Kaizen Switchgear Products, Baroda V. The ACIT, Central Circle-1, Baroda

ITSSA 227/AHD/2014

• Counselvise Citation: [2015] 122 COUNSELVISE.COM (IT) 0585 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 12 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-03-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 13-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P VAISHNAV
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Assessment record
• Section: 143(3); 153A; 10B; 263; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI ACCOUNTANT MEMBER IT (SS) A NO S . 227, 228, 229, 230 & 231 /AHD/201 4 A. Y . 200 4 - 0 5, 2005 - 06, 2006 - 07, 2007 - 08 & 2008 - 09 KAIZEN SWIT C HGEAR PRODUCTS, 866/1, GIDC INDUSTRIAL ESTATE, MAKARPURA, BARODA. PAN: AABFK 8158J VS ACIT, CENTRAL CIRCLE - 1 , BARODA. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI O.P. VAISHNAV, CIT - D.R. . ASSESSEE(S) BY : SHRI S.N. SOPARKAR, A. R. / DATE OF HEARING : 11 / 0 3 /201 5 / DATE OF PRONOUNCEMENT: 25 / 0 3 /201 5 / O R D E R PER: MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER THESE ARE FIVE APPEALS EMANATING FROM A CONSOLI DATED ORDER OF LEARNED COMMISSIONER CENTRAL - II, AHMEDABAD DATED 27.03.2014 PERTAINING TO THE ASSESSMENT YEARS 2004 - 05 TO 2008 - 09. THE APPELLANT HAS RAISED THE MAIN GROUND AS UNDER: 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE IMPUGNED ORDER PASSED U/S. 263 OF THE INCOME - TAX ACT, 1961 IS VOID AND DESERVES TO BE CANCELLED FOR THE REASON THAT IT HAS BEEN PASSED WITHOUT JURISDICTION INASMUCH AS THE ASSESSMENT ORDER PASSED U/S.153A SOUGHT TO BE REVISED BY HIM WAS NEITHER ERRONEOUS N OR PREJUDICIAL TO THE INTERESTS OF THE REVENUE AS ENVISAGED BY SECTION 263. 2. THE APPELLANT HAS ALSO RAISED AN ALTERNATE PLEA VIDE GROUND NO.2 REPRODUCED BELOW : IT (SS) A NO. 227, 228, 229, 230 & 231 /AHD /201 1 KAIZEN SWITCHGEAR, BARODA VS. ACIT, CENTRAL CIRCLE - I. BARODA , FOR A.Y S . 200 4 - 2005 TO 2008 - 09 - 2 - 2 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE ISSUE SOUGHT TO BE RAISED IN ORDER PASSED U/S 263 OF THE ACT WAS NOT ON THE BASIS OF MATERIAL THROWN UP BY SEARCH U/S 132 OF THE ACT AND CANNOT BE SUBJECT MATTER OF ADDITION WHILE FRAMING ASSESSMENT U/S.153A OF THE ACT. 2.1 THE UNDISPUTED FACT IS THAT FOR ALL THE ASSES SMENT YEARS THE ASSESSMENT WAS COMPLETED U/S.153A R.W.S. 143(3) OF IT ACT. THE IMPUGNED ASSESSMENT ORDERS FOR A.Y. 2004 - 05 TO 2008 - 09 WERE ALL DATED 30 TH OF DECEMBER, 2011. A SEARCH U/S.132 WAS CARRIED OUT IN THE GROUP OF CASES OF BARODA BUSHING AND INSUL ATOR INCLUDING THE ASSESSEE ON 10 TH OF SEPTEMBER, 2009. CONSEQUENT UPON THE SEARCH THE PROCEEDINGS U/S.153A WERE INITIATED. FACTS AS PER THE LEAD YEAR 2004 - 05 WERE THAT THE INCOME DISCLOSED AS PER THE RETURN FILED IN COMPLIANCE OF NOTICE U/S.153A WAS RS.1 2,09,260/ - . IT WAS ALSO OBSERVED BY THE AO THAT A RETURN OF INCOME WAS FILED EARLIER U/S.139(1) OF IT ACT AND DISCLOSED AN INCOME OF RS.23,130/ - . ACCORDING TO AO, THE ADDITIONAL INCOME AS DISCLOSED IN COMPLIANCE OF