Appeal details
Counselvise Citation
[2017] 128 COUNSELVISE.COM (IT) 5111 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
7 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-06-2017
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
Not Allotted
Next Hearing Date
27-02-2017
Assessment Year
2011-2012
Appeal Filed On
11-11-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.1169/CHD/2016 (ASSESSMENT YEAR : 2011-12) M/S ASA BIOTECH, VS. THE I.T.O., PLOT NO.124, HPSIDC INDL. AREA, WARD 1, BADDI DISTT. SOLAN (HP). SOLAN. PAN: AAMFA3779Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY JAIN RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 21.03.2017 DATE OF PRONOUNCEMENT : 12.06.2017 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINS T THE ORDER OF CIT(APPEALS), SHIMLA DATED 27.09.2016 RELATING TO ASSESSMENT YEAR 2011-12. 2. GROUND NO.1 RAISED THE ASSESSEE READS AS UNDER: 1. THAT THE ID COMMISSIONER OF INCOME TAX (APPEAL) HAS WRONGLY UPHELD THE JURISDICTION OF ITO WARD-1 SOLAN & SUSTAINED THE ORDER OF ORDER PASSED BY ITO WARD1 SOLAN WITHOUT APPRECIATING THE FACT THAT THE CASE HA S BEEN TRANSFERRED DURING THE COURSE OF ASSESSMENT PROCEEDINGS FROM ITO WARD BADDI TO ITO WARD1 SOLAN WITHOUT ANY LEGAL ORDER PASSED BY COMMISSIONER OF INCOME TAX SHIMLA UNDER SECTION 127 OF INCOME TAX . THE ID CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT ITO WARD BADDI HAS THE VALID AND LEGAL JURISDICTION OVER THE APPELLANT AND THE ASSESSING OFFICER I.E. ITO WARD-1, SOLAN WHO HAS FRAMED ASSESSMENT HAS NO JURISDICTION 2 TO ASSESSEE THE CASE OF APPELLANT & ORDER PASSED BY ITO WARD 1 SOLAN IS BAD & BEYOND THE JURISDICTION A ND DESERVES TO QUASHED. 3. THE SAID GROUND WAS NOT PRESSED BEFORE US AT TH E TIME OF HEARING BY THE LD. COUNSEL FOR ASSESSEE AND THE SAME, THEREFORE, IS TREATED AS DISMISSED. 4. GROUND NO.2 RAISED BY THE ASSESSEE READS AS UNDER: 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BY NOT ALLOWING DEDUCTION @ 100% OF PROFIT DERIVED FROM MANUFACTURING ACTIVITIES OF UNIT DESPITE OF FACT THAT THE ASSESSEE HAS UNDERTAKEN SUBSTANTIAL E XPANSION DURING THE YEAR UNDER CONSIDERATION. FURTHER THE LD ASSESSING OFFICER HAS WRONGLY DISALLOWED DEDUCTION AMOUNTING T O RS.6034922/- U/S 80IC OF INCOME TAX ACT. 5. THE ASSESSEE IN THE AFORESAID GROUND HAS CHALLENGED THE RESTRICTION OF DEDUCTION CLAIMED U/S 80IC @ 100% ON ACCOUNT OF SUBSTANTIAL EXPANSION UNDERTAKEN , TO 25% OF THE ELIGIBLE PROFITS, RESULTING IN DISALLOWA NCE OF DEDUCTION CLAIMED TO THE EXTENT OF RS.60,34,922/-. 6. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IC OF THE INCO ME TAX ACT, 1961 (IN SHORT THE ACT) AT RS.80,46,562/- I.E. @ 100% OF PROFIT OF THE CURRENT YEAR. THE ASSESSEE HAD COM MENCED COMMERCIAL PRODUCTION ON 13.8.2005 AND THE CURRENT ASSESSMENT YEAR IS THE 6 TH YEAR OF COMMENCEMENT OF PRODUCTION. THE ASSESSEE HAS BEEN CLAIMING DEDUCTIO N U/S 80IC OF THE ACT SINCE ASSESSMENT YEAR 2006-07. THI S IS THE 3 6 TH YEAR OF PRODUCTION OF THE FIRM. DURING THE YEAR T HE ASSESSEE MADE INVESTMENT AND UNDERTOOK SUBSTANTIAL EXPANSION BY WAY OF ADDITION TO THE PLANT AND MACHI NERY. ON ACCOUNT OF THE SAME THE ASSESSE AGAIN CLAIMED DEDUC TION U/S 80IC OF THE ACT @ 100%, RECKONING THE ASSESSMEN T YEAR 2011-12 AS THE INITIAL ASSESSMENT YEAR. DURING TH E ASSESSMENT PROCEEDINGS THE ASSESSEE WAS CALLED UPON TO SHOW CAUSE AS TO WHY THE CLAIM OF DEDUCTION U/S 80I C SHOULD NOT BE RESTRICTED TO 25% SINCE IT WAS THE 6 TH YEAR OF PRODUCTION. THE ASSESSEE SUBMITTED DETAILED REPLY WHICH HAS BEEN REPRODUCED IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTI ONS AND HELD THAT THE PROVISIONS OF SECTION 80IC OF THE ACT ARE VERY CLEAR AND THERE EXISTS NO AMBIGUITY OF ANY KIND AS REGARDS THE QUANTITY OF DEDUCTION AND PERIOD FOR WHICH IT I S AVAILABLE AS PER WHICH AFTER A PERIOD OF FIVE YEARS, THE ASSE SSEE IS ENTITLED TO DEDUCTION U/S 80IC ONLY @ 25%. THE ASS ESSING OFFICER, THEREFORE, RESTRICTED THE DEDUCTION CLAIME D BY THE ASSESSEE TO 25% OF THE ELIGIBLE PROFITS AND ADDED B ACK THE EXCESS DEDUCTION CLAIMED, AMOUNTING TO RS.60,34,922 /-, TO THE INCOME OF THE ASSESSEE. 7. THE MATTER WAS CARRIED IN APPEAL TO THE CIT(APPEALS) WHO UPHELD THE DISALLOWANCE MADE FOLLO WING THE ORDER OF THE I.T.A.T. IN THE CASE OF ITA NO. 798/CHD/2012 IN THE CASE OF M/S HYCRON ELECTRONICS VS. ITO AND O THER RELATED CASES. 4 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE FAI RLY ADMITTED THAT THE ISSUE WAS COVERED AGAINST IT BY V IRTUE OF THE DECISION OF THE I.T.A.T. IN M/S HYCRON ELECTRON ICS (SUPRA). 9. THE LD. DR, ON THE OTHER HAND RELIED UPON THE ORDER OF THE CIT(APPEALS). 10. HAVING HEARD THE CONTENTIONS OF BOTH THE PARTI ES, WE FIND NO REASON TO INTERFERE IN THE ORDER OF THE CIT(A) ON THIS ISSUE. UNDISPUTEDLY, IDENTICAL ISSUE HAS BEEN ADJUDICATED UPON BY THE I.T.A.T. IN THE CASE OF M/S HYCRON ELECTRONICS (SUPRA) WHEREIN IT HAS BEEN CATEGORICAL LY HELD THAT THE NEW UNITS, WHICH HAVE COME INTO EXISTENCE AFTER THE PROVISIONS OF SECTION 80IC WERE BROUGHT ON STATUTE , WILL NOT BE ENTITLED TO CLAIM DEDUCTION @ 100% ON ACCOUNT OF SUBSTANTIAL EXPANSION UNDERTAKEN BY THEM AND IN ANY CASE THERE CAN BE ONLY ONE INITIAL ASSESSMENT YEAR FOR T HE PURPOSE OF CLAIMING 100% DEDUCTION UNDER THE SAID SECTION A ND FURTHER THAT A UNIT SET UP IN HIMACHAL PRADESH IS E NTITLED TO DEDUCTION @ 100% ONLY FOR THE PERIOD OF FIRST FIVE YEARS AFTER COMMENCEMENT OF PRODUCTION AND THEREAFTER @ 25% OR 30% ONLY. SINCE THE FACTS IN THE PRESENT CASE DEMONSTR ATE THAT THE ELIGIBLE UNDERTAKING OF THE ASSESSEE CAME INTO EXISTENCE AFTER THE PROVISION OF SECTION 80IC WAS BROUGHT ON THE STATUTE AND THAT THE ASSESSEE HAD ALREADY CLAIMED D EDUCTION OF 100% OF PROFIT FOR THE FIRST FIVE YEARS SINCE CO MMENCEMENT OF COMMERCIAL PRODUCTION, THE LD.CIT(APPEALS), WE FIND, HAS RIGHTLY RESTRICTED THE CLAIM OF DEDUCTION U/S 80IC TO 25% OF 5 ITS PROFITS FOR THE IMPUGNED YEAR, BEING 6 TH YEAR SINCE THE COMMENCEMENT OF PRODUCTION, AS PER THE RATIO LAID D OWN BY THE I.T.A.T. IN THE CASE OF M/S HYCRON ELECTRONICS (SUPRA). IN VIEW OF THE ABOVE, WE UPHOLD THE DISALLOWANCE OF EXCESS DEDUCTION AMOUNTING TO RS.60,34,922/- U/S 80IC OF T HE ACT CLAIMED BY THE ASSESSEE AND DISMISS THE GROUND OF A PPEAL NO.2 RAISED BY THE ASSESSEE. 