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TMI Blog2019 (6) TMI 1303X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction claimed under Section 10AA of the Act amounting to Rs. 2,95,33,190=00 on the premise that the assessee firm had taken undue benefit of Section 10AA of the Act by not claiming interest on the capital and remuneration to partners which resulted into increase in the exempt profit. 4. Being aggrieved and dissatisfied with the order passed by the Assessing Officer, the assessee preferred an appeal before the CIT(A), Surat. The assessee raised the following grounds before the CIT(A) while questioning the legality and validity of the order passed under Section 143(3) of the Act : "(i) On the facts and in the circumstances of the case and in law, the ld. AO has erred passing the order by holding that the interest and remuneration to partners are allowable though not provided in the partnership deed of the appellant firm for the purpose of computing the income from eligible business which is exempt u/s 10AA of the IT Act. Therefore, the order so passed by the AO being bad in law may kindly be quashed. (ii) On the facts and in the circumstances of the case and in law, the ld. AO has erred in working interest to partner Rs. 1,10,77,894=00 and remuneration to partner Rs. 1,84, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to partners. The AO relying on the judgment in the case of Meridian Impex 37 taxmann.com 22(2013) by ITAT Rajkot Branch, held that interest and remuneration to partners are allowable though it has not been claimed in the partnership deed. The AO held that non charging of the interest on the invested capital and no remunerations for the working partners has been done to enhance the profit of the appellant concern which is exempt from taxation and reduce the taxable income of the individual partners to same extent. The AO held that the partnership deed itself is a vehicle of collusive tax avoiding action and relying on the Meridian Impex (supra) calculated the payment of interest and remuneration to partners and the amount of Rs. 2,95,33,190/- was excluded from the deduction u/s 10AA of the Act. The AO had restricted the claim of deduction u/s 10AA to the tune of Rs. 1,21,53,533/- as against the total claim of deduction of Rs. 4,16,86,723/- on account of interest to partners and partners remuneration. The appellant submitted that the AO's finding is incorrect as it was clearly mentions in the partnership deal that no partner is eligible for interest on capital as well as remune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orts verses ITO, Ward-2(4), Bhavnagar. In a recent decision of the Hon, Gujarat High Court in the case of Alidhara Taxspin Engineers, Tax Appeal No. 265 of 2017 dated 02.05.2017 held that mere incorporation of interest on partners capital account and remuneration does not signify that the same are mandatory in nature. These decisions of the jurisdictional High Court and ITAT Bench Ahmedabad are squarely applicable in this case of the appellant. The appellant has not charged any interest and remunerations as per the Partnership Deed and therefore, the appellant cannot be compelled to charge interest or remuneration. In view of the above facts, the disallowance made by the AO on account of non-provision of interest and remuneration of 10AA deduction is erroneous and incorrect in law and facts. The partnership deed clearly lays down that no interest and remuneration is payable and therefore the addition made by the AO is deleted and the grounds of appeal is allowed." 6. The Revenue, being dissatisfied with the order passed by the CIT(A), preferred appeal before the Appellate Tribunal, Surat Bench at Surat. 7. The Revenue raised the following grounds before the Appellate Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the Revenue in the present case having distinct and dissimilar facts and circumstances. 7. Further, from the binding decision of the Hon'ble High court of Gujarat in the case of Alidhara Taxspin Engineers (supra), wherein their lordship speaking for the Jurisdictional High Court clearly held that mere incorporation of interest on partners capital account and remuneration does not signify that the same are mandatory in nature. As we have noted above, in the present case the appellant has not charged any interest and remuneration asper partnership deed therefore, the appellant firm cannot be compelled to charge interest or remuneration. Therefore, we are inclined to hold the ld. CIT(A) was right in observing that the disallowance made by the AO on account of non provision of interest and remuneration of s.10AA of the Act deduction is erroneous and incorrect and law and facts as in the peculiar facts of the present case the partnership deed clearly lays down that no interest and remuneration is payable and hence, the first appellate authority right in deleting the disallowance made by the AO on account of non provision of interest and remuneration from amount of deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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