Section 10AA Deduction Cannot Be Denied for Non-Provision of Partners' Interest and Remuneration; Reassessment Cannot Travel Beyond Recorded Reasons — ITAT Surat

Overview of the Case

The Income Tax Appellate Tribunal (ITAT), Surat rendered a significant decision in DCIT Vs Astitva Exim, arising from an appeal filed by the Revenue against the order passed by the National Faceless Appeal Centre (NFAC)/CIT(A) dated 26.12.2024 for Assessment Year 2012-13. The proceedings had originated from reassessment conducted under Section 143(3) read with Section 147 of the Income Tax Act, 1961. The Tribunal ultimately dismissed the Revenue's appeal, affirming the deletion of an addition of ₹11,68,26,920/- and laying down critical principles regarding the scope of reassessment and the eligibility of deductions under Section 10AA.

Background and Procedural History

Original Assessment and Return Filing

The assessee, a partnership firm engaged in export operations, had filed its return of income for Assessment Year 2012-13 on 29.09.2012, declaring nil income. This nil income position was arrived at after claiming a deduction of ₹16,82,06,879/- under Section 10AA of the Income Tax Act, 1961. The original assessment under Section 143(3) was completed on 25.03.2015, accepting the return at nil income.

Reopening of Assessment

Subsequently, the Assessing Officer received information from ADIT (Investigation)-2, Surat, alleging that the assessee had claimed excess deduction under Section 10AA on account of a discrepancy between import figures reported in the audit report and data available with DGCIS, Kolkata. Relying on this information, the case was reopened under Section 147, and a notice under Section 148 was issued on 31.03.2019.

Addition Made on a Different Issue During Reassessment

During the course of reassessment proceedings, the Assessing Officer examined the assessee's reconciliation of import figures as reported in the audit report vis-à-vis the DGCIS data. The assessee's explanation was found satisfactory, and no addition was made on the original issue that had triggered the reopening.

However, instead of closing the reassessment without any addition, the Assessing Officer proceeded to make an addition of ₹11,68,26,920/- on an entirely different ground — namely, the disallowance of remuneration and interest payable to the partners of the firm. The reassessment was completed under Section 143(3) read with Section 147 on 28.12.2019, determining the total income at ₹11,68,26,920/-.

First Appellate Proceedings

Aggrieved by the reassessment order, the assessee preferred an appeal before the CIT(A)/NFAC. The CIT(A) partly allowed the appeal and directed deletion of the addition of ₹11,68,26,920/-. The Revenue, dissatisfied with this relief granted to the assessee, filed the present appeal before the ITAT, Surat.

Grounds of Appeal Raised by the Revenue

The Revenue raised the following grounds before the Tribunal:

1. The CIT(A) erred in deleting the addition of ₹11,68,26,920/- made on account of reworking of eligible profits within the meaning of Section 10AA of the Act.

2. The CIT(A) failed to appreciate that the original partnership deed dated 21.12.2010 contained provisions for payment of remuneration and interest on capital, and that the revised partnership deed was a self-serving arrangement designed to inflate exempt profits and suppress taxable income in the hands of partners — constituting a collusive arrangement within the meaning of Section 10AA(9) read with Section 80IA(10) of the Act.