--
,IT : If assessee firm fails to comply with provisions of section 144,
no deduction by way of salary or remuneration paid to partners will be
allowable
■■■
[2013] 33 taxmann.com 9 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Bhatnagar Opticals
v.
Income-tax Officer, Ward 2(1), Gwalior*
Bhavnesh Saini, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT Appeal No. 313 (Agra) of 2012
[ASSESSMENT YEAR 2006-07]
FEBRUARY 15, 2013
Section 144, read with sections 184, 185 and 69C of the Income-tax
Act, 1961 - Best judgment assessment [Non-compliance of section 144,
effect of] - Assessment year 2006-07 - Assessee-firm's return was
treated as invalid as no trading, profit and loss account and balance
sheet were filed with it - Assessee did not comply with notices, under
section 142(1) for filing return and under section 131 for producing
books of account - Due to assessee's failure to produce complete
details in spite of issuing several statutory notices, Assessing
Officer passed ex parte assessment order under section 144 and
disallowed salary/remuneration paid to partners as unexplained
expenditure under section 69C, due to non-compliance of provisions of
section 144 - Whether, where assessee firm did not comply with
provisions of section 144, no deduction by way of salary or
remuneration paid to partners was allowable as per sections 184(5) and
185 - Held, yes [Para 5.1] [In favour of revenue]
FACTS
■ Assessee-firm filed return of income, but no trading account,
profit and loss account and balance sheet were filed with it.
Therefore, the return was treated as invalid. Notice under section
142(1) requiring assessee to file return of income and summon under
section 131 requiring assessee to appear in proceedings and produce
books of account and supporting documents were not complied with.
■ During survey, some documents were impounded but no regular books
of account were found at the premises. Partner of assessee-firm
accepted that no books of account had been prepared. Due to failure of
assessee to produce complete details in spite of issuing several
statutory notices, Assessing Officer passed ex parte assessment order
under section 144. From the records, the Assessing Officer found that
the assessee firm had paid salary and remuneration to its partners,
which was treated as unexplained expenditure under section 69C and
addition was made.
■ On first appeal, the Commissioner (Appeals) confirmed the
addition on ground that assessee had failed to give any documentary
evidence or produce books of account to substantiate the payments.
■ The assessee contended that the order of the Assessing Officer
was non-speaking and no details were provided for making addition. It
was claimed that conditions of section 69C had not been satisfied and
the remuneration was allowable under section 40(b)
■ On second appeal by assessee:
HELD
■ Considering the facts of the case, it is clear that the assessee
failed to comply with the provisions of section 144. Whatever return
of income was filed originally, was declared invalid because the
assessee failed to remove the deficiency in the return. The assessee
also failed to file the return of income as required under section
142(1) and also failed to comply with the notice under section 144.
Therefore, section 144 was rightly invoked against the assessee for
framing the ex parte assessment order. Sub-section (5) of section 184
is an exception to Rule and would clearly disentitle the assessee for
claiming deduction by way of salary and remuneration etc. in case the
assessee made a failure as provided under section 144. Similarly, the
assessee also failed to prove other ingredients of section 184 before
the Assessing Officer.
■ Therefore, the provisions of section 185 would also apply in the
case of the assessee.
■ Thus, according to section 184(5), the assessee would not be
entitled for deduction by way of salary and remuneration.
■ Since the assessee did not produce any evidence or material at
any stage and there is no denial that the assessee claimed deduction
on account of salary and remuneration in the original return of
income, the Assessing Officer was justified in holding the expenditure
to be unexplained. Further, the findings of the Assessing Officer are
supported by the details filed in the return of income by the partners
in which they have declared the amount of salary received from the
assessee firm and as such specific material was available with the
Revenue Department to prove that the assessee paid salary to these
partners for which deduction has been claimed. Considering the above
discussion in the light of the above provisions, there is no
justification to interfere with the orders of the authorities below.
The findings of fact recorded by the authorities below are accordingly
confirmed and the appeal of the assessee is, accordingly, dismissed.
