2013 (12) TMI 1098 - AT - Income Tax

Remuneration to partners Held that - 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 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 - The assessee claimed deduction on account of salary and remuneration in the original return of income - 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 Decided against assessee.

Summary

Issues:
Challenging addition of salary and remuneration paid to partners in assessment year 2006-07.

Analysis:
The appellant challenged the addition of Rs.1,20,000 on account of salary and remuneration paid to partners in the assessment year 2006-07. The appellant sought permission to withdraw the application for raising additional grounds, which was dismissed. The facts revealed that the appellant failed to comply with various notices and statutory requirements, leading to an exparte assessment order by the Assessing Officer (AO). The AO treated the salary and remuneration paid to partners as unexplained expenditure under section 69C of the IT Act, resulting in the addition. The appellant contended that the AO's order lacked details and the remuneration should be allowable under section 40(b) of the IT Act. However, the CIT(A) upheld the addition, noting the absence of documentary evidence and failure to produce books of account to substantiate the payments. The appeal was dismissed based on lack of evidence and non-compliance with statutory notices.

The appellant argued that no expenses were disallowed by the AO, and no specific notice under section 144 was given. Citing a Kerala High Court decision, the appellant claimed that proper explanation and actual expenses were necessary for making additions under section 69C. The appellant asserted that deductions should be allowed as assessed by the AO. The Departmental Representative supported the lower authorities' orders. The Tribunal considered the submissions and relevant provisions of the IT Act. Section 144 empowered the AO to make assessments based on relevant material after giving the assessee an opportunity to be heard. Section 184 outlined the assessment of firms, specifying conditions for deductions like salary and remuneration. Section 185 addressed non-compliance consequences for firms. The Tribunal found the appellant's failure to comply with statutory provisions and lack of evidence justifying the AO's decision. The appellant's inability to prove compliance with section 144 and other relevant provisions led to the disallowance of deductions for salary and remuneration. The Tribunal upheld the lower authorities' findings, confirming the dismissal of the appeal.

In conclusion, the Tribunal dismissed the appeal, upholding the addition of salary and remuneration paid to partners in the assessment year 2006-07. The decision was based on the appellant's non-compliance with statutory requirements, failure to provide evidence, and the application of relevant provisions of the IT Act disallowing deductions in such cases. The Tribunal affirmed the lower authorities' findings, emphasizing the importance of complying with statutory provisions and substantiating claims to avoid disallowances.