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2014 (7) TMI 496 - AT - Income TaxReopening of assessment u/s 148 of the Act Reasons recorded after issuance of notice u/s 148 - Opportunity of being heard - Held that - The decision in AG HOLDINGS PVT LTD Versus INCOME TAX OFFICER 2012 (5) TMI 44 - DELHI HIGH COURT followed - There are no two sets of reasons recorded by the respondent in the present case - The reasons were recorded on 9.3.2011 - the approval of the Additional Commissioner of Income Tax was obtained and thereafter notice u/s148 - there was a delay of 4 months in supplying the reasons recorded by the AO the plea of the assessee cannot be accepted. Non-speaking order Held that - The assessee was asked to show cause why salaries/ remuneration to the partners claimed as deductions be not disallowed u/s 40 (b) (v) - the partnership deed neither specified the amount of salaries required to be paid to each of the working partners not had laid down the specific method of quantification assessee chose not to file any objection and participated in proceedings - it cannot be said that the requirement of law regarding filing of objection by assessee to notice u/s 148 and disposing of the same by AO were not substantially fulfilled. Therefore, the re-assessment proceedings cannot be held to be bad in law Decided against Assessee. Deduction for remuneration paid to partners Held that - Held that - As decided in assessee s own case for the earlier assessment year, it has been held that, the appellant has accepted that clause 2 does not quantify or provide the manner of computing remuneration payable to the partners but stipulates the maximum amount payable - the limits specified u/s 40 (b) (v) are incorporated and have become part and parcel of the partnership deed but not the amount or the quantum remuneration - payment was not in accordance with the terms of the supplementary partnership deed dated 1st April, 1992 though authorized by the deed - The remuneration was paid in terms of a subsequent understanding between the two partners regarding the quantum and the amount to be paid - the remuneration is not specified - The manner of computing the remuneration is not specified - the remuneration payable is left to future mutual agreement between the partners who are entitled to decide and quantify the quantum - Remuneration can be any amount or figure but not more than the maximum amount stated in Section 40 (b) (v) of the Act thus, the requirement of Section 40 (b) (v) are not satisfied Decided in favour of Revenue. Penalty u/s 271(1)(c) of the Act - Concealment of income and furnishing of inaccurate particulars of income - Held that - The assessee had claimed the deduction in respect of remuneration paid to partners - it cannot be said that the claim advanced by assessee was in any manner malafide claim merely because the assessee was a CA firm - mere disallowance of claim does not per se attracts, panel provisions unless it is established that the claim advanced by assessee was malafide thus, there was no reason to interfere with the order of CIT (A) Decided against Revenue.
Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147/148. 2. Disallowance of remuneration paid to partners under Section 40(b). 3. Penalty proceedings under Section 271(1)(c) for concealment of income. Detailed Analysis: 1. Validity of Reassessment Proceedings Initiated Under Section 147/148: The assessee contested the initiation of reassessment proceedings on two grounds: non-provision of reasons for reopening the assessment and the timing of recording the reasons. The assessee argued that the reasons were recorded after the issuance of the notice under Section 148, which would render the proceedings invalid. The Tribunal noted that the reasons were indeed recorded on the same date as the notice issuance (30th March, 2010) and were subsequently provided to the assessee on 22nd November, 2010. The Tribunal referenced the decision of the Hon'ble Delhi High Court in A.G Holdings Pvt. Ltd. Vs. ITO, which held that a delay in supplying the reasons does not invalidate the reassessment proceedings. Therefore, the Tribunal rejected the assessee's plea and upheld the validity of the reassessment proceedings. 2. Disallowance of Remuneration Paid to Partners Under Section 40(b): The core issue was whether the remuneration paid to partners was in accordance with the terms of the partnership deed as required by Section 40(b)(v). The Tribunal examined the partnership deed and supplementary deed, noting that the deeds did not specify the quantum or the method of quantifying the remuneration. The Tribunal referenced the Hon'ble Jurisdictional High Court's decision in the assessee's own case for the assessment year 2007-08, which held that the partnership deed must clearly stipulate the amount or the manner of computing the remuneration. Since the deeds left the remuneration to be decided by mutual agreement in the future, they did not meet the statutory requirements. Consequently, the Tribunal upheld the disallowance of the remuneration paid to partners. 3. Penalty Proceedings Under Section 271(1)(c) for Concealment of Income: The Department initiated penalty proceedings against the assessee for concealment of income and furnishing inaccurate particulars. The Tribunal observed that the assessee had claimed the deduction based on a decision of the Hon'ble Himachal Pradesh High Court, which supported the assessee's interpretation. The Tribunal emphasized that a mere disallowance of a claim does not automatically attract penalty provisions unless it is shown that the claim was made with a malafide intent. Given that the claim was made in good faith and supported by judicial precedent, the Tribunal found no grounds for imposing a penalty and upheld the decision of the CIT(A) to allow the assessee's appeal on this matter. Conclusion: - The reassessment proceedings initiated under Section 147/148 were upheld as valid. - The disallowance of remuneration paid to partners under Section 40(b) was upheld, as the partnership deed did not meet statutory requirements. - The penalty proceedings under Section 271(1)(c) were dismissed, recognizing the bonafide nature of the assessee's claim. Final Orders: - ITA No. 4738 for A.Y. 2003-04 and ITA No. 4739 for A.Y. 2005-06 were allowed. - ITA No. 4740 for A.Y. 2007-08 was dismissed. - Cross objections (CO 397 in ITA No. 4738 and CO 398 in ITA No. 4739) were dismissed.
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