TMI Blog2013 (9) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent : P.M. Maharishi. ORDER:- PER : D.K. Srivastava Appeal bearing ITA No. 357/Rjt/2012 and ITA No. 358/Rjt.//2012 filed by the Revenue are directed against two separate orders passed by the CIT(A), Jamnagar on 13.03.2012 for Assessment Year 2006-07 and 2009-10 respectively. Grounds of appeal in both the appeals are identically worded except for the difference in figures. Both the parties fairly submitted at the time of hearing that the issues in both the appeals are common and therefore a consolidated order may be passed to dispose of both the appeals. Both the appeals are therefore being disposed of by a consolidated order. 2. In ITA No.357/Rjt/2012 for assessment year 2006-07, the Revenue has taken the following grounds of appeal: "1. The CIT (A) has erred in law and on facts in deleting the addition of Rs. 11,36,461/- by charging interest on partners capital and addition of Rs. 30,61,317/- towards remuneration to the partners. 2. The CIT (A) has erred in law and on facts in directing to allow the total deduction u/s. 10B of the Act at Rs. 36,02,046/- as against the allowable deduction worked out by the Assessing Officer at Rs. 18,52,845/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om records relating to assessment year 2006-07. Perusal of the assessment order shows that the assessee is a partnership firm. It claims to be a 100% Export-Oriented Undertaking and therefore entitled to exemption from tax in respect of profits and gains derived from the export of articles or things or computer software. The assessee is engaged in the business of manufacture and export of brass items. The assessee filed its return of income for Assessment Year 2006-07 on 31.12.2006 returning total income at Rs. 28,91,892/- after claiming exemption for a sum of Rs. 36,02,046/- u/s 10B of the Income-tax Act. Order of assessment was passed u/s 143(3) on 30.12.2008 assessing total income of the assessee for the Assessment Year 2006-07 at Rs. 50,56,540/-. The assessment records were called for and examined by the ld. Commissioner of Income-tax u/s 263 of the Income-tax Act pursuant to which a revision order was passed by him on 28.03.2011 by which the order of assessment passed by the Assessing Officer on 30.12.2008 for the Assessment year 2006-07 was set aside with the following observations: "4. I have carefully considered the submission made by as the assessee but the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s against which total income of the assessee has been assessed at Rs. 54,78,060/- in the order of assessment passed u/s 143(3) of the Income-tax Act on 16.12.2011 after excluding the interest and remuneration payable to the partners u/s 40(b) of the Income-tax Act from the profits of the business eligible for exemption u/s 10B. 7. The aforesaid action of the Assessing Officer was challenged by the assessee before the ld. CIT(A). Though the ld CIT(A) has passed orders for both the assessment years separately on 13.03.2012, the operative portion of his order is not only identically worded but also carry the same paragraph numbers. Paragraph 6 and 6.1 in the appellate orders passed by the ld. CIT(A) for both the assessment years read as under: "6. I have carefully considered the submission made by the appellant and the discussion made by the AO in the assessment order. The basic argument of the appellant is that it is not mandatory to allocate interest on partners' capital and remuneration to partner u/s. 40(b) merely on the fact that the partnership deed contained provisions of interest and remuneration. The payment of interest and remuneration to the partners is governed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for both the years under appeal. He submitted that the issue under appeal was covered by the order passed by this Tribunal on 24.01.2013 in ITO v. Devine Impex IT Appeal No. 279/Rjt/2012. 9. In reply, the ld Authorized Representative for the assessee supported the order passed by the ld CIT(A). He invited our attention to the partnership deed dated 28.11.2002 which was executed between four existing partners and two retiring partners. Referring to clauses 16 and 17 of the aforesaid partnership deed dated 28.11.2002, he submitted that interest on capital and remuneration was required to be paid to the partners in conformity with section 40(b) of the Income-tax Act. He further submitted that another partnership deed was executed on 14.09.2005 between two existing partners, namely, (1) Shri Vallabhbhai Shamjibhai Shiyani and (2) Shri Bharatkumar Gopaldas Faldu and two retiring partners, namely, (1) Shri Karsanbhai Shamjibhai Shiyani and (2) Shri Vallabhbhai Shamjibhai Shiyani. Inviting our attention to clauses 16 and 17 of the said partnership deed dated 14.09.2005, he submitted that interest on capital and remuneration was required to be paid to the partners in conformity with se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital and remuneration to partners is eligible for deduction u/s 37 of the Income-tax Act subject to the restrictions placed by section 40(b) of the Income-tax Act. According to section 37, any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "profits and gains of business or profession". Section 40(b) however places certain restrictions on the deductibility of amount of interest and remuneration payable to partners. The relevant clauses in the copies of partnership deeds filed before us do not violate the prescription of section 40(b) of the Income-tax Act. Therefore interest on capital and remuneration payable to partners are admissible for deduction u/s 37 and is therefore required to be taken into account for computing the profits eligible for exemption u/s 10B of the Income-tax Act. 13. Perusal of the partnership deed dated 28.11.2002 requires payment of interest on capital and remuneration to partner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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