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TMI Blog2016 (8) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer had recorded following reasons for issuing the notice : "1. In this case, the return of income for the year under consideration was filed on 18.8.2006 and the same was processed u/s. 143(1) on 22.3.2007 accepting total income at Rs. 56,98,020/-. The case was scrutinized u/s. 143(3) on 23.12.2008 assessing the total income at Rs. 65,14,32/-. 2. On perusal of the records of the assessee firm it is noticed that the assessee firm had not paid any interest to its partner on their capital. Though there was a clear provision in partnership deed (clause 12) Partner's capital as on 1/4/2005 ....Rs.1,31,46,154/- Interest @ 12 % per annum ....Rs. 15,77,538/- Underassessment ....Rs. 15,77,538/- 3. Similarly, no any remuneration was paid by the assessee firm to its partners. The deduction was allowed without paying the remuneration to partners (all were active partners) though it was duly authorized in partnership deed (clause 13) with only intention to get more deduction u/s 10B and to avoid tax in the hands of partners which was contrary to decision ibid. No profit / total income before allowing interest & remuneration to the partners as computed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in footnote that necessary evidence was not in possession of the "A" hence the mode of taking or accepting loan could not be verified. Moreover, no bank statement was available on records from which this transaction could be verified. 8. The loan may have been accepted in cash or otherwise than by a/c payee cheque or bank draft which may result in non-levy of penalty of Rs. 18,42,907/- u/s. 271D. On perusal of the annexure 10 to the 3CD report and on verifying the account details of the assessee it is perceived that there is no acceptance of loan from above parties. In fact there is repayment of loan of Rs. 9,00,000/- Chq No.291243 SBS dt.30.8.2005, Rs. 40,00/- Chq No.392269 HDFC dt. __/09/2005, Rs. 30,000/- Chq No. 444460 HDFC Dt.3.2.2006, Rs. 872,907/- Chq No.444478 HDFC Dt.10.2.2006 during the year. 9. On verifying the account details it is crystal clear that the assessee had repaid the above loan as discussed above. However, looking to the revenue point there is repayment of loan for which there is no reflection of entries in bank account details as furnished by the assessee (on perusal of SBS ban A/c.), which needs to be scrutinizes further. 10. In view of the above, the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel for the Revenue. 6. In the present case, notice for reopening of the assessment has been issued beyond the 4 years from the end of relevant assessment. In view of Section 147 of the Act therefore, in order to judge the validity of the notice, the additional requirement to be examined is whether income chargeable to tax had escaped assessment due to the failure on the part of assessee to disclose truly and fully all material facts. The reasons recorded by the Assessing Officer cited two grounds for issuing the notice for reopening. First is with respect to assessee's claim of deduction under Section 10B of the Act. It is not in dispute that the petitioner - firm was eligible to claim such deduction. The Assessing Officer in the reasons recorded points out that as per the partnership deed, there was a provision for payment of interest to the partners' capital contribution to the fund of the firm. Similarly, the deed also envisaged remuneration being paid to the partners. In the present case, the firm had not paid interest on a capital of Rs. 1.31 crores invested by the partners and had also not remunerated the partners as provided in the partnership deed. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot available on the record. It may be that this not being the initial year of assessment of the partnership firm, such document may have been produced during the earlier assessments. Nevertheless, Section 184 of the Act raises requirement of production of such a documents at the initial point of time. Sub-section (1) of Section 184 provides that a firm shall be assessed as a firm for the purposes of this Act if it is a partnership evidenced by an instrument and the individual shares of the partners were specified in that instrument. Under sub-section (2) of Section 184, a partnership would produce a certified copy of the instrument of partnership along with return of income of the firm during previous year relevant to the assessment year in respect of which the assessment as a firm is first sought. Sub-section (3) of Section 184 provides that where a firm is assessed as such for any assessment year, it shall be assessed in the same capacity for every subsequent year if there is no change under the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the assessment as a firm was first sought. Sub-section (4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h HDFC Bank Ltd. which is fully secured against hypothecation of stock. Xerox copy of loan sanction letter was furnished with our letter dated 20.12.2007. As regards the addition in partners' capital viz.(1) Ratilal B. Dobaria, (2) Babulal B. Dobaria and (3) Mahesh B. DObaria detailed copies of capital accounts and sources thereof were furnished with our letter dated 20.12.2007." 13. The partners' capital account was also produced with the return. It was after such scrutiny that the Assessing Officer in the order of assessment dated 23.12.2008 allowed the claim of deduction under Section 10B of the Act only partially. He observed as under : "9. In view of the discussion made in the foregoing paragraphs it is thus proved in this case that the assessee has not manufactured or produced a new article or thing in segregating the aluminum and stainless steel scrap for mixed scrap. The assessee is therefore can not be allowed deduction u/s. 10B of the Act on the export of these scrap items. The deduction u/s10B of the Act is recalculated as follows after excluding the value of the aluminum and stainless steel scrap from the export sales: Total turnover as per audited account filed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the assessee's intention is an inferential fact and so the assessee's omission to state his " true intentions behind the sale of shares " cannot by itself be considered to be a failure or omission to disclose any material fact within the meaning of Section 34. Indeed, an assessee whose contention is that the shares were sold to change the form of investment and not with the intention of making a business profit cannot be expected to say that his true intention was other than what he contended it to be." 15. To summarize, the partnership deed was available on record, from which itself the Assessing Officer has recorded that there were provisions for payment of interest on capital and remuneration to the partners. The fact that no such payments were made during the year under consideration was also part of the record so disclosed by the assessee. The partners' capital account was also part of the assessment proceedings. There was no failure on the part of assessee to disclose truly and fully all material facts. Even if the assessee's claim of deduction under Section 10B of the Act was artificially inflated, it was well within the powers of the Assessing Officer to de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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