11. GROUND OF APPEAL NOS.3, 4 AND 5 RAISED BY THE ASSESSEE ARE INTERLINKED AND READ AS UNDER: 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS WRONGLY UPHELD PROVISIONAL ADDITION OF RS. 6358197/ - ON ACCOUNT OF SALARY TO PARTNERS & INTEREST ON PARTNER S CAPITAL WITHOUT APPRECIATING THE AMENDMENT IN PARTNERSHIP DE ED ON 08-02-2010 WHICH DELETED THE CLAUSE NO 11& 12 OF PARTNERSHIP DEED DATED 21-12-2009 & AMENDMENT DEED HAS BEEN DULY SUBMITTED/ FILED DURING THE COURSE OF ASSESSMENT & APPELLATE PROCEEDINGS. 4. WITHOUT PREJUDICE TO GROUND NO 3 THE LD CIT(A) HAS WRONGLY INTERPRETED THE CLAUSE 11 & 12 IN PARTNERSHI P DEED DATED 21-12-2009 WITH EFFECT FROM 19-01-2005 & FAILE D TO APPRECIATE THE FACT THAT CLAUSE NO 11& 12 OF PARTNE RSHIP DEED DATED 21-12-2009 ONLY AUTHORIZES THE PARTNERS FOR INTEREST & SALARY MUTUALLY AGREE FROM TIME TO TIME & NO QUANTUM OF SALARY TO WORKING PARTNERS & INTEREST ON PARTNERS CAPITAL HAS BEEN SPECIFIED & ALSO FAILED TO APPRECIATE THE FACT THAT THE FIRM HAS NOT PAID/CREDITED ANY INTERES T ON CAPITAL & SALARY TO WORKING PARTNERS. 5. WITHOUT PREJUDICE TO GROUND NO 3 & 4 THAT THE LD CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT NO ADDITION C AN BE MADE IN THE HANDS OF FIRM ON ACCOUNT OF PARTNERS SAL ARY & INTEREST ON CAPITAL. THE ID CIT(A) HAS ALSO WRONGLY PL ACED RELIANCE ON CHANDIGARH I.T.A.T. BENCH DECISION IN C ASE OF 6 SHIVAM INDUSTRIES ITA NO NO 510/CHD/2012 AS THE FACTS OF THIS CASE ARE TOTALLY DIFFERENT FROM APPELLANT CASE. 12. THE ABOVE GROUNDS CHALLENGE THE CHARGING OF INTEREST AND SALARY OF PARTNERS TO THE PROFIT AND L OSS ACCOUNT OF THE ASSESSEE FIRM, THE CONSEQUENT REDUCTION IN E LIGIBLE PROFITS AND THUS CLAIM OF DEDUCTION OF PROFITS U/S 80IC AND THE CHARGING OF SUCH INTEREST AND REMUNERATION TO T AX IN THE HANDS OF THE ASSESSEE FIRM PROVISIONALLY. 13. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT DU RING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER FOU ND THAT NO SALARY AND INTEREST PAID TO THE PARTNERS HAD BEEN D EBITED TO THE PROFIT AND LOSS ACCOUNT DESPITE CLAUSE 11 & 12 OF THE PARTNERSHIP DEED DATED 21.12.2009 WHICH STATED AS UNDER: CLAUSE NO.11 THAT EACH PARTY TO THIS DEED SHALL BE ENTITLED FOR INTEREST ON THEIR RESPECTIVE CAPITALS AT THE RATE PRESCRIBED UNDER THE I.T. ACT OR ANY OTHER ENACTMENT IN S UCCESSION THEREOF AND ALL THE PARTNERS WILL BE WORKING PARTNERS AND THEY SHALL PERFORM SUCH DUTY FROM TIME TO TIME AS THEY MUTUALLY AGREE. CLAUSE NO. 12 THAT THE WORKING PARTNER SHALL BE ENTITLED FOR THE REMUNERATION TO BE MUTUALLY AGREED BY THEM FOR EA CH YEAR WHICH SHALL BE SUBJECT TO THE CEILING PRESCRIBED UNDER THE I.T. ACT, 1961 OR ANY OTHER ENACTMENT IN SUCCESSIO N THEREOF.' 14. WHEN CONFRONTED WITH THE SAME THE ASSESSEE SUBMITTED THAT THE PARTNERSHIP DEED REFERRED TO HAD BEEN AMENDED BY PARTNERSHIP DEED DATED 08.02.2010, WHERE BY THE AFOREMENTIONED ENABLING CLAUSES WERE DELETED. THE A SSESSING OFFICER DID NOT GIVE CREDENCE TO THIS AMENDED PARTN ERSHIP DEED, DOUBTING ITS GENUINENESS, AND PROCEEDED ON TH E BASIS OF THE CLAUSE NO. 11 & 12 OF THE PARTNERSHIP DEED DATED 7 21.12.2009 REFERRED ABOVE. THE ASSESSING OFFICER RE JECTED THE EXPLANATION OF THE ASSESSEE BY OBSERVING AS UND ER: THE EXPLANATION GIVEN BY COUNSEL OF ASSESSEE AND C OPY OF ADDENDUM TO PARTNERSHIP DEED HAS BEEN CAREFULLY CONSI DERED WITH REFERENCE TO FACTS OF THE CASE. THE PARTNERSHIP DEED DATED 21.12.2009 IS A REGISTERED DOCUMENTS WITH THE SUB - REGISTRAR, BADDI ON THE SAME DAY I.E. 21.12.2009. ANY AMENDMENT TO A REGISTERED DOCUMENTS I.E. PARTNERSHIP DEED, IT IS MANDATORY TO GET THE ADDENDUM ALSO REGISTERED WITH THE COMPETENT AUTHORITY I.E. SUB-REGISTRAR. WHEREAS, THE SO-CA LLED ADDENDUM TO PARTNERSHIP DEED IS A NOT REGISTERED DO CUMENTS. FURTHERMORE WHEN A NON-JUDICIAL PAPER IS PURCHASED FR OM THE STAMP VENDER, ON THE REVERSE OF IT THE STAMP VENDER MENTIONS THE PURPOSE FOR WHICH NON JUDICIAL PAPER IS PURCHASE D BY THE VENDEE. THE ADDENDUM TO PARTNERSHIP DEED REDUCED TO WRITING ON NON JUDICIAL PAPER IN SR. NO. 03AA 327609 , THE PURPOSE FOR WHICH IT IS PURCHASED, IS NOT MENTIONED. T HE PURPOSE OF PURCHASE OF NON JUDICIAL PAPER IS NOT CLEA R. IT APPEARS THAT THE NON JUDICIAL PAPER, IN QUESTION IS S OLD BY STAMP VENDER AS AN ATTACHMENT TO SR. NO. 25261 DATED 08.02.2010. THE GENUINENESS OF THE ADDENDUM TO PARTNER SHIP DEED IS DOUBTFUL DUE TO THE REASONS STATED ABOVE AND CANNOT BE ACCEPTED. IT APPEARS THAT ADDENDUM TO PAR TNERSHIP DEED IS AN AFTERTHOUGHT COVER-UP, WHEN THE ASSESSEE IS CONFRONTED WITH THE FACT THAT SALARY AND INTEREST HAS NOT BEEN PAID TO THE WORKING PARTNERS, AND HAS NO LEGAL JUSTIFI CATION AND THEREFORE CANNOT BE ACCEPTED. 15. THE ASSESSING OFFICER FURTHER INVOKED SECTION 80IA (10) AND HELD THAT THE ASSESSEE FIRM BY NOT DEBITI NG INTEREST AND REMUNERATION TO PARTNERS, HAD MANAGED ITS AFFAI RS IN SUCH A MANNER THAT MORE TAX FREE INCOME HAD ACCRUED TO THE FIRM, RESULTANTLY INCREASING THE DEDUCTION U/S 80IC AND REDUCING THE INCOME OF THE PARTNERS. THE ASSESSING OFFICER COMPUTED THE TOTAL INTEREST AND SALARY, AS PER PROV ISION OF SECTION 40(B) TOTALING AT RS.6358197/-. AND THER EAFTER PROCEEDED TO MAKE ADDITION OF THE SAME BY HOLDING AS UNDER: ACCORDINGLY A SUM OF RS.63,58,197/- IS REDUCED FROM T HE ELIGIBLE NET PROFIT AND GAINS ENTITLED FOR DEDUCTION U /S 80IC AND BROUGHT TO TAX. THE AMOUNT OF SALARY AND INTERES T IS CHARGEABLE IN THE HANDS OF PARTNERS. HOWEVER, IT IS N OT 8 ASCERTAINABLE AS TO WHETHER PARTNERS HAVE FILED THE IR RETURNS OF INCOME OR NOT, THEREFORE, ABOVE DISALLOWANCE OF RS.6 3,58,197/- IS BROUGHT TO TAX IN THE HANDS OF THE FIRM (PROVISIONAL LY). 16. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD.CIT(APPEALS) WHERE THE ASSESSEE CONTENDED THAT I N VIEW OF THE AMENDED PARTNERSHIP DEED NO SALARY AND INTEREST WAS PAYABLE TO THE PARTNERS AND, THEREFORE, THE ASSESSE E HAD RIGHTLY NOT CLAIMED THE SAME AS DEDUCTION IN ITS PR OFIT & LOSS ACCOUNT. THE LD. COUNSEL FOR ASSESSEE SUBMITT ED THAT REGISTERING THE PARTNERSHIP DEED IS NOT ESSENTIAL A ND, THEREFORE, THE ADDENDUM TO THE PARTNERSHIP DEED CAN NOT BE OVERLOOKED MERELY FOR THE REASON THAT THE SAME WAS NOT REGISTERED. IT WAS ALSO SUBMITTED THAT THE INCOME OF THE FIRM HAD ALSO TO BE REDUCED IF SALARY AND INTEREST IS AL LOWED TO THE FIRMS PARTNERS AND FURTHER THE ASSESSEE CONTEN DED THAT IN ANY CIRCUMSTANCES ADDITION CANNOT BE MADE IN THE HANDS OF THE FIRM. THE LD.CIT(APPEALS) REJECTED ASSESSEE S CONTENTIONS AND HELD THAT THE AMENDED PARTNERSHIP D EED COULD NOT BE RELIED UPON AND AS PER THE EFFECTIVE P ARTNERSHIP DEED THE ASSESSEE WAS REQUIRED TO DEBIT REMUNERATIO N AND SALARY PAID TO PARTNERS. THE LD CIT(A) HELD THAT T