TMI Blog2013 (2) TMI 829X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the circumstances, the ld. CIT(A) has further erred in deleting the disallowance of deduction u/s 80IC to the extent of ₹ 1,60,030/- made by the Assessing Officer on account of interest on unsecured loans. 3 Ground No. 1 After considering the rival submissions we find that during assessment proceedings the Assessing Officer noticed that the assessee has not charged interest on the capital contribution made by the partners. In response to the query it was stated that clause relevant for charting of interest under partnership deed has been amended from 1.4.2007 and the amended clause provides that the partners may charge interest at the rate not exceeding 12% pa or as the partners may decide from time to time on their capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: - 7. We have considered the rival submissions carefully. With regard to the dispute in hand, the case made out by the Revenue is on the strength of Section 80IA(10) which we reproduce herein after : 80IA(10) - Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other person. The second is that there must be an arrangement whereby the business transacted between them produces to the assessee more than the ordinary profits. In the present case, the charge of Assessing Officer is that the assessee has not debited any expenditure on remuneration to its partners and interest on partners capital contribution and therefore, such arrangement between the assessee and its partners have resulted in more than ordinary profits to the assessee. In so far as the first condition is concerned, regarding close connection ostensibly, the same stands fulfilled as the assessee and its partners can be said to have a close connection. The moot question is as to whether there can be said to be an arrangement of transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement not to obtain such payments from the firm. Thus, the conduct of the partners show that they have not acted upon the clause of the Deed which otherwise authorizes them to take remuneration and interest on their capital contribution. Having factually observed that there was no such payments made and neither was there any liability for such amounts, in our view the Assessing Officer was not empowered to reduce the profits on this score for the purpose of Section 80IA(10) of the Act. 8. In view of the aforesaid discussion, we find that the Assessing Officer not only wrongly invoked the provisions of Section 80IA(10) but also erred in interpreting the Partnership Deed so as to hold the assessee liable for reducing its profits on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. The assessee did not furnish any explanation, therefore, it was concluded that the assessee has inflated the profits for taking deduction u/s 80IC and a sum of ₹ 1,60,030/- was disallowed out of interest. 10. Before the ld. CIT(A), it was mainly stated that it was not mandatory under the law that the assessee should pay interest to every party and reliance was placed on the decision of the Tribunal in assessee s own case in ITA No. 345/Chd/2011. 11. Both the parties made similar arguments as made in respect of ground No. 1, therefore, we are of the opinion that it is not necessary for the assessee to pay interest on every unsecured loans and it depend on the arrangement between the parties, therefore, the ratio o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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