TaxTMI 
TaxTMI 
2016 (5) TMI 202
X X X X Extracts X X X X
X X X X Extracts X X X X
....tures textile machinery, their parts and also carries out labour jobs. Its manufacturing unit is located at Dadra and Nagar Haweli covered under 8th schedule of the Act. The assessee commenced its manufacturing activities in financial year 2003-04. There is no dispute that it is entitled for 25% deduction u/s. 80IB of the Act qua profits derives from this unit/undertaking. 4. The assessee filed its return on 29-09-2010 admitting income of Rs. 25,06,56,700/-. The same was summarily processed. The Assessing Officer thereafter completed a regular assessment on 29- 01-2013 inter alia disallowing scrap sales and foreign exchange rate difference income of Rs. 10,66,750/- and Rs. 5,18,026/-; respectively. He recomputed its eligible deduction @ 25% of Rs. 25,76,02,0414/- (eligible profits) coming to Rs. 6,44,00,504/-. He would add depreciation as per books, donation and share trading expenses further reduced some other heads of interest income, depreciation, duty drawback etc. The assessee filed appeal against the above stated two disallowances. The CIT(A) in his order dated 02-02-2015 accepted both of its contentions. The Revenue challenged the said in tribunal in ITA 834/Ahd/2015. A co-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wever, it was observed that the assesses had not provided for the interest to the partners during the year under consideration. Thus, by not providing for the interest and / remuneration to 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 8OIB(13) r.w.s. 80IA of the Act. The details of amount of deduction claimed u/s 80IB, balance of capital account and interest not claimed during the period 2009-10 i.e. A. Y. 2010-11 is below: Assessment Year Balance in Capital account available for interest (Opening Balance + capital introduced less withdrawals) (T) Interest not claimed as per section 40(b)(iv) @12% on the closing balance of capital account Deduction claimed u/s 80-IB Total amount to be disallowed u/s 80-IB (7) r.w.s. 80IA (10) but restricted to claim u/s 80-IB of the Act (T) 2010- 11 161061003 (details of capital introduced and withdrawal by partners not available on record) 19327320 64819921 19327230 Thus, the assessee firm had made more profits than reasonable profits which would ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....form us at this stage that the instant lis does not raise any 'MAT' issue forming latter reason of reopening extracted hereinabove. We accordingly adjudicate upon the former issue of interest on assessee's partners' capital and remuneration vis-à-vis its deduction claim u/s. 80IB of the Act. 8. The Assessing Officer noticed that assessee firm had four partners namely; Shri Chandrakant, Shri Prashand, Sri Suresh and Smt. Sudhaben Gondalia having 25% share each in its profit/loss. He took cognizance of its partnership deed clauses stipulating interest on capital to partners and remuneration. The assessee had not made any provision qua either of the two payments in its books. The Assessing Officer was of the opinion that this led to enhancement of its eligible profits for the purpose of section 80IB deduction. He came across capital balance eligible for charging interest of Rs. 16,10,61,003/-. Section 40(b)(iv) interest admissible thereupon @ 12% in the relevant previous year came to be Rs. 1,93,27,230/- as against assessee's section 80IB deduction amounting to Rs. 64,81,992/-. The Assessing Officer sought to disallow this notional interest in the course of reassessment. 9. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Jindal Photo films Ltd. vs. DCIT (1998) 234 ITR 170 reiterates the very view that the reopening to withdraw a deduction already granted without any further tangible material is not valid. 13. Ld. authorized representative thereafter pleads that the assessee has been held entitled for the impugned deduction without any disallowance of partners interest on their capital and remuneration in the earlier seven assessment years i.e. from first year of deduction assessment year 2004-05. He placed on record order dated 23-12-2011 relevant to the preceding assessment year 2009-10 to highlight that the same framed u/s. 143(3) does not raise any such issue. It is argued that once the assessee has been held entitled for the impugned deduction without either of the two disallowances, the revenue authorities ought to observe consistency. 14. Ld. authorized representative thereafter takes us to assessee's partnership deed clauses. His case is that both interest and remuneration stipulation are only enabling provision not mandatory in nature so as to lead to an inference that the assessee had to pay the same mandatorily to its partners. He invites our attention to the crucial expression "as may....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re not mandatory. They depend on mutual agreement between the partners for the purpose of crediting the same in respective capital accounts at the end of the year subject to the maximum statutory limits. The question arises for the our adjudication therefore depends on interpretation of the above two clauses Sl. No. 6 & 15 incorporated in assessees partnership deed dated 13/20-02-2003 as under:- "The capital required for the business of the partnership firm shall be contributed by the partners as mutually agreed according to the needs of the business of the firm and according to the convenience of the partners. Interest shall be paid on the partners' capital as mutually agreed to between them which shall be credited in their respective accounts at the end of the year. However, the rate of interest per annum on such capitals shall not exceed the limits as laid down in Section 40(b)(iv) of the Income-tax Act, 1961 under the heading "Amounts not deductible". This is followed by partners remuneration clause as follows:- "All the major partners of this deed shall be working partners within the meaning of "working partner" as mentioned in explantion-4 to section 40(b) of the Income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....relevant part of the decision of the CIT(A), for the purpose of proper appreciation of the same: "3.4. I have considered the rival submissions carefully. An identical issue has been decided in the case of Rohit Tandon, husband of the appellant, the other partner in M/s. Dynamech holding 50% share in the partnership firm for the assessment year 2006-07. In that case also, the AO had added the interest payable on the capital of Sh. Rohit Tandon and remuneration payable to Sh. Rohit Tandon to the total income of the assessee, I have adjudicated that appeal vide order dated 14.7.2009 in appeal No.591/08-09/CIT(A)/Jal and have deleted similar additions as under: "9.5 I have considered the rival submissions carefully. Clause 4 and 5 of the partnership deed providing for interest on capital and salary are as under: "4. The capital of the partners is as per their respective accounts in the books of the partnership. The partners shall be entitled to interest on their capital @ 18% per annum or at such other rate or rates as the partners may at the end of each financial year mutually settled subject to the maximum amount admissible under the Income-tax Act, 1961. 5. Both the part....