[Para 5.1]
CASES REFERRED TO
T.C.N. Menon v. ITO [1974] 96 ITR 148 (Ker.) (para 4).
Mahesh Agarwal for the Appellant. K.K. Mishra for the Respondent.
ORDER
Bhavnesh Saini, Judicial Member - This appeal by the assessee is
directed against the order of ld. CIT(A), Gwalior dated 29.04.2012 for
the assessment year 2006-07, challenging the addition of Rs.1,20,000/-
on account of salary and remuneration paid to the partners.
2. The assessee filed application for admission of additional grounds,
on which reply of the department was sought. However, on the date of
hearing, the ld. Counsel for the assessee seeks permission to withdraw
the application for raising the additional ground of appeal. The same
is accordingly dismissed as withdrawn.
3. Briefly, the facts of the case are that the assessee filed return
of income on 30.03.2007 showing loss of Rs. 2097/-. No trading
account, profit & loss account and balance sheet were filed with the
return of income. Deficiency letter was issued to the assessee but it
was not complied with by the assessee to remove the defect in the
return of income. Therefore, the same return was treated as invalid
and was also intimated to the assessee as such. Simultaneously, the
notice u/s. 142(1) was issued on 19.03.2008 requiring the assessee to
file the return of income for the assessment year under appeal, which
was also not complied with by the assessee. Further notice u/s. 142(1)
and summon u/s. 131 were issued to the assessee time to time requiring
the assessee to appear in the proceedings before the AO and to produce
the books of accounts and supporting documents, but the assessee did
not comply with the same. Survey u/s. 133A was conducted on 18.12.2008
in the premises of the assessee and some documents were impounded, but
no regular books of account were found at the premises of the
assessee. Statement of the partner of the assessee firm was recorded
in which he has accepted that no books of account have been prepared.
Thereafter, several statutory notices were issued time to time
requiring the assessee to produce complete details, but none have been
complied with by the assessee and accordingly, show cause notice u/s.
144 was also issued as to why income of the assessee be not computed
exparte u/s. 144 of the IT Act. It was intimated that it is not
possible for the assessee to produce the desired details as the
concerned partner is not available. Thus, the assessee did not comply
with any of the statutory notices. Therefore, the AO on the basis of
the material on record passed exparte assessment order u/s. 144 of the
IT Act. On the basis of record/information available with the Revenue
Department, it was found that the assessee firm has also paid
salary/remuneration to the persons mentioned below during the
assessment year under appeal :
(i) Smt. Pooja Bhatnagar Salary Rs.72,000/-
(ii) Shri Rachit Bhatnagar Remuneration Rs.24,000/-
(iii) Shri Anurag Bhatnagar Remuneration Rs.24,000/-
The AO, therefore, treated the same as unexplained expenditure u/s.
69C of the IT Act, as no return of income was filed. Therefore,
addition of Rs.1,20,000/- was accordingly made. Addition was
challenged before the ld. CIT(A) and it was submitted that the order
of the AO is non-speaking and no details were provided for making
addition and the remuneration is allowable u/s. 40(b) of the IT Act.
The ld. CIT(A), however, did not accept the contention of the
assessee. The ld. CIT(A) found that the assessee firm came into
existence vide partnership deed dated 04.01.2000 and salary and
remuneration is paid as per the deed. Rs.72,000/- was paid to Smt.
Pooja Bhatnagar, which was also declared in her return of income filed
with the department and similarly in the other case of remuneration to
other partners, they have declared remuneration received from assessee
firm. The assessee, however, failed to give any documentary evidence
and failed to produce books of account to substantiate these payments.
Similarly, no documents and material was produced at the assessment
stage despite giving opportunity. The ld. CIT(A) in the absence of any
details was of the view that no business expenditure is allowable to
the assessee firm and accordingly in the absence of any evidence for
payment of salary and remuneration to the partners, addition was
confirmed and appeal of the assessee was accordingly dismissed.
