2021 (11) TMI 324 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decision Granting Relief to Assessee in Deduction Dispute

ACIT, Circle-1 (2), Surat Versus M/s Desire Jewellery

ACIT, Circle-1 (2), Surat Versus M/s Desire Jewellery - TMI Issues:- Disallowance of deductions under Section 10AA for interest on capital and remuneration to partners.- Interpretation of partnership deed provisions regarding interest and remuneration.- Application of Section 80IA(10) by the Assessing Officer.- Justification for restricting deduction under Section 10AA.- Comparison of decisions by the Assessing Officer and the CIT(A).- Consideration of CBDT Circular No.739 of 1996.Detailed Analysis:Issue 1: Disallowance of deductions under Section 10AA for interest on capital and remuneration to partnersThe appeal by the revenue challenged the deletion of disallowance made by the Assessing Officer regarding deductions of interest on capital and remuneration to partners of the assessee firm under Section 10AA. The Assessing Officer noted that the assessee did not claim interest on capital contribution and remuneration to its partners, leading to an increase in exempted profit. The dispute revolved around whether the assessee was justified in not claiming these expenses.Issue 2: Interpretation of partnership deed provisions regarding interest and remunerationThe partnership deed of the firm did not provide for payment of interest and remuneration to partners. The assessee contended that as per the partnership deed, no interest or remuneration was payable to partners, and this was in line with previous years' treatment. The Assessing Officer invoked Section 80IA(10) to calculate the disallowed amounts, which the assessee disputed.Issue 3: Application of Section 80IA(10) by the Assessing OfficerThe Assessing Officer applied Section 80IA(10) to work out the remuneration and interest on capital contribution of partners, leading to a restriction on the eligible deduction claimed by the assessee. The dispute arose from the Assessing Officer's interpretation of the provisions and the impact on the assessee's claim under Section 10AA.Issue 4: Justification for restricting deduction under Section 10AAThe Assessing Officer restricted the deduction under Section 10AA based on the disallowance of partners' remuneration and interest on capital contribution. The CIT(A) considered the partnership deed provisions, relevant case laws, and CBDT Circular No.739 of 1996 to support the assessee's position that the restrictions were not justified.Issue 5: Comparison of decisions by the Assessing Officer and the CIT(A)The CIT(A) granted relief to the assessee by following the decision of the jurisdictional High Court and considering the partnership deed clauses that restricted interest and remuneration payments to partners. The CIT(A) also referred to relevant case laws to support the assessee's contention against the disallowance made by the Assessing Officer.Issue 6: Consideration of CBDT Circular No.739 of 1996The CIT(A) referenced CBDT Circular No.739 of 1996 to highlight the requirements for claiming deductions under Section 40(b)(v) of the Act, emphasizing the necessity for partnership deeds to specify remuneration payable to partners. The partnership deed in this case did not provide for such payments, supporting the assessee's position.In conclusion, the Tribunal dismissed the appeal by the Revenue, upholding the CIT(A)'s decision to grant relief to the assessee based on the partnership deed provisions and relevant legal interpretations. The judgment emphasized the importance of partnership agreements in determining the eligibility of deductions under the Income Tax Act.