ACIT CIRCLE1(2), SURAT vs. M/S PAN PARAG INDIA COMPANY, SURAT

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ITA 711/SRT/2018Status: DisposedITAT Surat08 March 2022AY 2015-164 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the deletion of the disallowance by the CIT(A) was justified. It followed the jurisdictional High Court's decision that interest and remuneration to partners are not mandatory and their non-claiming does not automatically warrant an addition.

What were the facts?

The Assessing Officer disallowed a portion of the deduction claimed under Section 10AA by adding notional interest and remuneration to partners, arguing it inflated the exempted profit. The assessee firm had not claimed these amounts as per its partnership deed.

What were the issues?

Whether notional interest and remuneration to partners can be added back to income to restrict deduction under Section 10AA when the partnership deed does not provide for such payments. Whether the CIT(A) was justified in deleting the disallowance made by the AO.

Which sections of the Income-tax Act were involved?

Section 10AA,Section 143(3),Section 40(b)

AI-generated summary — verify with the full judgment below

Assessee by Shri Y. Subhramaniam, AR Revenue by Shri H.P.Meena, CIT-DR Date of hearing 08.03.2022 Date of pronouncement 08.03.2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by Revenue is directed against the order of ld. Commissioner of Income tax (Appeals)-2 Surat [for short to as ‘CIT(A)’] dated 24.08.2018 for assessment year (AY) 2015-16, which in turn arises out assessment order passed by Assessing Officer under section 143(3) of the Income Tax Act,1961 (hereinafter referred to as ‘the Act’) vide order dated 29.12.2017. The Revenue has raised the following grounds of appeal:- “1. Whether on the fact and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance made by the Assessing Officer by invoking provisions of Section 80(IA)(10) r.w.s. 10AA(9) in giving deductions of interest on capital and remuneration to partners of the assessee firm after finding that the assessee had taken undue benefits of Section 10AA by not claiming interest on Capital and Remuneration to partners which resulted increase in exempted profit of the assessee?

2. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified by not appreciating the fact that by not providing interest and remuneration (A.Y 15-16) M/s Pan Parag India Co. to the partners, the firm has claimed higher profits leading to higher claim of deduction u/s 10AA of the Act and thus, devoiding the revenue from due amount of tax? 3. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred by not appreciating the observation of the AO that the income in the hands of the firm is to be computed in terms of Sec 28 to 43D and Sec 40(b) in respect of allowance of interest and salary falls between these two provisions and therefore full effect has to be given to this provisions also. Hence, the action of the AO was in accordance of the existing law and provisions. 4.It is, therefore, prayed that the order of the Ld. CIT(A) maybe set aside and that of Assessing Officer maybe restored to the above extent.”

2.

At the outset of hearing, the Ld. Authorized Representative (AR) for the assessee submits that grounds of appeal

raised by Revenue are covered by the judgment of Hon'ble jurisdictional High Court in the case of Pr. Commissioner of income Tax vs. Alidhra Taxspin Engineers Tax Appeal No.265 of 2017 dated 02.05.2017, wherein it was held merely incorporation of interest on partners’ capital account and remuneration does not signify that same are in mandatory in nature. The Ld. AR for the assessee submits that the Ld. CIT(A) while granted relief to the assessee has relied on the decision of Hon'ble jurisdictional High Court in the case of Alidhra Taxspin Engineers (supra). The Ld. AR of the assessee further submits that there is no such clause in the partnership deed, which may entitle the partners to claim interest and/ or remuneration to the partners.

3. On the other hand, Ld.Commissioner of Income Tax-Departmental Representative (CIT-DR) for the Revenue supported the order of Assessing Officer. The Ld. CIT-DR submits that co-ordinate Bench of Rajkot Bench in the 2

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