NOTICE U/S.153A WAS THE UNDISCLOSED INCOM E OF THE ASSESSEE. THE AO HAS NOTED THAT THE ASSESSEE WAS A PARTNERSHIP FIRM AND THE MANUFACTURING UNIT WAS 100% EOU. THE ASSESSEE HAS MANUFACTURED EPOXY CASTE INSULATORS, ETC. ON PAGE 3 OF THE ASSESSMENT ORDER THE AO HAS REPRODUCED THE SUBMISSION OF THE ASSESSEE WHEREIN IT WAS EXPLAINED THAT THE PROVISIONS OF SECTION 10B(1) GRANTS DEDUCTION OF THE PROFITS AND GAINS DERIVED BY 100% E OU FROM THE EXPORT OF ARTICLES OR THINGS. THE DEDUCTION U/S.10B WAS STATED TO BE ALLOWED FOR A PERIOD OF 10 CONSECUTIVE YEAR S. THE AO HAS ALSO NARRATED THE ESSENTIAL CONDITIONS REQ UIRED TO BE SATISFIED FOR THE PURPOSE OF CLAIMING OF DEDUCTION U/S10B OF IT ACT. THE AO HAS DISCUSSED AT LENGTH THE PROVISIONS OF SECTION 10B OF IT ACT IN THE LIGHT OF THE WRITTEN SUBMISSION FILED BY THE ASSESSEE AND THEREAFTER NO ADJUSTMENT WAS MADE. ACCORDING TO LEARNED COMMISSIONER, IT (SS) A NO. 227, 228, 229, 230 & 231 /AHD /201 1 KAIZEN SWITCHGEAR, BARODA VS. ACIT, CENTRAL CIRCLE - I. BARODA , FOR A.Y S . 200 4 - 2005 TO 2008 - 09 - 3 - THOSE ASSESSMENT ORDERS WERE ERRONEOUS IN NATURE. A SHOW CAUSE NOTICE WAS ISSUED AND THE RELEVANT PORTION IS REPRODUCED BELOW: 'ON VERIFICATION OF YOUR ASSESSMENT RECORD S FOR A.Y. 2004 - 05 TO 2008 - 09, IT IS SEEN THAT THE ASSESSMENT ORDERS DTD. 30/12/2011 PASSED BY DCIT, CENTRAL CIRCLE - 1, BARODA, U/S 153A R.W . S. 143(3) OF THE I.T. ACT, DETERMINING THE TOTAL INCOME AS UNDER, APPEAR TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDIC IAL TO THE INTEREST OF THE REVENUE FOR THE REASONS MENTIONED IN THE SUBSEQUENT PARAGRAPHS: - A.Y. ASSESSED INCOME 2004 - 05 RS. 12,69,102 2005 - 06 RS. 24,91,033 2006 - 07 RS. 53,54,839 , 2007 - 08 RS. 95,24,372 2008 - 09 RS.2,34,84,433 WHILE COMP UTING THE TOTAL INCOME FOR THE ABOVE A.YS., YOU HAVE NOT PROVIDED FOR THE INTEREST AND REMUNERATION TO THE PARTNERS THOUGH AUTHORIZED IN THE PARTNERSHIP DEED. BY NO T PROVIDING REMUNERATION AND INTEREST TO PARTNERS, YOU HAD EARNED MORE PROFITS THAN THE RE ASONABLE PROFIT AND THEREBY CLAIMED HIGHER EXEMPTION U/S 10B O F THE I.T. ACT. THIS ATTRACTS PROVISIONS OF SECTION 80 I A(10) R.W.S. 10B(7) OF THE I.T. ACT. TH E LNTEREST & REMUNERATION NOT PROVIDED TO THE PARTNERS ARE WORKED OUT FOR EACH A. Y. 3. LEARNED CO MMISSIONER HAS THEREAFTER PREPARED TWO CHARTS ONE WAS IN RESPECT OF INTEREST AND THE OTHER WAS IN RESPECT OF REMUNERATION TO CALCULATE THE TOTAL AMOUNT TO BE DISALLOWED U/S.10B(7) OF IT ACT R.W.S. 80IA(10). ACCORDING TO HIM, THE EXEMPTION U/S.10B WAS CLAIM ED IN EXCESS BY NOT CHARGING THE INTEREST AND REMUNERATION WHICH RESULTED IN EXCESSIVE CLAIM OF DEDUCTION. THE ASSESSEE S EXPLANATION WAS AS UNDER, ONLY RELEVANT PORTION REPRODUCED: 3.2 WE SHALL PROCEED NOW TO ELABORATE ON EACH ONE OF THE ABOVE CONTENTIO NS. PARTERSHIP DEED DID NOT PROVIDE FOR ANY PAYMENT OF INTEREST AND REMUNERATION 4.1 THIS PARTNERSHIP FIRM CAME INTO EXISTENCE WITH EFFECT FROM 1.4.1995 UNDER A DEED OF PARTNERSHIP EXECUTED BY THE PARTNERS ON 8 TH APRIL, 1995. WHEREAS CLAUSE 7 AND 8 OF