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TMI Blog2005 (8) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... nse to the notice issued for reopening of assessment, notice under sections 143(2) and 142(1) dated 5-6-2003 was served on the partners Sri J. Satyanarayana and Smt. J. Sujatha. Even to this notice there was no response. The Assessing Officer issued another show cause letter dated 26-6-2003 calling upon the assessee to show cause as to why the excessive remuneration and excess depreciation allowed in the order dated 26-2-2001 should not be disallowed. The show cause letter was served on the partner on 30-6-2003. Another show cause letter dated 11-7-2003 was also sent to the partners. Even to this show cause letter the assessee has not responded. Therefore, the assessment was completed ex parte, under section 144 read with section 147 of the Act wherein the Assessing Officer disallowed excess depreciation amounting to Rs. 73,715. Similarly, salary paid to the partners in excess of the agreed amount was also disallowed. In addition to that the Assessing Officer disallowed the remuneration payable as per the partnership deed and also the interest paid to the partners on the ground that on account of non-compliance of notice issued under section 142(1) of the Act the provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, except ground regarding depreciation, have no basis. He observed that the reassessment proceedings were initiated on the basis of audit objection wherein the excess claim of remuneration as well as depreciation was pointed out. Reliance was placed upon the decision in the case of CIT v. PVS Beedies (P.) Ltd. [1999] 237 ITR 13 (SC) to conclude that the reopening of assessment in this case, based upon opinion given by the audit party, is justified. 5. With regard to the contention of the assessee that the Assessing Officer having dropped the proceedings under section 154 he ought not have initiated reassessment proceedings, learned CIT(A) observed that there is no provision in the Act barring reassessment when rectification proceedings have been dropped and, in this regard, he has taken note of the amended provisions of section 147 of the Act and the proviso thereto to state that reopening of assessment within 4 years from the end of the relevant assessment year is permissible. He also relied upon the decision of Allahabad High Court in the case of Sri GP Agarwal v. Asstt. CIT [1994] 208 ITR 795. 6. With regard to the contention of the assessee that the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law. It was further submitted that the notice was issued to the partners of the firm without mentioning therein that the assessment sought to be reopened is that of the firm and thus the defect in service of notice is not curable even under section 292B of the Act. Since the very foundation for making an assessment under section 147 of the Act is invalid, the assessment made consequent to the issuance of notice under section 148 falls to ground. The Assessing Officer-has not only made the additions/disallowances but changed the status of the assessee to AOP instead of making the assessment in the status of the firm. Since no notice was issued on AOP, assessment made in the status of AOP is bad in law. He relied upon the following decisions with regard to the defect in the notice issued under section 148 of the Act: (i) Ch. Kesho Das (HUF) v. ITO [1993] 46 TTJ (Asr.) 181. (ii) CIT v. Naraindas Dwarkadas [1976] 102 ITR 767 (Bom.). (iii) S.W. Chaudhari Mrs. S.V. Wagh v. ITO [2002] 82 ITD 725 (Pune). He has also referred to the commentary in the "Direct Taxes annual digest" to submit that notice under section 148 of the 1961 Act, which suffers from vital infirmity cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pening has been done within four years from the end of the relevant assessment year and in the light of the deeming provision i.e., Explanation 2 to section 147, allowing excess deduction towards remuneration to partners over and above the agreed remuneration is itself sufficient to bring the case within the Explanation 2 to section 147, and thus there is reason to believe that the income chargeable to tax has escaped assessment. In the following cases, the Courts have held that merely because the Assessing Officer has not exercised the power of issuing a notice under section 143(2) of the Act to convert the case into scrutiny, he is not debarred from reopening the assessment under section 147 of the Act. (i) Mahanagar Telephones Nigam Ltd. v. Chairman, CBDT [2000] 246 ITR 173 (Delhi) (ii) A. Pushal v. CIT [1987] 34 Taxman 408/[1988] 169 ITR 215 (AP) (iii) Elegant Chemicals Enterprises (P.) Ltd. The ratio laid down in the aforementioned cases was consistently followed by the ITAT, Hyderabad Benches. In other words, it is not necessary for the Assessing Officer to exhaust the other remedies available under the Act before taking recourse under section 147 of the Act. It would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said notice. Thus the defect, if any, is a technical defect and notice does not suffer from vital infirmity. The case law cited by the learned counsel are distinguishable on facts. Either the status was not mentioned in the notice or it was not addressed to the correct person whereas in the instant case Sri J. Satyanarayana has verified the return of income of firm and the notice was addressed to him wherein the correct PAN/GIR Number was mentioned. Thus it cannot be said that the status of the entity on whom the reassessment proceedings are sought to be initiated was not mentioned correctly. Section 292B saves such proceedings wherein it was mentioned that a defect in the notice or other proceedings will not make it invalid if such notice or proceeding is in substance and effect in conformity with or according to the intent or purpose of this Act. In other words, so long as the party upon whom the proceedings were initiated is aware of the fact that the proceedings are intended to be taken against him/it, merely because there is a technical defect. One party should not take advantage of such defect. Judicial decisions treating vague notices as invalid were based on the princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. If there is any failure on the part of the firm, as mentioned in section 144, the statute empowers the Assessing Officer to complete the assessment of the firm in the same manner as an association of persons. The expression "the firm shall be assessed as such for the said assessment year" and "the firm shall be assessed in the same manner as AOPs" goes to show that though the assessment is that of the firm, the firm should not be assessed but it should be assessed an AOP. Thus it cannot be said that the assessment was completed in a different status other than the one mentioned in the notice. If such an interpretation is given, section 184(5) becomes otiose which could not have been the intention of the Legislature. Thus the assessment in the same manner as an AOP is in accordance with law. 14. Since the mandatory provision under section 184(5) of the Income-tax Act comes into play in a case where the assessment has to be made under section 144 of the Act, the provisions of section 40(ba) of the Income-tax Act will automatically comes into operation and interest/remuneration paid by an AOP cannot be allowed as deduction while computing the income of the AOP. Under these circum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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