M/s. Sagar Foods, Mahuva V. The Income tax Officer, Bhavnagar

ITA 750/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9129 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 13-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: TUSHAR P HEMANI
• Keywords: Cost of acquisition; TDS; 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; 143(3); 92; 40(b); 142(1); 80HHC; 80IB; 80IC; 143(2); 80IC; 43; 48; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI RAJPAL YADAV, JM & SHRI MANISH BORAD, AM. ITA NO. 750/AHD/2014 ASST. YEAR: 2010-11 M/S SAGAR FOODS, SURVEY NO.155, NESVAD, SABARKANTHA ROAD, BHAVNAGAR ROAD, MAHUVA. VS. ITO, WD-2(4), BHAVNAGAR. APPELLANT RESPONDENT PAN ABIFS 5371B AND ITA NO. 796/AHD/2014 ASST. YEAR: 2010-11 SHREEJI DEHYDRATE EXPORTS, JUNAGADH, SURVEY NO.95 PAIKEE, B/H SILVER GINNING, BHAVNAGAR ROAD, VILLAGE YAJPUR, UNA, JUNAGADH. VS. ITO, WD-2(4), BHAVNAGAR. APPELLANT RESPONDENT PAN ABMFS 3200P APPELLANT BY SHRI TUSHAR P. HEMANI, AR RESPONDENT BY SHRI JAMES KURIEN, SR.DR DATE OF HEARING: 10/02/2017 DATE OF PRONOUNCEMENT: 22/02/2017 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 2 THESE TWO APPEALS OF SEPARATE ASSESSEES FOR ASST. YEAR 2010- 11 ARE DIRECTED AGAINST THE ORDERS OF LD. CIT(A)-XX , AHMEDABAD, DATED 17.01.2014 & 24.01.2014 VIDE APPEAL NO.CIT(A) -XX/187/12-13 AND APPEAL NO.CIT(A) XX/186/12-13 ARISING OUT OF O RDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) FRA MED ON 22.02.2013 AND DATED 25.02.2013 BY ITO, WD-2(4), BHAVNAGAR, RE SPECTIVELY. AS THE ISSUES INVOLVED IN THESE APPEALS ARE SIMILAR, T HESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. GROUNDS RAISED IN ITA NO.750/AHD/2014 ARE AS UNDER :- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON T HE FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFI CER IN NOT TREATING THE INCOME OF KASAR (DISCOUNT) AMOUNTING T O RS1,13,499/- ELIGIBLE FOR DEDUCTION U/S 80IB(11A) O F THE INCOME TAX ACT, 1961 ('THE ACT') AFTER HOLDING THAT THE SA ME IS NOT DERIVED FROM THE ELIGIBLE INDUSTRIAL UNDERTAKING. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE F ACTS OF THE CASE IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING O FFICER IN NOT TREATING, INTEREST OF RS.27,940/- RECEIVED FROM PGV CL, INTEREST SUBSIDY OF RS.1,96,246/- RECEIVED FROM GOVERNMENT O F GUJARAT THROUGH DISTRICT INDUSTRIAL CENTER AND INTEREST FRO M FDR OF RS. 10,619/- ELIGIBLE FOR DEDUCTION U/S 80IB(LLA) OF TH E ACT AFTER HOLDING THAT THE SAME IS NOT DERIVED FROM THE ELIGI BLE UNDERTAKING. 3. THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF ID. AO IN NOTI ONALLY REDUCING AN AMOUNT OF RS. 13,44, 287/- ON ACCOUNT OF REMUNER ATION AND INTEREST PAYABLE TO THE PARTNERS AS PER THE PARTN ERSHIP DEED FROM THE ELIGIBLE PROFIT TO CLAIM DEDUCTI ON U/S 80IB(11A) OF THE ACT. ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 3 4. BOTH THE LOWER AUTHORITIES HAVE FAILED TO APPRE CIATE THAT THE IMPUGNED AMOUNT OF REMUNERATION AND INTEREST WAS NE ITHER DEBITED TO PROFIT & LOSS ACCOUNT NOR PAID TO THE PA RTNERS, AND THEREFORE, THE SAME COULD NOT HAVE BEEN REDUCED NOT IONALLY FROM THE ELIGIBLE PROFIT TO CLAIM DEDUCTION U/S 80IB(11A ) OF THE ACT. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER ON ACCOUNT OF LATE PAYMENT OF PF OF RS.31,4 21/- U/S 36(L)(VA) OF THE ACT. 6. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE F ACTS OF THE CASE IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING O FFICER IN DISALLOWING RS.1,452/- IN RESPECT OF INTEREST ON TD S. 7. BOTH THE LOWER AUTHORITIES HAVE PASSED THE ORDER S WITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTH ER ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIO NS AND INFORMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IM PUGNED ORDER. 8. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF ID. AO IN CHARGING INTEREST U/S 234A/B/C/ D OF THE ACT. 9. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF ID. AO IN INITIATING PENALTY PROCEEDINGS U/S 271(L)(C) OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, EDIT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT TH E TIME OF OR BEFORE THE HEARING OF THE APPEAL. ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 4 2. FOR THE PURPOSE OF ADJUDICATION WE WILL FIRST TA KE UP FIRST ITA NO.750/AHD/2014. 3. BRIEFLY STATED FACTS AS CULLED OUT FROM THE RECO RDS ARE THAT ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSIN ESS OF MANUFACTURING OF DEHYDRATED ONION. E-RETURN OF INCO ME WAS FILED ON 25.09.2010 DECLARING NIL INCOME AFTER CLAIMING DEDU CTION U/S 80IB OF THE ACT OF RS.15,90,488/-. CASE WAS SELECTED MANUAL LY FOR COMPULSORY SCRUTINY AND STATUTORY NOTICE U/S 143(2) FOLLOWED BY NOTICE U/S 142(1) OF THE ACT ALONG WITH DETAILED QUESTIONN AIRE WAS ISSUED AND DULY SERVED UPON THE ASSESSEE. NECESSARY DETAIL S AS CALLED FOR WERE SUBMITTED. GROSS TURNOVER OF THE ASSESSEE AGGR EGATED TO RS.2,43,39,737/-. DEDUCTION U/S 80IB OF THE ACT WAS CLAIMED AT 15,90,488/-. DURING THE COURSE OF ASSESSMENT PROCEE DINGS WHILE EXAMINING THE CLAIM OF ASSESSEE U/S 80IB OF THE ACT LD. ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS CLAIMED DEDUCTIO N U/S 80IB OF THE ACT ON THE INTEREST INCOME RECEIVED FROM DEPOSIT WI TH PGVCL, FDRS AND INTEREST ON SUBSIDY AT RS.27,940/-, RS.10,619/- AND RS.1,96,246/- RESPECTIVELY. IT WAS ALSO OBSERVED THAT CLAIM IN RE SPECT OF DEDUCTION U/S 80IB OF THE ACT WAS ALSO TAKEN ON THE DISCOUNT RECEIVED (KASAR- VATAV) AT RS.1,13,499/-. LD. ASSESSING OFFICER ALSO OBSERVED THAT PF OF RS.31,421/- WAS PAID AFTER THE DUE DATE AND SIMI LARLY TDS OF RS.1452/- NEEDED TO BE DISALLOWED. IT WAS ALSO OBSE RVED BY THE ASSESSING OFFICER THAT AS PER THE PARTNERSHIP DEED ASSESSEE WAS REQUIRED TO PROVIDE INTEREST ON CAPITAL AND REMUNER ATION TO PARTNERS BUT NO SUCH EXPENDITURE WAS CLAIMED IN THE PROFIT A ND LOSS ACCOUNT THEREBY INFLATING THE PROFITS AND CLAIMING EXCESSIV E DEDUCTION U/S 80IB ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 5 OF THE ACT. AS A RESULT OF WHICH THE INCOME WHICH W AS REQUIRED TO BE SHOWN BY THE PARTNERS AS REMUNERATION AND INTEREST WAS NOT SHOWN IN THEIR RESPECTIVE INCOME TAX RETURNS THEREBY CLAIMIN G TAX BENEFITS. NECESSARY SUBMISSIONS WERE MADE BY THE ASSESSEE BUT THEY WERE NOT ENOUGH TO CONVINCE LD. ASSESSING OFFICER AND HE ACCORDINGLY ASSESSED THE INCOME OF RS.3,81,180/- AFTER DISALLOW ING DEDUCTION U/S 80IB OF THE ACT ON THE INTEREST INCOME UNDER VARIOU S HEADS AT RS.2,34,805/- AND DISCOUNT OF RS.1,13,499/- DISALLO WING PF BEING PAID AFTER THE DUE DATE, INTEREST ON TDS AND ALSO R EDUCING THE CLAIM U/S 80IB OF THE ACT BY NOTIONALLY CALCULATING INTER EST AND REMUNERATION AT RS.13,44,287/- TO BE DEBITED IN PROFIT & LOSS A/ C. NET PROFIT OF THE COMPUTATION OF INCOME AS ASSESSED BY LD. ASSESSING OFFICER IS REPRODUCED BELOW :- NET PROFIT AS PER COMPUTATION OF INCOME FILED . RS. 15,90,488/- LESS:- INCOME IS NOT RELATED WITH INDUSTRIAL UNDERT AKING WORKED OUT SEPARATELY. I). INTEREST FROM GEB RS. 27,940 /- II). KASAR DISCOUNT RS.1,13,499/- III). INTEREST SUBSIDY RS. 1,96,246/- INTEREST FROM FDR RS. 10.619/- RS. 3,48.304/- PROFIT FROM ELIGI BLE BUSINESS U/S 80IB ..... RS. 12,44,184/- LESS;- AMOUNT OF REMUNERATION AND INTEREST TO PARTNERS NOT DEBITED FOR THE PURPOSE OF ENHANCEMENT OF DEDUCTION U/S 80IB AS WORKED OUT IN ABOVE PARA. RS.13.44,287/-BUT RESTRICTED RS. 12.44.184/- PROFIT FROM INDUSTRIAL UNDERTAKING ELIGIBLE U/S 80I B... RS. NIL/- TOTAL I NCOME OF THE BUSINESS.. RS. NIL/- ADD;- DISALLOWANCES/ADDITIONS AS DISCUSSED ABOVE I) INTEREST FROM GEB RS. 27,940/- II). KASAR DISCOUNT RS.1,13,499/- III). INTEREST SUBSIDY RS. 1,96,246/- ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 6 INTEREST FROM FDR . RS. 10,619/~ IV) LATE PAYMENT OF PF RS. 31421/- INTEREST ON IDS. RS. 1452/- RS.3.81. 177/- TOTAL TAXABLE INCOME OF THE ASSESSEE ... RS.3,81,177/-- I .E. RS.3,81,180/-- THE ASSESSEE HAS INCOME OF ELIGIBLE PROFIT OF INDUS TRIAL UNDERTAKING AN AMOUNT OF RS. NIL/-.AND AMOUNT OF RS. 3,81,180/- IS TAXABLE INCOM E OF THE ASSESSEE\ AND AN AMOUNT OF RS.12,44,184/-IS TAXABLE INCOME IN THE HA NDS OF THE PARTNERS. 4. AGGRIEVED ASSESSEE WENT IN APPEAL BEFORE LD. COM MISSIONER OF INCOME TAX(A) BUT PARTLY SUCCEEDED AND NOW ON THE R EMAINING GROUNDS ON WHICH LD. COMMISSIONER OF INCOME TAX(A) CONFIRMED THE ACTION OF LD. ASSESSING OFFICER ASSESSEE IS IN APPE AL BEFORE THE TRIBUNAL. GROUND NO.1 READS AS UNDER :- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON T HE FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFI CER IN NOT TREATING THE INCOME OF KASAR (DISCOUNT) AMOUNTING T O RS1,13,499/- ELIGIBLE FOR DEDUCTION U/S 80IB(11A) O F THE INCOME TAX ACT, 1961 ('THE ACT') AFTER HOLDING THAT THE SA ME IS NOT DERIVED FROM THE ELIGIBLE INDUSTRIAL UNDERTAKING. 5. AT THE OUT SET LD. AUTHORISED REPRESENTATIVE SUB MITTED THAT THE ISSUE RAISED IN THIS GROUND RELATING TO KASAR DISCO UNT BEING ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT IS SQUARELY COVERED B Y THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF NROX SPECIALIT IES VS. ITO IN ITA NO.855/AHD/2013 PRONOUNCED ON 9.6.2016. 6. LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTRO VERT THE SUBMISSIONS OF LD. AUTHORISED REPRESENTATIVE. ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 7 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. THROUGH THIS GROUND ASSESSEE HAS CHALLENGED LD. COMMISSIONER OF INCOME TAX(A)S ORDER CONFIRMING AC TION OF LD. ASSESSING OFFICER IN NOT TREATING KASAR DISCOUNT OF RS.1,13,499/- BEING ELIGIBLE FOR DEDUCTION U/S 80IB (11A) OF THE ACT. LD. AUTHORISED REPRESENTATIVE HAS RELIED ON THE DECISION OF CO-ORD INATE BENCH IN THE CASE OF NROX SPECIALITIES VS. ITO (SUPRA) AND ON PE RUSAL OF THE DECISION OF THE CO-ORDINATE BENCH WE FIND THAT IN T HE SAID DECISION ISSUE RELATING TO ELIGIBILITY OF PURCHASE DISCOUNT FOR DEDUCTION U/S 80IB OF THE ACT HAS BEEN DEALT WITH AND DECIDED IN FAVOU R OF ASSESSEE BY OBSERVING AS UNDER :- 4. FACTS OF THE CASE ARE IN A NARROW COMPASS. THE ASSE SSEE FIRM MANUFACTURES SPECIALTY CHEMICAL. THERE IS NO DISPUT E ABOUT IT BEING ALREADY ENTITLED FOR SECTION 80IB DEDUCTION. WE FIN D THAT THE RELEVANT AMOUNT INVOLVED IS WRONGLY STATED AS RS. 3,00,295/- INSTEAD OF THE CORRECT ONE COMING TO RS. 2,99,153/-. THE ASSESSEE RECEIVED DISCOUNTS FROM ITS SUPPLIERS ON PURCHASES OF RAW MATERIALS AND CONSUMA BLES. THE ASSESSING OFFICER IN ASSESSMENT ORDER DATED 21-10-2011 HELD T HAT THESE DISCOUNTS DID NOT QUALIFY SECTION 80IB DEDUCTION SINCE NOT DE RIVED FROM THE ELIGIBLE INDUSTRIAL UNDERTAKING. HE TREATED THE CORRESPONDIN G DISCOUNT FIGURE AS INCOME FROM OTHER SOURCES. 5. THE CIT(A) CONFIRMS ASSESSING OFFICER'S ACT ION AS FOLLOWS:- '7.2 SUBMISSION BY THE APPELLANT:- THE APPELLANT SUBMITTED BEFORE ME THAT THE OTHER INCOME CONSISTS OF DISCOUNT RECEIVED OF RS. 2,99,753/- AND EXCHANGE RATE DIFFERENCE OF RS. 1,142/-. THE APPELL ANT IS ENGAGED IN MANUFACTURING OF SPECIALTY CHEMICALS AND HAS RECEIV ED DISCOUNTS FROM ITS SUPPLIERS WHILE PURCHASING RAW MATERIALS AND CONSUM ABLES. THEREFORE, THE SAID OTHER INCOME REDUCES THE PURCHASE COST OF RAW MATER IALS AND CONSUMABLES RESULTING IN INCREASE OF MANUFACTURING PROFITS AND QUALIFIES FOR DEDUCTION U/S. 80/6 AS THEY ARE DIRECTLY DERIVED FROM THE INDUSTRIAL UNDER TAKING. COPIES OF LEDGER ACCOUNTS IN REGARD TO DISCOUNT RECEIVED FROM VARIOU S SUPPLIERS OF RAW MATERIALS AND CONSUMABLES USED FOR THE MANUFACTURING PURPOSE WERE SUBMITTED TO THE AO. ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 8 THE APPELLANT SUBMITTED BEFORE, ME A COPY OF THE SU BMISSION MADE BEFORE THE AO ALONG WITH COPY OF LEDGER ACCOUNTS. IT WAS SUBMI TTED THAT THE DISCOUNTS RECEIVED REDUCES THE MANUFACTURING COST OF PRODUCTS SOLD AND HENCE IS DIRECTLY DERIVED FROM THE INDUSTRIAL UNDERTAKING. AS REGARDS EXCLUSION OF EXCHANGE RATE DIFFERENCE IT WAS SUBMITTED THAT THE ISSUE IS SQUAR ELY COVERED IN FAVOR OF THE APPELLANT IN VIEW OF THE DECISION OF GUJARAT HIGH C OURT IN THE CASE OF CIT V/S. AMBA IMPEX REPORTED IN 282 ITR 0144. IT WAS REQUEST ED TO DIRECT THE AO NOT TO EXCLUDE THE OTHER INCOME TO THE TUNE OF RS. 3,00,29 5/- WHILE CALCULATING DEDUCTION U/S. 80IB. DECISION:- I HAVE CAREFULLY PERUSED THE FACTS OF TH E CASE AND THE SUBMISSION MADE BY THE APPELLANT ALONG WITH THE OBSERVATIONS M ADE BY THE AO IN THE ASSESSMENT ORDER. THE JUDICIAL RULINGS ARE VERY CLE AR IN WHAT CONSTITUTES ALLOWABLE INCOME. THE HON'BLE SC IN THE CASE OF LIB ERTY INDIA LTD. HAS CLEARLY BROUGHT OUT THE RATIO THAT THE INCOME ELIGIBLE FOR DEDUCTION U/S. 8OIB MUST HAVE FIRST DEGREE DIRECT NEXUS WITH THE MANUFACTURING AC TIVITIES DURING THE RELEVANT YEAR. IN THE INSTANT CASE, THE APPELLANT HAS ACCOUN TED DISCOUNT RECEIVED OF RS. 2,99,153/- AS OTHER SOURCE OF INCOME WHICH MEANS TH ERE IS NO RELATION TO THE MANUFACTURING ACTIVITIES THEREFORE, DOES NOT QUALIF Y AS HAVING FIRST DEGREE NEXUS WITH THE MANUFACTURING ACTIVITIES DURING THIS YEAR THEREBY, IN MY OPINION, NOT ELIGIBLE FOR DEDUCTION U/S. 801B OF THE ACT. THIS P ART IN THIS GROUND OF APPEAL IS DISMISSED.' 6. BOTH THE PARTIES REITERATE THEIR RESPECTIVE PLEA DINGS AGAINST AND IN SUPPORT OF THEIR RESPECTIVE CASES. THERE IS NO QUAR REL ABOUT THE FACT THAT THE ASSESSEE RECEIVED THE IMPUGNED PURCHASE DISCOUN T FROM RAW MATERIALS/CONSUMABLES SUPPLIERS TO THE TUNE OF RS. 2,99,1537- AS UTILIZED IN ITS ELIGIBLE BUSINESS OF MANUFACTURING OF SPECIA LTY CHEMICALS WHOSE PROFITS ARE ALREADY ELIGIBLE FOR SECTION 80IB DEDUC TION. BOTH THE ID. LOWER AUTHORITIES DO NOT REBUT ASSESSEE'S BOOKS SPECIFICA LLY STATING THE CRUCIAL LIVE NEXUS BETWEEN THE DISCOUNTED RAW MATERIALS AND ITS MANUFACTURED SPECIALTY CHEMICALS. NET EFFECT THEREOF IS THAT ASS ESSEE'S ELIGIBLE PROFITS DERIVED FROM ITS MANUFACTURING ACTIVITIES HAVE SEEN INCREASED SINCE RAW MATERIAL COSTS HAVE COME DOWN DUE TO THE IMPUGNED D ISCOUNT FORMING INTEGRAL PART OF THE MANUFACTURING PROCESS. WE CONC LUDE IN THESE PECULIAR FACTS THAT THE AUTHORITIES BELOW HAVE WRONGLY EQUAT ED THESE FACTS WITH THOSE INVOLVED IN HON'BLE APEX COURT DECISION IN LI BERTY INDIA VS. CIT (2009) 317 ITR 218 (SC) INVOLVING DEPB SALES FIGURES. WE A CCEPT ASSESSEE'S CONTENTIONS ON MERITS AND REJECT THOSE RAISED AT RE VENUE'S BEHEST SUPPORTING THE IMPUGNED DISALLOWANCE. RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH AS OBSERVED ABOVE WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THIS DECISION AND, ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 9 WE THEREFORE, ARE OF THE VIEW THAT ASSESSEE IS ELIG IBLE TO CLAIM DEDUCTION U/S 80IB OF THE ACT ON THE INCOME FROM DI SCOUNT (KASAR) OF RS.1,13,499/-. IN THE RESULT, THIS GROUND OF ASSESS EE IS ALLOWED. 8. GROUND NO.2 READS AS UNDER :- 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE F ACTS OF THE CASE IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING O FFICER IN NOT TREATING, INTEREST OF RS.27,940/- RECEIVED FROM PGV CL, INTEREST SUBSIDY OF RS.1,96,246/- RECEIVED FROM GOVERNMENT O F GUJARAT THROUGH DISTRICT INDUSTRIAL CENTER AND INTEREST FRO M FDR OF RS. 10,619/- ELIGIBLE FOR DEDUCTION U/S 80IB(LLA) OF TH E ACT AFTER HOLDING THAT THE SAME IS NOT DERIVED FROM THE ELIGI BLE UNDERTAKING. 9. BRIEF FACTS RELATING TO THIS ISSUE ARE THAT LD. ASSESSING OFFICER DENIED DEDUCTION U/S 80IB ON THE FOLLOWING INTEREST INCOME :- INTEREST ON SUBSIDY RECEIVED FROM GOVT. OF GUJARAT RS.1,96,246/- INTEREST RECEIED FROM PGVCL RS. 27,940/- INTEREST ON FDRS RS. 10,619/- ------------------------ RS. 2,34,805/- 10. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT LD . ASSESSING OFFICER DENIED DEDUCTION U/S 80IB(11A) ON INTEREST INCOME OF RS.2,34,805/- AND THE SAID ACTION HAS BEEN CONFIRME D BY LD.CIT(A) AS WELL. ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 10 AS REGARDS 'INTEREST SUBSIDY', DEDUCTION US 80IB(11 A) IS ALLOWABLE ON THE SAME. RELIANCE IS PLACED ON CIT VS MEGHALAYA ST EELS - 383 ITR 217 (SC). AS REGARDS 'INTEREST RECEIVED FROM PGVCL' AND 'INTE REST ON FDR', DEDUCTION MUST BE DENIED MERELY ON 'NET INCOME'. NETTING OFF IS WELL ACCEPTED PRINCIPLE IN THE EYE OF LAW AND HENCE, WHI LE ELIMINATING ANY SUM FROM THE DEDUCTION UNDER SECTION 80IB OF THE AC T, IT IS THE ''NET INCOME' AND NOT THE GROSS RECEIPT WHICH SHOULD BE E XCLUDED. THIS PRINCIPLE HAS BEEN LAID DOWN BY THE HON.SUPREME COU RT IN CASE OF ACG ASSOCIATED CAPSULES PVT. LTD. VS. CIT - (2012) 343 ITR 89 (SC) IN CONTEXT OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. HON'BLE GUJARAT HIGH COURT IN CASE OF CIT VS. NIRMA LTD. - (2014) 367 ITR 12 (GUJ.) APPLIED SUCH PRINCIPLE IN CONTEXT OF PROVISI ONS CONTAINED IN SECTION 801, 80IA, ETC. 11. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTAT IVE SUPPORTED THE ORDERS OF LOWER AUTHORITIES. (383 ITR 217) 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. THROUGH THIS GROUND ASSESSEE IS A GGRIEVED WITH THE DENIAL OF DEDUCTION U/S 80IB OF THE ACT ON INTEREST INCOME RECEIVED FROM GOVT. OF GUJARAT, DEPOSIT WITH PGVCL AND FDRS. WE OBSERVE THAT THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT AND THE ONLY SOURCE O F INCOME OF THE ASSESSEE FIRM IS FROM BUSINESS OF MANUFACTURING DEH YDRATE ONION AND VEGETABLES WHICH ARE COVERED UNDER THE PROVISIONS O F SECTION 80IB OF ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 11 THE ACT. THE IMPUGNED INTEREST INCOME ON WHICH DEDU CTION U/S 80IB OF THE ACT HAS BEEN DENIED RELATES TO FOLLOWING :- > INTEREST SUBSIDY RECEIVED FROM GOVT. OF GUJARAT: RS. 1,96,246/- > INTEREST RECEIVED FORM PGVCL : RS. 27,940/- > INTEREST ON FOR : RS. 10,619/- AS REGARDS INTEREST RECEIVED FROM GOVERNMENT OF GUJ ARAT AT RS.1,96,246/-, WE FIND THAT THE ISSUE IS SQUARELY C OVERED IN FAVOUR OF ASSESSEE IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MEGHALAYA STEELS 383 ITR 247 (SC) WHEREIN HON. COURT HELD AS UNDER :- THAT AS ALL THE FOUR SUBSIDIES WERE REVENUE RECEIP TS WHICH WERE REIMBURSED TO THE ASSESSEE FOR ELEMENTS OF COST REL ATING TO MANUFACTURE OR SALE OF THEIR PRODUCTS, THERE COULD CERTAINLY BE SAID TO BE A DIRECT NEXUS BETWEEN PROFITS AND GAINS OF THE INDUSTRIAL UNDERTAKING OR BUSINESS, AND REIMBURSEMENT OF SUCH SUBSIDIES. THE SUBSIDIES WERE ONLY IN ORDER TO REIMBURSE, WHOLLY O R PARTIALLY, COSTS ACTUALLY INCURRED BY THE ASSESSEE IN THE MANUFACTUR ING AND SELLING OF ITS PRODUCTS. HONBLE COURT DECIDED THE ABOVE ISSUE WITH RELATION TO ASSESSEES CLAIM U/S 80IB AND 80IC OF THE ACT. EXAMINING THE F ACTS OF THE CASE IN THE LIGHT OF ABOVE JUDGMENT WE ARE OF THE CONSIDERE D VIEW THAT ASSESSEE HAS ALSO RECEIVED INTEREST SUBSIDY FROM GO VT. OF GUJARAT OF RS. 1,96,246/- FOR THE PROJECT UNDERTAKEN BY THE ASSESS EE ELIGIBLE FOR DEDUCTION U/S 80IB(11A) OF THE ACT AND, THEREFORE, SINCE SUBSIDY RECEIVED IS ALSO A PART OF PROFIT AND LOSS ACCOUNT OF THE INDUSTRIAL UNDERTAKING IT IS ELIGIBLE FOR DEDUCTION U/S 80IB(1 1A) OF THE ACT. WE, THEREFORE, ALLOW ASSESSEES CLAIM OF DEDUCTION U/S 80IB OF THE ACT ON THE INTEREST SUBSIDY RECEIVED FROM GOVERNMENT OF GU JARAT AT RS. 1,96,246/-. ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 12 12.1 AS REGARDS INTEREST RECEIVED FROM PGVCL AND IN TEREST ON FDRS AT RS..27,940/- & RS. 10,619/ - CERTAINLY THIS INCOME DOES NOT HAVE DIRECT NEXUS WITH THE PROFIT AND LOSS OF THE UNDERT AKING BUT IT IS ALSO A FACT THAT THE DEPOSITS WITH PGVCL AND DEPOSIT WITH THE BANK FDRS HAVE BEEN INDIRECTLY CARRIED OUT IN THE PROCESS OF BUSINESS ONLY WITH REGARD TO STATUTORY DEPOSITS TO BE MADE OR SURPLUS FUNDS DEPOSITED WITH BANK. LD. AUTHORISED REPRESENTATIVE DURING THE COURSE OF HEARING HAS REQUESTED FOR NETTING OF THE INTEREST I NCOME AGAINST INTEREST PAID BY PLACING RELIANCE ON THE JUDGMENT O F HON. SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. L TD. VS. COMMISSIONER OF INCOME TAX (2012) 343 ITR 89 (SC) W HICH HAS BEEN FOLLOWED BY HON. GUJARAT HIGH COURT IN THE CAS E OF COMMISSIONER OF INCOME TAX VS. NIRMA LTD. (2014) 36 7 ITR 12 (GUJ). ON PERUSAL OF THE JUDGMENT OF HON. SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA) IN THE CONTEXT TO NETTING OF INCOME WHILE PROVIDING DEDUCTION U/S 80IB OF THE ACT AND THE JUDGMENT OF HON. GUJARA T HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. NIRMA LT D. (SUPRA) ADJUDICATING SIMILAR ISSUE OF NETTING INCOME INTER ALIA CONSIDERING THE JUDGMENT OF HON. SUPREME COURT IN THE CASE OF ACG A SSOCIATED CAPSULES PVT. LTD. (SUPRA) WE FIND SUBSTANCE IN THE ARGUMENT OF LD. AUTHORISED REPRESENTATIVE AND ARE OF THE VIEW THAT BENEFITTING OF NETTING OF INTEREST SHOULD BE ALLOWED TO THE ASSESS EE AGAINST THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE AND RE SULTANTLY THERE WILL BE NIL EFFECT TO THE ELIGIBLE PROFIT FOR THE P URPOSE OF CLAIMING DEDUCTION U/S 80IB (11A) OF THE ACT AND ACCORDINGLY , THIS GROUND OF THE ASSESSEE IS ALLOWED. ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 13 13. GROUND NO.3 & 4 READ AS UNDER :- 3. THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF ID. AO IN NOTI ONALLY REDUCING AN AMOUNT OF RS. 13,44, 287 /- ON ACCOUNT OF REMUNE RATION AND INTEREST PAYABLE TO THE PARTNERS AS PER THE PARTN ERSHIP DEED FROM THE ELIGIBLE PROFIT TO CLAIM DEDUCTI ON U/S 80IB(11A) OF THE ACT. 4. BOTH THE LOWER AUTHORITIES HAVE FAILED TO APPRE CIATE THAT THE IMPUGNED AMOUNT OF REMUNERATION AND INTEREST WAS NE ITHER DEBITED TO PROFIT & LOSS ACCOUNT NOR PAID TO THE PA RTNERS, AND THEREFORE, THE SAME COULD NOT HAVE BEEN REDUCED NOT IONALLY FROM THE ELIGIBLE PROFIT TO CLAIM DEDUCTION U/S 80IB(11A ) OF THE ACT. 14. LD. AR BRIEFING THE FACTS RELATING TO THESE GRO UNDS SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS SESSING OFFICER FOUND THAT ASSESSEE HAS NOT DEBITED REMUNERATION A ND INTEREST TO PARTNERS TO PROFIT & LOSS A/C EVEN THOUGH THERE IS A PROVISION FOR THE SAME IN THE PARTNERSHIP DEED. LD. ASSESSING OFFICER TOOK A VIEW THAT ASSESSEE OUGHT TO HAVE PAID REMUNERATION AND INTERE ST TO PARTNERS AND BY NOT DOING SO, ASSESSEE HAS INFLATED THE PROF IT AND RESULTANTLY CLAIMED HIGHER DEDUCTION U/S 80IB(11A) TO THE EXTEN T OF RS.13,44,287/- (I.E. INTEREST RS.10,92,653 + REMUNERATION RS.2,51,634). HENCE, LD. ASSESSING OFFICER NOTIONAL LY REDUCED THE SAID SUM FROM DEDUCTION U/S 80IB(11 A) AND THIS ACT ION OF LD. ASSESSING OFFICER HAS BEEN CONFIRMED BY CIT(A) AS W ELL. ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 14 14.1 LD. AUTHORISED REPRESENTATIVE FURTHER SUBMITTE D THAT ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX(A) FAILED T O APPRECIATE FACTS IN ITS ENTIRETY. CLAUSE 8(IV) OF PARTNERSHIP DEED (PGS.47-56 @ 50 OF P/B) SPECIFICALLY PROVIDES THAT THE PARTNER S SHALL BE ENTITLED TO INCREASE OR REDUCE THE REMUNERATION AND PART NERS MAY ALSO AGREE TO PAY REMUNERATION TO OTHER PARTNERS. THUS, THOUGH THE PARTNERSHIP DEED CONTAINS A PROVISION FOR INTEREST AND REMUNERATION TO PARTNERS, IT IS OPEN FOR THE PARTNERS TO INCREASE O R DECREASE THE SAME OR NOT TO PAY THE SAME AT ALL. IN THE ASSESSEE'S CA SE, IT WAS DECIDED THAT NO INTEREST AND REMUNERATION SHALL BE PAID AND ACCORDINGLY, NEITHER THE SAME HAS BEEN PAID, NOR THE SAME HAS BE EN DEBITED TO PROFIT & LOSS A/C S.36(L)(III) AND S.37 OF THE AC T PROVIDE FOR DEDUCTION IN RESPECT OF EXPENDITURE 'PAID/INCURR ED' BY THE