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Facts
The assessee, a partnership firm, filed its original return of income claiming deduction for interest and remuneration paid to partners. This claim was not considered during the processing of the return and subsequent applications u/s 154 were also rejected. The assessee appealed to the CIT(A), who also dismissed the appeals.
Held
The Tribunal held that while the assessee had not filed a revised return, it would be a genuine hardship not to consider the claim. Citing a Supreme Court judgment, the Tribunal found it appropriate to remand the issue to the AO for fresh consideration after the assessee files a revised return and seeks condonation of delay.
Key Issues
Whether the assessee can claim deduction for interest and remuneration paid to partners even without filing a revised return, considering it was an inadvertent mistake.
Sections Cited
143(1), 154, 254, 119(2)
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SMT. BEENA PILLAI, JM
At the outset, the Ld. AR submitted that the assessee is a partnership firm and filed its original return of income on 30/10/2017, declaring total income of Rs.8,90,148/-. While computing the income inadvertently the amount of the interest and remuneration paid to the partners (as was debited/claimed in profit and loss account) was though added back to the net profit, however had remained to be reduced to arrive at the net taxable income (Page no 17 of Paperbook) as a result of which the taxable profit got increased, against which the brought forward/business losses were set off, further resulting into having carried forward the reduced amount of loss, which return was processed u/s 143(1) of the I.T Act, 1961 on 25/07/2018. The Ld.AR submitted that, this return that was processed u/s 143(1) of the Act on 25/07/2018. 2.1 He submitted that, against this intimation, assessee preferred application u/s 154 requesting to allow the deduction of interest and remuneration paid to the partners and was correctly in the claimed in the audited books of account so as to arrive at the correct taxable profit. The assessee also claimed setting off of loss to the extent of profit and allowing carry forward of the losses. 2.2 It is submitted that the CPC acceded to the request of the assessee of setting off losses to the extent of the profit and allow carry forward to the losses. However, did not accepted the request to allow the deduction of interest and remuneration paid to the partners and order u/s 154 of the Act was passed by the CPC on 30/12/2020. and 5802/Mum/2024 Assessment Year: 2017-18 3 2.3 The assessee once again preferred an application u/s 154 requesting to consider the deduction of interest and remuneration paid to the partners. However, CPC again dismissed the request of the assessee by passing the order u/s 154 on 20/01/2021. Against both the orders passed u/s 154 dated 30/12/2020 and 20/01/2021 the assessee preferred appeal before the Ld. CIT(A).
The Ld. CIT(A). did not appreciate the argument advanced by the assessee and also did not take into consideration that it was an inadvertent mistake that occurred while filing the return of income. He submitted that this error came to the notice of the assessee at the time when audit for assessment year 2020-21 was going on. The assessee made an attempt to file revised return of income which could not be done. Subsequently, the Ld. CIT(A) was of the opinion that there was no claim was made by the assessee, to allow the deduction of interest and remuneration paid to the partners by way of revised return, both the appeals filed by the assessee were dismissed. Aggrieved by the orders passed by the Ld. CIT(A), the assessee is in appeal before this Tribunal.
The Ld.AR, at the outset submitted that, it is a legal claim of the assessee to consider deduction of interest and remuneration paid to the partners. He submitted that, the authorities below did not consider this claim only on the ground that it did not arise out of the return of income filed by the assessee. and 5802/Mum/2024 Assessment Year: 2017-18 4 4.1 It is submitted that, as assessee was informed about this inadvertent mistake only during the audit of assessment year 2020- 21, assessee missed the chance to file the revised return within the time limit available to it as per the Act. However, the Ld.AR submitted that, the prayer to consider the claim of assessee may be admitted and remanded to the Ld.AO for necessary verification. 4.2 On the contrary, the Ld.DR vehemently opposed the submission of the assessee. It is submitted that the claim does not arises out of the return of income and these loss cannot be subjected to verification. He submitted that, as assessee did not file revised return in respect of the deduction sought, the same cannot be considered at this stage. 4.3 I have perused the submission advanced by both sides in the light of record placed before me.
Admittedly, assessee has not filed revised return claiming deduction of interest and remuneration paid to the partners. However, it will be a genuine hardship upon the assessee if the claim is not considered. The intent of the Income tax Act is to tax the correct income in the hands of the assessee which includes the deduction that is available to the assessee as per the statute. Hon’ble Supreme Court in the case of Goetz India Ltd. vs. CIT reported in (2006) 284 ITR 323 had an opportunity to consider a situation wherein and identical situation. Hon’ble Supreme Court therein noted that, Assessing Authority disallowed the deduction claimed before the Ld.AO on the ground that there was no provision and 5802/Mum/2024 Assessment Year: 2017-18 5 under the Act make an amendment in the return of income without modifying it by way of revised return. Hon’ble Supreme Court dealt with powers of this Tribunal u/s 254 of the Act, on the aspect to entertain a point of law for the first time. Hon’ble Supreme Court observed as under: “4The decision in question is that the power of the Tribunal under section 254 of the Income Tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the assessing officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income Tax Appellate Tribunal under section 254 of the Income Tax Act, 1961. There shall be no order as to costs.” 5.1 It is noted that, the assessee raised the claim in an application u/s 154 before the CPC which on identical premises. Both the appeals before this Tribunal are on identical issue for the same assessment year under consideration. In the interest of justice, I deem it appropriate to remand the issue to the Ld.AO to consider it afresh in the light of the observations by the Hon’ble Supreme Court reproduced hereinabove. The assessee is directed to file the revise return and to seek condonation of delay in filing the revised return and 5802/Mum/2024 Assessment Year: 2017-18 6 CBDT u/s 119(2) of the Act. The Hon’ble CBDT requested to consider the claim of assessee by admitting the revised return there being a genuine claim. Subsequent to which the Ld.AO shall verify the claim of assessee in accordance with law.
5.2 The issue that is remanded arises out in ITA 5802.
Accordingly, the grounds consider in ITA 5802/Mum/2024 to stands partly allowed. In ITA 5801/Mum/2024 grounds raised are on similar ground for the same assessment year under consideration is thus dismissed as in fructuous.
In the result, the appeal ITA 5801/Mum/2024 stands dismissed and appeal in ITA 5802/Mum/2024 stands partly allowed for statistical purposes.
Order pronounced in the open court on 17.01.2025