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TMI Blog2015 (3) TMI 1318X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the given set of facts. In view of this, we uphold the estimation at 8%. Statutory allowance of deduction u/s.40(b)- Allowance of interest on partners' capitals and partners' remunerations - Held that:- All firms are uniformly assessable as firms only and there is no difference in tax rates. The profit derived from the partnership firm is exempt in the assessment of the partners as the same is being taxed at normal rates in the assessment of the partnership firm itself. Only salary or interest paid to the partners is subject to tax in the assessment of the partners as the same is excluded from the assessment of the partnership firm. Provisions of Section 40(b) allows interest paid to partners and remuneration paid to the partners as an allowable deduction, subject to certain conditions mentioned in Section 40(b) of the Act. Therefore, there is a change in the provisions itself from a disallowance provisions to allowance provisions subject to restrictions. Thus, w.e.f. 1993-94, Section 40(b) is enabling a deduction towards interest and remuneration paid to the partners by way of statutory deduction. Therefore, jurisdictional High Court judgment given for AY.1981-82 in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Hon'ble High Court in the case of Indwell Constructions (232 ITR 776), deduction towards interest and remuneration cannot be allowed. 5. Ld.Counsel, however, submitted that order of the CIT(A) is reasonable, as income was correctly estimated at 8% being in the business of construction of houses and further submitted that the judgment of Indwell Constructions was before the amendment to the act and co-ordinate bench in the case of M/s. C.Eswara Reddy Co., distinguished the same. Further, relying on the Special Bench decision in the case of Arihant Builders [291 ITR 41 AT(SB)], it was submitted that the estimation at 8% is correct. 6 We have considered the issue and perused the rival arguments. In this case, even though Assessing Officer has made various additions/disallowances and has not rejected the Books of Accounts, Ld.CIT(A) rejected the Books of Accounts and resorted to estimation of income. Revenue has not raised any ground on rejection of Books of Accounts nor assessee is contesting the same by way of cross-appeal. Consequently, the issue of rejection of Books of Accounts is not disputed by either of parties. Whereas assessee has not disputed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that assessee paid ₹ 14,51,871/- as interest on the term loans, apart from other expenditure to indicate that estimation by the CIT(A) at 8% on the gross receipts is reasonable. Revenue has not brought on record anything to counter how this estimation is less on the given set of facts. In view of this, we uphold the estimation at 8%. 8. The next contention is with reference to allowance of interest on partners' capitals and partners' remunerations. Assessee has claimed an amount of ₹ 4,95,401/- as interest on partners' capitals and ₹ 84,000/- as remuneration to the partners and arrived at Net Profit of ₹ 8,87,273/-. Due to variation in the depreciation claims etc., the income offered by assessee as can be seen from the assessment order was at ₹ 6,36,055/-. One of the deductions allowed by the CIT(A) is with reference to remuneration and interest to the partners which was contested by the Revenue as not allowable u/s.40(b) relying on the decision of the jurisdictional High Court in the case of Indwell Constructions Vs. CIT [232 ITR 776]. It was the contention of the Revenue that once the Books of Accounts were rejected and profit was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions mentioned in Section 40(b) of the Act. Therefore, there is a change in the provisions itself from a disallowance provisions to allowance provisions subject to restrictions. Thus, w.e.f. 1993-94, Section 40(b) is enabling a deduction towards interest and remuneration paid to the partners by way of statutory deduction. Therefore, jurisdictional High Court judgment given for AY.1981-82 in the context of the provisions then existing is no longer applicable to the revised assessment procedure. This same view was held by various co-ordinate Benches. In the case of M/s. C.Eswara Reddy and Co. in ITA No.668 670/Hyd/2009 and Cross-appeals in ITA No.685 686/Hyd/2009 for AYs.2003-04 2004-05, the co-ordinate Bench vide order dt.31-01- 2011 held as under: 15. We have carefully gone through the judgement of the jurisdictional High Court in the case of Indwell Construction (supra). The assessment year under consideration before the jurisdictional High Court was assessment year 1981-82. Section 44AD was introduced in the statute book with effect from 1.4.1994. Therefore, the jurisdictional High Court had no occasion to consider the provisions of section 44AD as it is applicable for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment has been made that would entail penalty or adverse civil consequences of depriving the assessee from having the statutory deductions, which would have been otherwise available to him, in case his voluntary return filed under s.139(1) has been accepted or regular proceedings under s.143(3) were taken. This interpretation would lead to an anomalous situation, besides the same does not flow from the scheme of assessment under the Act. It is only the method of assessing the income of the assessee firm which either has to be done by accepting the voluntary return filed under s.139(1) or it has to be regularly assessed under s.143(3) or best judgment assessment is to be made under s.144. The final outcome of the assessment of the income of the assessee firm calls for consequential imposition of tax and realisation thereof. The statutory deductions thus which are available to the assessee firm cannot be taken away or snatched away from the firm merely because their books of account have been rejected and best judgment assessment has been made. Salary and Interest, which is given to the partners in terms of the partnership deed, the tax liability of the said amount shifts upon the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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