THE SAID PARTNERSHIP DEED DID AUTHORISE PAYMENT OF INTEREST AND REMUNERATION TO PARTNERS, A SUPPLEMENTARY DEED OF PARTNERSHIP WAS EXECUTED ON 24.4.1995 CATEGORICALLY PROVIDING AS UNDER (EMPHASIS SUPPLIED): 'NOW THEREFORE, IT IS MUTUALLY AGREED BETWEEN THE PART NERS TO MAKE THE MODIFICATION AND AMENDMENTS IN THE AFORESAID DEED OF PARTNERSHIP AS APPEARING HEREINAFTER - IT (SS) A NO. 227, 228, 229, 230 & 231 /AHD /201 1 KAIZEN SWITCHGEAR, BARODA VS. ACIT, CENTRAL CIRCLE - I. BARODA , FOR A.Y S . 200 4 - 2005 TO 2008 - 09 - 4 - (1) THAT IN PARA - 7 AND 8 OF THE PARTNERSHIP DEED EXECUTED ON 8TH APRIL, 1995 THE FOLLOWING MODIFICATIONS SHALL BE MADE AND IT SHALL BE READ NOW AS UNDER: (A) CAPITAL AND INTEREST (PARA - 7):: IT IS MUTUALLY AGREED BETWEEN THE PARTNERS THAT WITH EFFECT FROM 01 - 04 - 1995 I.E., SINCE INCEPTION, INTEREST ON CAPITAL BALANCE OF THE PARTNERS WOULD NOT BE PAID/CHARGED FROM THE SAID PARTNERSHIP FIRM. H OWEVER, THE PARTNERS MAY PAID/CHARGED INTEREST ON CAPITAL AT THE RATE PRESCRIBED U/S. 40(B)(IV) IN FUTURE AS PER THE INCOME - TAX RULES AS MAY BE IN FORCE FOR THE RELEVANT ACCOUNTING PERIOD AS MAYBE MUTUALLY AGREED. (B) REMUNERATION TO PARTNERS (PARA - 8):: IT IS MUTUALLY AGREED BETWEEN THE PARTNERS THAT WITH EFFECT FROM: 01 - 04 - 1995 I.E. SINCE INCEPTION, PARTNERS WOULD NOT TAKE REMUNERATION FROM THE SAID PARTNERSHIP FIRM. HOWEVER, THE PARTNERS MAY TAKE REMUNERATION IN FUTURE AS PER THE INCOME - TAX RULES AS MAY BE IN FORCE FOR THE RELEVANT ACCOUNTING PERIOD AS MAY BE MUTUALLY AGREED.' IT IS FOR THE ABOVE REASON THAT THIS FIRM HAS NEVER IN THE PAST PAID ANY INTEREST OR REMUNERATION TO ITS PARTNERS IN ANY OF THE ASSESSMENT YEARS SINCE ITS INCEPTION WITH EFFE CT FROM 1.4.1995 TILL ASSESSMENT YEAR 2008 - 09. YOUR HONOUR MUST KINDLY THEREFORE, APPRECIATE THAT THE IMPUGNED NOTICE SEEKS TO RAISE AN ISSUE WHICH HAS ABSOLUTELY NO FOUNDATION OH FACTS. BE THAT AS IT MAY CONSIDERING THE FACT THAT THIS FIRM DID NOT PAY ANY INTEREST OR REMUNERATION TO ITS PARTNERS IN ANY OF THE FIVE ASSESSMENT YEAR IN QUESTION JUST AS IT DID NOT PAY ANY INTEREST OR REMUNERATION IN ANY OF THE EARLIER ASSESSMENT YEARS BEGINNING WITH THE FIRST ASSESSMENT YEAR 1996 - 97 BECAUSE ITS PARTNERSHIP DEE D AS AMENDED BY THE SUPPLEMENTARY DEED DATED 24.4.1995 DID NOT AUTHORISE ANY SUCH PAYMENT TO PARTNERS, THERE CAN BE NO QUESTION FOR ALLEGING THAT BY NOT MAKING SUCH PAYMENTS TO THE PARTNERS, THIS FIRM HAD SHOWED LARGER TOTAL INCOME EXEMPT U/S. 10B THAN WHA T IT WOULD HAVE BEEN HAD PAYMENT OF INTEREST AND REMUNERATION BEEN MADE TO THE PARTNERS. 3.1 THE ASSESSEE HAS ALSO CONTESTED THAT THERE WAS NO JURISDICTION FOR THE PROPOSED ADDITION BECAUSE THE PROVISIONS OF SECTION 153A WERE APPLICABLE IN THIS CASE AS W ELL. THE ASSESSEE HAS FURNISHED THE FOLLOWING CASE LAWS. (1) ITAT CALCUTTA DECISION IN LMJ INTERNATIONAL LTD. V. DCIT [(2008) 119 TTJ (KOL) 214] (2) ITAT DELHI DECISION IN ARCHIT AGARWAL V. ACIT CENTRAL CIRCLE 12, NEW DELHI [(2009) 34 SOT 348 (DE LHI)] (3) ITAT AHMEDABAD DECISION IN MEGHMANI ORGANICS LTD. V. DCIT[(2010) 6 ITR (TRIB) 360](AHD) IT (SS) A NO. 227, 228, 229, 230 & 231 /AHD /201 1 KAIZEN SWITCHGEAR, BARODA VS. ACIT, CENTRAL CIRCLE - I. BARODA , FOR A.Y S . 