ASSESSEE. SINCE THE 'INTEREST' EXPENDITURE HAS NEIT HER BEEN PAID, NOR INCURRED BY THE ASSESSEE, THE SAME CANNOT BE FOISTE D UPON THE ASSESSEE. S.40 OF THE ACT PRESCRIBES FOR 'DISALLOWA NCE' IN RESPECT OF 'REMUNERATION' TO PARTNERS BEYOND SPECIFIED LIMITS. SINCE S.40 OF THE ACT DOESN'T PROVIDE FOR 'DEDUCTION' OF REMUNERATION BUT PROVIDE 'DISALLOWANCE' OF EXCESS REMUNERATION, EVEN THE CLA IM OF 'REMUNERATION' CANNOT BE FOISTED UPON THE ASSESSEE. FURTHER, PARTNERSHIP DEED IS A CREATION OF 'CONTRACT LAW'. C ONTENTS OF THE PARTNERSHIP DEED CANNOT OVERRIDE THE PROVISIONS OF THE INCOME-TAX ACT, 1961. HENCE, JUST AS DEDUCTION IN RESPECT OF I NTEREST AND REMUNERATION TO PARTNERS CANNOT BE GRANTED BEYOND T HE LIMITS PRESCRIBED UNDER THE INCOME-TAX ACT EVEN THOUGH PAR TNERSHIP PROVIDES FOR A HIGHER SUM, SIMILARLY, CLAIM OF INTE REST AND REMUNERATION TO PARTNERS CANNOT BE FOISTED UPON THE ASSESSEE ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 15 BECAUSE OF THE MERE FACT THAT PARTNERSHIP DEED PROV IDES FOR THE SAME ESPECIALLY WHEN CONDITIONS U/S 36(L)(III), 37 AND 4 0(B) OF THE ACT ARE NOT SATISFIED. IN LIGHT OF THE ABOVE DISCUSSED FACT UAL AND LEGAL POSITION, IT IS NOT OPEN FOR THE DEPARTMENT TO ARTI FICIALLY/NOTIONALLY REDUCE THE PROFITS BY THE AMOUNT OF REMUNERATION AN D INTEREST SO AS TO ULTIMATELY REDUCE ASSESSEE'S CLAIM OF DEDUCTION U/S 80IB(11A). RELIANCE IS PLACED ON: TULSA RAM KANHIYALAL & SONS - (2008) 25 SOT 402 (JODHPUR) (SMC) - PGS.41-43 OF P/B; CIT VS. MUNDRA PACKAGING INDUSTRIES - TAX APPEAL NO.615-617 OF 2006 (GUJARAT); ITO VS. M/S. TWINA POLYPLAST - ITA NO.2776 & 3130/AHD/2010 IN LIGHT OF THE ABOVE, ACTION OF AO AND CIT(A) IN A RTIFICIALLY REDUCING ASSESSEE 1 S PROFIT BY THE AMOUNT OF INTEREST AND REMUNERATIO N TO PARTNERS SO AS TO, IN TURN, REDUCE THE DEDUCTION U/ S 80IB(11A) IS NOT TENABLE IN THE EYE OF LAW. 15. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTAT IVE SUPPORTED THE ORDERS OF LOWER AUTHORITIES AND ALSO SUBMITTED THAT ASSESSEE FIRM HAD TO ABIDE BY THE CLAUSES OF THE PARTNERSHIP DEED AND MORE SO THERE WAS NO SUPPLEMENTARY DEED ENTERED INTO BY THE PARTNERS FOR NOT PROVIDING INTEREST AND REMUNERATION FOR THE YEAR UN DER APPEAL. 16. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD PLACED BEFORE US. IN THESE TWO GROUND NOS. 3 & 4 GRIEVANCE OF THE ASSESSEE AGAINST LD. COMMISSIONER OF INCOME TAX(A)S ORDER F OR CONFIRMING THE ACTION OF LD. ASSESSING OFFICER IN NOTIONALLY REDUC ING THE DEDUCTION U/S ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 16 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 PARTNERSHIP DEE D AS PER THE CLAUSES 8 & 9 PARTNERS ARE ENTITLED TO REMUNERATION 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 REMUNERATION AND I NTEREST TO PARTNERS. LD. ASSESSING OFFICER ON OBSERVING THIS F ACT WAS OF THE VIEW THAT ASSESSEE FIRM HAS TO ADHERE AS PER THE CLAUSES OF PARTNERSHIP DEED AND DEVIATION OF ANY NATURE NEEDS TO HAVE BEEN SUPPORTED BY SUPPLEMENTARY DEED TO THIS PARTNERSHIP DEED WHICH W AS NOT DONE IN THE CASE OF ASSESSEE. AS A RESULT, LD. ASSESSING OF FICER COMPUTED THE NOTIONAL AMOUNT OF INTEREST ON PARTNERS CAPITAL AT RS.10,92,653/- AND REMUNERATION OF RS.2,51,634/- WHICH TOTAL TO RS. 13 ,44,287/- AND THEREBY REDUCING DEDUCTION U/S 80IB(11A) OF THE ACT BY THIS AMOUNT AND HELD IT TO BE TAXABLE IN THE HANDS OF PARTNERS. WHEN 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 REDUCE THE REMUNERATION AND MAY AGREE TO PAY REMUNERATION TO O THER PARTNER OR PARTNERS. THE PARTIES HERE TO MAY ALSO AGREE TO REV ISE THE MODE OF CALCULATING THE ABOVE REMUNERATION AND DECIDE TO PA Y SALARY AND ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 17 GRANT THE BENEFIT OF HOUSE RENT ALLOWANCE, RENT FEE QUARTERS, MOTOR CAR OR CONVEYANCE ALLOWANCE, MEDICAL EXPENSES ACCIDENT AND / OR, GRATUITY, BONUS, COMMISSION ON SALES / GROSS RECEIP TS AND / OR THE BENEFITS TO THE ABOVE AND / OR THE PARTNER OR PARTN ERS EITHER ON MONTHLY OR YEARLY BASIS AS THEY MAY MUTUALLY AGREED UPON. 16.2 WE FURTHER OBSERVE THAT IN CLAUSE 9 WHICH REL ATES TO INTEREST OF PARTNERS CAPITAL NOT EXCEEDING 12% PER ANNUM WHICH ENDS WITH THE LINE THE PARTNERS SHALL BE LIBERTY TO INCREASE OR REDUCE ABOVE RATE OF INTEREST FROM TIME TO TIME. IT IS TRUE THAT CLAUSE 10 REFERS TO THE EXECUTION OF A SUPPLEMENTARY DEED IF THE PARTNERS W ANT TO MODIFY THE TERMS RELATING TO REMUNERATION OF INTEREST TO PARTN ERS. BUT IN CLAUSES 8 & 9 OPTION HAS BEEN PROVIDED TO THE PARTNERS TO M ODIFY THE AMOUNT OF REMUNERATION AND INTEREST IN CAPITAL. WE FURTHER FIND SUBSTANCE IN THE SUBMISSIONS OF LD. AUTHORISED REPRESENTATIVE T HAT PARTICULAR EXPENDITURE RELATING TO INTEREST AND REMUNERATION I S NOT COMPULSORILY TO BE INCURRED AS SECTION 40 OF THE ACT DEALS WITH THE AMOUNT NOT DEDUCTIBLE MORE SPECIFICALLY SECTION 40(B) DEALS WI TH DISALLOWANCE OF REMUNERATION BEYOND SPECIFIED LIMIT. PROVIDING OF R EMUNERATION OR INTEREST IS AN EXPENDITURE WHICH IN THE CASE OF ASS ESSEE HAS NOT BEEN BOOKED IN THE BOOKS OF ACCOUNT AND, THEREFORE, LD. ASSESSING OFFICER CANNOT FOIST UPON TO PROVIDE A NOTIONAL AMOUNT OF I NTEREST AND REMUNERATION. THIS VIEW FINDS SUPPORT FROM THE DECI SION OF CO- ORDINATE BENCH IN THE CASE OF TULSA RAM KANHIYALAL & SONS (2008) SOT 402 (JODHPUR) WHEREIN SIMILAR ISSUE CAME UP BEF ORE THE BENCH WHICH READS AS FOLLOWS : ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 18 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 COMP ELLED 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 PAYM ENT OF INTEREST AT THE RATE OF 12 PER CENT ON CAPITAL OF PARTNERS AS WELL AS REMUN ERATION TO THE WORKING PARTNERS. THE ASSESSES, HOWEVER, DID NOT MAKE PAYME NT THEREOF TO THE PARTNERS NOR MADE ANY PROVISION OF LIABILITY IN THE BOOKS OF ACCOUNT THE PERUSAL OF DEED OF