4. The ld. Counsel for the assessee submitted that no expenses have
been disallowed by the AO and no specific notice u/s. 144 has been
given. PB-3 is the letter of the AO which did not contain any specific
material for making addition against the assessee. He has relied upon
the decision of Hon'ble Kerala High Court in the case of T.C.N. Menon
v. ITO [1974] 96 ITR 148 in which it was held that in the best
judgment assessment, the assessee is entitled to show cause why on the
materials gathered by the ITO, his total income should not be assessed
in the manner proposed by the ITO. He has further submitted that the
conditions of section 69C are not satisfied in this case because no
proper explanation of the assessee was called for and there should be
actual expenses incurred by the assessee so that addition could be
made. In the case of the firm, as assessed by the AO, the deduction
should be allowed as such. On the other hand, the ld. DR relied upon
the orders of the authorities below.
5. We have considered the rival submissions and the material on
record. The relevant provisions to deal with the matter in issue are
reproduced as under. Section 144 of the Act provides as under :
144.(1)] If any person-
(a) fails to make the return required under sub-section (1) of
section 139 and has not made a return or a revised return under
sub-section (4) or sub-section (5) of that section, or
(b) fails to comply with all the terms of a notice issued under
sub-section (1) of section 142 or fails to comply with a direction
issued under subsection (2A) of that section], or
(c) having made a return, fails to comply with all the terms of a
notice issued under sub-section (2) of section 143,
The Assessing Officer, after taking into account all relevant material
which the Assessing Officer has gathered, shall, after giving the
assessee an opportunity of being heard, make the assessment of the
total income or loss to the best of his judgment and determine the sum
payable by the assessee on the basis of such assessment :
Provided that such opportunity shall be given by the Assessing Officer
by serving a notice calling upon the assessee to show cause, on a date
and time to be specified in the notice, why the assessment should not
be completed to the best of his judgment :
Provided further that it shall not be necessary to give such
opportunity in a case where a notice under sub-section (1) of section
142 has been issued prior to the making of an assessment under this
section.]
(2) The provisions of this section as they stood immediately before
their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of
1988), shall apply to and in relation to any assessment for the
assessment year commencing on the 1st day of April, 1988, or any
earlier assessment year and references in this section to the other
provisions of this Act shall be construed as references to those
provisions as for the time being in force and applicable to the
relevant assessment year.
Section 184 of the IT Act provides as under :
184.(1) A firm shall be assessed as a firm for the purposes of this Act, if-
(i) the partnership is evidenced by an instrument ; and
(ii) the individual shares of the partners are specified in that instrument.
(2) A certified copy of the instrument of partnership referred to in
sub-section (1) shall accompany the return of income of the firm of
the previous year relevant to the assessment year commencing on or
after the 1st day of April, 1993 in respect of which assessment as a
firm is first sought.
Explanation.-For the purposes of this sub-section, the copy of the
instrument of partnership shall be certified in writing by all the
partners (not being minors) or, where the return is made after the
dissolution of the firm, by all persons (not being minors) who were
partners in the firm immediately before its dissolution and by the
legal representative of any such partner who is deceased.
(3) Where a firm is assessed as such for any assessment year, it shall
be assessed in the same capacity for every subsequent year if there is
no change in the constitution of the firm or the shares of the
partners as evidenced by the instrument of partnership on the basis of
which the assessment as a firm was first sought.
(4) Where any such change had taken place in the previous year, the
firm shall furnish a certified copy of the revised instrument of
partnership along with the return of income for the assessment year
relevant to such previous year and all the provisions of this section
shall apply accordingly.
(5) Notwithstanding anything contained in any other provision of this
Act, where, in respect of any assessment year, there is on the part of
a firm any such failure as is mentioned in section 144, the firm shall
be so assessed that no deduction by way of any payment of interest,
salary, bonus, commission or remuneration, by whatever name called,
made by such firm to any partner of such firm shall be allowed in
computing the income chargeable under the head "Profits and gains of
business or profession" and such interest, salary, bonus, commission
or remuneration shall not be chargeable to income-tax under clause (v)
of section 28.
Section 185 of the IT Act provides as under :
185.Notwithstanding anything contained in any other provision of this
Act, where a firm does not comply with the provisions of section 184
for any assessment year, the firm shall be so assessed that no
deduction by way of any payment of interest, salary, bonus, commission
or remuneration, by whatever name called, made by such firm to any
partner of such firm shall be allowed in computing the income
chargeable under the head "Profits and gains of business or
profession" and such interest, salary, bonus, commission or
remuneration shall not be chargeable to income-tax under clause (v) of
section 28.
5.1 Considering the facts of the case in the light of the above
provisions, it is clear that the assessee failed to comply with the
provisions of section 144 of the IT Act. Whatever return of income was
filed originally was declared invalid because the assessee failed to
remove the deficiency in the return. The assessee also failed to file
the return of income as required u/s. 142(1) of the IT Act and also
failed to comply with the notice u/s. 144 of the IT Act. Therefore,
the provision of section 144 of the IT Act has been rightly invoked
against the assessee for framing the exparte assessment order.
Sub-section (5) of section 184 of the IT Act is exception to Rule and
would clearly disentitle the assessee for claiming deduction by way of
salary and remuneration etc. in case the assessee made a failure as
provided u/s. 144 of the IT Act. Similarly, the assessee has also
failed to prove other ingredients of section 184 of the IT Act before
the AO. Therefore, the provisions of section 185 of the IT Act would
also apply in the case of the assessee. Thus, according to section
184(5), the assessee would not be entitled for deduction by way of
salary and remuneration. These provisions have no concern whatsoever
even if the status of the assessee is noted as 'firm' in the body of
the order. The entire crux of the facts has to be applied against the
relevant provision of law for making assessment. Since the assessee
did not produce any evidence or material at any stage and there is no
denial even before us that the assessee claimed deduction on account
of salary and remuneration in the original return of income, the AO
was justified in holding the expenditure to be unexplained. Further,
the findings of the AO are supported by the details filed in the
return of income by the partners in which they have declared the
amount of salary received from the assessee firm and as such specific
material was available with the Revenue Department to prove that the
assessee paid salary to these partners for which deduction has been
claimed. Considering the above discussion in the light of the above
provisions, we do not find any justification to interfere with the
orders of the authorities below. The findings of fact recorded by the
authorities below are accordingly confirmed and the appeal of the
assessee is accordingly dismissed.
6. In the result, the appeal of the assessee is dismissed.
*Pawan Singla*
*BA (Hon's), LLB*
*Audit Officer*
,IT : If assessee firm fails to comply with provisions of section 144,
no deduction by way of salary or remuneration paid to partners will be
allowable
■■■
[2013] 33 taxmann.com 9 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Bhatnagar Opticals
v.
Income-tax Officer, Ward 2(1), Gwalior*
Bhavnesh Saini, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT Appeal No. 313 (Agra) of 2012
[ASSESSMENT YEAR 2006-07]
FEBRUARY 15, 2013
Section 144, read with sections 184, 185 and 69C of the Income-tax
Act, 1961 - Best judgment assessment [Non-compliance of section 144,
effect of] - Assessment year 2006-07 - Assessee-firm's return was
treated as invalid as no trading, profit and loss account and balance
sheet were filed with it - Assessee did not comply with notices, under
section 142(1) for filing return and under section 131 for producing
books of account - Due to assessee's failure to produce complete
details in spite of issuing several statutory notices, Assessing
Officer passed ex parte assessment order under section 144 and
disallowed salary/remuneration paid to partners as unexplained
expenditure under section 69C, due to non-compliance of provisions of
section 144 - Whether, where assessee firm did not comply with
provisions of section 144, no deduction by way of salary or
remuneration paid to partners was allowable as per sections 184(5) and
185 - Held, yes [Para 5.1] [In favour of revenue]
FACTS
■ Assessee-firm filed return of income, but no trading account,
profit and loss account and balance sheet were filed with it.
Therefore, the return was treated as invalid. Notice under section
142(1) requiring assessee to file return of income and summon under
section 131 requiring assessee to appear in proceedings and produce
books of account and supporting documents were not complied with.
■ During survey, some documents were impounded but no regular books
of account were found at the premises. Partner of assessee-firm
accepted that no books of account had been prepared. Due to failure of
assessee to produce complete details in spite of issuing several
statutory notices, Assessing Officer passed ex parte assessment order
under section 144. From the records, the Assessing Officer found that
the assessee firm had paid salary and remuneration to its partners,
which was treated as unexplained expenditure under section 69C and
addition was made.
■ On first appeal, the Commissioner (Appeals) confirmed the
addition on ground that assessee had failed to give any documentary
evidence or produce books of account to substantiate the payments.
■ The assessee contended that the order of the Assessing Officer
was non-speaking and no details were provided for making addition. It
was claimed that conditions of section 69C had not been satisfied and
the remuneration was allowable under section 40(b)
■ On second appeal by assessee:
HELD
■ Considering the facts of the case, it is clear that the assessee
failed to comply with the provisions of section 144. Whatever return
of income was filed originally, was declared invalid because the
assessee failed to remove the deficiency in the return. The assessee
also failed to file the return of income as required under section
142(1) and also failed to comply with the notice under section 144.
Therefore, section 144 was rightly invoked against the assessee for
framing the ex parte assessment order. Sub-section (5) of section 184
is an exception to Rule and would clearly disentitle the assessee for
claiming deduction by way of salary and remuneration etc. in case the
assessee made a failure as provided under section 144. Similarly, the
assessee also failed to prove other ingredients of section 184 before
the Assessing Officer.
■ Therefore, the provisions of section 185 would also apply in the
case of the assessee.
■ Thus, according to section 184(5), the assessee would not be
entitled for deduction by way of salary and remuneration.
■ Since the assessee did not produce any evidence or material at
any stage and there is no denial that the assessee claimed deduction
on account of salary and remuneration in the original return of
income, the Assessing Officer was justified in holding the expenditure
to be unexplained. Further, the findings of the Assessing Officer are
supported by the details filed in the return of income by the partners
in which they have declared the amount of salary received from the
assessee firm and as such specific material was available with the
Revenue Department to prove that the assessee paid salary to these
partners for which deduction has been claimed. Considering the above
discussion in the light of the above provisions, there is no
justification to interfere with the orders of the authorities below.
The findings of fact recorded by the authorities below are accordingly
confirmed and the appeal of the assessee is, accordingly, dismissed.
[Para 5.1]
CASES REFERRED TO
T.C.N. Menon v. ITO [1974] 96 ITR 148 (Ker.) (para 4).
Mahesh Agarwal for the Appellant. K.K. Mishra for the Respondent.
ORDER
Bhavnesh Saini, Judicial Member - This appeal by the assessee is
directed against the order of ld. CIT(A), Gwalior dated 29.04.2012 for
the assessment year 2006-07, challenging the addition of Rs.1,20,000/-
on account of salary and remuneration paid to the partners.
2. The assessee filed application for admission of additional grounds,
on which reply of the department was sought. However, on the date of
hearing, the ld. Counsel for the assessee seeks permission to withdraw
the application for raising the additional ground of appeal. The same
is accordingly dismissed as withdrawn.
3. Briefly, the facts of the case are that the assessee filed return
of income on 30.03.2007 showing loss of Rs. 2097/-. No trading
account, profit & loss account and balance sheet were filed with the
return of income. Deficiency letter was issued to the assessee but it
was not complied with by the assessee to remove the defect in the
return of income. Therefore, the same return was treated as invalid
and was also intimated to the assessee as such. Simultaneously, the
notice u/s. 142(1) was issued on 19.03.2008 requiring the assessee to
file the return of income for the assessment year under appeal, which
was also not complied with by the assessee. Further notice u/s. 142(1)
and summon u/s. 131 were issued to the assessee time to time requiring
the assessee to appear in the proceedings before the AO and to produce
the books of accounts and supporting documents, but the assessee did
not comply with the same. Survey u/s. 133A was conducted on 18.12.2008
in the premises of the assessee and some documents were impounded, but
no regular books of account were found at the premises of the
assessee. Statement of the partner of the assessee firm was recorded
in which he has accepted that no books of account have been prepared.
Thereafter, several statutory notices were issued time to time
requiring the assessee to produce complete details, but none have been
complied with by the assessee and accordingly, show cause notice u/s.
144 was also issued as to why income of the assessee be not computed
exparte u/s. 144 of the IT Act. It was intimated that it is not
possible for the assessee to produce the desired details as the
concerned partner is not available. Thus, the assessee did not comply
with any of the statutory notices. Therefore, the AO on the basis of
the material on record passed exparte assessment order u/s. 144 of the
IT Act. On the basis of record/information available with the Revenue
Department, it was found that the assessee firm has also paid
salary/remuneration to the persons mentioned below during the
assessment year under appeal :
(i) Smt. Pooja Bhatnagar Salary Rs.72,000/-
(ii) Shri Rachit Bhatnagar Remuneration Rs.24,000/-
(iii) Shri Anurag Bhatnagar Remuneration Rs.24,000/-
The AO, therefore, treated the same as unexplained expenditure u/s.
69C of the IT Act, as no return of income was filed. Therefore,
addition of Rs.1,20,000/- was accordingly made. Addition was
challenged before the ld. CIT(A) and it was submitted that the order
of the AO is non-speaking and no details were provided for making
addition and the remuneration is allowable u/s. 40(b) of the IT Act.
The ld. CIT(A), however, did not accept the contention of the
assessee. The ld. CIT(A) found that the assessee firm came into
existence vide partnership deed dated 04.01.2000 and salary and
remuneration is paid as per the deed. Rs.72,000/- was paid to Smt.
Pooja Bhatnagar, which was also declared in her return of income filed
with the department and similarly in the other case of remuneration to
other partners, they have declared remuneration received from assessee
firm. The assessee, however, failed to give any documentary evidence
and failed to produce books of account to substantiate these payments.
Similarly, no documents and material was produced at the assessment
stage despite giving opportunity. The ld. CIT(A) in the absence of any
details was of the view that no business expenditure is allowable to
the assessee firm and accordingly in the absence of any evidence for
payment of salary and remuneration to the partners, addition was
confirmed and appeal of the assessee was accordingly dismissed.
4. The ld. Counsel for the assessee submitted that no expenses have
been disallowed by the AO and no specific notice u/s. 144 has been
given. PB-3 is the letter of the AO which did not contain any specific
material for making addition against the assessee. He has relied upon
the decision of Hon'ble Kerala High Court in the case of T.C.N. Menon
v. ITO [1974] 96 ITR 148 in which it was held that in the best
judgment assessment, the assessee is entitled to show cause why on the
materials gathered by the ITO, his total income should not be assessed
in the manner proposed by the ITO. He has further submitted that the
conditions of section 69C are not satisfied in this case because no
proper explanation of the assessee was called for and there should be
actual expenses incurred by the assessee so that addition could be
made. In the case of the firm, as assessed by the AO, the deduction
should be allowed as such. On the other hand, the ld. DR relied upon
the orders of the authorities below.
5. We have considered the rival submissions and the material on
record. The relevant provisions to deal with the matter in issue are
reproduced as under. Section 144 of the Act provides as under :
144.(1)] If any person-
(a) fails to make the return required under sub-section (1) of
section 139 and has not made a return or a revised return under
sub-section (4) or sub-section (5) of that section, or
(b) fails to comply with all the terms of a notice issued under
sub-section (1) of section 142 or fails to comply with a direction
issued under subsection (2A) of that section], or
(c) having made a return, fails to comply with all the terms of a
notice issued under sub-section (2) of section 143,
The Assessing Officer, after taking into account all relevant material
which the Assessing Officer has gathered, shall, after giving the
assessee an opportunity of being heard, make the assessment of the
total income or loss to the best of his judgment and determine the sum
payable by the assessee on the basis of such assessment :
Provided that such opportunity shall be given by the Assessing Officer
by serving a notice calling upon the assessee to show cause, on a date
and time to be specified in the notice, why the assessment should not
be completed to the best of his judgment :
Provided further that it shall not be necessary to give such
opportunity in a case where a notice under sub-section (1) of section
142 has been issued prior to the making of an assessment under this
section.]
(2) The provisions of this section as they stood immediately before
their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of
1988), shall apply to and in relation to any assessment for the
assessment year commencing on the 1st day of April, 1988, or any
earlier assessment year and references in this section to the other
provisions of this Act shall be construed as references to those
provisions as for the time being in force and applicable to the
relevant assessment year.
Section 184 of the IT Act provides as under :
184.(1) A firm shall be assessed as a firm for the purposes of this Act, if-
(i) the partnership is evidenced by an instrument ; and
(ii) the individual shares of the partners are specified in that instrument.
(2) A certified copy of the instrument of partnership referred to in
sub-section (1) shall accompany the return of income of the firm of
the previous year relevant to the assessment year commencing on or
after the 1st day of April, 1993 in respect of which assessment as a
firm is first sought.
Explanation.-For the purposes of this sub-section, the copy of the
instrument of partnership shall be certified in writing by all the
partners (not being minors) or, where the return is made after the
dissolution of the firm, by all persons (not being minors) who were
partners in the firm immediately before its dissolution and by the
legal representative of any such partner who is deceased.
(3) Where a firm is assessed as such for any assessment year, it shall
be assessed in the same capacity for every subsequent year if there is
no change in the constitution of the firm or the shares of the
partners as evidenced by the instrument of partnership on the basis of
which the assessment as a firm was first sought.
(4) Where any such change had taken place in the previous year, the
firm shall furnish a certified copy of the revised instrument of
partnership along with the return of income for the assessment year
relevant to such previous year and all the provisions of this section
shall apply accordingly.
(5) Notwithstanding anything contained in any other provision of this
Act, where, in respect of any assessment year, there is on the part of
a firm any such failure as is mentioned in section 144, the firm shall
be so assessed that no deduction by way of any payment of interest,
salary, bonus, commission or remuneration, by whatever name called,
made by such firm to any partner of such firm shall be allowed in
computing the income chargeable under the head "Profits and gains of
business or profession" and such interest, salary, bonus, commission
or remuneration shall not be chargeable to income-tax under clause (v)
of section 28.
Section 185 of the IT Act provides as under :
185.Notwithstanding anything contained in any other provision of this
Act, where a firm does not comply with the provisions of section 184
for any assessment year, the firm shall be so assessed that no
deduction by way of any payment of interest, salary, bonus, commission
or remuneration, by whatever name called, made by such firm to any
partner of such firm shall be allowed in computing the income
chargeable under the head "Profits and gains of business or
profession" and such interest, salary, bonus, commission or
remuneration shall not be chargeable to income-tax under clause (v) of
section 28.
5.1 Considering the facts of the case in the light of the above
provisions, it is clear that the assessee failed to comply with the
provisions of section 144 of the IT Act. Whatever return of income was
filed originally was declared invalid because the assessee failed to
remove the deficiency in the return. The assessee also failed to file
the return of income as required u/s. 142(1) of the IT Act and also
failed to comply with the notice u/s. 144 of the IT Act. Therefore,
the provision of section 144 of the IT Act has been rightly invoked
against the assessee for framing the exparte assessment order.
Sub-section (5) of section 184 of the IT Act is exception to Rule and
would clearly disentitle the assessee for claiming deduction by way of
salary and remuneration etc. in case the assessee made a failure as
provided u/s. 144 of the IT Act. Similarly, the assessee has also
failed to prove other ingredients of section 184 of the IT Act before
the AO. Therefore, the provisions of section 185 of the IT Act would
also apply in the case of the assessee. Thus, according to section
184(5), the assessee would not be entitled for deduction by way of
salary and remuneration. These provisions have no concern whatsoever
even if the status of the assessee is noted as 'firm' in the body of
the order. The entire crux of the facts has to be applied against the
relevant provision of law for making assessment. Since the assessee
did not produce any evidence or material at any stage and there is no
denial even before us that the assessee claimed deduction on account
of salary and remuneration in the original return of income, the AO
was justified in holding the expenditure to be unexplained. Further,
the findings of the AO are supported by the details filed in the
return of income by the partners in which they have declared the
amount of salary received from the assessee firm and as such specific
material was available with the Revenue Department to prove that the
assessee paid salary to these partners for which deduction has been
claimed. Considering the above discussion in the light of the above
provisions, we do not find any justification to interfere with the
orders of the authorities below. The findings of fact recorded by the
authorities below are accordingly confirmed and the appeal of the
assessee is accordingly dismissed.
6. In the result, the appeal of the assessee is dismissed.
*Pawan Singla*
*BA (Hon's), LLB*
*Audit Officer*
----- Forwarded Message -----
From: CA. VMV SUBBA RAO <vmvsrao@gmail.com>
To: a_solanki@sify.com
Sent: Friday, 10 May 2013 1:04 AM
Subject: S. 40(a)(ia) TDS: Special Bench verdict in Merilyn Shipping is not good law
From: CA. VMV SUBBA RAO <vmvsrao@gmail.com>
To: a_solanki@sify.com
Sent: Friday, 10 May 2013 1:04 AM
Subject: S. 40(a)(ia) TDS: Special Bench verdict in Merilyn Shipping is not good law
The assessee, engaged in the business of transport contractor and commission agent, incurred expenditure of Rs. 8.74 crores on payment to contractors where no TDS was deducted. The AO & CIT(A) held that the expenditure had to be disallowed u/s 40(a)(ia). On appeal, the Tribunal, relying on Merilyn Shipping & Transports 146 TTJ 1 (Viz) (SB) held that as the said amount had already been paid and was not "payable" as of 31st March, the disallowance u/s 40(a)(ia) could not be made. On appeal by the department to the High Court, HELD reversing the Tribunal:
In Merilyn Shipping 146 TTJ 1 (Viz) (SB) the majority held that as the Finance Bill proposed the words "amount credited or paid" and as the Finance Act used the words "amounts payable", s. 40(a)(ia) could only apply to amounts that are outstanding as of 31st March and not to amounts already paid during the year. This view is not correct for two reasons. Firstly, a strict reading of s. 40(a)(ia) shows that all that it requires is that there should be an amount payable of the nature described, which is such on which tax is deductible at source but such tax has not been deducted or if deducted not paid before the due date. The provision nowhere requires that the amount which is payable must remain so payable throughout during the year. If the assessee's interpretation is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. There is no logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. Secondly, the principle of deliberate or conscious omission is applied mainly when an existing provision is amended and a change is brought about. The Special Bench was wrong in comparing the language used in the draft bill to that used in the final enactment to assign a particular meaning to s. 40(a)(ia). Accordingly, Merilyn Shippingdoes not lay down correct law. The correct law is that s. 40(a)(ia) covers not only to the amounts which are payable as on 31th March of a particular year but also which are payable at any time during the year.
--
Best Wishes
CA. V.M.V.SUBBA RAO
Chartered Accountant
Door No.24-2-1885,
I Floor, Flat No.5,
Siddivinayaka Residency, I Cross,
Central Avenue, MSR Nagar,
Magunta Layout,
Nellore-524 003
Andhra Pradesh
India
Mobile:+91 - 0 9390221100
+91 - 0 9440278412
e-Mail: vmvsr@rediffmail.com
vmvsr@yahoo.co.uk
http://pdicai.org/MyPage/203038.aspx
CA. V.M.V.SUBBA RAO
Chartered Accountant
Door No.24-2-1885,
I Floor, Flat No.5,
Siddivinayaka Residency, I Cross,
Central Avenue, MSR Nagar,
Magunta Layout,
Nellore-524 003
Andhra Pradesh
India
Mobile:+91 - 0 9390221100
+91 - 0 9440278412
e-Mail: vmvsr@rediffmail.com
vmvsr@yahoo.co.uk
http://pdicai.org/MyPage/203038.aspx
Member- IT Committee of SIRC of ICAI
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