M/s. AL Reza Food, Mahuva V. The Income Tax Officer, Ward-2(4), Bhavnagar

ITA 633/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8928 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 22-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 03-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Keywords: Business income; Notional interest; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 40(b); 80IB; 43; 48

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ ITA NO.633/AHD/2014 / ASSTT. YEAR: 2010-2011 M/S.AL REZA FOOD SURVEY NO.190, 191, 183 PAIKEE N.H. NO.8-E NR.GANPATI TEMPLE MAHUVA PAN : AANFA 7638 P. VS. ITO, WARD-2(4) BHAVNAGAR. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI TUSHAR HEMANI, AR REVENUE BY : SHRI SONIA KUMAR, SR.DR ! / DATE OF HEARING : 22/03/2017 '#$ ! / DATE OF PRONOUNCEMENT: 23/03/2017 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF THE LD.CIT(A)-XX, AHMEDABAD DATED 23.12.2013 PASSED FOR THE ASSTT.YEAR 2010-11. 2. THOUGH THE ASSESSEE HAS TAKEN SEVEN GROUNDS OF A PPEAL, BUT ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE WHICH RELA TES TO DISALLOWANCE OF DEDUCTION UNDER SECTION 80IB(11A) OF THE INCOME TAX ACT, 1961 QUA CERTAIN ITEMS OF INCOME. THE LD.COUNSEL FOR THE AS SESSEE AT THE TIME OF ITA NO.633/AHD/2014 2 HEARING SUBMITTED THAT THE LD.AO HAS EXCLUDED THE F OLLOWING ITEMS FROM GRANT OF DEDUCTION UNDER SECTION 80IB(11A) OF THE I NCOME TAX ACT. 1. KASAR (DISCOUNT) RS.1,37,012/- 2. DUTY DRAWBACK CLAIM RS. 15,414/- 3. INTEREST FROM PGVCL RS. 24,653/- 4. VKUY LICENSE FEE RS. 59,210/- 5. INTEREST SUBSIDY OF DIC RS.4,64,048/- 3. AT THE VERY OUTSET, THE LD.COUNSEL FURTHER SUBMI TTED THAT SINCE THE AMOUNTS RELATED TO DUTY DRAW BACK AND PGVCL LICENSE FEE ARE VERY SMALL AMOUNTS, THEREFORE, THE ASSESSEE DOES NOT WAN T TO PRESS ITS CLAIM QUA THESE AMOUNTS. ACCORDINGLY, THE DISALLOWANCE OF D EDUCTION UNDER SECTION 80IB(11A) OF THE ACT ON THESE ITEMS ARE CON CERNED, IT IS CONFIRMED. 4. WITH REGARD TO THE DISCOUNT, IT WAS CONTENDED BY THE LD.COUNSEL FOR THE ASSESSEE THAT THE DISCOUNT IS IN RESPECT OF PURCHASES. THE ASSESSEE HAS ACCOUNTED THE DISCOUNT AVAILED BY IT O N PURCHASES SEPARATELY IN CREDIT SIDE OF THE PROFIT & LOSS ACCO UNT. IT IS NOTHING BUT RECORDED PURCHASE AT LESSER PRICE I.E. AFTER DISCOU NTED PRICE, AND THEREFORE, THIS MAY BE TREATED AS PROFIT DERIVED FR OM INDUSTRIAL UNDERTAKING ONLY. THE LD.DR, ON THE OTHER HAND, RE LIED UPON THE ORDER OF THE AO. 5. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTAN CES, WE ARE OF THE VIEW THAT A DISCOUNT IS AN ITEM BY WHICH THE AS SESSEE HAS REDUCED ITS COST OF PURCHASE, I.E. COST OF MATERIAL HAS BEE N SAVED WHICH HAS RESULTED A LITTLE HIGHER PROFIT. THUS, THIS DISCOU NT HAS A DIRECT NEXUS WITH ACTIVITIES OF THE ASSESSEE AND IT IS TREATED A S BUSINESS PROFIT. IT DESERVES TO BE CONSIDERED FOR GRANT OF DEDUCTION UN DER SECTION 80IB. THIS ASPECT HAS BEEN CONSIDERED BY THE ITAT IN THE CASE OF SAGAR FOODS VS. ITO, ITA NO.750/AHD/2014. ACCORDINGLY, WE ALLO W THE CLAIM OF THE ITA NO.633/AHD/2014 3 ASSESSEE AND DIRECT THE AO TO CONSIDER SUM OF RS.1, 37,012/- AS ELIGIBLE FOR GRANT OF DEDUCTION UNDER SECTION 80IB(11A) OF T HE ACT. 6. NEXT ITEM ON WHICH DEDUCTION WAS DENIED TO THE A SSESSEE IS INTEREST RECEIVED FROM PGVCL. THE LD.COUNSEL FOR T HE ASSESSEE CONCEDED THAT IN VIEW OF THE JUDGMENT OF THE HONBL E GUJARAT HIGH COURT IN THE CASE OF CIT VS. NIRMA LTD., 367 ITR 12 (GUJ) ONLY NET INTEREST INCOME IS TO BE EXCLUDED FOR GRANT OF DEDU CTION UNDER SECTION 80IB. WE REMIT THIS ASPECT TO THE AO. HE SHALL EX CLUDE NET INTEREST INCOME FROM PGVCL FOR ADMISSIBILITY OF DEDUCTION UN DER SECTION 80IB. 7. NEXT ITEM WHICH IS DISPUTED IS A SUM OF RS.4,64, 048/-. IT IS INTEREST SUBSIDY RECEIVED FROM GOVT. OF GUJARAT. 8. THE FACTS WITH REGARD TO THIS ISSUE ARE THAT INT EREST SUBSIDY WAS PROVIDED BY THE GOVT. OF GUJARAT THROUGH DISTRICT I NDUSTRIAL CENTRE FOR SETTING UP A NEW INDUSTRY. AS PER THE SCHEME, THIS INTEREST SUBSIDY IS AVAILABLE IN RESPECT OF INTEREST PAID ON TERM LOAN AVAILED BY THE UNIT. ACCORDINGLY, IF THE INTEREST CHARGED BY THE BANK IS 12%, THEN IN TURN SUCH INTEREST IS DEBITED TO THE PROFIT & LOSS AND I NTEREST SUBSIDY AT THE RATE OF 5% IS CREDITED TO THE PROFIT & LOSS ACCOUNT . IT WAS SUBMITTED BY THE ASSESSEE THAT INTEREST PAID TO THE BANK IS DEBI TED TO PROFIT & LOSS ACCOUNT, AND ACCORDINGLY, INTEREST RECEIVED IS CRED ITED TO THE PROFIT & LOSS ACCOUNT. THEREFORE, ONCE THE INTEREST PAYMENT IS CONSIDERED AS EXPENDITURE INCURRED FOR THE INDUSTRIAL UNDERTAKING , THE CORRESPONDING INTEREST INCOME SHOULD BE TREATED AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKING ONLY. THE LD.AO HOWEVER DID NOT ACCEPT THIS CONTENTION OF THE ASSESSEE. 9. WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN F AVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF ACG ASSOCIATED CAPSULES P.LTD. VS. CIT, 343 ITR 89 (SC). THE AO ITA NO.633/AHD/2014 4 HIMSELF HAS NOT TREATED THE INTEREST INCOME AS INCO ME FROM OTHER SOURCES. HE TREATED IT AS A BUSINESS INCOME, BUT D ID NOT GRANT DEDUCTION UNDER SECTION 80IB(11) OF THE ACT. SINCE THIS INTEREST INCOME HAS DIRECT NEXUS WITH THE ACTIVITIES OF THE ASSESSE E, IT ONLY GOES TO REDUCE THE EXPENDITURE INCURRED ON THE LOANS AVAILE D FROM THE BANK. THE ASSESSEE COULD REDUCE THE NET INTEREST EXPENDIT URE. IN OTHER WORDS, IF BANK HAS CHARGED 12% AND IT GOT SUBSIDY O F 5%, THEN IT HAD CHARGED THE RATE OF 7% ON THE PROFIT & LOSS ACCOUNT , THEN IT WOULD HAVE ENHANCED ITS PROFIT TO THIS EXTENT, AND THEREFORE, THIS INTEREST SUBSIDY IS TO BE CONSIDERED AS ELIGIBLE FOR GRANT OF DEDUCTION UNDER SECTION 80IB(11) OF THE