TaxTMI 
TaxTMI 
2023 (9) TMI 435
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd compliance by the assessee, the Assessing Officer (AO) completed the assessment u/s. 143(3) of the Act at the returned income vide his order dated 26-12-2018. On perusal of the assessment record, the ld. CCIT held the assessment order to be erroneous and prejudicial to the interest of the Revenue on two scores 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee wrongly claimed deduction towards remuneration to partners amounting to Rs. 22.50 crore 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. 7. At this stage, it is relevant to note that the case of the assessee 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 figur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not carry out any business activity till the assessment year under consideration. This decodes that the assessee was not engaged into any business activity and claimed remuneration to partners with reference to the income shown as "Long term capital gains". 10. At this stage, it would 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 co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utta High Court and held that the remuneration to partners should be computed only with reference to the income falling under the head "Profits and gains of business or profession" and no other head. This shows that when the assessment order was passed u/s. 143(3), there existed 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 t....