Case Law Details
DCIT Vs Regent Corporation (ITAT Surat)
The appeal before the ITAT Surat arose from the Revenue’s challenge to the order of the Commissioner of Income Tax (Appeals) allowing Regent Corporation’s claim of deduction under Section 80IB for Assessment Year 2010-11. The assessee, a partnership firm engaged in the real estate business, had claimed deduction of ₹2,04,07,333 under Section 80IB while computing its income. The original assessment under Section 143(3) accepted the returned income. Subsequently, the assessment was reopened under Section 147 on the ground that the assessee had claimed deduction without providing for interest on partners’ capital and remuneration to partners as contemplated in the partnership deed. The Assessing Officer concluded that deduction under Section 80IB should be computed only after reducing such amounts and consequently restricted the deduction by disallowing ₹2,04,07,333.
During the reassessment proceedings, the assessee submitted that the original partnership deed merely provided an option regarding payment of remuneration to working partners and that the partners had consciously decided not to pay any remuneration. As regards interest on capital, the assessee relied upon a supplementary partnership deed dated 1 April 2008, executed in accordance with the partnership deed, under which partners agreed that their capital contributions would remain interest-free. The Assessing Officer rejected the supplementary deed on the ground that it had not been produced during the original assessment proceedings and maintained the disallowance.
The Commissioner (Appeals) examined both the original and supplementary partnership deeds and accepted the assessee’s contention. While granting relief, the Commissioner relied upon CBDT Circular No. 739 dated 25 March 1996 and decisions of various Tribunal benches, holding that the Assessing Officer could not compel a partnership firm to provide interest or remuneration to partners merely because the partnership deed permitted such payments. Accordingly, the Commissioner allowed the assessee’s claim of deduction under Section 80IB.
Before the Tribunal, the Revenue contended that the supplementary partnership deed had been executed only to enable the assessee to claim a higher deduction under Section 80IB and that the original deed contemplated payment of interest and remuneration to partners. The assessee, on the other hand, submitted that the original deed itself permitted amendments with the consent of the partners, that the supplementary deed had been executed much before scrutiny proceedings commenced, and that the partners had validly agreed not to provide interest on capital or remuneration. The assessee also pointed out that the very same Assessing Officer, in the assessment for AY 2012-13 completed under Section 143(3), had accepted the same claim without making any disallowance. Reliance was also placed on decisions of the jurisdictional High Court and various Tribunal decisions supporting the assessee’s stand.
After considering the rival submissions, the Tribunal observed that the assessee had consistently maintained that the partnership deed merely gave the partners an option regarding payment of remuneration and that the supplementary deed amending the terms relating to interest had been executed on 1 April 2008, well before the scrutiny proceedings. The Tribunal found that the Commissioner (Appeals) had correctly relied upon earlier judicial precedents holding that the mere incorporation of clauses regarding payment of interest on partners’ capital or remuneration did not make such payments mandatory. The Tribunal further noted that the jurisdictional High Court had taken a similar view in the cases of Pr. Commissioner of Income Tax v. Alidhra Taxspin Engineers and Pr. Commissioner of Income Tax v. Sanidhya. Accordingly, it found no reason to interfere with the order of the Commissioner (Appeals).
The Tribunal also observed that the same Assessing Officer had adopted inconsistent positions in respect of the same assessee by reopening the assessment for AY 2010-11 on the issue of non-payment of partners’ interest and remuneration while accepting the identical position in the scrutiny assessment for AY 2012-13. It held that, in the absence of any change in facts, the Revenue authorities were required to follow the principle of consistency. On this additional ground as well, the Tribunal upheld the order of the Commissioner (Appeals). Consequently, the Revenue’s appeal was dismissed.
Cases Discussed:
- Meridian Impex – 37 taxmann.com 22 (Rajkot ITAT, 2013)
- M/s Sagar Foods – 2017 (3) TMI 1297 (ITAT Ahmedabad, order dated 22.02.2017)
- Shreeji Dehydrate Export – 2017 (3) TMI 1297 (ITAT Ahmedabad, order dated 22.02.2017)
- M/s Al Reza Food v. ITO, Ward-2(4), Bhavnagar – 2017 (3) TMI 1237 (ITAT Ahmedabad)
- Pr. CIT v. Alidhra Taxspin Engineers – Tax Appeal No. 265 of 2017 (Gujarat High Court, order dated 02.05.2017)
- Pr. CIT, Surat-1 v. M/s Sanidhya – Tax Appeal No. 827 of 2019 (Gujarat High Court, order dated 03.02.2020)
- Ramesh Narhari Jakhadi v. ITO – (1992) 41 ITD 368 (ITAT Pune)
- Rahul G. Patel v. DCIT, Circle-1(2) – (2018) 97 taxmann.com 598 (ITAT Ahmedabad)
- Mrs. Parveen P. Bharucha v. DCIT, Circle-2, Pune – (2012) 28 taxmann.com 274 (Bombay High Court)
- ACIT v. Dr. S. Balasundaram – ITA No. 1832/Mds/2012 (ITAT Chennai, order dated 27.05.2013)
- CBDT Circular No. 739 dated 25.03.1996 (relied upon by the CIT(A))
FULL TEXT OF THE ORDER OF ITAT SURAT
1. This appeal by Revenue is directed against the order of ld. Commissioner of Income tax (Appeals)-1, Surat (CIT(A) for short) dated 09.08.2017 for assessment year (AY) 2010-11. The Revenue has raised the following grounds of appeal:-
“i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing deduction u/s 80IB of the Act amounting to Rs.2,04,07,333/- by disallowing the partner’s remuneration and interest on capital which is in contravention to the covenants laid down in the partnership deed.
ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that the partnership deduction clearly states that the interest and remuneration were payable to the partners and the partners as per their entitlements.
iii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that Assessing Officer had rightly rejected the supplementary partnership deed incorporating some changes submitted by the assessee as the same was not submitted by the assessee during the original assessment proceedings.
iv) On the facts and in the circumstances of the case and in law, the Ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A)-1, Surat may be set aside and that of the Assessing Officer’s order may be restored.”
2. Brief facts of the case are that assessee is a partnership firm engaged in business of real estate, filed its return of income for assessment year (AY) 2010-11 on 07.10.2010, declaring income of Rs.1,13,194/-. In the computation of income, assessee claimed deduction of Rs.2,04,07,333/-under section 80IB of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).The case was selected for scrutiny and the assessment was completed under section 143(3) of the Act on 01.03.2013 accepting the returned income. Subsequently, the case was re-opened under section 147 on 05.03.2015. Notice under section 148 of the Act was issued on 11.03.2015. In response to notice under section 148 of the Act, the assessee filed its reply and stated that returned filed was originally may be treated as return income in response to notice under section 148 of the Act. The case was re-opened by Assessing Officer on perusal of record, wherein it was noticed that the assessee without allowing interest on capital and remuneration to the partners claimed deduction under section 80IB(10). Deduction under section 80IB of the Act is allowable after excluding the interest and remuneration to the partners as per the partnership deed. The Assessing Officer was of the view that assessee claimed excess deduction. The assessee was liable to pay interest capital with the partners of Rs.13,03,691/- and remuneration to the partners of Rss.1,92,16,836/- thereby total of Rs.2.05 crores. The Assessing Officer after providng reasons recorded to the assessee proceeded for assessment. The Assessing Officer recorded that the assessee objected the proceedings initiated under section 147 of the Act. The objection of assessee was disposed with the speaking order passed on 19.10.2015. The Assessing Officer issued show cause notice dated 09.09.2015 as to why excess claim of Rs.2.05 crores claimed under section 80IB of the Act should not be allowed. The assessee filed its reply on 18.08.2015 and on 08.04.2015. In the reply, assessee submitted that during the original assessment, copy of partnership deed was filed. In response to notice under section142(1) on 12.06.2012. On the issue of remuneration to the partners, the assessee stated that it is clearly provided in clause-8 of the original deed of its partners shall be considered as working partners and against their specific services they shall be provided stipulated the share. Further there is an option provided in the partnership deed with regard to remuneration to the partners. It is the right of partner and not the Assessing Officer to select and put it in application of any those option and accordingly, partners decided not to give any remuneration. On the issue of interest, the assessee stated that it is privilege of under the partnership law to change or amend any clause of the partnership deed as agreed upon by the partners. The partnership deed is in accordance with law. The partner executed a supplementary deed on 01.04.2008 that amount of contribution from partners in the book of partnership firm is the capital and same would be treated as interest free. The assessee also furnished the supplementary partnership deed dated 01.04.2008. The reply of the assessee was not accepted by Assessing Officer and held that the change in the partnership deed vide supplementary dated 01.04.2008 is not acceptable as the supplementary partnership deed was not produced during the course of assessment proceedings. Accordingly, the Assessing Officer disallowed the part claim of their remuneration bill thereby restricted to Rs.2,37,90,313/- by disallowing of Rs.2,04,07,333/-.
3. Aggrieved by the disallowance of Assessing Officer assessee carried matter before Ld. CIT(A). The assessee filed its detailed written submission. The detailed written submission of the assessee are recorded in para-5 in the order of Ld. CIT(A). The Ld. CIT(A) after considering the original partnership deed re-constituted the partnership deed and the submission of assessee allowed full deduction under section 80IB of the Act. The Ld. CIT(A) while allowing the relief relied on the circular of CBDT No.739 of 1996 dated 25.03.1996 and order of Rajkot Bench in the case of Meridian Impex 37 taxmann.com 22 (2013) and Ahmedabad Benches in the case of M/s Sagar Foods and Shreeji Dehydrate Export 2017 (3) TMI 1297 dated 22.02.2017, wherein it was held that Assessing Officer could not have compelled the appellant to charge interest or remuneration to the partners by invoking section 40(b)(v). The ld CIT(A) also relied on the decision of ITAT Ahmedabad Benches in the case of M/s Al Reza Food vs. ITO Ward-2(4), Bhavnagar 2017 (3) TMI 1237. Aggrieved by the order of Ld. CIT(A) the Revenue has filed present appeal before this Tribunal.
