2019 (7) TMI 697 - AT - Income Tax

Best judgment assessment u/s 144 - non-compliance to notices u/s.142(1) - disallowance of interest and salary paid to the partners by taking support of provisions of section 184(5) - HELD THAT - A.R. in all fairness, accepted that in compliance to notice u/s.142(1), the assessee only submitted bank statement and did not submit audit report for the current year and past two years alongwith complete names and address of sundry creditors and sundry debtors. AO also issued another notice u/s.142(1) on 5.2.2015, which was duly served on the assessee but there was no compliance by the assessee. From para 4.3 of the assessment order, AO has categorically noted that after several notices u/s.142(1) a show cause notice dated 5.2.2015 alongwith another notice u/s.142(1) was intimated/served on the assessee informing that failure to produce audit report and books of account, the case shall be disposed of by invoking the provisions of section 145(3) AO has reproduced the contents of show cause notice. Thereafter, the AO further noted that the assessee has also failed to comply with the terms of notice u/s.142(1) of the act i.e. dated 5.2.2015. Hence, the assessment should be framed by invoking the provisions of section 144 of the Act - Thus on non-compliance to notice u/s.142(1) dated 5.2.2015 of the Act by the assessee Assessing Officer was compelled to take recourse of provisions of section 144 in framing assessment under best judgement assessment. Assessing Officer was right in framing assessment order u/s.144 and in denying allowance of interest and salary paid to the partners by taking support of provisions of section 184(5). Hence, the sole ground of the assessee being devoid of merits is dismissed. - Decided against assessee.

Summary

Issues:
1. Disposal of appeal ex-parte by CIT (A) without appreciating facts properly
2. Erroneous reopening of proceedings under section 147 by assessing officer
3. Disallowances of interest on partners' capital and remuneration to partners under section 184(5)
4. Interpretation of sections 144, 145, and 184(5) in relation to best judgment assessment

Analysis:

1. The appeal was filed against the CIT (A)'s order for the assessment year 2009-2010. The assessee raised concerns about the appeal being disposed of ex-parte without proper appreciation of facts, violating natural justice principles. However, during the hearing, the counsel only emphasized on disallowances for payments related to remuneration and interest on capital under section 184(5) of the Income Tax Act, 1961.

2. The assessing officer had initially framed the assessment under section 144 but later reopened the proceedings under section 147 due to a discrepancy in the disclosed gross contract receipt. The CIT (A) confirmed the disallowances of interest and salary paid to partners under section 184(5), stating that such deductions are not allowed if the assessment is a result of the assessee's failure as per section 144.

3. The Tribunal analyzed the provisions of sections 144, 145, and 184(5) to determine the applicability of the disallowances. It was noted that section 184(5) triggers when there is a failure as mentioned in section 144. The Tribunal clarified that if the assessment under section 144 is due to the assessing officer's dissatisfaction with the accounts (section 145(3)), section 184(5) disallowances do not apply.

4. The Tribunal found that the assessing officer's decision to frame the assessment under section 144 was justified due to the assessee's non-compliance with notices issued under section 142(1). The Tribunal agreed that the non-compliance warranted the best judgment assessment under section 144, leading to the denial of interest and salary deductions under section 184(5). The appeal was dismissed as the grounds lacked merit based on the facts and circumstances of the case.

In conclusion, the Tribunal upheld the assessing officer's decision to deny deductions under section 184(5) based on non-compliance by the assessee, leading to the dismissal of the appeal.