2015 (9) TMI 694 - AT - Income Tax

Deduction on account of remuneration and interest paid by the assessee firm to its partners from the profit estimated at 15% of the gross commission amount - whether there was no failure on the part of the assessee firm as mentioned in S.144 and therefore, the provisions of S.184(5) are not applicable in the case of the assessee? - Held that - A perusal of the provisions of S.144 however shows that the case of the assessee is squarely covered by clause (v) of sub-section (1) of S.144 inasmuch as the assessee having made a return has failed to comply with the notices issued by the Assessing Officer under S.143(2) and this position clearly evident from the record is not disputed even by the learned counsel for the assessee. We therefore, agree with the stand of the revenue on this issue that the provisions of S.184(5) are clearly applicable in the case of the assessee for the year under consideration and the learned CIT(A) is not justified in directing the Assessing Officer to allow deduction on account of interest and remuneration paid to the partners from the profit estimated at 15% of the gross commission amount by invoking the provisions of S.144. We accordingly reverse the impugned order of the learned CIT(A) granting relief to the assessee on this issue, and allow ground no.2 of the Revenue s appeal. As already noted above, when the provisions of S.184(5) are applied to disallow interest and remuneration paid by the assessee firm to its partners, such interest or remuneration shall not be chargeable to income tax under S.28(v)of the Act in the hands of the partners. - Decided in favor of revenue. Rejection of books of account - estimation of income - as assessee is unable to produce bills/vouchers in support of various expenses claimed, it is a case where expenses should have been disallowed instead of estimating the income - CIT(A) applying estimation @ 15% - Held that - In the absence of books of account and other supporting evidence, the entire gross commission amount could not be taken as the income of the assessee by disallowing the entire expenditure. In our opinion, the proper course available in such a situation is to reject the books of account and estimate the income of the assessee on the basis of material available on record and the learned CIT(A) has taken a very fair and reasonable view on the basis of material available on record, including the past history of assessee s case to estimate the income of the assessee from business at the rate of 15% of the gross commission amount. We therefore, find no justifiable reason to interfere with the the impugned order of the learned CIT(A) on this issue - Decided against the revenue.

Summary

Issues:
1. Assessment under Section 144 - Estimation of income based on gross receipts.
2. Non-compliance with notices under Sections 143(2) and 142(1).
3. Appeal before CIT(A) regarding estimation of income and deductions.
4. Applicability of Section 184(5) in disallowing deductions for interest and remuneration.
5. Rejection of books of account and estimation of income at 15% of gross commission amount.

Analysis:

1. The appeal was filed by the Revenue against the order of the Commissioner of Income-tax(Appeals) VI, Hyderabad, challenging the assessment under Section 144 where the income of the assessee, a partnership firm distributing BSNL prepaid cards, was estimated at Rs. 74,57,529 based on gross receipts. The Assessing Officer completed the assessment ex-parte due to non-compliance with notices under Sections 143(2) and 142(1).

2. The assessee contended before the CIT(A) that non-compliance was due to changed address and health issues, and requested income estimation based on available records. The CIT(A) found the declared net profit higher than the preceding year, estimated income at 15% of gross receipts, and allowed deductions for remuneration and interest paid to partners.

3. The Revenue appealed before the Tribunal, challenging the allowance of deductions under Section 184(5) for interest and remuneration, citing non-compliance as per Section 144. The Tribunal agreed with the Revenue, reversing the CIT(A)'s order on this issue.

4. The Tribunal upheld the CIT(A)'s decision to reject the books of account due to lack of evidence and estimate income at 15% of gross commission amount. The Tribunal found this estimation fair based on available records and past history, dismissing the Revenue's appeal on this issue.

5. The Tribunal deemed the issue raised in the Revenue's fourth ground as infructuous following the decision on the second ground regarding deduction disallowance under Section 184(5). Consequently, the Tribunal partly allowed the Revenue's appeal, emphasizing the application of relevant provisions in determining income and deductions.

This detailed analysis highlights the assessment process, non-compliance issues, appeal proceedings, and the Tribunal's decision on income estimation and deduction disallowance under specific sections of the Income Tax Act.