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TMI Blog2015 (10) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... onship with assessment being framed under section 144. In this regard, it is noteworthy that Section 184(5) categorically states that when “there is, on the part of a firm, any such failure as is mentioned in section 144, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income”. This disabling provision comes into play only when the assessment is framed under section 144 only as a result of the assessee’s committing any such failure as is contemplated under section 144. However, in a situation in which the assessment is completed in the manner as prescribed in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the assessee has not committed any such failure as is set out in section 144. 3. The issue in appeal lies in a very narrow compass of material facts. The assessee before me is a partnership firm. There is no dispute that the assessment was done under section 144 as the assessee had not complied to the hearing notices served upon the assessee even as the assessment was getting time barred. The adjournment petition moved by the assessee was rejected. In the course of the assessment so framed, the Assessing Officer disallowed ₹ 32,000 out of interest paid to the partners and ₹ 40,000 out of salaries as paid to the partners. This disallowance was made on estimate basis and for want of details. The AO also added back, as unex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at reasonableness of the salaries is not in doubt, yet it is to be disallowed under section 184(5). The assessee is aggrieved and is in appeal before me. 4. I have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 5. Section 184 and Section 144 and 145, which are relevant for the purposes of adjudicating on this question, are reproduced below for ready reference: Section 184- Assessment as a firm (1) A firm shall be assessed as a firm for the purposes of this Act, if- (i) the partnership is evidenced by an instrument; and (ii) the individual shares of the partners are specified in that instrument. (2) A certified copy of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head Profits and gains of business or profession and such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28. Section 144- Best judgement assessment (1) If any person- (a) fails to make the return required under sub-section (1) of section 139] and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section; or (b) fails to comply with all the terms of a notice issued und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to the relevant assessment year. Section 145 - Method of accounting. (1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 184(5) do not come into play. On the facts of this case, as I have noted from the observations made by the CIT(A)- reproduced earlier in this order, the assessment under section 144 has been upheld on the basis of section 145(3) even as it is not disputed that the failures enumerated in section 144 itself were not committed. In these circumstances, and in the light of the discussions above, I am of the considered view that learned CIT(A) indeed erred in invoking disallowances under section 184(5) for interest and salaries paid to the partners. I, therefore, delete these disallowances of ₹ 40,000 and ₹ 32,000 respectively. The assessee will get the relief accordingly. No other grievance was pressed before me. 7. In the resul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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