ACT. 10. NEXT ISSUE RELATES TO EXCLUSION OF RS.32,37,916 /- OUT OF ELIGIBLE PROFIT TO CLAIM DEDUCTION UNDER SECTION 80IB(11) OF THE ACT. 11. DISPUTE WITH REGARD TO THIS ISSUE IS THAT THE A O WAS OF THE VIEW THAT THE ASSESSEE SHOULD PAY INTEREST OF RS.13,47,6 74/- AND REMUNERATION OF RS.18,90,242/- TO THE PARTNERS AS I NTEREST ON THEIR CAPITAL AND SALARY. THE ASSESSEE WAS OF THE VIEW T HAT SECTION 40B ONLY REGULATES QUANTUM OF SALARY REQUIRED TO BE PAID TO THE PARTNERS AS PER THE DEED. IT DOES NOT CONTEMPLATE THAT IF THE ASSE SSEE HAS NOT PAID SALARY THEN IT HAS TO BE THRUST UPON THE ASSESSEE. THE LD.AO HAS THRUST UPON NOTIONAL INTEREST PAYMENT ON THE CAPITAL CONTR IBUTION AND REMUNERATION PAID TO THE PARTNERS. HE REDUCED THIS AMOUNT FROM ELIGIBLE PROFITS, AND THEREAFTER GRANTED DEDUCTION. WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY THE ITAT IN THE CASE O F SAGAR FOODS VS. ITO (SUPRA) AND IT HAS BEEN HELD THAT THERE IS NO P ROVISION IN THE ACT WHICH AUTHORIZES THE AO TO THRUST THESE AMOUNTS UPO N THE ASSESSEE AND REDUCE ELIGIBLE PROFITS FOR GRANT OF DEDUCTION UNDE R SECTION 80IB OF THE ACT. THE DISCUSSION MADE BY THE TRIBUNAL IN THE CA SE OF SAGAR FOODS VS. ITO(SUPRA) ON THIS ISSUE DESERVES TO BE NOTED. IT READS AS UNDER: ITA NO.633/AHD/2014 5 16. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E RECORD PLACED BEFORE US. IN THESE TWO GROUND NOS. 3 & 4 GR IEVANCE OF THE ASSESSEE AGAINST LD. COMMISSIONER OF INCOME TAX(A) S ORDER FOR CONFIRMING THE ACTION OF LD. ASSESSING OFFICER IN N OTIONALLY REDUCING THE DEDUCTION U/S 80IB OF THE ACT BY RS.13,44,287/- ON ACCOUNT OF INT EREST AND REMUNERATION PAYABLE TO PARTNERS AS PER PARTNERSHIP DEED. WE OBSERVE THAT ASSESSEE BEING A PARTNERSHIP FIRM IS C ARRYING ON ITS BUSINESS UNDER THE PARTNERSHIP DEED DATED 3.6.2008 PLACED AT PAGES 57 TO 69 OF THE PAPER BOOK. IN THIS PARTNERSH IP DEED AS PER THE CLAUSES 8 & 9 PARTNERS ARE ENTITLED TO REMUNERA TION AND INTEREST ON CAPITAL. ASSESSEE FIRM IS ALSO ENJOYING BENEFITS OF DEDUCTION U/S 80IB(11A) OF THE ACT. DURING THE YEAR UNDER APPEAL ASSESSEE HAS NOT CHARGED ANY AMOUNT ON ACCOUNT OF R EMUNERATION AND INTEREST TO PARTNERS. LD. ASSESSING OFFICER ON OBSERVING THIS FACT WAS OF THE VIEW THAT ASSESSEE FIRM HAS TO ADHE RE AS PER THE CLAUSES OF PARTNERSHIP DEED AND DEVIATION OF ANY NA TURE NEEDS TO HAVE BEEN SUPPORTED BY SUPPLEMENTARY DEED TO THIS P ARTNERSHIP DEED WHICH WAS NOT DONE IN THE CASE OF ASSESSEE. AS A RESULT, LD. ASSESSING OFFICER COMPUTED THE NOTIONAL AMOUNT OF I NTEREST ON PARTNERS CAPITAL AT RS.10,92,653/- AND REMUNERATIO N OF RS.2,51,634/- WHICH TOTAL TO RS. 13,44,287/- AND TH EREBY REDUCING DEDUCTION U/S 80IB(11A) OF THE ACT BY THIS AMOUNT AND HELD IT TO BE TAXABLE IN THE HANDS OF PARTNERS. WHE N THE ASSESSEE WENT IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TA X(A) IT WAS DECIDED AGAINST THE ASSESSEE. 