2017 (3) TMI 481 - AT - Income Tax

Denial of natural justice - correction of error in the return & intimation u/s 143(1) - grievance of assessee that demand raised on the assessee is without granting the benefit of payment of remuneration to its partners which is already disclosed in their respective returns - whether the return filed by the assessee itself ought to have been processed differently or an opportunity before raising the demand ought to have been given? - Held that - As per the scheme of the Act, a return filed under the IT Act shall be processed in the manner to correct arithmetical error etc. and after making certain prima-facie adjustment as enumerated in section 143(1) of the Act. A bare reading of the section 143(1) suggests that the income returned by the assessee is the starting point and all the adjustments suggested to the returned income are broadly of detrimental nature. It is beyond scope of the AO under s.143(1) to engage in a long drawn process and make the adjustment proposed by the assessee while processing the return under the aforesaid provision. The AO is not expected to chase a will-o the wisp as demanded by the assessee. The purported error committed by the assessee cannot be visualized under s.143(1) by any stretch of imagination. Thus, the relief urged on behalf of the assessee is clearly beyond the scope and ambit of section 143(1) of the Act. Hence, the action of the AO cannot be modified as sought. We note that as a remedial measure, s.139(5) provides for revision of the return filed within stipulated time where any person having furnished a return of income discovers any omission or any wrong statement therein. Therefore, scheme of Income Tax is not entirely without remedy for the purported mistake claimed to have been rectified by the assessee in the present appeal. The assessee has probably chosen a wrong path for seeking correction of the alleged error committed by the assessee itself. The AO (ACIT-CPC Bangalore) cannot be blamed for merely accepting an erroneous return filed by an assessee. Therefore, we are not in a position to travel beyond the scope of section 143(1) to entertain the relief sought. - Decided against assessee

Issues Involved:
1. Confirmation of income at ?1,05,140/-
2. Application of provisions of Section 40(b)
3. Alleged double taxation of remuneration paid to partners
4. Principles of natural justice and opportunity to be heard
5. Statutory time limit for determination of income

Issue-wise Detailed Analysis:

1. Confirmation of Income at ?1,05,140/-:
The appellant's primary grievance was the confirmation of income at ?1,05,140/- by the CIT(A). The appellant contended that the income should be nil after accounting for the remuneration paid to the partners. The Tribunal noted that the return filed by the assessee was accepted as such without any alteration under Section 143(1) of the Income Tax Act. The appellant argued that the return did not correctly reflect the income due to the absence of a specific column for partner remuneration, which led to the erroneous determination of income.

2. Application of Provisions of Section 40(b):
The appellant claimed that the CIT(A) failed to apply the provisions of Section 40(b) of the Income Tax Act, which pertains to the deduction of remuneration paid to partners. The CIT(A) held that granting deduction under Section 40(b)(v) is subject to authorization by the partnership deed, and the AO does not have the power to allow such deductions on his own without examining the partnership deed.

3. Alleged Double Taxation of Remuneration Paid to Partners:
The appellant argued that the remuneration paid to the partners was already shown in their respective returns, leading to double taxation. The Tribunal observed that the income was accepted as per the return filed by the assessee, and no adjustments were made under Section 143(1). The Tribunal found the appellant's argument of double taxation to be farfetched and not within the scope of Section 143(1).

4. Principles of Natural Justice and Opportunity to be Heard:
The appellant contended that the AO violated the principles of natural justice by not providing an opportunity to explain the discrepancy before raising the tax demand. The Tribunal noted that Section 143(1) provides for processing returns to correct arithmetical errors and make prima facie adjustments. The Tribunal held that the AO is not expected to engage in a detailed examination or provide an opportunity to the assessee under Section 143(1).

5. Statutory Time Limit for Determination of Income:
The appellant also raised the issue of the determination being framed beyond the statutory time limit. The Tribunal did not find any merit in this claim, as the return was processed within the scope and timeframe provided under Section 143(1).

Conclusion:
The Tribunal dismissed the appeal, holding that the AO acted within the scope of Section 143(1) by accepting the return as filed without making any adjustments. The Tribunal emphasized that the AO is not required to engage in a detailed examination or provide an opportunity to the assessee under Section 143(1). The appellant's remedy lies in filing a revised return under Section 139(5) if any omission or wrong statement is discovered. The Tribunal concluded that the AO cannot be blamed for accepting an erroneous return filed by the assessee.

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