200 4 - 2005 TO 2008 - 09 - 5 - (4) ITAT MUMBAI SPECIAL BENCH DECISION IN ALL CARGO GLOBAL LOGISTICS LTD. V. DEPUTY COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE - 44 [ 2012] 23 TAXMANN.COM 10 3 (5) RAJASTHAN HIGH COURT DECISION IN JAI STEEL (INDIA) V. ACIT [(2013) 88 DT R (RAJ) 1] (6) ITAT CHENNAI DECISION IN A.B.S. SANJJAY V. ACIT RENDERED IN APPEALS NOS.1691, 1692 & 1693 (MAD)/2013 4. HOWEVER, THE LEARNED CIT(A) WAS NOT IN AGREEMENT AND DI RECT ED THE AO TO DISALLOW THAT INTEREST AND REMUNERATION IN EACH YEAR FROM THE BUSINESS INCOME ELIGIBLE FOR DEDUCTION U/S.10B OF IT ACT IN THE FOLLOWING MANNER: 5. THE ARGUMENTS OF THE ASSESSEE HAVE BEEN CAREFULLY CONSIDERED. THE FACT REMAINS THAT IN THIS CASE THE PARTNERS WERE ENTITLED FOR INTEREST AND REMUNERATION AS PER THE ORIGINAL PARTNERSHIP DEED DATED 08/04/1995. HOWEVER, SUBSEQUENTLY A SUPPLEMENTARY DEED WAS EXECUTED ON 24/04/1995 MENTIONING THAT NO INTEREST AND REMUNERATION WILL BE PAYABLE TO THE PARTNERS. IT IS FURTHER OBSERVED THAT VIDE PARTNERSHIP DEED DATED 01/04/2009 PROVISION OF INTEREST AND REMUNERATION WAS MADE FOR THE PARTNERS AGAIN. FROM THE ABOVE CIRCUMSTANCES, IT IS CLEAR THAT THE ONLY AIM OF AMENDING PARTNERSHIP DEED ON 24/04/1995 WAS TO CLAIM HIGHER DEDUCTION U/S. 10B(7)OF THE I.T. ACT. THIS WAS A COLOURABLE DEVICE WITH A VIEW TO CLAIM HIGHER DEDUCTION U/S. 10B(7) OF THE I.T. ACT. THE A.O. SHOULD HAVE LIFTED CORPORATE VEIL AND EXAMINED THE REAL SUBSTANCE OF THIS TRANSACTION WHICH HE FA ILED TO DO SO. MOREOVER, IN VIEW OF THE PROVISIONS OF SECTION 80IA (10) R.W.S. 10B(7) OF THE I.T. ACT, THE ASSESSING OFFICER WAS REQUIRED TO DISALLOW INTEREST AND REMUNERATION WHICH WAS NOT DONE BY HIM. 6. I THEREFORE HOLD THAT THE ASSESSMENT ORDERS PASSED BY THE ASSESSING OFFICER U/S. 153A R.W.S. 143(3) OF THE I.T. ACT OF A.Y. 2004 - 05 TO 2008 - 09 DATED 30/12/2011 ARE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE ASSESSING OFFICER IS THEREFORE, DIRECTED TO COMPLETE THE ASSESSMENTS AFTER MAKING DI SALLOWANCE OF INTEREST AND REMUNERATION IN EACH YEAR FROM THE BUSINESS INCOME ELIGIBLE FOR DEDUCTION U/S. 10B OF THE I.T. ACT. IT HAS BEEN POINTED OUT BY THE ASSESSEE THAT THE COMPUTATION OF INTEREST AND REMUNERATION TO THE PARTNERS IS NOT CORRECT. THE ASS ESSING OFFICER IS DIRECTED TO VERIFY THIS CLAIM OF ASSESSEE AND MAKE DISALLOWANCE REGARDING INTEREST AND REMUNERATION ON THE BASIS OF CORRECT FIGURES. 5. FROM THE SIDE OF THE ASSESSEE, LEARNED AR, MR. S.N. SOPARKAR APPEARED AND VEHEMENTLY PLEADED THAT TH E ASSESSEE WAS ENTITLED FOR THE DEDUCTION U/S.10B FOR THE YEARS UNDER CONSIDERATION. THE CALCULATION OF IT (SS) A NO. 227, 228, 229, 230 & 231 /AHD /201 1 KAIZEN SWITCHGEAR, BARODA VS. ACIT, CENTRAL CIRCLE - I. BARODA , FOR A.Y S . 