4. We have heard the submission of Ld. Senior Departmental Representative (DR) for the Revenue and Ld. Authorized Representative (AR) for the assessee. The Ld. Sr. DR for the Revenue submits that the assessee reconstituted the supplementary partnership deed only to claim excess deduction under section 80IB of the Act. In the original partnership deed there was reference for charging interest on capital and partner’s capital and payment of remuneration. The supplementary deed was executed subsequently only to claim the excess deduction under section 80IB of the Act.
5. On the other hand, Ld. AR of the assessee supported the order of Ld. CIT(A). The Ld. AR of the assessee submits that as per clause-21 of original partnership deed, the partners have option to amend the clause of partnership with the consent of the parties. The Supplementary deed was executed with the consent of majority of the partners of the assessee-firm vide supplementary deed dated 01.04.2008.
6. The Ld. AR of the assessee further submits that though the case of assessee for assessment year 2010-11 (the year under dispute) was re-opened on 05.03.2015 by recording reasons that assessee has not allowed interest and remuneration to the partners. A notice under section 148 of the Act was issued on 11.03.2015. However, the same Assessing Officer for subsequent assessment year i.e. 2012-13 allowed similar relief to the assessee in assessment order dated 13.03.2015 passed under section 143(3) of the Act, copy of which is placed on record. The Ld. AR of the assessee submits that the grounds of appeal raised by Revenue is in fact is covered by the decision of various Tribunal as well as Hon’ble jurisdictional High Court in the case of Pr. Commissioner of income Tax vs. Alidhra Taxspin Engineers & 1 Tax appeal No.265 of 2017 dated 02.05.2017 and in the case of Pr. Commissioner of Income Tax Surat-1 vs. M/s Sanidhya in Tax Appeal No.827 of 2019 dated 03.02.2020. Ld. AR of the assessee also field the copies of the following case law:-
> Ramesh Narhari Jakhadi vs. ITO (1992) 41 ITD 368 (Pune)
> Rahul G. Patel vs. DCIT Cir-1(2) (2018) 97 taxmann.com 598 (Ahd-Trib.)
> Mrs. Parveen P Bharucha vs. DCIT, Cir-2 Pune (2012) 28 taxmann.com 274 (Bom)
> ACIT vs. Dr. S. Balasundaram ITA No.1832/Mds/2012 dated 27.05.2013
7. We have considered the rival submissions and gone through the order of lower authorities. We find that the case of assessee was re-opened by Assessing Officer by recording reasons thereof as assessee has claimed deduction under section 80IB of the Act, without allowing interest on capital and remuneration to the partners. The assessee before Assessing Officer contended that there was option provided under the original partnership deed with regard to remuneration to the partners and it is the right of the partners and not of the Assessing Officer to select and put in application of those options. The partners decided not to give any remuneration. On the interest to partner’s capital, the assessee stated that it is privilege of the partners to change or amend the clause as agreed under the deed of partnership.Clause-21 of the partnership deed provides such amendment. The assessee stated that the partnership was revised on 01.04.2008 i.e. much prior to the selection of return for scrutiny. The Assessing Officer disregarded the contention of the assessee and disallowed the part remuneration under section 80IB of the Act to the extent of Rs.2,73,90,313/- thereby disallowed Rs.2,04,07,333/-. We find that Ld. CIT(A) allowed the relief to the assessee by following decision of Tribunal in the case of Alidhara Taxspin Engineers (supra) wherein it was held that mere incorporation of interest on the partners’ capital and remuneration does not signify that the same are mandatory in nature. The similar view taken by Hon’ble jurisdictional High Court in the case of M/s Sanidhya (supra) by following its earlier order in Alidhara Taxspin Engineers (supra). Therefore, we do not find any reason to interfere with the order of Ld. CIT(A), which we confirm.
8. We further find that the Assessing Officer re-opened the case of assessee for AY 2010-11 under section 147 of the Act on 05.03.2015 by recording reasons that assessee’s claim deduction under section 80IB(10) without allowing capital and remuneration to its partners. However, same Assessing Officer allowed similar relief in assessment order passed under section 143(3) of the Act on 13.03.2015 in subsequent assessment year i.e. AY 2012-13. Therefore, the same officer has took two contrary view in respect of the same assessee on the similar issue, which is not permissible under the provisions of the income tax Act. The revenue authorities are requires to adhere the principles of consistency while considering the similar issues, when there is no variations in the facts in earlier or subsequent year. Thus, the assessee also succeeded on the secondary submissions of his ld counsel.
9. In view of the aforesaid discussion, grounds of appeal raised by Revenue is dismissed.
10. In the result, the appeal of the Revenue is dismissed.
Order pronounced on 20 September, 2021 by placing the result on the notice board.
Author Bio