HE PROFITS ELIGIBLE FOR DEDUCTION U/S 80 IC WERE TO BE CALCULA TED AS PER THE PROVISIONS OF LAW, WHICH IN THE PRESENT CASE RE QUIRED DEDUCTION OF REMUNERATION AND SALARY FOR ARRIVING A T THE SAME. THUS, THE LD.CIT(A) HELD THAT THE PROFITS ELI GIBLE FOR DEDUCTION U/S 80IC WERE TO BE REDUCED BY THE AMOUNT OF REMUNERATION AND INTEREST PAYABLE TO PARTNERS AND R ELIED UPON THE DECISION OF THE ITAT CHANDIGARH BENCH IN T HE CASE OF ITO VS M/S GNG ENTERPRISES IN ITA NO.606/CHD/201 3 9 DATED 11.11.2014 IN THIS REGARD. THE RELEVANT FINDI NGS OF THE LD.CIT(A) AT PARA 5.3.1 & 5.3.2 ARE AS UNDER: 5.3.1 .. THE OBSERVATIONS OF THE A.O. ARE ALSO RELEVANT. THE APPELLANT CLAIMS TO HAVE AMENDED CLAUSE 11 & 12 OF THE PARTNERSHIP DEED AND HAS ARGUED THAT SALARY AND INTE REST ELIGIBLE FOR PAYMENTS TO PARTNERS TILL 08.02.2010 W AS NO LONGER DUE IN THE YEAR UNDER CONSIDERATION. NO EVIDENCE HAS BEEN BROUGHT ON RECORD TO SHOW THAT INTEREST OR SALARY W AS BEING PAID IN VIEW OF THE PARTNERSHIP DEED DATED 21.12.2009 WH ICH WAS DISCONTINUED AFTER THE NEW PARTNERSHIP DEED CLAUSES C OMING INTO EFFECT. THIS LEADS TO THE INDISPUTABLE INFERENCE TH AT THE FINDINGS OF THE A.O. ARE CORRECT AND THE DOCUMENT TO SUBSTANTI ATE AMENDED PARTNERSHIP DEED CANNOT BE RELIED ON. 5.3.2 THUS THE PARTNERSHIP DEED DATED 21.12.2009 WA S EFFECTIVE DURING THE YEAR UNDER CONSIDERATION. ACC ORDINGLY, THE PARTNERSHIP FIRM WAS REQUIRED TO DEBIT ITS ACCO UNT WITH SALARY AND INTEREST PAID TO THE PARTNERS. A SIMIL AR ISSUE WAS DECIDED BY THE JURISDICTIONAL ITAT IN ITA NO. 510/CHD/2012 ASSESSMENT YEAR 2008-09 IN THE CASE OF M/S. SHIVAM INDUSTRIES WHEREIN RELYING ON ITS OWN DECISI ON IN THE CASE OF M/S G.N.G. ENTERPRISES, ITAT HELD AS UNDER- 35. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE CASE OF ITO VS M/S GNG ENTERPRISES (SUPRA) AND THE SAME WAS ADJUDICATED VIDE PARAS 8 TO 13 WHICH ARE AS UNDER:- '8 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY A ND FIND THAT BEFORE ALLOWING DEDUCTION UNDER CHAPTER VI A BASIC PROVISIONS HAVE TO BE KEPT IN MIND. PROVISIONS OF SECTION 80A, 80AB AND 80B ARE RELEVANT WHICH HAVE BE EN REPRODUCED AS UNDER: ' SECTION - 80A - 80A. (1) IN COMPUTING THE TOTAL INCOM E OF AN ASSESSES, THERE SHALL BE ALLOWED FROM HIS GROSS TOT AL INCOME, IN ACCORDANCE WITH AND SUBJECT TO THE PROVIS IONS OF THIS CHAPTER, THE DEDUCTIONS SPECIFIED IN SECTIONS 80IC TO [80U]. (2)THE AGGREGATE AMOUNT OF THE DEDUCTIONS UNDER THIS CHAPTER SHALL NOT, IN ANY CASE, EXCEED THE GROSS TOTAL INCOME OF THE ASSESSEE. 10 1(3) WHERE, IN COMPUTING THE TOTAL INCOME OF AN ASSOCIA TION OF PERSONS OR A BODY OF INDIVIDUALS, ANY DEDUCTION IS ADMISSIBLE UNDER SECTION 80G OR SECTION 80GGA [OR SE CTION 80GGC] OR SECTION 80HH OR SECTION 80HHA OR SECTION 80HHB OR SECTION 80HHC OR SECTION 80HHD OR SECTION 80-1 OR SECTION 80-LA [OR SECTION 80-IB] [OR SECTION 80-I C] [OR SECTION 80-ID OR SECTION 80-IE] OR SECTION 80J OR SECTION 80J J, NO DEDUCTION UNDER THE SAME SECTION SHALL BE MADE IN COMPUTING THE TOTAL INCOME OF A MEMBER OF THE ASSOCIAT ION OF PERSONS OR BODY OF INDIVIDUALS IN RELATION TO TH E SHARE OF SUCH MEMBER IN THE INCOME OF THE ASSOCIATION OF PERS ONS OR BODY OF INDIVIDUALS.] 1(4) NOTWITHSTANDING ANYTHING T O THE CONTRARY CONTAINED IN SECTION WA OR SECTION 10AA OR SECTION 108 OR SECTION 10BA OR IN ANY PROVISIONS OF THIS CHAPTER UNDER THE HEADING 'C--DEDUCTIONS IN RESPECT OF CERTAIN INCOMES', WHERE, IN THE CASE OF AN ASSESSEE, A NY AMOUNT OF PROFITS AND GAINS OF AN UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS IS CLAIMED AND ALLOWED AS A DEDUCTION UNDER ANY OF THOSE PROVISIONS FOR ANY ASSESSMENT YEAR, DEDUCTION IN RESPECT OF, AND TO THE EXTENT OF, SUCH PROFITS AND GAINS SHALL NOT BE ALLOWED UNDER A NY OTHER PROVISIONS OF THIS ACT FOR SUCH ASSESSMENT YE AR AND SHALL IN NO CASE EXCEED THE PROFITS AND GAINS OF SUC H UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS , AS THE CASE MAY BE. (5) WHERE THE ASSESSEE FAILS TO MAKE A CLAIM IN HIS RETURN OF INCOME FOR ANY DEDUCTION UNDE R SECTION 10A OR SECTION 10AA OR SECTION 108 OR SECTI ON 10BA OR UNDER ANY PROVISION OF THIS CHAPTER UNDER THE HE ADING 'C.--DEDUCTIONS IN RESPECT OF CERTAIN INCOMES', NO DEDUCTION SHALL BE ALLOWED TO HIM THEREUNDER.] [(6) NOTWITHST ANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 10A OR SECTION 10AA OR SECTION 10B OR SECTION WBA OR IN AN Y PROVISIONS OF THIS CHAPTER UNDER THE HEADING 'C-DEDUCTION S IN RESPECT OF CERTAIN INCOMES', WHERE ANY GOODS OR SE RVICES HELD FOR THE PURPOSES OF THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS ARE TRANSFERRED TO A NY OTHER BUSINESS CARRIED ON BY THE ASSESSEE OR WHERE ANY GO ODS OR SERVICES HELD FOR THE PURPOSES OF ANY OTHER BUSIN ESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS AND, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECOR DED IN THE ACCOUNTS OF THE UNDERTAKING OR UNIT OR ENTERPRIS E OR ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF THE TRA NSFER, THEN, FOR THE PURPOSES OF ANY DEDUCTION UNDER THIS CHAPTER, THE PROFITS AND GAINS OF SUCH UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS SHALL BE COMPUTE D AS IF THE TRANSFER, IN EITHER CASE, HAD BEEN MADE AT THE M ARKET VALUE OF SUCH GOODS OR SERVICES AS AN THAT DATE. EXPLANATION.-FOR THE PURPOSES OF THIS SUB-SECTION, TH E EXPRESSION 'MARKET VALUE',- (I) IN RELATION TO ANY GOODS OR SERVICES SOLD OR SUP PLIED, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD F ETCH IF THESE WERE SOLD BY THE UNDERTAKING OR UNIT OR 11 ENTERPRISE OR ELIGIBLE BUSINESS IN THE OPEN MARKET, S UBJECT TO STATUTORY OR REGULATORY RESTRICTIONS, IF ANY; (II) IN RELATION TO ANY GOODS OR SERVICES ACQUIRED, MEANS THE PRICE T HAT SUCH GOODS OR SERVICES WOULD COST IF THESE WERE ACQ UIRED BY THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS FROM THE OPEN MARKET, SUBJECT TO STATUTORY OR REGULATORY RESTRICTIONS, IF ANY;] [(HI) IN RELATION T O ANY GOODS OR SERVICES SOLD, SUPPLIED OR ACQUIRED MEANS THE ARM' S LENGTH PRICE AS DEFINED IN CLAUSE (II) OF SECTION 92F OF SUCH GOODS OR SERVICES, IF IT IS A SPECIFIED DOMESTIC TRA NSACTION REFERRED TO IN SECTION 92BA.] [(7) WHERE A DEDUCTION UNDER ANY PROVISION OF THIS CHAPTER UNDER THE HEADING 'C. DEDUCTIONS IN RESPECT OF CERTAIN INCOMES' IS CLAIMED AND ALLOWED IN RESPECT OF PROFITS OF ANY OF THE SPECIFIED BUSINESS REFERRED TO IN CLAUSE (C) OF SUB-SECTION (8) OF SECTION 35AD FOR ANY ASSESSMENT YEAR, NO DEDUCTION S HALL BE ALLOWED UNDER THE PROVISIONS OF SECTION 35AD IN RELATION TO SUCH SPECIFIED BUSINESS FOR THE SAME OR ANY OTHER ASSESSMENT YEAR.