PARTNERSHIP REVEALS THAT THE PARTIES ON MUTUAL CONS ENT COULD ADD, AMEND, VARY OR ALTER ANY OF THE TERMS OF PARTNERSHIP. THIS IS FOUN D SO SPELLED OUT IN CLAUSE NO. 11 OF PARTNERSHIP DEED DATED 4-4-1998 AND ADOPTED IN T HE SUPPLEMENTARY DEED AS WELL. FRONT THIS CLAUSE IT IS EVIDENT THAT THE VARI OUS CLAUSES OF PARTNERSHIP WHICH AUTHORISED THE PARTNERS TO CHARGE INTEREST ON THEIR CAPITALS AND REMUNERATION TO THE WORKING PARTNERS COULD BE VARIED OR AMENDED EIT HER VERBALLY OR EVEN BY CONDUCT. IT WAS NOT NECESSARY FOR THE PARTIES TO HA VE REDUCED SUCH TERMS IN WRITING IN CASE THEY DESIRED NOT TO CHARGE ANY INTE REST OR REMUNERATION AS SUCH. FROM THE CONDUCT OF PARTIES IT IS EVIDENT THAT THEY HAVE ACTED IN TERMS OF CLAUSE NO. 11 OF THE PARTNERSHIP DEED. THE ASSESSING OFFIC ER, THEREFORE, COULD NOT HAVE 'COMPELLED THE ASSESSEE TO CHARGE SUCH INTEREST OR REMUNERATION BY INVOKING SECTION 40(B}( V) OF THE ACT MORE PARTICULARLY WHEN IT IS NOT MANDATORY BUT DISCRETIONARY FOR THE ASSESSEE TO HAVE MADE SUCH A CLAIM. EVEN OTHERWISE, IF THIS WAS TO BE TAKEN AS A CASE OF CONTRAVENTION OF PROVI SIONS OF SECTION 184 OR 185 OF THE ACT, THEN ALSO THE AMOUNT OF INTEREST OF SALARY PAYABLE TO PARTNERS 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 REACHED BY ID. CIT(A) TH AT THE ASSESSEE HAS CIRCUMVENTED TAX LIABILITY BY NOT CLAIMING THE DEDU CTION ON ACCOUNT OF SALARY, AND INTEREST TO PARTNERS SO AS TO TAKE BENEFIT OF SET O FF OF BROUGHT FORWARD LOSSES WILL NOT RESULT INTO TAX EVASION BUT WAS MERELY ON LEGIT IMATE TAX PLANNING DONE BY THE APPELLANT. KEEPING IN VIEW THE OVERALL CONSPECTUS O F THE CASE, I FIND NO JUSTIFICATION IN THE ACTION OF THE ID. CIT(A) IN UP HOLDING THE DECISION OF ID. ASSESSING AUTHORITY IN ENFORCING DEDUCTION OF INTER EST ON CAPITAL AND REMUNERATION TO WORKING PARTNERS OF THE FIRM WHILE COMPUTING THE ASSESSABLE INCOME FOR THE YEAR UNDER CONSIDERATION. I, THEREFORE, BY ALLOWING THE GROUND IN APPEAL, DIRECT THE ASSESSING AUTHORITY TO MODIFY THE COMPUTATION OF IN COME ACCORDINGLY. ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 19 16.3 WE FURTHER OBSERVE THAT SIMILAR ISSUE ALSO CAM E UP BEFORE HON. JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSION ER OF INCOME TAX VS. MUNDRA PACKAGING INDUSTRIES IN TAX APPEAL NO.61 5-617 OF 2006 WHEREIN FOLLOWING QUESTIONS OF LAW 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/EXPE NSE AND PROFIT AND GAIN OF AN INDUSTRIAL UNDERTAKING COVERED UNDER CHAPTER VI-A O F THE IT.ACT, 1961 HAS TO BE COMPUTED AS PER THE PROVISIONS OF SECTION 29 TO 43 OF THE I.T.ACT, 1961 WHICH INCLUDES SECTION 40 FOR INTEREST/REMUNERATION TO PARTNERS AS PER PARTNERSHIP DEED ? [B] WHETHER ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE APPELLATE TRIBUNAL IS JUSTIFIED IN GRANTING RELIEF DESPITE TH E FACT THAT IT AMOUNTS TO TAX EVASION IN THE HANDS OF THE PARTNERS BY PASSING ON INTEREST/RE MUNERATION IN THE GUISE OF SHARE 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 TAX OFFICER (198 5) 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 UN JUSTIFIED CLAIM OF NOT PAYING INTEREST TO PARTNERS AND IGNORING THEIR OBLIGATION TO PAY INTEREST TO THE PARTNERS WHICH WAS AUTHORIZED AS PER THE PARTNERSHIP DEED AND WAS DUE WITHIN THE PARAMETERS OF THE PROVISIONS OF SECTION 40(B)(IV) OF THE IT.ACT, 1961 .PARTICULARLY IN BACKGROUND OF THE FACT THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S.80 IB OF THE I. T. ACT?' WE OBSERVE THAT HON. JURISDICTIONAL HIGH COURT REL YING ON THE JUDGMENT OF THE COURT IN THE CASE OF COMMISSIONER O F INCOME TAX VS. INDUSTRIAL WORKWEAR IN TAX APPEAL NO.1177 OF 2005 D ID NOT ADMIT THE APPEAL OF THE REVENUE WHICH DRAWS AN INFERENCE THAT HON. JURISDICTIONAL HIGH COURT UPHELD THE DECISION OF TH E APPELLATE TRIBUNAL IN ACCEPTING ASSESSEES CLAIM OF NOT PAYING INTERES T TO PARTNERS EVEN WHEN IT WAS AUTHORIZED AS THE PARTNERSHIP DEED. ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 20 16.4 RESPECTFULLY FOLLOWING THE JUDGMENT OF HON. JU RISDICTIONAL HIGH COURT AND THE DECISION OF THE CO-ORDINATE BENCH AND EXAMINING THE FACTS OF THE CASE IN THE LIGHT OF ABOVE JUDGMENTS W E ARE OF THE VIEW THAT AS THE ASSESSEE WAS HAVING DISCRETION OF PROVI DING INTEREST AND REMUNERATION TO PARTNERS, AND IN THE YEAR UNDER APP EAL IT DECIDED TO NOT TO BOOK ANY SUCH EXPENDITURE LD. ASSESSING OFFI CERS WAS NOT JUSTIFIED IN NOTIONALLY CALCULATING THE INTEREST AN D REMUNERATION AT RS.10,92,653/- AND RS.251634/- AND REDUCING DEDUCTI ON U/S 80IB(11A) OF THE ACT BY RS.13,44,287/-. ACCORDINGL Y, WE SET ASIDE THE ORDER OF LD. COMMISSIONER OF INCOME TAX(A) AND ALLOW THIS GROUND OF ASSESSEE. 17. GROUND NO.5 READS AS UNDER :- 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER ON ACCOUNT OF LATE PAYMENT OF PF OF RS.31,4 21/- U/S 36(L)(VA) OF THE ACT. 18. AT THE OUTSET LD. AUTHORISED REPRESENTATIVE CON CEDED THAT THE ISSUE RAISED IN THIS GROUND HAS BEEN DECIDED AGAINS T THE ASSESSEE BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMIS SIONER OF INCOME TAX VS. GUJARAT STATE ROAD TRANSPORT CORPORATION 3 66 ITR 170 (GUJ) AND THE SAME WAS CONFIRMED BY LD. DEPARTMENTAL REPR ESENTATIVE. 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASS ESSING OFFICER DISALLOWED A SUM OF RS.31,421/- BEING EMPLOYEES CON TRIBUTION TO PF ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 21 DEPOSITED AFTER THE DUE DATE AS STATUTORILY PROVIDE D UNDER THE ACT. LD. COMMISSIONER OF INCOME TAX(A) CONFIRMED THE DISALLO WANCE. WE OBSERVE THAT HON. JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. GUJARAT STATE ROAD T RANSPORT CORPORATION (SUPRA) HELD THAT IF THE EMPLOYEES CONT RIBUTION TO PF IS DEPOSITED BEYOND THE DUE DATE AS PROVIDED IN THE ST ATUTE THEN SUCH EXPENSES CANNOT BE CLAIMED AS DEDUCTION AGAINST THE GROSS REVENUE. RESPECTFULLY FOLLOWING THE JUDGMENT OF HON. JURISDI CTIONAL HIGH COURT IN THE ABOVE CASE, WE FIND NO REASON TO INTERFERE W ITH THE ORDER OF LD. COMMISSIONER OF INCOME TAX(A) CONFIRMING THE DISALL OWANCE WITH RESPECT TO LATE PAYMENT OF EMPLOYEES PF. ACCORDING LY, THIS GROUND OF ASSESSEE IS DISMISSED. 