TaxTMI 
TaxTMI 
2022 (7) TMI 1266
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....s raised the following grounds of appeal:- "1. The grounds of appeal mentioned hereunder are without prejudice to one another. 2. The order passed by Pr. Commissioner of Income-tax, Rajkot-1 [hereinafter referred as to the "PCIT"] is bad in law, invalid and requires to be quashed, the same may kindly be quashed. 3. The ld. PCIT erred in law and on facts in arriving at a conclusion to the effect that the assessment order passed by the A.O. was erroneous as well as prejudicial to the interest of the revenue on the ground that such order was passed without verifying mandatory requirement of payment of interest on capital of partner as per clause of partnership deed. Therefore, the order passed by PCIT is required to ....
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....at assessee firm is claiming deduction under Chapter-VIA under section 80IB(10) of the Act and claimed deduction amounting to Rs. 35,53,468/-. Therefore, assessee firm is taking advantage of exempt income by not claiming interest on partner's capital as the interest on capital is taxable in the hands of the partners. Therefore, assessee firm has not given any interest on capital as per the terms of partnership deed by claiming higher exempt income. It is further noticed that the assessee firm had not paid interest to the partners in contravention of the express conditions of the partnership deed. Hence, assessee firm had inflated profits eligible for deduction under section 80IB(10) of the Act by not debiting the interest payable to partner....
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....ssessment record at the level of A.O. 5. The above facts will indicate that AO has not conducted any inquiries/verification in of the on the above issue while finalizing the assessment u/s 143(3) of the Act on 29-1-2019. It may be mentioned that two essentials condition for invoking the provisions of section 263 of IT Act are that the order passed by the AO is erroneous and prejudicial to the interest of revenue. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 11. As per the Explanation 2, the order passed by the Assessing Officer shall be deemed erroneous in so far as it is prejudicial to the interest of the revenue if the or....
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....issue had been specifically raised by the assessing officer during the course of assessment proceedings and the assessee had duly responded by filing submission dated 29-11-2019, which was considered by the AO while passing the assessment order. Further, the counsel for the assessee submitted that Clause-5 of partnership deed specifically provides that the partners shall be entitled to increase or reduce the interest on capital contributed by partners and thus, though the partnership deed contains a provision for interest to partners, it is open for the partners to increase or decrease the same or even not to pay interest at all, as per mutual agreement. In the assessee's case, it was decided that no interest shall be paid and accordingly, ....
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....ners as well as remuneration to the working partners. The assessee, however, did not make payment thereof to the partners nor made any provision of such liability in its books of account. A perusal of deed of partnership revealed that the parties on mutual consent could add, amend, vary or alter any of the terms of partnership. This was found to be so spelled out in clause No. 11 of partnership deed dated 4-4-1988 and adopted in the supplementary deed as well. From that clause it was evident that the various clauses of partnership deed which authorized the partners to charge interest on their capital and remuneration to the working partners could be varied or amended either verbally or even by conduct. It was not necessary for the parties t....
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....n was to be paid to partners mandatorily.The record indicated that assessee had not provided any remuneration interest on capital payable to partners. Accordingly, the Gujarat High Court held that the impugned reopening noticed issued against assessee was unjustified and same was to be set aside. While passing the order, the Gujarat High Court observed as under: 18. We have examined the clauses of the partnership deeds as referred to above. Though the clauses of the partnership deed provided for interest on partner's capital and remuneration, the same is subject to their mutual agreement. In other words, the clauses contained are only enabling provision not mandatory in nature so as to lead to an inference that, the assessee ha....