2021 (10) TMI 1018 - AT - Income Tax

Reopening of assessment u/s 147 - genuineness of partnership deed - ascertainment of correct date of the deed - front page was signed - reason/s to believe escapement of income from assessment to tax based on an audit objection - HELD THAT - As Auditor has only made the assessing authority aware of the law impinging on the matter, the same could not be disqualified inasmuch as it is not expression of opinion by him. In the facts of the case, all that the Revenue Audit has brought forth for the consideration of the Assessing Officer are some facts, which may have a bearing on the compliance or otherwise of s.147; s. 40(a)(ia); and s.184 (leading to the consequence of s.185). That the same appealed to the AO is another matter. The reasons recorded, thus, cannot be faulted with on this score i.e., for being based on an audit objection/s. The assessee s argument, thus, fails. Eligibility of reason to believe - Late furnishing of the return of income by itself affords no ground to entertain any reason to believe escapement of income from assessment. Likewise, there is no allegation of non-filing of the declaration (F-15H) by the assessee, which only could lead to a valid reason to believe disallowance u/s. 40(a)(ia), not effected in the original assessment. No wonder, the ld. Sr. DR, Ms. Agarwal did not respond to the Revenue s case qua these two reasons in her arguments/ No contravention of s. 184 due to non- signing of the front pages of the partnership deed by the partners so as to attract s.185. The Revenue is only making a guess in view of the long time interval between possible date of execution (as stated in the deed itself), i.e., 1.4.2007, and the date of its notarization; rather, admitting that the matter needs to be examined and ascertained. That is, there is a reason to suspect, and not a reason to believe for want of the relevant information. - Decided in favour of assessee.

Summary

Issues involved:
1. Validity of reopening of assessment under section 147 read with section 143(3) of the Income Tax Act, 1961 for the Assessment Year 2008-09.
2. Challenge to the disallowance of interest and remuneration to partners in the reassessment.

Analysis of the judgment:

Issue 1: Validity of reopening of assessment
The appellant, a partnership firm in contract business, challenged the reopening of its assessment under section 147. The appellant argued that the basis of reopening, the revised partnership deed executed on 1.4.2007 but notarized on 4.2.2010, did not provide any new material and was beyond the four-year period. The appellant contended that the reasons recorded were not valid as they were based on an audit objection and did not establish any untrue information by the appellant. The Revenue argued that the partnership deed was not properly executed as it lacked signatures of all partners, contravening section 184, leading to disallowance of salary and interest to partners. The tribunal clarified that the reasons recorded were not valid grounds for reopening as they did not establish a reason to believe escapement of income. The tribunal emphasized that the parties had gone beyond the scope of the challenge, and the appeal was allowed.

Issue 2: Challenge to disallowance of interest and remuneration
The appellant contested the disallowance of interest and remuneration to partners in the reassessment. The tribunal analyzed the reasons recorded for disallowance, including the non-signing of the partnership deed by all partners and the notarization date discrepancy. The tribunal found these reasons to be invalid grounds for disallowance, as they did not establish a clear violation of section 184. The tribunal highlighted that the arguments raised by the parties during the hearing were not directly related to the reasons recorded and, therefore, had no consequence in the decision. Ultimately, the tribunal allowed the appeal, emphasizing that the reassessment proceedings were not validly initiated.

In conclusion, the tribunal ruled in favor of the appellant, allowing the appeal against the order dismissing the assessee's challenge to the assessment under section 147 read with section 143(3) of the Income Tax Act, 1961 for the Assessment Year 2008-09. The tribunal found the reasons recorded for reopening the assessment and disallowing interest and remuneration to partners to be invalid, leading to the decision in favor of the appellant.