TULSA RAM KANHIYALAL AND SONS Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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(1.) THIS appeal by the assessee against the order dt. 29th Feb., 2008 of learned CIT(A), Bikaner, in various grounds challenges the decision to allow deduction for interest amounting to Rs. 32,214 on the capital contributed by the partners and remuneration amounting to Rs. 1,53,352 to the working partners even though the assessee did not claim the same in return of income filed by it.
(2.) Briefly, the facts are that the assessee is a partnership concern evidenced the deed of partnership dt. 4th April, 1998. The terms of partnership were amended through a supplementary deed executed on 5th March, 2003. The assessee returned its income without claiming interest on the capital of the partners and also the remuneration to the. working partners. The AO further found that the deed of partnership provided payment of interest on capital of partners @ 12 per cent and also that the remuneration was payable to the working partners but the assessee has not charged the same to the P&L a/c nor credited the same in the books of account even though the terms of partnership required the assessee to do so. He, therefore, worked out the amount of interest payable to the partners at Rs. 32,214 and remuneration payable to working partners at Rs. 1,53,352 and deducted the same in terms of Section 40(b)(v) of the Act while computing assessable income of the assessee.
Learned CIT(A) confirmed the action of the assessing authority since in terms of partnership deed the partners were entitled for interest and remuneration but the same were not claimed by the assessee just to take benefit of set off of brought forward losses holding the same to be the case of tax avoidance.
(3.) SHRI P.M. Chopra, learned Counsel for the assessee, while assailing the order of learned CIT(A) contends that the first appellate authority has fallen in error in upholding the decision of the assessing authority inasmuch as the law does not require the assessing authority to allow such deduction on account of payment of interest and salary to partners in case the assessee has not claimed the same in the return of income or make any provision thereof in the books of account prepared by it. The copy of deed of partnership along with the supplementary deed that were available with the assessing authority were also placed on record. It was further contended that if the assessee planned its affairs in such a manner to avoid payment of tax, that cannot be taken as a case of tax evasion; legitimate tax planning can be done by the assessee.;
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