200 4 - 2005 TO 2008 - 09 - 6 - DEDUCTION WAS DULY CHECKED AND RECHECKED BY THE CHARTERED ACCOUNTANT AND AFTER EXAMINING THE FACTS OF THIS CASE THE CLAIM WAS MADE. HE HAS MENTIONED THA T A PARTNERSHIP DEED WAS EXECUTED ON 8 TH OF APRIL, 1995 AND JUST 16 DAYS AFTER A SUPPLEMENTARY DEED WAS EXECUTED ON 24 TH OF APRIL, 1995 . RELEVANT DEEDS ARE PLACED BEFORE US ACCORDING TO WHICH VIDE CLAUSE - A IT WAS MUTUALLY AGREED THAT INTEREST ON CAPITAL BA LANCE OF THE PARTNERS WOULD NOT ATTRACT INTEREST. LIKEWISE IN RESPECT OF REMUNERATION TO PARTNERS CLAUSE B WAS INTRODUCED AND DECIDED THAT NO PARTNER WOULD TAKE THE REMUNERATION. LEARNED A.R. HAS ALSO FILED BEFORE US DURING THE COURSE OF HEARING THE DEED O F PARTNERSHIP EXECUTED ON 8 TH APRIL, 1995. HE HAS POINTED THAT AT THAT POINT OF TIME ; THE LAW HAD PRESCRIBED FOR GRANT OF INTEREST AND REMUNERATION TO THE PARTNERS IN TERMS OF THE PROVISION OF SECTION 40(B) OF IT ACT. LEARNED A.R. HAS FURTHER ARGUED THAT N ONE OF THE CLAUSE OF THE PARTNERSHIP DEED WAS REVOKED OR CANCELLED. IN SUPPORT OF THE CONTENTION THAT THE REMUNERATION OR INTEREST COULD NOT BE ENT H RUSTED UPON THE ASSESSEE HE HAS PLACED RELIANCE ON SEVERAL CASE LAWS LISTED AS UNDER: 1. ITO VS. M/S. THERM AL SYSTEM & ENGINEERS, SILVASSA IN ITA NO.2947/AHD/2004 ORDER DATED 17.12.2004. (TRIBUNAL AHD) 2. M/S. INDSTRIAL WORKWEAR VAPI VS. ITO VAPI, IN ITA NO.785/AHD/2004 ORDER DATED 3.2.2005 (GUJARAT HIGH COURT) 3. CIT VS. INDUSTRIAL WORKWEAR IN TAX APPEAL NO.1 177 OF 2005 ORDER DATED 20.03.2006 (TRIBUNAL AHD) 4. ITO, VAPI VS. M/S. MUNDRA PACKAGIN INDS. & M/S. MASS ENTERPRISE, IN ITA NOS.1645 TO 1649/AHD/2005 ORDER DATED 29.08.2005 (TRIBUNAL AHD) 5. CIT VS. MUNDRA PACKAGING INDUSTRIES IN TAX APPEAL NOS. 615 & 617 OF 2006 ORDER DATED 11.10.2006 (GUJARAT HIGH COURT) 6. CIT VS. MASS ENTERPRISE IN TAX APPEAL NOS.549 & 550 OF 2006 ORDER DATED 27.09.2006 (GUJARAT HIGH COURT) 7. ITO VS. M/S TWINA POLYPLAST UNIT IN ITA NOS. 2776 & 3139/AHD/2010 ORDER DATED 21.11.2014 (TRI BUNAL AHD) 8. CADILA HEALTHCARE LTD. VS. CIT AHMEDABAD - I, IN ITA NOS.1096/AHD/2013 & 910/AHD/2014 ORDER DATED 17.10.2014 (TRIBUNAL AHD) IT (SS) A NO. 227, 228, 229, 230 & 231 /AHD /201 1 KAIZEN SWITCHGEAR, BARODA VS. ACIT, CENTRAL CIRCLE - I. BARODA , FOR A.Y S . 200 4 - 2005 TO 2008 - 09 - 7 - 6. ON THE OTHER HAND, FROM THE SIDE OF THE REVENUE - DEPARTMENT, LEARNED CIT - D.R., MR. O.P. VAISHNAV A PPEARED AND RAISE D AN OBJECTION THAT THE ORIGINAL PARTNERSHIP DEED WAS NOT PROPERLY EXAMINED BY THE REVENUE AUTHORITIES AND THE AO HAS ALSO NOT SEEN THE REASON FOR EMANATING THE CLAUSES OF THE SAID PARTNERSHIP DEED, THEREFORE, THE ORDER OF THE AO WAS AN ERRONEOUS ORDER. LE ARNED D.R. HAS ALSO PLEADED THAT THE CASE LAWS WHICH HAVE BEEN CITED BY THE ASSESSEE WERE IN RESPECT OF THE REGULAR ASSESSMENT BUT NOT IN RESPECT OF THE JURISDICTION OF A LEARNED COMMISSIONER FOR INVOKING THE PROVISION OF SECTION 263 OF IT ACT. THE ASSESSE E HAS CHANGED THE CLAUSES OF THE PARTNERSHIP DEED TIME AND AGAIN AS PER HIS CONVENIENCE. THE CLAUSE OF NON - CHARGING OF INTEREST AND REMUNERATION WAS AGAIN CHANGED BY THE ASSESSEE WHEN THE PERIOD OF THE DEDUCTION U/S.10B HAD EXPIRED. THEREFORE, AS PER LEARN ED D.R., IT WAS A COLOURABLE DEVI C E TO CLAIM A HIGHER REBATE U/S.10B. IT WAS ALSO A DEVISE TO SAVE THE TAX IN THE HANDS OF THE PARTNERS. SINCE, THE AO HAS NOT EXAMINED BASIC FACTS ABOUT THE CLAUSES OF THE PARTNERSHIP HENCE IT WAS RIGHTLY CONSIDERED AS AN E RRONEOUS ORDER, MOREOVER THE ASSESSEE HAS EVADED THE TAX HENCE IN THE INTEREST OF THE REVENUE DEPARTMENT WAS PREJUDICED. HE HAS PLEADED TO AFFIRM THE ACTION TAKEN U/S.263 OF IT ACT. 7. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE CAREFULLY PERUSED THE RECORDS AVAILABLE BEFORE US. AS FAR AS THE ASSESSMENT ORDERS IN QUESTION ARE CONCERNED WE HAVE NOTED THAT THE AO HAS DELIBERATE D UPON THE ADMISSIBILITY OF THE PROVISIONS OF SECTION 10B OF IT ACT VIS - A - VIS THE BUSINESS ACTIVITY OF THE ASSESSEE AS PER PARAGRAPH 5 OF ASSESSMENT ORDER FOR A.Y. 2004 - 05 . T HE AO HAS RECORDED A FACT THAT IT WAS FOUND THAT THE ASSESSEE WAS CLAIMING DEDUCTION IN RESPECT OF SALES OF GOODS MANUFACTURED BY IT WITHIN THE MEANING OF SECTION 10B OF IT ACT. THE IT (SS) A NO. 227, 228, 229, 230 & 231 /AHD /201 1 KAIZEN SWITCHGEAR, BARODA VS. ACIT, CENTRAL CIRCLE - I. BARODA , FOR A.Y S . 200 4 - 2005 TO 2008 - 09 - 8 - IMPUGNED ORDERS OF THE AO WERE NOT CRYPTIC IN NATURE BECAUSE THE DETAILED DISCUSSION WAS MADE ABOUT THE MANUFACTURING ACTIVITY OF THE ASSESSEE AS WELL AS THE ARTICLES MANUFACTURED. THEREAFTER THE CLAIM OF DEDUCTION U/S.10B WAS ALSO MODIFIED BY THE AO. 7.1 THERE WAS NO DENIAL OF THIS FACT THAT THE ISSUE OF NON - PAYMENT INTEREST AND REMUNERATION TO PARTNERS WAS NOT DISC USS ED IN THE BODY OF ASSESSMENT ORDER . AS FAR AS THE FACTS AS STATED BEFORE US ARE CONCERNED THE FACTUAL POSITION WAS THAT FOR A.Y.2004 - 05, 2005 - 06 AND 2006 - 07 EARLI ER THE ASSESSMENT WERE COMPLETED U/S.143(3) OF IT ACT. XEROX OF THESE ASSESSMENT ORDERS HAVE ALSO BEEN PLACED IN THE COMPILATION . EVEN IN THE REGULAR ASSESSMENTS FOR THE THREE YEARS NO SUCH OBJECTION WAS RAISED BY THE AO ALTHOUGH THE FACTS WERE VERY MUCH B EFORE HIM. BECAUSE OF THE PROVISIONS OF SECTION 40(B) OF IT ACT AN ARGUMENT HAS BEEN RAISED THAT WHETHER THE REMUNERATION AND INTEREST COULD BE FOISTED UPON THE ASSESSEE. WE HAVE EXAMINED THE PROVISIONS OF SECTION 40(B)(III)&(IV) OF IT ACT , ACCORDING TO WH ICH IN THE CASE OF ANY FIRM ANY PAYMENT OF INTEREST OR REMUNERATION TO ANY PARTNER SHOULD BE AUTHORIZED BY THE TERMS OF THE PARTNERSHIP DEED. MEANING THEREBY A FIRM IS ENTITLED FOR THE CLAIM OF REMUNERATION A N D INTEREST PAID TO PARTNERS ONLY IF THE SAME IS AUTHORIZED IN THE PARTNERSHIP DEED. IF A PARTNERSHIP DEED IS SILENT ABOUT THE PAYMENT OF INTEREST AND REMUNERATION TO PARTNERS THEN NATURALLY THE ASSESSEE FIRM IS NOT ENTITLED FOR THE CLAIM OF DEDUCTION OF SUCH PAYMENTS. RATHER IN THIS CASE, INSTEAD OF NO T PROVIDING ANY SUCH CLAUSE IN THE PARTNERSHIP DEED, IT WAS SPECIFICALLY CLARIFIED IN THE CLAUSES THAT NO INTEREST OR REMUNERATION SHALL BE PAID TO THE PARTNERS. IN THIS SITUATION WHEN THE ACT IS NOT PRESCRIBING ANY COMPULSORY THRUSTING OF THE REMUNERATION AND INTEREST UPON THE PARTNERS AND THAT THE PARTNERSHIP DEED IT (SS) A NO. 227, 228, 229, 230 & 231 /AHD /201 1 KAIZEN SWITCHGEAR, BARODA VS. ACIT, CENTRAL CIRCLE - I. BARODA , FOR A.Y S . 200 4 - 2005 TO 2008 - 09 - 9 - HAS NOT AUTHORIZED TO MAKE PAYMENT OF INTEREST AND REMUNERATION TO PARTNERS THEN THE LEARNED COMMISSIONER IS NOT JUSTIFIED TO FORCE THE ASSESSEE TO MAKE SUCH PAYMENT S TO THE PARTNERS. IN THE ABS ENCE OF ANY COMPULSION IN THE LANGUAGE OF THE STAT UTE , WE HEREBY HOLD THAT LEARNED COMMISSIONER WAS NOT JUSTIFIED IN DIRECTING THE AO TO COMPUTE THE DEDUCTION U/S.10B AFTER DEDUCTING THE INTEREST AND REMUNERATION FROM THE BUSINESS PROFIT. 7.2 WE HAVE ALSO EXAMINED THE PROVISIONS OF SECTION 263 OF IT ACT ACCORDING TO WHICH THE LEARNED COMMISSIONER IS ENSHRINED WITH THE POWER OF REVISION WHEN THE TWIN CON TENTION S ARE SATISFIED . A S PER THE LANGUAGE OF SECTION 263 THE IMPUGNED ORDER OF THE AO SHOULD BE ERRONEO US AND ALSO SHOULD BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THIS CASE, THE ORDER OF THE AO CANNOT BE SAID TO BE AN ERRONEOUS ORDER BECAUSE THE CALCULATION OF THE DEDUCTION U/S.10B WAS NOT A WRONG CALCULATION. WE ARE CONVINCED BY ONE OF THE ARGUMEN T OF LEARNED A.R., MR. SOPARKAR THAT EVEN IF THE AO HAS PASSED AN ORDER UNKNOWINGLY OR UNWITTINGLY ; BUT THAT ORDER WAS OTHERWISE A CORRECT ORDER IN THE EYES OF LAW ; THEN EVEN IF ONE OF THE INQUIRY HAS NOT BEEN MADE THEN SUCH AN ORDER ESPECIALLY WHEN THERE IS NO LOSS OF TAX TO THE REVENUE DEPARTMENT CANNOT BE HELD AS AN ERRONEOUS ORDER . W E HAVE GIVEN THIS OPINION ON THE BASIS OF FEW CASE LAWS AS CITED SUPRA WHEREIN THE HON BLE COURTS HAVE HELD THAT THE REMUNERATION OR INTEREST ETC. CANNOT BE FORCE D UPON THE REGISTERED FIRM. 7.3 IN THE CASE OF M/S. THERMAL SYSTEMS AND ENGINEERS (SUPRA) A VIEW WAS EXPRESSED BY ITAT TRIBUNAL THAT WHEN THE ASSESSEE HAS NOT PAID ANY INTEREST TO THE PARTNERS AND HAD NOT CLAIMED ANY DEDUCTION, THE QUESTION IT (SS) A NO. 227, 228, 229, 230 & 231 /AHD /201 1 KAIZEN SWITCHGEAR, BARODA VS. ACIT, CENTRAL CIRCLE - I. BARODA , FOR A.Y S . 200 4 - 2005 TO 2008 - 09 - 10 - OF ALLOWING THE SAME DOES NOT ARISE BECAUSE THE FIRM HAD NOT INCURRED ANY EXPENDITURE. LIKEWISE IN THE CASE OF M/S. INDUSTRIAL WORK WEAR VAPI (SUPRA), IT WAS HELD THAT THE EXPENDITURE OF REMUNERATION AND INTEREST COULD NOT BE THRUST UPON THE ASSESSEE. THE QUESTION BEFORE THE RESPE CTED CO - ORDINATE BENCH WAS THAT WHETHER THE REVENUE DEPARTMENT WAS JUSTIFIED IN REDUCING THE NET PROFIT OF INDUSTRIAL UNDERTAKING WHICH WAS ENTITLED FOR DEDUCTION U/S.80IB BY THE AMOUNT OF INTEREST AND REMUNERATION TO THE PARTNERS. FOLLOWING FEW DECISIONS OF THE TRIBUNAL IT WAS HELD THAT THE INTEREST AND REMUNERATION MUST NOT BE COMPULSORILY FOISTED UPON THE ASSESSEE. IN THE CASE OF CIT VS. INDUSTRIAL WORK WEAR (TAX APPEAL NO.177/2005 VIDE ORDER DATED 20 TH OF MARCH, 2006 THE VIEW TAKEN BY THE TRIBUNAL WAS C ONFIRMED. FURTHER IN THE CASE OF M/S. MUNDRA PACKAGING INDUSTRIES AND M/S. MASS ENTERPRISES THE ITAT C BENCH AHMEDABAD HAS OPINED THAT THE