed the partners were eligible for interest on the balance of 53746775/- capital account at the maximum rates permissible under section 40(b)(iv) of the Income Tax Act i.e. @12% per ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 265887804/- less interest of ₹ 19327320/- on partners capital account). However, it was seen that no such remuneration was apportioned amongst the above four working partners. Thus, by not providing for the remuneration of ₹ 98676693/- of the partners, the assessee firm had made more profits than reasonable profits which would have accrued to the firm and consequently into higher claim of deduction u/s 80IB of the Act. This attracts the provisions section 80IB r.w.s. 80IA of the Act. In view of the provisions of 80IB r.w.s. 80IA of the Act, this amount were to be required to be disallowed from the business income eligible for deduction u/s. 80IB of the Act. This being not done resulted into underassessment of income of ₹ 98676693/- resulted into consequent short levy of tax of ₹ 449438 79/- including interest of ₹ 11403671/- u/s 234B of the Act for the period April 2010 to January,2013. I have reason to believe within the meaning of sec 147 of the Act that income to the extent of Rs ₹ 19327230/- ₹ 98676693/- has escaped assessment. 6. The Assessing Officer accordingly issued section 148 notice dated 07-10-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is gross sum from assessee s eligible profits of ₹ 25,91,86,790/- to ₹ 14,10,82,967/- by reducing the above aggregated amount. 10. The assessee filed appeal. It raised two folded grounds. The first one challenge validity of reopening by terming it as change of opinion since all facts taken note by the assessing authority before issuing section 148 notice already available as produced during the course of scrutiny. The CIT(A) rejects the same by holding that the Assessing Officer did not make any specific inquiry on the issue in question which could lead to the impugned reopening being taken as a mere change of opinion. 11. Next come the lower appellate findings on merits. The CIT(A) holds that assessee s gross income has to be computed as per provisions of the act before allowing the impugned deduction available under chapter VI of the Act. This leaves the assessee aggrieved. 12. Shri Mehul Shah, learned authorized representative appears at assessee s behest. His first submission assails correctness of the reopening in question. He submits that the Assessing Officer had recomputed section 80IB deduction in first round of scrutiny assessment. The partnership dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns for the purpose of assessment of taxable income. Section 80IB of the Act is also quoted providing for computation of total income before computing chapter VI deduction. It is contended that the assessee had correctly computed its income/deduction. The Assessing Officer has rightly disallowed both the above said amounts per law. The Revenue accordingly seeks rejection of the instant appeal. 16. We afforded rebuttal opportunity to assessee s authorized representative. He submits that the assessee has already paid taxes of ₹ 6.97 crores. The impugned deduction claim is not a colorable device to avoid payment of taxes. He clarifies that it s a case of 25% deduction. At the end, ld. authorized representative does not wish to press his reopening issue. 17. We have given thought consideration to rival contentions. There is no dispute about the assessee firm being already eligible for section 80IB deduction since financial year 2003-04. The issue between the parties is about correctness of its computation rather. Both the lower authorities hold that the assessee has not provided for interest on partners capital as well as their remuneration despite specific clauses in its pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression as may be mutually agreed is duly incorporated therein subject however to the maximum statutory limit. We find that a co-ordinate bench of the tribunal in ITA 319/Asr/2010 ITO vs. Smt. Mala Tandon decided on 14-06-2011 dealt with a similar situation. It would observe that mere incorporation of interest on partners capital and remuneration does not signify that the same are mandatory in nature. Ld. co-ordinate bench is of the view that a partnership firm under the provisions of partnership act is by will of its partners. The accounts drawn up at the end of the year did not indicate any such interest or remuneration payments. It holds that this act by itself is sufficient to conclude that the partners of the firms had agreed not to provide for the two payments in question. We deem it appropriate to reproduce operative portion as under:- 6. We have heard both the parties and given our thoughtful consideration to the rival submissions, examined the facts of the case, evidence and material placed on record and also gone through the orders of the authorities below. A careful perusal of the impugned appellate order clearly reveals that the Ld. CIT(A), has considered and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided/given.... . Further, it is also mentioned in both these clauses, that the rate or rates of interest and the remuneration would be mutually settled by the partners at the end of each financial year. Now, a partnership, by its very name and as per the provisions of Partnership Act is by will of the partners. There are only two partners in this firm, both having equal shares. The accounts drawn up at the end of the year reveal that no interest on the capital or remuneration to the partners has been provided in the accounts of the firm M/s.Dynamech. This act by itself signifies that the partners have agreed not to provide interest on their capital or to charge remuneration for their services. In my opinion, the terms of the partnership deed do not signify that interest on capital and remuneration to partners had necessarily to be provided in the account of M/s. Dynamech.. 9.7. The AO has drawn support from the provisions of section 80IA(10). This sub-section provides that where the affairs between the eligible business and any other person is so arranged that more than ordinary profits arise to the assessee, the AO shall, in computing the profit and gains of such an eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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