}.' 80AB - [ DEDUCTIONS TO BE MADE WITH REFERENCE TO TH E INCOME INCLUDED IN THE GROSS TOTAL INCOME , - WHERE ANY DEDUCTION IS REQUIRED TO BE MADE OR ALLOWED UNDER ANY SECTION [* * * ] INCLUDED IN THIS CHAPTER UNDER THE HEADING ' C .-- DEDUCTIONS IN RESPECT OF CERTAIN INCO MES ' IN RESPECT OF ANY INCOME OF THE NATURE SPECIFIED IN THAT SECTION WHICH IS INCLUDED IN THE GROSS TOTAL INCOME OF THE ASSESSEE , THEN, NOT WITHSTANDING ANYTHING CONTAINED IN THAT SECTION, FOR THE PURPOSE OF COMPU TING THE DEDUCTION UNDER THAT SECTION, THE AMOUNT OF INCOME OF THAT NATURE AS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT (BEFORE MAKING ANY DEDUCTION UNDER THIS CHAPTER) SHALL ALONE BE DEEMED TO BE THE AMOUNT OF INCOME OF THAT NATURE WHICH IS DERIVED OR RECEIVED BY THE ASSESSEE AND WHICH IS INCLUDED IN HI S GROSS TOTAL INCOME] 80B - 80B. IN THIS CHAPTER- {1) [* * *] (2) [* * *] (3) [* * *] (4) [* * *] (5) 'GROSS TOTAL INCOME' MEANS THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT, BEFORE MAKING ANY DEDUCTION UNDER THIS CHAPTER [* **][***] (6) [* * * ] (7) [* * *] (8) [* * *] (9) [* * *]] 9 READING OF ABOVE PROV ISIONS CLEARLY SHOWS THAT DEDUCTION UNDER VARIOUS PROVISIO NS OF THIS CHAPTER ARE ALLOWABLE ONLY IF THE INCOME OF THE NATURE ON WHICH DEDUCTION IS CLAIMED HAS BEEN INCLUDE D IN THE TOTAL INCOME AND FURTHER DEDUCTION HAS TO BE ALLOWED ON THE BASIS OF ABOVE GROSS TOTAL INCOME. GR OSS TOTAL INCOME HAS ITSELF BEEN DEFINED IN SEC 808 WHICH CLEARLY SHOWS THAT DEDUCTION CAN BE ALLOWED ON THAT INCOME WHICH IS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT BEFORE ALLOWING DEDUCTION UNDE R CHAPTER VIA. UNDER INCOME-TAX ACT THE INCOME HAS TO B E COMPUTED UNDER VARIOUS HEADS AS PER THE PROVISIONS O F A PARTICULAR HEAD. THE INCOME UNDER THE HEAD 'BUSINESS AND PROFESSION' IS TO BE COMPUTED AS PER SEC 29 WHIC H READS AS UNDER: 12 'SEC 29- INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION, HOW COMPUTED. THE INCOME REFERRED TO IN SECTION 28 SHALL BE COMPUTE D IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION S 30 TO [43DJ.' ABOVE CLEARLY SHOW THAT BEFORE ALLOWING DEDUCTION U/ S 80IC THE INCOME HAS TO BE COMPUTED AS PER THE PROVI SIONS OF SECTIONS 32 TO 43 OF THE ACT. 10 THIS POSITION HAS BEEN CONFIRMED BY THE HON'BLE SUPREME COURT IN CASE OF CIT V. KOTAGIRI INDUSTRIAL CO- OPERATIVE TEA FACTORY LTD. (SUPRA). IN THAT CASE THE ASSESSEE SOCIETY WAS CARRYING ON THE BUSINESS OF MANUFACTURING OF TEA. THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80P(2). THERE WERE SOME BROUGHT FORWAR D LOSSES WHICH WAS SET OFF BY THE /TO BEFORE ALLOWING DEDUCTION. THIS ACTION WAS CHALLENGED BY THE ASSESS EE AND ULTIMATELY THE MATTER TRAVELED TO THE HON'BLE SUPREME COURT. IT WAS OBSERVED AS UNDER: 'IN VIEW OF THE EXPRESS PROVISION DEFINING THE EXPRESSIO N 'GROSS TOTAL INCOME' IN CLAUSE (5) OF SECTION 80B OF T HE IT ACT FOR THE PURPOSE OF CHAPTER VIA OF THE ACT, IT IS NECESSARY FOR THE PURPOSE OF MAKING DEDUCTION U/S S OP OF THE ACT TO DETERMINE THE GROSS TOTAL INCOME IN ACCORD ANCE WITH THE OTHER PROVISIONS OF THE ACT. THIS MEANS THAT THE GROSS TOTAL INCOME MUST BE DETERMINED BY SETTING OF F AGAINST HE INCOME THE BUSINESS LOSSES OF THE EARLIER YEARS AS REQUIRED U/S 72 OF THE ACT, BEFORE ALLOWING DEDUC TION U/S SOP.' ON THE BASIS OF ABOVE OBSERVATION IT WAS HELD AS UNDER: 'HELD - ACCORDINGLY REVERSING THE DECISION OF THE HON' BLE HIGH COURT THAT BEFORE CONSIDERING THE MATTER OF DEDUCTION U/S 80P(2) THE INCOME TAX OFFICER HAD RIGHTLY SET OF F THE CARRIED FORWARD TOSSES OF THE EARLIER YEARS IN ACCOR DANCE WITH SECTION 72 OF THE ACT AND FINDING THAT THE SAID LOSSES EXCEEDED THE INCOME, HAD RIGHTLY NOT ALLOWED ANY DEDUCTION U/S80P(2).' ABOVE POSITION HAS BEEN FOLLOWED LATER ON IN VARIOUS DECISIONS BY THE HON'BLE SUPREME COURT LIKE H.H. SIR RAMA VERMA V CIT, 205 ITR 435 AND MOTILAL PESTICIDE S (IJ PVT LTD. V CIT, 243 ITR 26 (S.C). THEREFORE IT BECO MES CLEAR THAT DEDUCTION COULD HAVE BEEN ALLOWED ONLY AFTER COMPUTING THE INCOME UNDER A PARTICULAR HEAD. IN THI S CASE THE INCOME IN THE HANDS OF THE A FIRM WAS COMPU TED IN TERMS OF SEC 28 TO 43D AND SEC 40(B) IN RESPECT OF ALLOWANCE OF INTEREST AND SALARY FALLS BETWEEN THESE TWO PROVISIONS AND THEREFORE FULL EFFECT HAS TO BE GIVEN TO THIS PROVISIONS ALSO. 11 THERE IS ANOTHER CONTENTIONS THAT LATER ON IT WAS DECIDED NOT TO PAY SALARY AND INTEREST TO THE PARTNE RS. THIS DOES NOT SEEMS TO BE CORRECT BECAUSE BEFORE TH E 13 ASSESSING OFFICER IT WAS ADMITTED THAT REMUNERATION A ND INTEREST HAS NOT BEEN PAID AS PER THE PARTNERSHIP DEE D. FURTHER THERE IS NO EVIDENCE FOR THE SAME AND IN ANY C ASE THIS WILL NOT MAKE A DIFFERENCE. THIS TYPE OF SITUAT ION CAME UP FOR CONSIDERATION OF HON'BLE BOMBAY HIGH COURT IN CASE INDIAN RAYON CORPORATION LTD. V CIT, 261 ITR 98. IN T HAT CASE THE DEDUCTION FOR INDUSTRIAL UNDERTAKING WAS CLAIMED U/S 80HH BECAUSE INDUSTRY WAS LOCATED IN A BACKWARD AREA. THE DEDUCTION WAS CLAIMED ON THE PROFIT S WITHOUT CLAIMING DEPRECIATION. THE ASSESSING OFFICER HE LD THAT DEDUCTION WAS ALLOWABLE ONLY AFTER ALLOWING DEPRECIATION. THIS WAS CHALLENGED BY THE ASSESSEE AND THE MATTER TRAVELED TO THE HIGH COURT. HON'BLE HIGH COURT MADE FOLLOWING OBSERVATIONS: '261 ITR 98 - INCOME-TAX IS A CHARGE ON AN ASSESSEE IN RESPECT OF HIS TOTAL INCOME COMPUTED IN ACCORDANCE WIT H THE PROVISIONS OF THE ACT. HOWEVER, IN CASES WHERE TH E TOTAL TAXABLE INCOME COMPRISES PROFITS DERIVED FROM A NEWLY ESTABLISHED UNDERTAKING U/S 80HH OF THE IT AC T, 1961, THEN SUCH PROFITS HAVE GOT TO BE COMPUTED SEPARATELY AS LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL COMPANY. LTD V CIT, 113 ITR 84. THERE IS A DISTINCT DICHOTOMY BETWEEN THE CASES OF COMPUTATION OF NORMAL INCOME U NDER THE ACT DE HORS CHAPTER VI-A AND COMPUTATION OF TAXA BLE INCOME WHERE THE ASSESSEE CLAIMS THE BENEFIT OF DED UCTION UNDER CHAPTER VI-A. THE PROFITS AND GAINS OF A NEWLY ESTABLISHED UNDERTAKING, THEREFORE HAVE GOT TO BE COMPUTED AS PER THE PROVISIONS OF SECTION 29 TO 43 AND IF THE ASSESSEE CLAIMS RELIEF UNDER CHAPTER VI-A OF EH ACT, THEN IT IS NOT OPEN TO THE ASSESSEE TO DISCLAIM DEPRECIATI ON ALLOWANCE. THIS IS BECAUSE CHAPTER VI-A IS AN INDEPENDE NT CODE BY ITSELF FOR COMPUTING THESE SPECIAL TYPES OF DEDUCTION. IN OTHER WORDS, ONE MUST FIRST CALCULATE T HE GROSS TOTAL INCOME FROM WHICH ONE MUST DEDUCT A PERCENTAGE OF INCOME