16.1 WE FURTHER OBSERVE THAT IN THE CLAUSES 8 & 9 O F THE IMPUGNED PARTNERSHIP DEED UNDER CLAUSE 8(IV) STATES THAT AS UNDER :- IV) THE PARTNERS SHALL BE ENTITLED TO INCREASE OR R EDUCE THE REMUNERATION AND MAY AGREE TO PAY REMUNERATION TO O THER PARTNER OR PARTNERS. THE PARTIES HERE TO MAY ALSO A GREE TO REVISE THE MODE OF CALCULATING THE ABOVE REMUNERATI ON AND DECIDE TO PAY SALARY AND GRANT THE BENEFIT OF HOUSE RENT ALLOWANCE, RENT FEE QUARTERS, MOTOR CAR OR CONVEYAN CE ALLOWANCE, MEDICAL EXPENSES ACCIDENT AND / OR, GRAT UITY, BONUS, COMMISSION ON SALES / GROSS RECEIPTS AND / O R THE BENEFITS TO THE ABOVE AND / OR THE PARTNER OR PARTN ERS EITHER ON MONTHLY OR YEARLY BASIS AS THEY MAY MUTUALLY AGR EED UPON. ITA NO.633/AHD/2014 6 16.2 WE FURTHER OBSERVE THAT IN CLAUSE 9 WHICH RELA TES TO INTEREST OF PARTNERS CAPITAL NOT EXCEEDING 12% PER ANNUM WH ICH ENDS WITH THE LINE THE PARTNERS SHALL BE LIBERTY TO INC REASE OR REDUCE ABOVE RATE OF INTEREST FROM TIME TO TIME. IT IS TRU E THAT CLAUSE 10 REFERS TO THE EXECUTION OF A SUPPLEMENTARY DEED IF THE PARTNERS WANT TO MODIFY THE TERMS RELATING TO REMUNERATION O F INTEREST TO PARTNERS. BUT IN CLAUSES 8 & 9 OPTION HAS BEEN PROV IDED TO THE PARTNERS TO MODIFY THE AMOUNT OF REMUNERATION AND I NTEREST IN CAPITAL. WE FURTHER FIND SUBSTANCE IN THE SUBMISSIO NS OF LD. AUTHORISED REPRESENTATIVE THAT PARTICULAR EXPENDITU RE RELATING TO INTEREST AND REMUNERATION IS NOT COMPULSORILY TO BE INCURRED AS SECTION 40 OF THE ACT DEALS WITH THE AMOUNT NOT DED UCTIBLE MORE SPECIFICALLY SECTION 40(B) DEALS WITH DISALLOWANCE OF REMUNERATION BEYOND SPECIFIED LIMIT. PROVIDING OF REMUNERATION O R INTEREST IS AN EXPENDITURE WHICH IN THE CASE OF ASSESSEE HAS NOT B EEN BOOKED IN THE BOOKS OF ACCOUNT AND, THEREFORE, LD. ASSESSING OFFICER CANNOT FOIST UPON TO PROVIDE A NOTIONAL AMOUNT OF INTEREST AND REMUNERATION. THIS VIEW FINDS SUPPORT FROM THE DECI SION OF COORDINATE BENCH IN THE CASE OF TULSA RAM KANHIYALA L & SONS (2008) SOT 402 (JODHPUR) WHEREIN SIMILAR ISSUE CAME UP BEFORE THE BENCH WHICH READS AS FOLLOWS : WHETHER SINCE PARTNERSHIP DEED REVEALED THAT THE P ARTIES ON MUTUAL CONSENT COULD ADD, AMEND, VARY OR ALTER ANY OF THE TERMS OF PARTNERSHIP, ASSESSING OFFICER COULD NOT HAVE CO MPELLED THE ASSESSEE TO CHARGE INTEREST OR REMUNERATION BY INVO KING SECTION 40(B) OF THE ACT MORE PARTICULARLY WHEN IT WAS NOT MANDATORY BUT DISCRETIONARY FOR ASSESSEE. THE SAID ISSUE WAS DECIDED IN FAVOUR OF ASSESSEE BY DECIDING AS FOLLOWS:- 6.1 HAVE HEARD THE PARTIES AND CAREFULLY PERUSED TH E MATERIAL ON RECORD. IT IS CORRECT THAT THE TERMS OF PARTNERSHIP PROVIDED PAYMENT OF INTEREST AT THE RATE OF 12 PER CENT ON C APITAL OF PARTNERS AS WELL AS REMUNERATION TO THE WORKING PAR TNERS. THE ASSESSES, HOWEVER, DID NOT MAKE PAYMENT THEREOF TO THE PARTNERS NOR MADE ANY PROVISION OF LIABILITY IN THE BOOKS OF ACCOUNT THE PERUSAL OF DEED OF PARTNERSHIP REVEALS THAT THE PAR TIES ON MUTUAL CONSENT COULD ADD, AMEND, VARY OR ALTER ANY OF THE TERMS OF PARTNERSHIP. THIS IS FOUND SO SPELLED OUT IN CLAUSE NO. 11 OF PARTNERSHIP DEED DATED 4-4-1998 AND ADOPTED IN THE SUPPLEMENTARY DEED AS WELL. FRONT THIS CLAUSE IT IS EVIDENT THAT THE VARIOUS CLAUSES OF PARTNERSHIP WHICH AUTHORISED THE PARTNERS TO CHARGE INTEREST ON THEIR CAPITALS AND REMUNERATI ON TO THE ITA NO.633/AHD/2014 7 WORKING PARTNERS COULD BE VARIED OR AMENDED EITHER VERBALLY OR EVEN BY CONDUCT. IT WAS NOT NECESSARY FOR THE PARTI ES TO HAVE REDUCED SUCH TERMS IN WRITING IN CASE THEY DESIRED NOT TO CHARGE ANY INTEREST OR REMUNERATION AS SUCH. FROM THE COND UCT OF PARTIES IT IS EVIDENT THAT THEY HAVE ACTED IN TERMS OF CLAU SE NO. 11 OF THE PARTNERSHIP DEED. THE ASSESSING OFFICER, THEREFORE, COULD NOT HAVE 'COMPELLED THE ASSESSEE TO CHARGE SUCH INTEREST OR REMUNERATION BY INVOKING SECTION 40(B)(V) OF THE ACT MORE PARTIC ULARLY WHEN IT IS NOT MANDATORY BUT DISCRETIONARY FOR THE ASSESSEE TO HAVE MADE SUCH A CLAIM. EVEN OTHERWISE, IF THIS WAS TO BE TAK EN AS A CASE OF CONTRAVENTION OF PROVISIONS OF SECTION 184 OR 185 O F THE ACT, THEN ALSO THE AMOUNT OF INTEREST OF SALARY PAYABLE TO PA RTNERS COULD NOT HAVE BEEN CHARGED AS THEIR INCOME IN TERMS OF CLAUS E (V) OF SECTION 28 OF THE ACT. THAT BEING SO, THE FOLDING R EACHED BY ID. CIT(A) THAT THE ASSESSEE HAS CIRCUMVENTED TAX LIABI LITY BY NOT CLAIMING THE DEDUCTION ON ACCOUNT OF SALARY, AND IN TEREST TO PARTNERS SO AS TO TAKE BENEFIT OF SET OFF OF BROUGH T FORWARD LOSSES WILL NOT RESULT INTO TAX EVASION BUT WAS MERELY ON LEGITIMATE TAX PLANNING DONE BY THE APPELLANT. KEEPING IN VIEW THE OVERALL CONSPECTUS OF THE CASE, I FIND NO JUSTIFICATION IN THE ACTION OF THE ID. CIT(A) IN UPHOLDING THE DECISION OF ID. ASSESSI NG AUTHORITY IN ENFORCING DEDUCTION OF INTEREST ON CAPITAL AND REMU NERATION TO WORKING PARTNERS OF THE FIRM WHILE COMPUTING THE AS SESSABLE INCOME FOR THE YEAR UNDER CONSIDERATION. I, THEREFO RE, BY ALLOWING THE GROUND IN APPEAL, DIRECT THE ASSESSING AUTHORIT Y TO MODIFY THE COMPUTATION OF INCOME ACCORDINGLY. 16.3 WE FURTHER OBSERVE THAT SIMILAR ISSUE ALSO CAM E UP BEFORE HON. JURISDICTIONAL HIGH COURT IN THE CASE OF COMMI SSIONER OF INCOME TAX VS. MUNDRA PACKAGING INDUSTRIES IN TAX A PPEAL NO.615-617 OF 2006 WHEREIN FOLLOWING QUESTIONS OF L AW WERE PROPOSED :- '[A] WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE APPELLATE TRIBUNAL IS RIGHT IN LAW IN ALLOWING THE APPEAL OF ASSESSEE ON THE GROUND THAT WHEN IT IS NOT OPEN TO THE ASSESSEE TO DISCLAIM ANY ALLOWANCE/EXPENSE AND PROFIT AND GA IN OF AN INDUSTRIAL UNDERTAKING COVERED UNDER CHAPTER VI-A O F THE IT.ACT, 1961 HAS TO BE COMPUTED AS