20. GROUND NO.6 HAS NOT BEEN PRESSED BY THE LD. AUT HORISED REPRESENTATIVE BECAUSE OF SMALLNESS OF THE AMOUNT. WE ACCORDINGLY, DISMISS THIS GROUND BEING NOT PRESSED. 21. GROUND NO.7 IS GENERAL IN NATURE WHICH NEEDS NO ADJUDICATION. 22. GROUND NO.8 IS CONSEQUENTIAL. 23. GROUND NO.9 IS PREMATURE. 24. NOW WE TAKE UP ASSESSEES APPEAL IN ITA NO.796/ AHD/2014 WHEREIN FOLLOWING GROUNDS HAVE BEEN RAISED:- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING O FFICER IN NOT TREATING OTHER INCOME AMOUNTING TO RS.1,26,722/- (C OMPRISING OF RS.14,998/- KASAR(DISCOUNT), RS. 15,595 MISC. INCOM E, RS.32,451/- EARNED FROM SELLING RAW ONIONS AND RS.6 3,678/- ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 22 EARNED ON FINISHED GOODS) ELIGIBLE FOR DEDUCTION U/ S 80IB(LLA) OF THE INCOME TAX ACT, 1961 ('THE ACT') AFTER HOLDING THAT THE SAME ARE NOT DERIVED FROM THE ELIGIBLE INDUSTRIAL UNDERT AKING. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON T HE FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFI CER IN NOT TREATING, INTEREST OF RS.4,086/- RECEIVED FROM PGVC L ELIGIBLE FOR DEDUCTION U/S 80IB(11A) OF THE ACT AFTER HOLDING TH AT THE SAME IS NOT DERIVED FROM THE ELIGIBLE UNDERTAKING. 3. THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF ID. AO IN NOTI ONALLY REDUCING AN AMOUNT OF RS.13,08,616/- ON ACCOUNT OF REMUNERAT ION AND INTEREST PAYABLE TO THE PARTNERS AS PER THE PARTN ERSHIP DEED FROM THE ELIGIBLE PROFIT TO CLAIM DEDUCTI ON U/S 80IB(11A) OF THE ACT. 4. BOTH THE LOWER AUTHORITIES HAVE FAILED TO APPR ECIATE THAT THE IMPUGNED AMOUNT OF REMUNERATION AND INTEREST WAS NE ITHER DEBITED TO PROFIT & LOSS ACCOUNT NOR PAID TO THE PA RTNERS, AND THEREFORE, THE SAME COULD NOT HAVE BEEN REDUCED NOT IONALLY FROM THE ELIGIBLE PROFIT TO CLAIM DEDUCTION U/S 801B(11A ) OF THE ACT. 5. BOTH THE LOWER AUTHORITIES HAVE PASSED THE O RDERS WITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHER ERRED I N GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFO RMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IMPUGNED ORDER. 6. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF ID. AO IN CHARGING INTEREST U/S 234A/B/C/ D OF THE ACT. 7. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF ID. AO IN INITIATING PENALTY PROCEEDINGS U/S 271(L)(C)OF THE ACT. 25. GROUND NO.1 READS AS UNDER :- ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 23 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING O FFICER IN NOT TREATING OTHER INCOME AMOUNTING TO RS.1,26,722/- (C OMPRISING OF RS.14,998/- KASAR(DISCOUNT), RS. 15,595 MISC. INCOM E, RS.32,451/- EARNED FROM SELLING RAW ONIONS AND RS.6 3,678/- EARNED ON FINISHED GOODS) ELIGIBLE FOR DEDUCTION U/ S 80IB(LLA) OF THE INCOME TAX ACT, 1961 ('THE ACT') AFTER HOLDING THAT THE SAME ARE NOT DERIVED FROM THE ELIGIBLE INDUSTRIAL UNDERT AKING. 26. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT LD. ASSESSING OFFICER DENIED DEDUCTION U/S 80IB(11A) OF THE AC T ON OTHER INCOME AGGREGATING TO RS. 1,26,722/- AS FOLLOWS AND SUCH ACTION WAS CONFIRMED BY CIT(A). THE BIFURCATION OF OTHER INCOM E OF RS.126722/- IS AS FOLLOWS :- KASAR (DISCOUNT) : RS.14,998/- MISC. INCOME : RS.15,595/- PROFIT EARNED FROM SELLING RAW ONIONS : RS .32,45I/- PROFIT ON FINISHED GOODS : RS.63.678/- TOTAL RS.1,26,722/- LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT AS REG ARDS KASAR (DISCOUNT) OF RS, 14,988/-, THE SAME IS ELIGIBLE FO R DEDUCTION U/S 80IB(11A). PLACED RELIANCE ON 'NROX SPECIALITIES VS . ITO - ITA NO.855/AHD/2013'. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT AS REG ARDS MISC. INCOME OF RS. 15,595/-. THE SAME IS ON ACCOUNT OF S ALE OF WASTE GUNNY BAGS AND SUCH INCOME IS ELIGIBLE FOR DEDUCTIO N U/S 80IB(11A) OF THE ACT. RELIANCE IS PLACED ON 'DCIT VS. HARJIVU NDAS JUTHABHAI ZAVERI AND ANOTHER - 258 ITR 785 (GUJ)'. ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 24 LD. AUTHORISED REPRESENTATIVE FAIRLY CONCEDED THAT AS REGARDS 'PROFIT FROM SELLING ONIONS' OF RS.32,451/-, AND PROFIT FRO M SALE OF FINISHED GOODS OF RS.63678/- THE SAME IS EARNED OUT OF TRADI NG ACTIVITY AND HENCE, IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB(11A) . 27. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTAT IVE SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 28. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD PLACED BEFORE US. THROUGH THIS GROUND ASSESSEE HAS CHALLENGED LD. COMMISSIONER OF INCOME TAX(A)S ORDER CONFIRMING AC TION OF ASSESSING OFFICER OF NOT TREATING FOLLOWING OTHER I NCOME AGGREGATING TO RS.1,26,722/- BEING ELIGIBLE FOR DEDUCTION U/S 8 0IB(11A) OF THE ACT:- KASAR (DISCOUNT) : RS. 14,998/- MISC. INCOME : RS. 15,595/- PROFIT EARNED FROM SELLING RAW ONIONS : RS. 32,45I/- PROFIT ON FINISHED GOODS : RS. 63.678/- TOTAL RS.1,26,722/- 29. DURING THE COURSE OF HEARING BEFORE US WHEN THE QUESTION WAS POSED ABOUT THE OTHER INCOME OF PROFITS EARNED ON F INISHED GOODS LD. AUTHORISED REPRESENTATIVE COULD NOT PROVE THAT THE AMOUNTS OF INCOME RS.32,451/- AND RS.63,678/- RELATES TO MANUF ACTURING ACTIVITIES AND IT WAS FAIRLY CONCEDED THAT THEY REL ATE TO TRADING ACTIVITIES. WE ARE THEREFORE OF THE VIEW THAT INCOM E OF RS.32,451/ AND RS.63,678/- ARE NOT ELIGIBLE FOR DEDUCTION U/S 80IB (11A) OF THE ACT. 30. AS REGARDS KASAR (DISCOUNT) OF RS.14,998/- WE O BSERVE THAT WE HAVE DEALT WITH THIS ISSUE IN THE PRECEDING PARAGRA PHS WHILE ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 25 ADJUDICATING ASSESSEES APPEAL IN ITA NO.750/AHD/20 14 WHEREIN WE HAVE RELIED ON THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF NROX SPECIALISTICS VS. ITO (SUPRA) AND HAVE HELD THAT DI SCOUNT INCOME IS ELIGIBLE FOR DEDUCTION U/S 80IB(11A) OF THE ACT. F OLLOWING THE SAME DECISION WE HEREBY HOLD THAT ASSESSEE IS ENTITLED T O DEDUCTION U/S 80IB(11A) ON THE OTHER INCOME UNDER THE HEAD KASAR (DISCOUNT) AT RS.14,998/-. 