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2016 (3) TMI 531 - AT - Income TaxAddition to income of the assessee of the firm Messrs Madhu and Others duly assessed as PF AOP - Held that - In view of decision of Honourable Supreme court in Rangila Ram And Others 2000 (8) TMI 11 - SUPREME Court we confirm the action of AO in taxing the income of M/s Madhu & Other partnership firm as income of the assessee Mrs. Madhu Individual. Additions made in the hands of M/s Madhu & Ors which is a partnership firm - addition made on protective basis - Held that - On the basis of additions made in the M/s Madhu & Others on protective basis Ld. AO has made the addition of ₹ 27,92,190/- on substantive basis in the hands of the assessee. As the income of M/s Madhu & Others has been assessed in the hands of assessee wherein disallowance u/s 40A(3) of ₹ 16,99,558/- and addition u/s 68 of ₹ 8,50,000/- has been made, it is apparent that no opportunity is given by assessing officer to the assessee. Reason for the same is that both the orders u/s 143(3) read with section 148 in the hands of the assessee as well as M/s Madhu & Others are passed on 20th March, 2006 and therefore we set aside ground no. 2 and 3 of the appeal of the assessee contesting the addition u/s 68 as well as u/s 40A(3) of the Act back to the file that assessing officer with direction to deal with both the issues on merit after giving proper opportunity of hearing to the assessee. Disallowance of the salary to the partners in the hands of M/s Madhu & Others - Held that - We dismiss this ground as M/s Madhu & Others is not treated by assessing officer as a Firm but AOP and therefore deduction of salary to partner cannot be granted as deduction to AOP. As the income of AOP is taxed in the hands of assessee on substantive basis the income of AOP would be computed without granting deduction of salary to the AOP.
Issues Involved:
1. Taxation of income from liquor business in the hands of an individual and a partnership firm. 2. Addition of salary paid to partners, disallowance under section 40A(3), and unexplained deposits. 3. Opportunity for the assessee to contest additions made in the hands of the partnership firm. 4. Treatment of partnership firm as an Association of Persons (AOP) for deduction purposes. Analysis: Issue 1: Taxation of income from liquor business The appeal was filed against the order of CIT(A) regarding the taxation of income from a liquor business carried out by an individual and a partnership firm. The Assessing Officer (AO) held that the license granted to the individual should result in the income being taxed in her hands. The CIT(A) upheld this decision based on a Supreme Court judgment. The partnership firm did not challenge this decision, leading to the acceptance that the income of the firm is taxable in the individual's hands. The appeal against this decision was dismissed based on legal precedents and the nature of the liquor business. Issue 2: Addition of salary, disallowance, and unexplained deposits Various additions were made in the assessment of the partnership firm, including disallowance of salary paid to partners, disallowance under section 40A(3), and unexplained deposits. The AO made corresponding additions in the individual's assessment. The appellant argued that no opportunity was given to contest these additions. The Tribunal set aside the issues related to disallowance under section 40A(3) and unexplained deposits, directing the AO to provide a proper hearing. The disallowance of salary to partners was dismissed as the firm was treated as an AOP, not eligible for such deductions. Issue 3: Opportunity for the assessee The appellant raised concerns about the lack of opportunity to contest the additions made in the partnership firm's assessment. The Tribunal acknowledged this issue and directed the AO to reconsider the contested additions after providing a fair hearing to the assessee. Issue 4: Treatment of partnership firm as an AOP The Tribunal clarified that the partnership firm was considered an AOP, not eligible for certain deductions. Consequently, the disallowance of salary to partners was upheld. The Tribunal allowed some grounds for statistical purposes and dismissed others, resulting in a partial allowance of the appeal. In conclusion, the Tribunal addressed the various issues raised in the appeal, providing directions for reconsideration of certain additions and clarifying the treatment of the partnership firm for deduction purposes.
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