CONTEMPLATED UNDER CHAPTER VI-A . THEREFORE ONE CAN NOT EXCLUDE DEPRECIATION ALLOWANCE WHILE COMPUTING PROFITS DERIVED FROM NEWLY ESTABLISHED UNDERTAKING FOR COMPUTING DEDUCTIONS UNDER CHAPTER VI- A.' 12 IN THIS CASE A SPECIFIC ARGUMENT WAS TAKEN THAT THE HON'BLE SUPREME COURT HAS CLEARLY HELD IN CASE OF CIT V. MAHENDRA MILLS (SUPRA) THAT IF THE ASSESSEE DOES NO T CLAIM DEPRECIATION THEN SAME CANNOT BE THRUSTED ON THE ASSESSEE BY THE INCOME-TAX AUTHORITIES. THE COURT DE ALT WITH THIS CONTENTIONS IN DETAIL AND OBSERVED AT PLACIT UM G TO H THAT THE DECISION OF MAHINDA MILLS (SUPRA) IS NOT DECIDED IN RESPECT OF ALLOWABILITY OF DEDUCTION WHICH READS AS UNDER: 'THE POINT AT ISSUE IS AMPLY CLEAR FROM THE ILLUSTRAT ION GIVEN HEREINABOVE UNDER THE CAPTION 'POINT AT ISSUE '. THE ILLUSTRATION INDICATES THAT THE A E HAS NOT DISCLAIM ED DEPRECIATION. THE POINT THEREFORE TO BE NOTED IS THA T THE 14 ASSESSEE HAS ALSO CLAIMED DEPRECIATION, BUT AT A LATER STAGE AND THEREFORE THE JUDGMENT OF HON'BLE SUPREME COURT IN MAHENDRA MILLS CASE, 243 ITR 56 HAS NO APPLICATION. ACCORDINGLY TO THE ASSESSEE THE PROFITS DERIVED FROM THE UNIT WAS RS.100 BECAUSE U/S 32(2) R. W.S 4 OF THE IT ACT, THE CHARGEABILITY WAS IN RESPECT OF THE TOTAL INCOME AND, THEREFORE THE RATE AF 20 PER CENT WAS APPLICABLE TO THE TOTAL INCOME OF RS.100 WITHOUT DEDUCTING ' APPRECIATION. SECONDLY IN ANY EVENT, THE CONTROVERSY IN MAHENDRA MILLS CASE, 243 ITR 56' WAS NO T CONCERNING DEDUCTIONS UNDER CHAPTER VI-A OF THE INCO ME - TAX ACT. THEREFORE THAT JUDGMENT WOULD NOT APPLY TO THIS CASE. THE IMPORTANT DISTINCTION WHICH IS REQUIRED T O BE NOTICED IN THIS CASE IS THAT WE ARE REQUIRED TO COMP UTE THE TAXABLE INCOME OF THE ASSESSEE WHO HAS CLAIMED SPEC IAL DEDUCTION UNDER CHAPTER VI-A. FOR THAT PURPOSE, ONE HA S TO KEEP IN MIND THE PROVISIONS OF SECTION 80B(5) AN D 80AB. CONSEQUENTLY SECTION 80HH INTER ALIA, LAYS DOWN THAT IF THE GROSS TOTAL INCOME INCLUDES PROFITS FROM A NEWLY ESTABLISHED UNDERTAKING THEN 20 PER CENT OF SUCH PRO FITS WOULD BE DEDUCTIBLE FROM THE GROSS TOTAL INCOME IN O RDER TO ARRIVE AT THE TOTAL TAXABLE INCOME. THAT IN SUCH A CASE, PROFITS DERIVED FROM A NEWLY ESTABLISHED UNDERTAKING SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT I.E. SECTION 29 TO 43A. THERE FORE NET PROFIT WILL HAVE TO BE COMPUTED IN ACCORDANCE WITH T HE PROVISIONS OF THE ACT. THE ARGUMENT OF THE ASSESSEE IS THAT IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN MAHENDRA MILLS' CASE, 243 ITR 56, IT IS OPEN TO THE ASSESSEE NOT TO CLAIM DEPRECIATION ALLOWANCE U/S 32 AND CONSEQUENTLY IT IS ARGUED THAT 20 PER CENT RATE OF DEDUCTION SHOULD BE APPLIED TO RS.100 IN THE ABOVE ILLUSTRATION, WITHOUT TAKING INTO ACCOUNT THE DEPRECIAT ION. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT. THE SCHEME OF SECTION 4 AND SECTION 5 OF THE INCOME-TAX ACT DOES INDICATE THAT INCOME TAX IS A TAX IN RESPECT OF INC OME COMPUTED AS PER THE PROVISIONS OF THE ACT. THERE IS A DISTINCT DICHOTOMY BETWEEN CASES OF COMPUTATION OF NORMAL INCOME UNDER THE ACT DE HORS CHAPTER VI-A AN D COMPUTATION OF TAXABLE INCOME WHERE THE ASSESSEE CLA IMS THE BENEFIT OF DEDUCTION UNDER CHAPTER VI-A BECAUSE THE LEGISLATURE HAS INTENDED THAT THESE SPECIAL DEDUCTIO NS SHOULD BE RESTRICTED TO THE RECEIPT OF FOREIGN EXCHA NGE. IF THIS OBJECT IS KEPT IN MIND, THEN IT IS CLEAR THAT THE A NALOGY OF SECTION 32(2) GIVEN BY THE ASSESSEE WILL NOT APPLY IN CASES WHERE AN ASSESSEE CLAIMS SPECIAL DEDUCTION UNDE R CHAPTER VI-A. THE MATTER CAN BE LOOKED AT FROM ANOTHER ANGLE. WHILE COMPUTING NORMAL INCOME, AN ASSESSEE MAY SET OFF DEPRECIATION AGAINST ITS GROSS INCOME. IN SUC H CASES, DEPRECIATION IS LIKE ANY OTHER ORDINARY EXPENSE. HO WEVER, SUCH DEPRECIATION CANNOT BE EQUATED WITH SPECIAL ED UNDER CHAPTER VI-A. IN ANY EVENT, IN THIS CASE ON TH E FACTS, THE ASSESSEE CLAIMS DEPRECIATION OF RS. 75 FROM THE BALANCE INCOME OFRS. 80 AND THEREFORE THE JUDGMENT O F 15 THE HON'BLE SUPREME COURT IN MAHENDRA MILLS CASE, 2 43 ITR 56 HAS NO APPLICATION.' THE ABOVE OBSERVATIONS VERY CLEARLY SHOWS THAT FOR MAKING DEDUCTION UNDER CHAPTER VIA THE PROFITS HAS TO BE COMPUTED SPECIFICALLY AS PER A PARTICULAR PROVISION OF A PARTICULAR HEAD OF INCOME BECAUSE OF THE DEFINITION OF GROSS TOTAL INCOME U/S 80B(5). 13 IN VIEW OF THE ABOVE CLEAR POSITION THE DEDUCTION U/ S 80IC WAS ALLOWABLE ONLY AFTER REDUCING THE INTEREST AND REMUNERATION PAYABLE TO THE PARTNERS. THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 80IA WHICH ARE NOT RELEVANT AND THE ID. CIT(A) HAS DECIDED THE I SSUE ONLY ON THIS DECISION WITHOUT LOOKING AT THE SPECIFIC PROVISIONS OF THE ACT AND THE DECISION OF HON'BLE S UPREME COURT WHICH ARE BINDING ON ALL AUTHORITIES. THEREFORE W E SET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER (THOUGH ON A DIFFERENT REASONING). ' FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE AGAINST T HE ASSESSEE RESPECTFULLY FOLLOWING THE SAME, IT IS HELD THAT TH E ELIGIBLE PROFITS HAVE TO BE 'COMPUTED AFTER DEBIT O F ALL EXPENSES REQUIRED TO BE DEBITED IN VIEW OF SECTION 80A,80AB, 80B R.W.S. 29 OF THE I.T.ACT. ACCORDINGLY, AN ADDITION OF RS.63,58,197/- IS DIRECTED TO BE MADE TO THE TAXABLE PROFITS OF THE APPELLANT'S FIRM AFTER REDUCIN G AN EQUIVALENT AMOUNT FROM THE PROFITS CLAIMED AS ELIGIBL E PROFIT FOR DEDUCTION U/S 80IC. 17. AGGRIEVED BY THE SAME THE ASSESSEE HAS RAISED THE ABOVE GROUNDS OF APPEAL BEFORE US. 18. WE HAVE HEARD THE RIVAL CONTENTIONS. THE UNDISPUTED FACTS EMERGING ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ELIGIBLE FOR DEDUCTION U/S 80 IC O F THE INCOME TAX ACT, 1961. FURTHER THE PARTNERSHIP IS EV IDENCED BY A DEED DATED 21-12 -09, CLAUSE 11 & 12 OF WHICH DEAL WITH THE PAYMENT OF INTEREST ON CAPITAL AND REMUNER ATION TO PARTNERS AS REPRODUCED ABOVE. THAT PROFITS FOR TH E IMPUGNED YEAR HAVE BEEN CALCULATED WITHOUT CHARGING SALARY AND INTEREST OF PARTNERS AND DEDUCTION OF THE SAID PROFITS CLAIMED U/S 80 IC OF THE INCOME TAX ACT, 1961. 16 19. WE FIND THAT THE AO HAS HELD THAT SALARY AND INTEREST WAS TO BE DEDUCTED FOR CALCULATING THE PRO FITS OF THE ASSESSEE FIRM. THE ASSESSING OFFICER HAS FURTHER H ELD THAT THE SAME WAS CHARGEABLE IN THE HANDS OF THE PARTNER S BUT SINCE HE COULD NOT ASCERTAIN WHETHER PARTNERS HAD F ILED THEIR RETURN AND THEREFORE TAXED IT IN THE HANDS OF THE A SSESSEE FIRM PROVISIONALLY. 