31. AS REGARDS REMAINING MISC. INCOME OF RS.15,595/ - WE FIND THAT THE SAME IS ON ACCOUNT OF SALE OF WASTE GUNNY BAGS. WE ARE OF THE VIEW THAT WASTE GUNNY BAGS NORMALLY GETS ACCUMULATE D DURING THE MANUFACTURING PROCESS AND ARE PART AND PARCEL OF RE GULAR MANUFACTURING ACTIVITY AND MISCELLANEOUS INCOME FRO M SALE OF WASTE GUNNY BAGS IS THEREFORE, ELIGIBLE FOR DEDUCTION U/S 80IB(11A) OF THE ACT. 31.1 WE ARE, THEREFORE, OF THE VIEW THAT OUT OF THE TOTAL OTHER INCOME OF RS.1,26,722/- ASSESSEE IS ONLY ENTITLED TO CLAIM DEDUCTION U/S 80IB(11A) OF THE ACT OF RS.30,593/- (RS.14,998 + RS .15,595/-). IN THE RESULT THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWE D. 32. GROUND NO.2 READS AS UNDER :- 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON T HE FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFI CER IN NOT TREATING, INTEREST OF RS.4,086/- RECEIVED FROM PGVC L ELIGIBLE FOR DEDUCTION U/S 80IB(11A) OF THE ACT AFTER HOLDING TH AT THE SAME IS NOT DERIVED FROM THE ELIGIBLE UNDERTAKING. ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 26 33. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT LD . ASSESSING OFFICER DENIED DEDUCTION U/S 80IB(11A) ON INTEREST FROM PGVCL (I.E. GEB), DEDUCTION MUST BE DENIED MERELY ON 'NET INCOME'. NETTING OFF IS WELL ACCEPTED PRINCIPLE IN THE EYE OF LAW AND HE NCE, WHILE ELIMINATING ANY SUM FROM THE DEDUCTION UNDER SECTIO N 80IB OF THE ACT. IT IS THE 'NET INCOME' AND NOT THE GROSS RECEIPT WHICH SHOULD BE EXCLUDED. THIS PRINCIPLE HAS BEEN LAID DOWN BY THE SUPREME COURT IN CASE OF ACG ASSOCIATED CAPSULES PVT. LTD. VS. CIT - (2012) 343 ITR 89 (SC) IN CONTEXT OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. HON'BLE GUJARAT HIGH COURT IN CASE OF CIT VS. NIRMA LTD. - (2014) 367 ITR 12 (GUJ.) APPLIED SUCH PRINCIPLE IN CONTEXT OF PROVISI ONS CONTAINED IN SECTION 801, 80IA, ETC. 34. LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE O RDERS OF LOWER AUTHORITIES. 35. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US. WE OBSERVE THAT SIMILAR ISSUE OF NOT TREATING INTEREST FROM PGVCL BEING ELIGIBLE FOR DEDUCTION U/ S 80IB(11A) OF THE ACT HAS BEEN DEALT BY US WHILE ADJUDICATING GROUND NO.2 OF ITA NO.750/AHD/2014 WHEREIN FOLLOWING THE PRINCIPLES LA ID DOWN BY HON. APEX COURT IN THE CASE OF ACG ASSOCIATED CAPSULES P VT. LTD. (SUPRA) AND DULY FOLLOWING THE JUDGMENT OF HON. GUJARAT HIG H COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. NIRMA LTD. ( SUPRA) WE HAVE HELD THAT ASSESSEE IS TO BE ALLOWED NETTING OFF OF INTEREST INCOME FROM SURPLUS BUSINESS FUNDS OR INTEREST FROM DEPOSITS MA DE IN THE COURSE ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 27 OF BUSINESS AGAINST INTEREST PAID. FROM PERUSAL OF THE FINANCIAL STATEMENTS WE OBSERVE THAT DURING THE YEAR ASSESSEE S INTEREST EXPENDITURE ON ICICI LOAN IS RS.780068/- WHEREAS IN TEREST INCOME FROM PGVCL IS ONLY RS.4,068/- AND THEREFORE, IF NET TING OFF IS DONE THERE WILL BE NO DISALLOWANCE OF DEDUCTION U/S 80IB (11A) OF THE ACT. WE ACCORDINGLY ALLOW THIS GROUND OF ASSESSEE. 36. GROUND NOS.4 & 5 READ AS UNDER :- 3. THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF ID. AO IN NOTI ONALLY REDUCING AN AMOUNT OF RS.13,08,616/- ON ACCOUNT OF REMUNERAT ION AND INTEREST PAYABLE TO THE PARTNERS AS PER THE PARTN ERSHIP DEED FROM THE ELIGIBLE PROFIT TO CLAIM DEDUCTI ON U/S 80IB(11A) OF THE ACT. 4. BOTH THE LOWER AUTHORITIES HAVE FAILED TO APPR ECIATE THAT THE IMPUGNED AMOUNT OF REMUNERATION AND INTEREST WAS NE ITHER DEBITED TO PROFIT & LOSS ACCOUNT NOR PAID TO THE PA RTNERS, AND THEREFORE, THE SAME COULD NOT HAVE BEEN REDUCED NOT IONALLY FROM THE ELIGIBLE PROFIT TO CLAIM DEDUCTION U/S 8018(11 A) OF THE ACT. 37. WE OBSERVE THAT SIMILAR GROUNDS HAVE BEEN DEALT WITH BY US IN ITA NO.750/AHD/2014 IN ITS GROUND NOS.3 & 4 WHEREI N LD. ASSESSING OFFICER CALCULATED NOTIONAL AMOUNT OF INTEREST AND REMUNERATION AND REDUCED THE DEDUCTION U/S 80IB(11A) OF THE ACT BY S UCH AMOUNT. SIMILARLY IN THIS APPEAL IN ITA NO.796/AHD/2014 IN THE CASE OF SHREEJI DEHYDRATE EXPORTS WE FIND THAT LD. ASSESSING OFFICE R HAS CALCULATED NOTIONAL AMOUNT OF RS.13,08,616/- ON ACCOUNT OF REM UNERATION AND INTEREST PAYABLE TO PARTNERS AS PER PARTNERSHIP DEE D. ON PERUSAL OF ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 28 THE PARTNERSHIP DEED WE OBSERVE THAT DISCRETION LIE S WITH THE PARTNERS OF BOOKING SUCH EXPENDITURE. AS THE ISSUES ARE VERB ATIM SIMILAR WE ACCORDINGLY FOLLOW OUR DECISION IN ITA NO.750/AHD/2 014 AND HOLD THAT LD. ASSESSING OFFICER WAS NOT CORRECT IN NOTIONALLY REDUCING THE DEDUCTION U/S 80IB(11A) OF THE ACT BY RS.13,08,616/ - ON ACCOUNT OF REMUNERATION AND INTEREST PAYABLE TO PARTNERS. ACCO RDINGLY, WE SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND ALLOW THE SE GROUNDS OF ASSESSEE. 38. GROUND NO.5 IS GENERAL IN NATURE, WHICH NEEDS N O ADJUDICATION. 39. GROUND NO.6 IS CONSEQUENTIAL IN NATURE. 40. GROUND NO.7 IS PREMATURE. 41. IN THE RESULT, BOTH THE APPEALS OF ASSESSEES AR E PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY, 2017 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 22/02/2017 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO. 750/AHD/2014 ASST. YEAR 2010-11 29 1. DATE OF DICTATION: 15-17/02/2017 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 21/02/2017 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 22/2/17 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: