2016 (5) TMI 141 - HC - Income Tax

Show cause notice for enhancement of assessment - Held that - In the show cause notice dated 6.11.2015 the respondent had called upon the petitioner to show cause as to why the amount of 96, 60, 000/- may not be disallowed as expenditure and added back to the petitioner s taxable income for the relevant year which is under consideration. By the impugned show cause notice the respondent had called upon the petitioner to submit his explanation on or before 18.11.2015. Since the petitioner have to explain as to why the said amount may not be disallowed as expenditure and added back to the taxable income of the petitioiner they can very well submit their explanation and contest the same on merits and in accordance with law befoer the CIT (Appeals). In these circumstances do not find merits in the writ petition which is liable to be dismised. However give liberty to the petitioner to submit their explanation before CIT (Appeals) and make their submissions with regard to the query raised in the impugned show cause notice dated 06.11.2015. After receiving the explanation and hearing the submissions on behalf of the petitioner the CIT (Appeals) is directed to pass orders on merits and in accordance with law.

Issues:
1. Validity of show cause notice for enhancement of assessment.
2. Interpretation of partnership deed and number of partners.
3. Powers of appellate authority under Sec.251(1)(a) of the Income Tax Act.

Issue 1: Validity of show cause notice for enhancement of assessment
The petitioner, a Partnership Firm, filed a writ petition challenging the show cause notice issued by the first respondent for enhancement of assessment for the assessment year 2012-13. The petitioner contended that the notice was received late, and they were not given sufficient time to respond. The notice questioned the validity of the partnership firm, stating that it exceeded the maximum number of partners allowed under the law. The petitioner argued that the constitution of the firm had been accepted in previous years, and the partnership deed clearly outlined the roles and investments of each partner.

Issue 2: Interpretation of partnership deed and number of partners
The first respondent argued that the petitioner firm exceeded the permissible number of partners as per the law, citing the Companies Act, 1956. They pointed out that two firms, each with six partners, were included in the petitioner firm, bringing the total number of partners to 16. The first respondent contended that since not all partners of the two firms were represented in the petitioner firm, it could not be considered a valid partnership firm. They relied on a Supreme Court judgment to support their position.

Issue 3: Powers of appellate authority under Sec.251(1)(a) of the Income Tax Act
The first respondent justified the issuance of the show cause notices under Sec.251(1)(a), which grants wide powers to the appellate authority to ensure justice for the assessee and revenue. They argued that the notices were valid and within the legal framework. The petitioner cited a judgment from the Jharkhand High Court to support their argument that the show cause notices exceeded jurisdiction. However, the court found that the judgment was not directly applicable to the present case and directed the petitioner to submit explanations before the CIT (Appeals) and contest the matter there.

In conclusion, the court dismissed the writ petition but granted the petitioner the opportunity to submit explanations before the CIT (Appeals) and have their submissions considered in accordance with the law. No costs were awarded, and the connected miscellaneous petition was closed.

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