20. LD.CIT(A), WE FIND, UPHELD THE ADDITION BUT FO R A DIFFERENT REASON HOLDING THAT THE SALARY AND INTERE ST WERE TO BE DEDUCTED FOR CALCULATING THE PROFITS ELIGIBLE FO R DEDUCTION U/S 80IC,THUS REDUCING THE QUANTUM OF DEDUCTION AVA ILABLE TO THE ASSESSEE AS PER SECTION 80 IC. 21. SINCE THE PRESENT APPEAL BEFORE US IS AGAINST THE ORDER OF THE LD.CIT(A), THE ISSUE BEFORE US IS WHET HER, IN THE BACKDROP OF THE ABOVE FACTS, THE PROFITS ELIGIBLE F OR DEDUCTION U/S 80IC WAS TO BE CALCULATED AFTER REDUCING INTERE ST AND REMUNERATION PAYABLE TO PARTNERS AS PER THE PARTNER SHIP DEED . 22. DURING THE COURSE OF ARGUMENTS BEFORE US THE L D. COUNSEL FOR ASSESSEE RAISED A NUMBER OF CONTENTIONS AGAINST THE ADDITION MADE WHICH INCLUDED ; I) THAT THE ORIGINAL PARTNERSHIP DEED DID NOT SPEC IFY THE QUANTUM OF REMUNERATION AND INTEREST WHICH WAS PAYABLE AND HENCE NO INTEREST AND REMUNERATION WAS TO BE DEDUCTED U/S 40(B)(V) IN VIEW OF THE CBDT CIRCUL AR NO.39 DATED 25.3.1996 IN THIS REGARD AND ALSO THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN 17 THE CASE OF SOOD BHANDARI & CO. & ORS. VS. CBDT & ANR.(2012) 246 CTR 89. II)THAT EVEN OTHERWISE THE ORIGINAL PARTNERSHIP DEE D HAD BEEN AMENDED DELETING THE ENABLING CLAUSES ,VIDE ADDENDUM DATED 08-02-2010 AND THE SAID AMENDED PARTNERSHIP DEED COULD NOT BE REJECTED MERELY BECAU SE IT WAS NOT REGISTERED. III) THAT IN ANY CASE BY DEDUCTING SALARY AND INTER EST THE NET PROFIT OF THE ASSESSEE WOULD ALSO BE REDUCE D RESULTING IN NO EFFECT TO THE TAXABLE INCOME OF THE ASSESSEE AND FURTHER THAT IN ANY CASE THE SALARY AN D INTEREST PAID TO THE PARTNERS COULD NOT HAVE BEEN BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE FIRM EV EN PROVISIONALLY. 23. ADDRESSING THE FIRST CONTENTION RAISED BEFORE US, LD. COUNSEL FOR ASSESSEE STATED THAT A PERUSAL OF T HE RELEVANT CLAUSES OF THE ORIGINAL PARTNERSHIP DEED, DEALING W ITH REMUNERATION AND INTEREST TO BE PAID TO PARTNERS OU TLINED AT CLAUSE NOS.11 AND 12 OF THE DEED, REVEAL THAT THEY DO NOT SPECIFY THE AMOUNT TO BE PAID TO THE PARTNERS. THE LD. COUNSEL FOR ASSESSEE DREW OUR ATTENTION TO THE RELE VANT CLAUSES REPRODUCED AT PARA 12 OF THE CIT(APPEALS)S ORDER, WHICH READ AS UNDER: CLAUSE NO.11 THAT EACH PARTY TO THIS DEED SHALL BE ENTITLED FOR INTEREST ON THEIR RESPECTIVE CAPITALS AT THE RATE PRESCRIBED UNDER THE I.T. ACT OR ANY OTHER ENACTMENT IN SUCCES SION THEREOF AND ALL THE PARTNERS WILL BE WORKING PARTNERS AND THEY SHALL PERFORMED SUCH DUTY FROM TIME TO TIME AS THEY MUTUALLY AGR EE. CLAUSE NO. 12 THAT THE WORKING PARTNERS SHALL BE ENTITLE D FOR THE REMUNERATION TO BE MUTUALLY AGREED BY THEM FOR EA CH YEAR WHICH SHALL BE SUBJECT TO THE CEILING PRESCRIBED UNDE R THE I.T. ACT, 1961 OR ANY OTHER ENACTMENT IN SUCCESSION THEREOF.' 18 24. THE LD. COUNSEL FOR ASSESSEE THEREAFTER REFERR ED TO THE CBDT CIRCULAR NO.739 DATED 25.3.1996 AND POINTE D OUT THAT IT IS SPECIFICALLY STATED THEREIN THAT WHERE P ARTNERSHIP DEED DO NOT SPECIFY THE AMOUNT OF REMUNERATION PAYA BLE THE SAME WOULD NOT BE ADMISSIBLE. THE RELEVANT CBDT CI RCULAR IS REPRODUCED HEREUNDER: PROVISIONS OF SECTION 40(B)(V) OF THE INCOME-TAX AC T, 1961, REGARDING ADMISSIBILITY OF REMUNERATION OF WORKING PARTNER IN THE ASSESSMENT OF FIRMSREGARDING 25/03/1996 BUSINESS EXPENDITURE SECTION 40(B), THE BOARD -HAVE RECEIVED REPRESENTATIONS SEEKING CL ARIFICATION REGARDING DISALLOWANCE OF REMUNERATION PAID TO THE WORKING PARTNERS AS PROVIDED UNDER SECTION 40(B)(V) OF THE INCOME-TAX ACT. IN PARTICULAR, THE REPRESENTATIONS HAVE REFERRED TO TWO TYPES OF CLAUSES WHICH ARE GENERALLY INCORPORATED IN THE PAR TNERSHIP DEEDS. THESE ARE : (I) THE PARTNERS HAVE AGREED THAT THE REMUNERATION TO A WORKING PARTNER WILL BE THE AMOUNT OF REMUNERATION ALLOWABLE U NDER THE PROVISIONS OF SECTION 40(B)(V) OF THE INCOME-TAX ACT ; AND (II) THE AMOUNT OF REMUNERATION TO WORKING PARTNER WILL BE AS MAY BE MUTUALLY AGREED UPON BETWEEN PARTNERS AT THE END OF THE YEAR. IT HAS BEEN REPRESENTED THAT THE ASSESSING OFFICERS ARE NOT ALLOWING DEDUCTION ON THE BASIS OF THESE AND SIMILAR CLAUSES IN THE COURSE OF SCRUTINY ASSESSMENTS FOR THE REASON THAT THEY NEITHE R SPECIFY THE AMOUNT OF REMUNERATION TO EACH INDIVIDUAL NOR LAY D OWN THE MANNER OF QUANTIFYING SUCH REMUNERATION. 2. THE BOARD HAVE CONSIDERED THE REPRESENTATIONS. S INCE THE AMENDED PROVISIONS OF SECTION 40(B) HAVE BEEN INTROD UCED ONLY WITH EFFECT FROM THE ASSESSMENT YEAR 1993-94 AND THESE MAY NOT HAVE BEEN UNDERSTOOD CORRECTLY THE BOARD ARE OF THE VIEW THAT LIBERAL APPROACH MAY BE TAKEN FOR THE INITIAL YEARS. IT HAS BEEN DECIDED THAT FOR THE ASSESSMENT YEARS 1993-94 TO 1996-97 DE DUCTION FOR REMUNERATION TO A WORKING PARTNER MAY BE ALLOWED O N THE BASIS OF THE CLAUSES OF THE TYPE MENTIONED AT L(I) ABOVE. 3. IN CASES WHERE NEITHER THE AMOUNT HAS BEEN QUANTI FIED NOR EVEN THE LIMIT OF TOTAL REMUNERATION HAS BEEN SPECIF IED BUT THE SAME HAS BEEN LEFT TO BE DETERMINED BY THE PARTNERS A THE END OF THE ACCOUNTING PERIOD, IN SUCH CASES PAYMENT OF REM UNERATION TO PARTNERS CANNOT BE ALLOWED AS DEDUCTION IN THE COMP UTATION OF FIRM'S INCOME. 4. IT IS CLARIFIED THAT FOR THE ASSESSMENT YEARS SU BSEQUENT TO THE ASSESSMENTYEAR1996-97,NODEDUCTION UNDER SECTION 40(B)(V) WILL 19 BE ADMISSIBLE UNLESS THE PARTNERSHIP DEED EITHER SP ECIFIES THE AMOUNT OF REMUNERATION PAYABLE TO EACH INDIVIDUAL W ORKING PARTNER OR LAYS DOWN THE MANNER OF QUANTIFYING SUCH REMUNERATION. 25. THE LD. COUNSEL FOR ASSESSEE FURTHER DREW OUR ATTENTION TO THE DECISION OF THE JURISDICTIONAL HIG H COURT IN THE CASE OF SOOD BHANDARI & CO. & ORS (SUPRA) POINT ING OUT THAT IT UPHELD THE VALIDITY OF THE AFORESAID CIRCUL AR AND HELD THAT IT DID NOT RUN COUNTER TO ANY OF THE PROVISION S OF THE ACT. THE LD. COUNSEL FOR ASSESSEE THEREAFTER STATE D THAT SINCE THE ORIGINAL PARTNERSHIP DEED DID NOT SPECIFY THE AMOUNT OF REMUNERATION AND INTEREST TO BE PAID TO P ARTNERS, THE CBDT CIRCULAR AND THE DECISION OF THE JURISDIC TIONAL HIGH COURT WAS APPLICABLE IN THE PRESENT CASE AND I N VIEW OF THE SAME, NO DEDUCTION ON ACCOUNT OF REMUNERATION A ND INTEREST TO PARTNERS WAS TO BE ALLOWED TO THE ASSES SEE. 26. THE LD. DR, ON THE OTHER HAND, COUNTERED BY STATING THAT THE ORIGINAL PARTNERSHIP DEED CLEARLY PROVIDED FOR PAYMENT OF SALARY AND INTEREST TO PARTNERS AND IN IDENTICAL CIRCUMSTANCES THE ITAT CHANDIGARH BENCH IN THE CASE OF ITO NAHAN VS. M/S GNG ENTERPRISES, SIRMOUR IN ITA NO.606/CHD/2013 DATED 11.11.2014 AND IN THE CASE OF M/S SHIVAM INDUSTRIES IN ITA NO.510/CHD/2012 RELATING T O ASSESSMENT YEAR 2008-09,HELD THAT THE SAME ARE TO B E DEDUCTED TO ARRIVE AT THE PROFITS ELIGIBLE FOR DEDU CTION U/S 80IC OF THE ACT. 27. AT THIS JUNCTURE THE LD. COUNSEL FOR THE ASSES SEE POINTED OUT THAT THE DECISIONS IN THE CASES OF M/S SHIVAM INDUSTRIES AND M/S GNG ENTERPRISES (SUPRA) WERE 20 DISTINGUISHABLE ON FACTS SINCE IN THE SAID CASES TH E PARTNERSHIP DEED CLEARLY SPECIFIED THE AMOUNT OF REMUNERATION TO BE PAID TO THE PARTNERS AS ALSO THE AMOUNT OF INTEREST TO BE PAID TO THE PARTNERS. THE LD. CO UNSEL FOR ASSESSEE DREW OUR ATTENTION TO THESE FACTS REPRODUC ED AT PAGE 2 OF THE ORDER IN M/S GNG ENTERPRISES (SUPRA). 28. HAVING HEARD BOTH THE PARTIES, WE FIND MERIT I N THE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE. AS DEM ONSTRATED TO US THE RELEVANT CLAUSES OF THE ORIGINAL PARTNERS HIP DEED , BY VIRTUE OF WHICH THE REVENUE HAS SOUGHT TO DEDUCT REMUNERATION AND INTEREST FOR THE PURPOSE OF CALCUL ATING THE NET PROFIT EARNED BY THE ASSESSEE, DOES NOT SPECIFY THE AMOUNT TO BE PAID ON ACCOUNT OF THE SAME. THEY MERE LY STATE THAT THE SAME SHALL BE PAID AS PER THE RATES OR LIM ITS PRESCRIBED BY THE INCOME TAX ACT,1961 OR ANY OTHER ENACTMENT IN SUCCESSION THEREOF. THE CBDT CIRCULAR CLEARLY STATES THAT IN SUCH CIRCUMSTANCES NO DEDUCTION SHAL L BE ALLOWED TO THE FIRM. FURTHER, THE HON'BLE JURISDIC TIONAL HIGH COURT IN THE CASE OF SOOD BHANDARI & CO & ORS. VS C ENTRAL BOARD OF DIRECT TAXES (2012)246 CTR 89,HAS HELD THE SAID CIRCULAR TO BE CLARIFICATORY IN NATURE AND NOT RUNN ING COUNTER TO ANY OF THE PROVISIONS OF THE ACT. THE H ONBLE HIGH COURT INTERPRETED THE MEANING OF THE WORD AUT HORIZED USED IN SECTION 40(B) (II) OF THE ACT, WHICH STATE S THAT SALARY AND INTEREST PAID TO PARTNERS SHALL BE ALLOWABLE ON LY WHEN IT IS AUTHORIZED BY A PARTNERSHIP DEED, AND HELD THAT IT MEANS TO QUANTIFY THE AMOUNT TO BE PAID. IT WAS HELD THU S THAT 21 DENIAL OF DEDUCTION OF SALARY AND INTEREST TO PARTN ERS ,WHEN THEY ARE NOT QUANTIFIED IN THE DEED, AS DIRECTED BY THE CBDT IN ITS CIRCULAR, WAS IN ACCORDANCE WITH LAW .THE FI NDINGS OF THE HONBLE HIGH COURT IN THIS REGARD AT PARA 8-12 OF THE ORDER ARE AS UNDER: 8 .THE ARGUMENT THAT THE PARTNERSHIP DEED AUTHORIZES THE PAYMENT OF SALARY AND INTEREST TO THE PARTNERS, THER EFORE, SUCH AMOUNT IS DEDUCTIBLE AS EXPENDITURE, IS MISCONCEIVED. IN TERMS OF S. 40(B)(II) OF THE ACT, ANY PAYMENT OF REMUN ERATION TO ANY PARTNER, WHO IS A WORKING PARTNER, OR PAYMENT OF INTEREST TO ANY PARTNER ON HIS CAPITAL CONTRIBUTION, WHICH IS N OT AUTHORIZED BY, OR IS NOT IN ACCORDANCE WITH THE TER MS OF THE PARTNERSHIP DEED IS NOT ALLOWABLE AS EXPENSES. 9. IN FACT, THERE IS NO MATERIAL DISTINCTION BETWEEN THE TERMS OF THE ORIGINAL PARTNERSHIP DEED DT. 16TH MAY, 1988 AND T HE SUBSEQUENT AGREEMENT DT. 1ST APRIL, 1992. IN THE ORIGI NAL PARTNERSHIP DEED DT. 16TH MAY, 1988, THE TERM IS AS UNDER : '8. THAT THE PARTNERS OF THE FIRM SHALL BE PAID SALARY FROM TIME TO TIME AS MAY BE MUTUALLY AGREED UPON BY THE PARTNERS O F THE FIRM FOR WHOLE TIME WORK DONE BY THEM FOR THE RUNNING OF THE BUSINESS OF THE PARTNERSHIP FIRM.' WHEREAS, THE AGREEMENT DT. 1ST APRIL, 1992 CONTAINS TH E FOLLOWING RECITALS : '2. THAT ALL THE THREE PARTNERS CONTRIBUTING CAPITAL FOR THE PROPER RUNNING OF THE BUSINESS OF THE PARTNERSHIP F IRM SHALL BE PAID INTEREST ON THEIR CAPITAL CONTRIBUTION AT THE RA TE MUTUALLY FIXED BY ALL THE THREE PARTIES REFERRED TO ABOVE IN THIS AGREEMENT FROM TIME-TO-TIME. 3. THAT ALL THE PARTNERS OF THE FIRM ATTENDING TO THE B USINESS OF THE FIRM, SHALL BE PAID SALARY FROM TIME TO TIME AT THE RATE MUTUALLY DECIDED BY ALL THE PARTIES IN THIS AGREEMENT.' 10. A READING OF THE TWO EXTRACTS REPRODUCED ABOVE, WOU LD SHOW THAT THERE WAS NO AGREEMENT IN RESPECT OF QUAN TIFICATION OF THE SALARY OR THE RATE OF INTEREST ON THE CAPITAL CONTRIBUTION OF THE PARTNERS. SUCH PAYMENT WAS LEFT TO THE DISCRET ION OF THE PARTNERS AT THE END OF THE FINANCIAL YEAR. SEC. 40(B)(II ) CONTEMPLATES THE AUTHORIZATION OF REMUNERATION OR I NTEREST. THE AUTHORIZATION DOES NOT MEAN AN AGREEMENT TO PAY , BUT TO QUANTIFY THE AMOUNT OF SALARY OR THE RATE OF INTERE ST PAYABLE TO THE PARTNERS. IF THE SAID ASPECTS ARE NOT DETERMINED PRIOR TO THE FINANCIAL YEAR, THE SAME ARE CAPABLE OF ADJUSTMENT AT THE END OF THE FINANCIAL YEAR KEEPING IN VIEW THE PROFIT S EARNED WITH A VIEW TO INCREASE EXPENDITURE AND REDUCE INCOM E. THE 22 CIRCULAR ISSUED BY THE BOARD EXPLAINS THE EXPRESSIO N AUTHORIZED IN THE AFORESAID CIRCULAR DT. 25TH MARCH, 1996. THE SAID CIRCULAR DOES NOT RUN COUNTER TO ANY OF THE PR OVISIONS OF THE ACT. THEREFORE, THE CIRCULAR BEING CLARIFICATORY IN NATURE CANNOT BE SAID TO BE BEYOND THE POWERS OF THE BOARD CONFERRED ON IT UNDER S. 119 OF THE ACT. 11. THE RELIANCE OF THE PETITIONER THAT LIBERAL APPROAC H IS REQUIRED TO BE GIVEN WHILE APPLYING THE PROVISIONS OF S . 40(B) OF THE ACT IS AGAIN NOT TENABLE. THE CASE OF THE PETITION ER FALLS IN CATEGORY (II) OF PARA 1 OF THE SAID CIRCULAR AS THE AMOUNT OF REMUNERATION TO WORKING PARTNER HAS NOT BEEN FIXED. IN RESPECT OF THE SAID ISSUE, THE BOARD HAS CLARIFIED IN ITS PA RA 3 THAT PAYMENT OF REMUNERATION TO PARTNERS CANNOT BE ALLOWED , IF THE SAME HAS NOT BEEN SPECIFIED, BUT HAS BEEN LEFT TO BE DETERMINED BY THE PARTNERS AT THE END OF THE ACCOUN TING PERIOD. THE SAID CIRCULAR IS, IN FACT, IN TUNE WITH THE INTENTION AND LANGUAGE OF CL. (II) OF S. 40(B) OF THE ACT, AS ME NTIONED ABOVE. 12. IN VIEW OF THE ABOVE, THE WRIT PETITION AND APPEALS FI LED BY THE ASSESSEE ARE DISMISSED WHEREAS THE REFERENCE SO UGHT BY THE REVENUE ON THE AFORESAID QUESTION OF LAW IS ANSW ERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 29. THE CBDT CIRCULAR AND THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SOOD BHAND ARI & CO. (SUPRA) CLEARLY APPLY IN THE PRESENT CASE, FOLLOWI NG WHICH WE HOLD THAT NO DEDUCTION ON ACCOUNT OF REMUNERATION A ND INTEREST WAS TO BE MADE. 30. THE RELIANCE PLACED BY THE REVENUE ON THE DECI SION OF THE COORDINATE BENCH OF THE ITAT IN THE CASE OF M/S GNG ENTERPRISES (SUPRA), WE FIND, IS DISTINGUISHABLE ON FACTS AND THUS NOT APPLICABLE IN THE FACTS OF THE PRESENT CAS E SINCE IN THAT CASE QUANTUM OF INTEREST & REMUNERATION TO BE PAID WAS SPECIFIED IN THE PARTNERSHIP DEED AND, THEREFORE, T HE ITAT HELD THAT THE SAME WAS TO BE DEDUCTED FOR ARRIVING AT THE PROFITS ELIGIBLE FOR DEDUCTION UNDER CHAPTER VIA OF THE ACT. CLEARLY THE BENEFIT OF THE AFOREMENTIONED CBDT CIRC ULAR AS ALSO THE DECISION OF THE HON'BLE JURISDICTIONAL HIG H COURT 23 WAS NOT APPLICABLE IN THAT CASE. FOR THE AFORESAID REASONS WE HOLD THAT NO DEDUCTION ON ACCOUNT OF INTEREST AN D SALARY PAID TO THE PARTNERS WAS TO BE MADE WHILE CALCULATI NG NET PROFIT OF THE ASSESSEE. 