PROVISIONS OF SECTION 40(B) ARE IN THE NATURE OF PRESCRIBING CERTAIN PROHIBITIONS AND NOT PRESCRIBING ANY RELIEF TO THE TAX PAYER. THE DECISION OF MUNDRA PACKAGING INDUSTRIES WAS LATER ON AFFIRMED BY HON BLE GUJARAT HIGH COURT IN TAX APPEAL NO.615 AND 617 OF 2006 BY AN ORDER DATED 11.12.2006. IN THE SAID ORDER THE REVENUE HAS ALSO RAISED A GROUND THAT THE ASSESSEE HAS ADOPTED SUCH MEANS FOR THE PURPOSE OF TAX EVASION THROUGH A COLOURABLE DEVISE AS HELD IN THE CASE OF MC. DOWELL AND COMPANY, 154 ITR 48 (SC). IN A LATEST DECISION DATED 21.11.2014 ITAT D BENCH AHMEDABAD IN THE CASE OF M/S. TWINA POLYPLAST UNIT (ITA NO.27 76 AND 3139/AHD/2010 ORDER DATED 21.11.2014) HAS HELD THAT EVEN IF THE CLAUSES OF THE PARTNERSHIP DEED ARE VAGUE AND NOT SPECIFIC ABOUT THE METHOD OF CALCULATION OF REMUNERATION THE SAME CANNOT BE FORCED UPON THE ASSESSEE. IT (SS) A NO. 227, 228, 229, 230 & 231 /AHD /201 1 KAIZEN SWITCHGEAR, BARODA VS. ACIT, CENTRAL CIRCLE - I. BARODA , FOR A.Y S . 200 4 - 2005 TO 2008 - 09 - 11 - 7.4 BEFORE WE CONCLUDE, IT IS W ORTH TO MENTION THAT THE LEARNED COMMISSIONER HAS NOT RESTORED THE ISSUE FOR EXAMINATION TO THE FILE OF THE AO BUT HELD THAT THE INTEREST AND REMUNERATION WAS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF THE CALCULATION OF THE BUSINESS INCOME ELIGIBLE FOR T HE DEDUCTION U/S.10B OF IT ACT. THIS IS NOT A CASE WHERE LEARNED COMMISSIONER WANTED A RELOOK THE ISSUE BY THE REVENUE DEPARTMENT BUT DIRECTED IN ABSOLUTE TERMS TO RECOMPUTE THE CLAIM HENCE IN THE INTEREST OF JUSTICE, WE HEREBY HOLD THAT SUCH AN ORDER OF THE LEARNED COMMISSIONER WAS NOT SUSTAINABLE IN THE EYES OF LAW. WE HAVE ALREADY HELD THAT THE IMPUGNED ORDERS OF THE AO WERE NOT AN ERRONEOUS ORDER BECAUSE ULTIMATE LY THE CALCULATION OF THE CLAIM OF DEDUCTION U/S.10B SHOULD BE MADE ON THE BASIS OF THE CAS E LAWS AS DISCUSSED HEREINABOVE, THEREFORE, THERE WAS NO ULTIMATE GAIN TO THE REVENUE DEPARTMENT. S UCH AN ORDER OF THE AO CANNOT BE TERMED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE . W HILE GRANTING THE DEDUCTION U/S.10B IT WAS NOT A SITUATION THAT A N IN CORRECT APPLICATION OF LAW WAS APPLIED BY THE AO . W E THEREFORE CONCLUDE THAT THE REVISION ARY ORDER PASSED U/S.263 OF THE LEARNED COMMISSIONER WAS NOT SUSTAINABLE IN THE EYES OF LAW; HENCE QUASHED. 7.5 THE ASSESSEE HAS RAISED AN ALTERNATE PLEA ABOUT THE FR AMING OF ASSESSMENT U/S.153A OF IT ACT WHICH WAS REVISED U/S.263 OF IT ACT BUT THIS GROUND HAS BECOME INFRUCTUOUS ONCE GROUND NO.1 IS ALLOWED BY US. 8. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. SD/ - SD/ - ( ANIL CHATURVEDI ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 25 / 0 3 / 20 1 5 IT (SS) A NO. 227, 228, 229, 230 & 231 /AHD /201 1 KAIZEN SWITCHGEAR, BARODA VS. ACIT, CENTRAL CIRCLE - I. BARODA , FOR A.Y S . 200 4 - 2005 TO 2008 - 09 - 12 - PRABHAT KR. KESARWANI , SR. P . S . S / CO PY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - III, AHMEDABAD 5. , , / DR, ITAT, AHMED ABAD 6. / GUARD FILE . / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD