TMI Blog2019 (2) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Appellant : Shri S. K. Dev, Sr. D. R. For the Respondent : Shri D. K. Parikh, A. R. ORDER PER Ms. MADHUMITA ROY - JM: The instant appeal filed by the revenue is against the order dated 30.11.2015 passed by the Commissioner of Income Tax (Appeals)-1, Vadodara arising out of the assessment order dated 13.03.2015 issued by the ACIT, Kheda Circle, Nadiad passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to The Act ) for the Assessment Year 2012-13 with the following grounds: 1. Whether on the facts and circumstances of the case and in law the Ld. C.I.T. (A) was justified in directing the A.O. to consider these incomes for the purpose of computation of book profit, without appreciating that A.O. correctly worked out disallowance of remuneration to partners after recomputing book profit on the basis of adjusted net profit and loss representing profit and gains of business/profession, in accordance with the provision of explanation 3 below section 40(b)(v) of the Act 2. Whether on the facts and circumstances of the case and in law justified in directing the A.O. to consider these incomes for the purpose of computation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to justify its claim for computation of remuneration to partners u/s 40(b)(v) of the Act. The assessee submitted that book profit means the net profit, as shown in the profit and loss account of the relevant previous year, computed in the manner laid down in Chapter-IV and as increased by aggregate amount of remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing net profit. Therefore, the book profit is computed on the basis of the net profit as per profit and loss account and such net profit being the basis of computing book profit, amount of income including interest income which is credited in the profit and loss account cannot be reduced from net profit as no such reduction is provided in the provisions under Explanation: 3 to Section 40(b)(v). Further that, the firm has deposited Bank FDR with various banks for export business and to avail various credit limits with banks. Copy of ledger account of interest account were also furnished by the assessee. It was contended by the assessee that without fulfilling this conditions, business cannot be run and export will not be eligible. Therefore, there are direct nexus of Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at ₹ 3,97,02,742/- as against claim of ₹ 5,31,01,895/-. Accordingly, excess remuneration of ₹ 1,33,99,153/- was disallowed. 3.1.2. During the course of appellate proceedings, the appellant's AR has filed detailed submission in this regard. He has placed reliance upon the decision of ITAT, Ahmedabad Bench in the case of Akshar Associates Vs. ACIT ITA No.2583/Ahd/2011. This decision of the jurisdictional Tribunal is based upon the decision of Hon'ble High Court of Gujarat in the case of CIT Vs. J.J. Industries 358 ITR 531 Gujarat. In this decision, the High Court had held that interest from fixed deposit of spare fund cannot be excluded from book profit for purpose of determining allowable deduction of remuneration paid to partners. Thus, the jurisdictional High Court had clearly held that interest earned from FDR made out of surplus fund available with the assessee is also be considered as part of the book profit for the purposes of computation of remuneration to be paid to partners. Thus, the issue in the current appeal is covered in favour of the appellant by this decision of jurisdictional High court. Following the same, the AO is directed to cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deductible. Relevant portion of Section 40 reads as under: Notwithstanding anything to the contrary in [sections 30 to 38], the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession ,- (a) in the case of any assessee- (b) in the case of any firm assessable as such,- (i) any payment of salary, bonus, commission or remuneration, by whatever name called (hereinafter referred to as remuneration ) to any partner who is not a working partner; or (ii) any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is not authorized by, or is not in accordance with, the terms of the partnership deed; or (iii) any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is authorized by, and is in accordance with, the terms of the partnership deed, but which relates to any period (falling prior to the date of such partnership deed) for which such payment was not authorized by, or is not in accordance with, any earlier partnership deed, so, however, that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able deduction of remuneration paid to the partners under Section 40B of the Act 8. Counsel for the revenue vehemently contended that for the purpose of ascertaining the limit, only business income would be relevant and not any other income. In the present case, however, we need not enter into such controversy. The assessee had held out that it is in the business of purchasing raw cotton and ginning the same. It is a seasonal business. The interest income was generated out of spare funds invested in the fixed deposit Such income was declared as part of the business income and that is how even the Assessing Officer had accepted the same. That being the position, and the Assessing Officer in the assessment taxed such income as business income, we do not see any question of law arising. 7. We see no reasons to take any other view of the matter than the view so taken by the Hon'ble jurisdictional High Court. 8. Respectfully following the esteemed views of Their Lordships, we uphold the grievance of the assessee. The disallowance of ₹ 7,03,921/- thus stands deleted. 6. We, therefore, find no infirmity in the order passed by the Learned CIT(A) taking i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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