Point of Law: On interpretation of the partnership agreement and considering the wish of the partners reflected in the partnership deed, not to pay/charge interest on the partners capital and the remuneration, the learned tribunal has rightly deleted the dis-allowance made by the Assessing Officer with respect to the deduction claimed under Section 80IB of the Income Tax Act. As rightly observed by the learned tribunal, mere incorporation of interest on the partners’ capital and remuneration does not signify that the same are mandatory in nature. We concur with the view taken by the learned tribunal. We see no reason to interfere with the impugned judgment and order passed by the learned tribunal. No substantial questions of law arise in the present Tax Appeal.

JUDGMENT :

(PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA)

1. By this writ-application under Article 226 of the Constitution of India, the writ-applicant has prayed for the following reliefs :

“(a) quash and set aside the impugned notice at Annexure-A to this petition;

(b) pending the admission, hearing and final disposal of this petition, to stay the implementation and operation of the notice at Annexure-A to this petition and stay the further proceedings for the Assessment Year 2011-12;

(c) any other and further relief deemed just and proper be granted in the interest of justice;

(d) to provide for the cost of this petition.”

2. The subject matter of this writ-application is the impugned notice issued under Section 148 of the Income Tax Act, 1961 (for short, 'the Act 1961') for re-opening of the assessment for the Assessment Year 2011-12 on the ground that the income chargeable to tax had escaped assessment within the meaning of Section 147 of the Act 1961. The notice dated 31st March 2018 issued under Section 148 of the Act 1961 is at page-16 (Annexure-A) to this writ-application. The reasons recorded and conveyed to the writ-applicant are at page-66 (Annexure-G) to this writ-application.

3. It appears that the writ-applicant filed his return of income on 30th September 2011 for the Assessment Year 2011-12 declaring the total income at Rs.84,20,950=00 and agriculture income for the rate purpose of Rs.7,38,235=00 Thereafter, a revised return of income was filed on 24th September 2012 showing the income of Rs.2,18,400=00 from a house property, Rs.5,36,22,727=00 from the business and profession for which deduction under chapter VIA of Section 80IB of Rs.5,36,62,553=00 was claimed, long term capital gain of Rs.84,23,837=00 was claimed exempt under Section 54B of the Act 1961. The writ-applicant also showed income from the other sources of Rs.1,38,120=00 and agriculture income of Rs.7,38,230=00 for the rate purpose. The case of the writ-applicant was selected for scrutiny under the CASS. The assessment proceedings came to be completed on 25th February 2014 by passing order under Section 143(3) of the Act 1961. An addition of Rs.6,55,538=00 on account of STCG was made.

4. The record reveals that the writ-applicant is a partner in a partnership firm running in the name of M/s. Vijya Laxmi Exports. It appears that the Revenue Audit Party raised an audit objection in the case of M/s.Vijya Laxmi Exports. As per the audit objection, the partnership deed of M/s. Vijya Laxmi Exports contains a clause to provide interest and remuneration to its partners as per the provision of Section 40(b) of the Act 1961.

5. It is the case of the department that the firm did not make any provision for the said interest and remuneration to be provided to the partners in accordance with the provisions of the partnership deed during the Assessment Year 2011-12.

6. It has come to the notice of the department that M/s.Vijya Laxmi Exports paid Rs.12,74,351=00 as interest on the partners capital and Rs.44,97,148=00 as remuneration to its partners, but at the same time, claimed excess deduction of Rs.57,71,499=00 under Section 10AA of the Act 1961 which was liable to be taxed in the hands of the partners. According to the department, the income of Rs.57,71,499=00 was required to be taxed in the hands of the partners. According to the Revenue, the writ-applicant, being one of the partners of the firm M/s.Vijya Laxmi Exports, has a share capital of 30 per cent.

7. Having regard to what has been stated above, it is the case of the Revenue that the writ-applicant had received interest on capital of rs.3,82,305=00 and Rs.13,49,145=00 respectively as remuneration from the partnership firm and the said amount had not been offered or disclosed for the purpose of taxation.

8. In such circumstances referred to above, the department has thought fit to re-open the assessment proceedings beyond the period of four years on the ground that the amount of Rs.17,31,450=00 had escaped assessme