2021 (5) TMI 21 - AT - Income Tax

Tribunal upholds full deduction under section 80IB(10)

The Deputy Commissioner of Income Tax, Central Circle-3, Surat. Versus M/s. Ghelani Builders

The Tribunal dismissed the Revenue's appeal, upholding the Commissioner's decision to allow the full deduction under section 80IB(10). The Commissioner's ... Deduction u/s 80IB - CIT (A) allowing deduction u/s.80IB as restricted on account of allowable interest to partners and remuneration to partners by the AO - HELD THAT:- Before restricting / disallowing claim the AO has not issued show cause notice to the assessee. Before the ld.CIT(A), the assessee explained that the AO has not considered the partnership deed dated 01.04.2006 wherein the partners are not eligible for interest and remuneration. CIT(A) after considering the contents of partnership deed dated 01.04.2006 held that the AO himself accepted the contents of second partnership dated 01.04.2006 and its relevant causes and no such disallowance [interest and remuneration] has been made. We have perused the contents of assessment order for A.Y. 2013-14 dated 11.03.2016 passed under section 143(3) by same Assessing Officer. We find that the observation of ld.CIT(A) that no disallowances in subsequent assessment year is made by AO, are correct. The Hon'ble Jurisdictional High Court in PCIT vs. AL Reza Food [2017 (3) TMI 1237 - ITAT AHMEDABAD] held that mere incorporation of interest on the partner’s capital and remuneration does not signify that same are mandatory in nature. Considering the aforesaid factual and legal position, we affirm the order of ld.CIT(A). Appeal of the Revenue is dismissed. Issues:- Disallowance of deduction under section 80IB of the Income Tax Act- Assessment based on partnership deed dated 01.04.2006- Opportunity to assessee to explain facts not provided by Assessing OfficerAnalysis:Issue 1: Disallowance of deduction under section 80IBThe appeal by the Revenue was against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2012-13. The Revenue contended that the Commissioner erred in allowing a deduction under section 80IB of Rs. 11,94,40,454, which was restricted to Rs. 3,49,32,928 by the Assessing Officer. The disallowance was based on interest and remuneration to partners. The Revenue argued that the additional evidences presented during the appellate proceedings should have been sent to the Assessing Officer for examination. However, the Commissioner decided the case based on these additional evidences without giving the Assessing Officer an opportunity to verify them.Issue 2: Assessment based on partnership deedThe assessee, a partnership firm engaged in a housing project, claimed a deduction under section 80IB(10) of the Act on the entire income, resulting in a declared Nil income. The Assessing Officer disallowed the claim based on the partnership deed dated 09.03.2006, restricting the deduction to Rs. 3,49,32,928. However, the assessee argued that a supplementary partnership deed dated 01.04.2006, which prohibited interest and remuneration to partners, was not considered by the Assessing Officer. The Commissioner, after reviewing the second partnership deed, allowed the entire claim under section 80IB(10) as no disallowances were made in subsequent assessment years.Issue 3: Opportunity to assessee to explain factsThe Assessing Officer did not issue a show cause notice to the assessee before disallowing the claim under section 80IB(10). The assessee, before the Commissioner, highlighted that the partnership deed dated 01.04.2006 clearly stated that partners were not eligible for interest and remuneration. The Commissioner noted that the Assessing Officer accepted the contents of the second partnership deed in subsequent assessment years and did not make any disallowances. The Tribunal affirmed the Commissioner's order, stating that no contrary facts or law were presented to warrant a different view.In conclusion, the Tribunal dismissed the appeal by the Revenue, upholding the Commissioner's decision to allow the full deduction under section 80IB(10) based on the partnership deed dated 01.04.2006 and the lack of opportunity provided by the Assessing Officer to the assessee to explain the facts.