2025 (6) TMI 1548 - AT - Income Tax

Denial of exemption u/s 10(2A) - share of profit received from partnership firm - CIT(A) has denied the exemption stating that a LLP cannot become a partner in partnership firm - HELD THAT - Assessee a LLP has been allowed to become a partner in a partnership firm by the Registrar of firm who has registered the partnership firm. It is not in dispute that M/s. Kothari Autolines is a partnership firm and has duly offered its income to tax and after duly paying the tax it has distributed the profits among its partners. The assessee which is a LLP is appearing as partner in the registered Partnership Deed of M/s. Kothari Autolines and as per the Partnership Deed the assessee has received its share. No reason why the assessee should be denied the benefit of exemption u/s 10(2A) when the income has already suffered tax in the hands of the partnership firm M/s. Kothari Autolines and only the share of profits after paying due tax has been distributed to its partners. Therefore set-aside the findings of CIT(A) and allow the claim of exemption u/s 10(2A). Effective grounds of appeal raised by the assessee are allowed.

Summary

The Appellate Tribunal (ITAT Pune), per Manish Borad, Accountant Member, allowed the assessee's appeal against the denial of exemption under section 10(2A) of the Income Tax Act for the share of profit (Rs. 2,42,710) received from the partnership firm M/s. Kothari Autolines for A.Y. 2020-21. The issue arose as the CPC and Ld. CIT(A) disallowed the exemption on the ground that a Limited Liability Partnership (LLP) cannot be a partner in a partnership firm. However, the Tribunal noted that the LLP was duly registered as a partner by the Registrar of Firms and that the partnership firm had already paid tax on its income before distributing profits. The Tribunal emphasized that "the income has already suffered tax in the hands of the partnership firm" and found no reason to deny exemption to the LLP partner. Relying on these facts and the decision in Mulberry Textiles LLP vs. ITO [2023] 147 taxmann.com 267, the Tribunal set aside the CIT(A)'s order and allowed the exemption claim under section 10(2A). The appeal was accordingly allowed.