31. THE LD. COUNSEL FOR ASSESSEE HAS ALSO CONTENDE D BEFORE US THAT THE ASSESSING OFFICER HAS ADDED BACK THE REMUNERATION AND INTEREST OF PARTNERS ON PROVISIONA L BASIS IN THE HANDS OF THE ASSESSEE AND THEREAFTER DISALLO WED THE EXCESS DEDUCTION CLAIMED U/S 80IC THUS MAKING ADDIT ION IN THE PRESENT CASE. THE LD. COUNSEL FOR ASSESSEE HAS CONTENDED THAT THERE IS NO LEGAL BASIS AT ALL FOR M AKING ADDITION ON ACCOUNT OF REMUNERATION AND INTEREST IN THE HANDS OF THE ASSESSEE ON PROVISIONAL BASIS. 32. WE FIND NO MERIT IN THIS CONTENTION RAISED BY THE LD COUNSEL FOR THE ASSESSEE, SINCE WE FIND THAT THE LD. CIT(A) HAS UPHELD THE ADDITION ON A DIFFERENT REASO NING BY REDUCING THE QUANTUM OF DEDUCTION AVAILABLE U/S 80 IC OF THE ACT AFTER DEDUCTION OF THE SALARY AND INTEREST OF PARTNERS FROM THE PROFITS OF THE ASSESSEE. 33. THE LD. COUNSEL FOR ASSESSEE HAD ALSO RAISED ANOTHER ARGUMENT RELATING TO THE VALIDITY OF SUBSEQ UENT PARTNERSHIP DEED THOUGH NOT DULY REGISTERED. THE L D. DR HAD VEHEMENTLY CONTESTED THE SAME. SINCE WE HAVE A LREADY HELD THAT THE ADDITION IN THE PRESENT CASE MADE WAS AGAINST THE LAW AND HAVE DIRECTED THE SAME TO BE DELETED, W E FIND NO 24 REASON TO DEAL WITH THIS CONTENTION OF THE LD. COUN SEL FOR ASSESSEE SINCE IT WOULD MERELY BE ACADEMIC IN NATUR E. 34. IN VIEW OF THE ABOVE, THE ADDITION MADE AMOUNT ING TO RS.63,58,197/- ON ACCOUNT OF INTEREST AND SALARY PAID TO PARTNERS IS DIRECTED TO BE DELETED AND THE ORDER OF THE CIT(APPEALS) ON THIS ISSUE IS, THEREFORE, SET ASIDE . THE GROUND NOS.3, 4 AND 5 RAISED BY THE ASSESSEE ARE, T HEREFORE, ALLOWED IN ABOVE TERMS. 35. GROUND NO.6 RAISED BY THE ASSESSEE IS AS UNDE R: 6. THAT THE ID CIT(A) HAS WRONGLY SUSTAINED THE A DDITION OF RS.1789573/- ON ACCOUNT OF NOTIONAL INTEREST INC OME ON THE ADVANCES GIVEN TO VARIOUS PERSONS WITHOUT APPREC IATING THE FACT THAT NO INTEREST HAS BEEN RECEIVED ON ADVA NCES GIVEN BY THE APPELLANT FIRM & CIT(A) HAS ALSO WRONGLY APPLIED THE DECISION OF ABHISHEK INDUSTRIES 286 ITR1 & IGNORED THE SUBSEQUENT DECISION BY HONBLE SUPREME COURT & JURISDICTIONAL ITAT DECISION.. 36. IN THE AFORESAID GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD.CIT(APPEALS) IN CON FIRMING THE ADDITION MADE OF RS.17,89,573/- U/S 36(1)(III) OF THE ACT. 37. THE FACTS RELEVANT TO THE ISSUE ARE THAT DURIN G ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOANS AMOUNTING TO RS.2,08,06,400/- TO VARIOUS PERSONS. THE ASSESSING OFFICER ALSO FOUND THAT THE ASSESSEE HAD PAID INTEREST ON B ORROWINGS AMOUNTING TO RS.17,89,573/-. ON BEING ASKED, TO SUBSTANTIATE BUSINESS PURPOSE FOR ADVANCING INTERE ST FREE AMOUNTS, THE ASSESSEE FILED COPIES OF ACCOUNT OF SO ME 25 LOANEES. THE ASSESSING OFFICER HELD THAT THERE WA S NO BUSINESS PURPOSE IN ADVANCING THE SAID AMOUNTS. TH EREAFTER RELYING UPON THE DECISION RENDERED BY THE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LT D., 286 ITR 1, THE ASSESSING OFFICER HELD THAT SINCE THE AS SESSEE HAD FAILED TO DISCHARGE ITS OBLIGATION TO PROVE THAT TH E LOANS RAISED FROM FINANCIAL INSTITUTION WERE UTILIZED FOR BUSINESS PURPOSE ONLY AND THERE WAS NO JUSTIFICATION AND REASONABLENESS TO ADVANCE INTEREST FREE FUNDS FOR N ON BUSINESS PURPOSE, DISALLOWANCE U/S 36(1)(III) OF TH E ACT WAS WARRANTED AND CALCULATING THE INTEREST ON THE INTER EST FREE ADVANCE @ 12% MADE A DISALLOWANCE OF RS.23,76,800/- . 38. THE CIT(APPEALS) UPHELD THE DISALLOWANCE MADE BUT AT THE SAME TIME RESTRICTED IT TO RS.17,89,573/ - BEING THE TOTAL INTEREST PAID AND CLAIMED AS INTEREST EXP ENSES BY THE ASSESSEE. 39. BEFORE US, THE LD. COUNSEL FOR ASSESSEE RELIED UPON THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES A ND STATED THAT THE SAID ADVANCES WERE MADE FOR BUSINES S PURPOSE LIKE PURCHASE OF FURNITURE, PURCHASE OF FAC TORY, PLOT, ETC. 40. THE LD. DR, ON THE OTHER HAND RELIED UPON THE ORDER OF THE CIT(APPEALS). 41. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PART IES. WE FIND NO REASON TO DISAGREE WITH THE FINDINGS OF THE LD.CIT(APPEALS) ON THIS ISSUE. THE LD.CIT(APPEALS) HAS 26 UPHELD THE DISALLOWANCE SINCE NO EVIDENCE TO SHOW T HAT THE ADVANCES WERE MADE FOR BUSINESS PURPOSE HAD BEEN FI LED BY THE ASSESSEE. EVEN BEFORE US THE LD.COUNSEL FOR TH E ASSESSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM. IN THE ABSENCE OF SAME, THE SAID SUBMISSION OF THE ASSESSEE HOLDS NO GROUNDS AND THE DISALLOWANCE MADE U/S 36(1)(III), W E HOLD IS LIABLE TO BE UPHELD. IN VIEW OF THE SAME, WE UPHOLD THE DISALLOWANCE MADE AMOUNTING TO RS.17,89,573/-. THE GROUND OF APPEAL NO.6 RAISED BY THE ASSESSEE IS, TH EREFORE, DISMISSED. 42. GROUND NO.7 RAISED BY THE ASSESSEE READS AS UNDER: 7. THAT THE ID CIT(A) HAS ERRED BY NOT ALLOWING DED UCTION U/S 80IC ON THE RESULTANT BUSINESS INCOME AFTER DISALLOWANCES MADE BY ASSESSING OFFICER & CONFIRMED BY CIT(A) . 43. THE ONLY CONTENTION OF THE LD. COUNSEL FOR ASS ESSEE ON THE SAID GROUND IS THAT DEDUCTION U/S 80IC BE G RANTED ON THE RESULTANT INCOME AFTER DISALLOWANCES MADE IN THE CASE OF THE ASSESSEE. THE LD. COUNSEL FOR ASSESSEE HAS RELIED UPON THE CBDT CIRCULAR NO.37/16 DATED 2.11.2016 IN THIS REGARD. 44. WE HAVE GONE THROUGH THE AFORESTATED CIRCULAR OF THE CBDT AND WE FIND THAT THE BOARD HAS IN THE SAID CIRCULAR ACCEPTED THAT THE DISALLOWANCES MADE U/S 3 2, 40(A)(IA), 40A(3), 43B, ETC. OF THE ACT RELATING TO BUSINESS ACTIVITY AND AGAINST WHICH CHAPTER VI-A IS ADMISSIB LE RESULT 27 IN ENHANCEMENT OF THE PROFIT OF THE ELIGIBLE BUSINE SS AND THAT DEDUCTION UNDER CHAPTER VIA IS ADMISSIBLE ON T HE PROFITS SO INCREASED BY THE DISALLOWANCE. 45. IN THE PRESENT CASE DISALLOWANCE MADE U/S 36(1)(III) AMOUNTING TO RS.17,89,503/- HAS BEEN UPH ELD BY US AND THE SAME BEING RELATED TO THE BUSINESS ACTIV ITY RESULTING IN ENHANCEMENT OF THE BUSINESS PROFITS OF THE ASSESSEE, THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTI ON U/S 80IC OF THE ACT ON ACCOUNT OF ENHANCED PROFITS AT T HE ELIGIBLE RATES IN VIEW OF THE CBDT CIRCULAR AS ABOVE. WE, T HEREFORE, DIRECT THE ASSESSING OFFICER TO GRANT BENEFIT TO TH E ASSESSEE OF THE SAID CIRCULAR OF THE CBDT AND COMPUTE THE TA XABLE PROFITS THEREAFTER. IN VIEW OF THE SAME, GROUND NO .7 RAISED BY THE ASSESSEE STANDS ALLOWED. 46. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 12 TH JUNE, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH
