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TMI Blog2023 (9) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... italized in an earlier year and represented a part of the opening balance of debentures for the year under consideration. Ergo, the opinion canvassed by the ld. CCIT that the interest of Rs. 6.00 crore could not have been added to the cost of debentures, in our considered opinion, is not tenable. We, therefore, set-aside the impugned order on this score. Deduction towards remuneration to partners with reference to Long term capital gain offered on sale of debentures, which was not allowable in terms of section 40(b)(v) of the Act - assessee was selected for Limited scrutiny (CASS) and the reason assigned for such scrutiny, as u/s. 143(2) by the AO, is: Whether capital gains/loss is genuine and has been correctly shown in the return of income - As entire focus has been on the grant of deduction towards remuneration to partners at Rs. 22.50 crore, which, in his opinion, was not deductible in view of income under the head Profits and gains of business or profession being Nil. Reasons for Limited scrutiny (CASS) - case of converting limited scrutiny into complete scrutiny - DR argued that the AO ought to have converted limited scrutiny into complete scrutiny to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es viz., (1) the issue of cost of acquisition of the debentures transferred by the assessee was not looked into by the AO and (2) that the assessee wrongly claimed deduction towards the Remuneration to partners anent to its income from long term capital gain. Eventually, he set-aside the assessment order and directed the AO to make the assessment afresh. Aggrieved thereby, the assessee has come up in appeal before the Tribunal. 4. We have heard the rival submissions and gone through the relevant material on record. The first point taken note of by the ld. CCIT is that the assessee wrongly computed the income under the head Capital gains by considering the cost of acquisition of debentures at Rs. 56.00 crore. He noticed that the debentures were acquired only for Rs. 50.00 crore but the assessee capitalized a sum of Rs. 6.00 crore towards interest paid on loans. The act of the AO in accepting the cost of acquisition at Rs. 56.00 crore was held to be a raison d etre for the revision. 5. The assessee acquired debentures in the financial year ending 31-03-2012 and depicted the amount of Rs. 50.00 crore as `Investment in its balance sheet. The position remained as such for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was selected for Limited scrutiny (CASS) and the reason assigned for such scrutiny, as reproduced in notice dated 11-07-2017 u/s. 143(2) by the AO, is: Whether capital gains/loss is genuine and has been correctly shown in the return of income . We have gone through the computation of income furnished by the assessee along with the return of income. In this computation, income under the head Profits and gains of business or profession has been depicted at a loss of Rs. 22,51,06,820/- by starting the computation with the `Net profit before tax as per the Profit and loss account at Rs. 78,48,93,180/-. The Profit and loss account shows gross income at Rs. 101.00 crore. Thereafter, deductions towards Operating and other expenses at Rs. 1,06,820/- and Remuneration to partners at Rs. 22.50 crore have been made, thereby computing the amount of Net profit at Rs. 78.48 lakh. It is this figure, which is the starting point for calculating the income under the head Profits and gains of business or profession . Coming back to the computation of income, the second head is Capital gains , under which Long term capital gain has been computed at Rs. 101.00 crore. It is this figure of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be pertinent to take stock of section 40, with the heading `Amounts not deductible opening with a non-obstinate clause anent to sections 30 to 38. It provides that the amounts covered under this section shall not be deducted in the computation of income chargeable under the head Profits and gains of business or profession . Clause (b) to section 40 deals with the firms assessable as such. Sub-clause (v) of clause (b) of section 40 provides that any payment of remuneration to any partner who is working partner, which is authorized by, and is in accordance with the terms of the partnership deed and relates to any period falling after the date of such partnership deed insofar as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder. . . . . . . As per the command of this provision, the remuneration allowable to partners is to be computed with reference to the book-profit . Explanation 3 to section 40(b) defines the term book profit to mean `the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d two views, one in favour and the other against the assessee. None of the two judgments is from the Hon ble jurisdictional High Court. Out of the two possible views, the AO followed the one in favour of the assessee and allowed deduction towards remuneration to partners with reference to the book-profits computed by considering the income chargeable under the head Capital gains . 12. The Hon ble Supreme Court in Malabar Industrial Company Limited Vs. CIT (2000) 243 ITR 83 (SC) has held that if two legally sustainable views exist on a point and the AO adopts one of such views, the CIT cannot revise the order on such a debatable issue. We have noticed above that the case of the assessee was selected for Limited scrutiny (CASS) and the scope of verification was confined only to the genuineness of capital gain and its correct reflection in the return of income. In that view of the matter, it is palpable that the scope of the AO s verification did not cover the issue of remuneration to partners. Notwithstanding the fact that the AO did not examine the issue of deduction towards remuneration to partners in the assessment order because the same was not covered within the scope of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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