PER THE PROVISIONS OF SE CTION 29 TO 43 OF THE I.T.ACT, 1961 WHICH INCLUDES SECTION 40 FOR INTEREST/REMUNERATION TO PARTNERS AS PER PARTNERSHI P DEED ? [B] WHETHER ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE APPELLATE TRIBUNAL IS JUSTIFIED IN GRANTING REL IEF DESPITE THE FACT THAT IT AMOUNTS TO TAX EVASION IN THE HANDS OF THE PARTNERS BY ITA NO.633/AHD/2014 8 PASSING ON INTEREST/REMUNERATION IN THE GUISE OF SH ARE OF PROFITS AND IT IS COLOURABLE DEVICE AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF MC DOWEL & CO.LTD. V/S. COMMERCIAL T AX OFFICER (1985) 154 ITR 48 (SO? [C] WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE APPELLATE TRIBUNAL WAS RIGHT IN ACCEPTING ASSESSEE' S DELIBERATE AND UNJUSTIFIED CLAIM OF NOT PAYING INTEREST TO PAR TNERS AND IGNORING THEIR OBLIGATION TO PAY INTEREST TO THE PA RTNERS WHICH WAS AUTHORIZED AS PER THE PARTNERSHIP DEED AND WAS DUE WITHIN THE PARAMETERS OF THE PROVISIONS OF SECTION 40(B)(IV) O F THE IT.ACT, 1961 .PARTICULARLY IN BACKGROUND OF THE FACT THAT T HE ASSESSEE HAD CLAIMED DEDUCTION U/S.80IB OF THE I. T. ACT?' WE OBSERVE THAT HON. JURISDICTIONAL HIGH COURT RELY ING ON THE JUDGMENT OF THE COURT IN THE CASE OF COMMISSIONER O F INCOME TAX VS. INDUSTRIAL WORKWEAR IN TAX APPEAL NO.1177 OF 20 05 DID NOT ADMIT THE APPEAL OF THE REVENUE WHICH DRAWS AN INFE RENCE THAT HON. JURISDICTIONAL HIGH COURT UPHELD THE DECISION OF THE APPELLATE TRIBUNAL IN ACCEPTING ASSESSEES CLAIM OF NOT PAYIN G INTEREST TO PARTNERS EVEN WHEN IT WAS AUTHORIZED AS THE PARTNER SHIP DEED. 16.4 RESPECTFULLY FOLLOWING THE JUDGMENT OF HON. JU RISDICTIONAL HIGH COURT AND THE DECISION OF THE CO-ORDINATE BENC H AND EXAMINING THE FACTS OF THE CASE IN THE LIGHT OF ABO VE JUDGMENTS WE ARE OF THE VIEW THAT AS THE ASSESSEE WAS HAVING DISCRETION OF PROVIDING INTEREST AND REMUNERATION TO PARTNERS, AN D IN THE YEAR UNDER APPEAL IT DECIDED TO NOT TO BOOK ANY SUCH EXP ENDITURE LD. ASSESSING OFFICERS WAS NOT JUSTIFIED IN NOTIONALLY CALCULATING THE INTEREST AND REMUNERATION AT RS.10,92,653/- AND RS. 251634/- AND REDUCING DEDUCTION U/S 80IB(11A) OF THE ACT BY RS.13,44,287/-. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. COMMISSIONER OF INCOME TAX(A) AND ALLOW THIS GROUND OF ASSESSEE. RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDINAT E BENCH, WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE AND DIR ECT THE AO NOT TO REDUCE INTEREST PAYABLE TO THE PARTNERS ON THEIR CA PITAL CONTRIBUTION AND REMUNERATION FROM THE ELIGIBLE PROFITS FOR GRANT OF DEDUCTION UNDER ITA NO.633/AHD/2014 9 SECTION 80IB BECAUSE, IT IS THE DISCRETION OF THE A SSESSEE TO PAY INTEREST AND REMUNERATION TO PARTNERS OR NOT. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 23 RD MARCH, 2017. SD/- SD/- (N.K. BILLAIYA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER