2006 (4) TMI 49 - AT - Income Tax

Revenue contended that (i) Assessee income assessed u/s 44AF of ITA 1961 (ii) Deduction allowed to the extent of Rs. 48, 000 instead of Rs.83, 995 - Held that (i) Matter remanded for reconsideration (ii) Allowed revenue contention

Summary

Issues:
1. Reopening of assessment legality
2. Applicability of section 44AF to wholesale business
3. Entitlement of partners to remuneration under section 40(b)

Reopening of Assessment Legality:
The appeals were against the Commissioner of Income-tax (Appeals) orders for the assessment years 2000-01 and 2001-02. The assessee raised a plea that the reopening was illegal, but later withdrew the plea. The Tribunal dismissed this ground as not pressed, consolidating and disposing of the appeals together.

Applicability of Section 44AF to Wholesale Business:
The main issue was the application of section 44AF, a special provision for retail businesses, to a wholesale dealer. The Commissioner of Income-tax (Appeals) held that since the assessee offered income under section 44AF, the Assessing Officer did not examine the books of account. However, the Tribunal noted that section 44AF is specifically for retail traders, not wholesale dealers. It remitted the issue to the Assessing Officer for further examination, emphasizing the need to apply the correct provisions of law applicable to the case.

Entitlement of Partners to Remuneration under Section 40(b):
Another issue was the partners' entitlement to remuneration under section 40(b) based on the partnership deed. The assessee claimed Rs. 83,995 as salary to partners, but the actual payment was Rs. 48,000. The Tribunal considered the partnership deed's clause stating that partners' salary is to be decided by mutual understanding when profits are low. It held that the partners agreed to receive Rs. 48,000 as remuneration, as per the partnership accounts. The Tribunal upheld the Commissioner's decision, dismissing the appeal on this issue.

In conclusion, the Tribunal partly allowed the assessee's appeals for statistical purposes, addressing the legality of reopening the assessment, the incorrect application of section 44AF to a wholesale business, and the partners' entitlement to remuneration under section 40(b) based on the partnership deed.