2014 (7) TMI 505 - AT - Income Tax

Validity of reassessment u/s 147/148 of the Act Held that - The decision in ACIT, Circle 37(1), New Delhi Versus Sood Brij & Associates 2014 (7) TMI 496 - ITAT DELHI followed - the reasons were recorded on 30th March, 2010 and on the same date notice u/s 148 was issued - The reason were supplied to the assessee - the re-assessment proceedings cannot be held to be bad in law - the notice was served on the assessee - the reasons recorded by the respondent were supplied to the assessee - the contention of the assessee is assessee cannot be accepted that reassessment was bad in absence of reasons to reopen being supplied to it after limitation period prescribed by the Act Decided against Assessee. Partner s remuneration u/s 40(b) of the Act Held that - The decision in ACIT, Circle 37(1), New Delhi Versus Sood Brij & Associates 2014 (7) TMI 496 - ITAT DELHI followed - clause (iii) and other clauses in Section 40 (b) specifically use the expression in accordance with the terms of the partnership deed - the quantum of remuneration or the manner of computing the quantum of remuneration should be stipulated in the partnership deed - The expression in accordance with the terms of the partner deed read with clause (iii) of section 40 (b), requires and mandates that the quantum of remuneration or the manner of computation of quantum of remuneration should be stated in the partnership deed and should not be left undermined, undecided or to be determined or decided on a future date - the remuneration is not specified - The manner of computing the remuneration is not specified - the remuneration payable is left to future mutual agreement between the partners who are entitled to decide and quantify the quantum - Remuneration can be any amount or figure but not more than the maximum amount stated in Section 40 (b) (v) of the Act thus, the order of the CIT(A) is upheld Decided against Assessee. Non-consideration of the payment of advance tax paid by the partners on the Partners Remuneration Computation of interest u/s 234B r.w. section 155 (IA) of the Act Held that - CIT(A) has not adjudicated the issue saying that charging of interest u/s 234 of the Act is consequential - as per the provision of section 155(IA) of the Act wherein respect of any completed assessment of a firm, it is found that any remuneration of any partners is not deductible under clause (b) of section 40 of the Act - the AO may amend the order of assessment of the partner with a view to adjusting the income of the partner to the extend of the amount not deductible - the AO has not done this exercise in respect to the partner s income inconsequence to the disallowance of remuneration in the hands of the assessee firm and as stated earlier the CIT(A) has not dealt - thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of initiation of reassessment proceedings u/s 147/148 of the Income Tax Act, 1961.
2. Non-allowance of Partners' Remuneration u/s 40(b) of the Income Tax Act, 1961.
3. Non-consideration of the payment of advance tax paid by the partners on the Partners' Remuneration while computing interest u/s 234B read with section 155(1A) of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Initiation of Reassessment Proceedings u/s 147/148:
The appellant contested the initiation of reassessment proceedings, arguing that the reasons for reopening were communicated after the limitation period. The notice u/s 148 was issued on 20th January 2010, and the reasons were provided on 8th August 2011. The appellant claimed this delay invalidated the reassessment. However, the Tribunal found that the outer limit for issuing notice u/s 148 for the Assessment Year 2006-07 would expire on 31.03.2013. The reasons recorded by the previous Assessing Officer were deemed valid, and the reassessment proceedings were upheld based on the precedent set by the Hon'ble Delhi High Court in the case of A.G. Holdings Pvt. Ltd., where a delay in supplying reasons did not invalidate the reassessment. The Tribunal dismissed this ground of appeal and confirmed the order of the CIT(A).

2. Non-Allowance of Partners' Remuneration u/s 40(b):
The Tribunal referred to the Hon'ble Jurisdictional High Court's decision in the assessee's own case for the Assessment Year 2007-08. The High Court had held that the partnership deed must specify the quantum or manner of computing the remuneration. The partnership deed in question did not meet this requirement as it left the remuneration to be mutually agreed upon in the future. The Tribunal agreed with the CIT(A) and dismissed this ground of appeal, confirming that the disallowance of partners' remuneration was in accordance with the law.

3. Non-Consideration of Payment of Advance Tax Paid by Partners:
The appellant argued that the advance tax paid by the partners on their remuneration should be considered while computing interest u/s 234B. The Tribunal noted that the CIT(A) had not adjudicated this issue, stating it was consequential. The Tribunal acknowledged the provisions of section 155(1A), which allow for the adjustment of the partner's income in case of disallowance of remuneration. The Tribunal set aside this issue back to the Assessing Officer to amend the partner's assessment and reconsider the interest chargeable u/s 234B, taking into account the advance tax paid by the partners. The Tribunal directed the Assessing Officer to grant sufficient opportunity to the assessee before passing the order.

Conclusion:
The appeal was partly allowed for statistical purposes. The Tribunal upheld the reassessment proceedings and the disallowance of partners' remuneration but remanded the issue of interest computation u/s 234B back to the Assessing Officer for reconsideration.