M/S. GULZAR SINGH GURBACHAN SINGH,DISTT.BATHINDA vs. THE INCOME-TAX OFFICER, BATHINDA

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR (SMC) BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER I.T.A. Nos. 146&147/Asr/2014 Assessment Years: 2007-08&2008-09

Gulzar Singh Gurbachan Singh, vs. Income Tax Officer, Grain Market, Goniana Mandi, Ward 2(1), District Bathinda Bathinda [PAN: AACFM 1332M] (Appellant) (Respondent)

Appellant by : Sh. P. N. Arora (Adv.) Respondent by: Sh. Charan Dass (D.R.) Date of Hearing: 11.02.2019 Date of Pronouncement: 15.02.2019

ORDER Per Sanjay Arora, AM: This is a set of two Appeals by the Assessee agitating the Orders by the Commissioner of Income Tax (Appeals), Bathinda ('CIT(A)' for short) of even date (30.12.2013), partly allowing the assessee’s appeals contesting its’ assessments u/s. 144 of the Income Tax Act, 1961 ('the Act' hereinafter) for the Assessment Years (AYs.) 2007-08 and 2008-09.

2 ITA Nos. 146 & 147/Asr/2014 (AYs 2007-08 & 2008-09) Gulzar Singh Gurbachan Singh v. CIT 3. The principal issue raised in these appeals is the disallowance of interest u/s. 36(1)(iii) read with sec. 40(b) allowed to the partners on their capital account balances in view of section 184(5) of the Act, which reads as under: ‘CHAPTER XVI A. – Assessment of firms Assessment as a firm. 184. (1) A firm shall be assessed as a firm ……. (2) to (4) …… (5) Notwithstanding anything contained in any other provision of this Act, where, in respect of any assessment year, 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 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.’ The assessee’s case before the Tribunal as well as before the first appellate authority is that the disallowance is not tenable as the assessment/s has been wrongly framed u/s. 144. Further, but for the assessment/s being u/s. 144, and the consequent applicability of sec. 184(5), there is no other ground for the disallowance of the said interest, being allowed to partners from year to year.

3 ITA Nos. 146 & 147/Asr/2014 (AYs 2007-08 & 2008-09) Gulzar Singh Gurbachan Singh v. CIT disallowance, finding the assessee’s case as covered u/ss. 144(1)(b) and 144(1)(c), with there being no issue as regards the service of the notices u/ss. 142(1) and 143(2) (paras 2.6 & 2.7 of the impugned order (IO)). After meeting the assessee’s reliance on CIT v. Dharti Films [1991] 191 ITR 261 (Bom), being a decision prior to the amendment in the Act by Finance Act, 1992, w.e.f. 01.04.1993, he also observes a failure to produce the books of account in the assessment proceedings; the assessee having rather filed two balance-sheets (as at the relevant year-end) with different figures before the AO (paras 2.8 to 2.10 of the IO)

4.2 Section 144 in its relevant part reads as under: ‘Best judgment assessment. 144. (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 under sub-section (1) of section 142 or fails to comply with a direction issued under sub-section (2A) of that section, or (c) having made a return, fails to comply with all the terms of a notice issued under sub- section (2) of section 143, the Assessing Officer, after taking into account all the relevant material which the Assessing Officer has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment: Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment: Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (1) of section 142 has been issued prior to the making of an assessment under this section. The only manner, therefore, the assessee could have successfully pleaded its’ case is by showing that the finding as to the failure on the part of the assessee as mentioned in sections 144(1)(b) and 144(1)(c) is factually incorrect, i.e., in the

4 ITA Nos. 146 & 147/Asr/2014 (AYs 2007-08 & 2008-09) Gulzar Singh Gurbachan Singh v. CIT facts and circumstances of the case. A perusal of the assessment order (for both the years) shows a string of defaults in complying with the notices u/s. 142(1) and s. 143(2), as under: (para 3 of the assessment order for AY 2007-08)

Notice u/ss. Status (a) 142(1) dated 14.11.2008 incomplete information filed on 22.06.2009 (b) Adjourned to 08.07.2009 None attended (c) 143(2) (for 25.08.2009) No compliance (d) 142(1) and 143(2) (for 29.09.2009) None attended (e) 143(2) dated 30.09.2009 (for 07.10.2009) No compliance Part reply on 23.10.2009 (f) Adjourned to 29.10.2009 None attended (g) 142(1) dated 05.11.2009 (for 11.11.2009) No compliance

None of the findings is disputed. The assessee’s only case is that there was part compliance. Section 144(1)(b) (s. 144(1)(c)) gets attracted in the absence of all the terms of the notice u/s. 142(1) (s. 143(2)) being not complied with, so that a part compliance is not excluded; rather, specifically included. In fact, I observe a complete non-compliance on several occasions and, further, for both, i.e., notice u/s. 142(1) and sec. 143(2), even as qua only one is sufficient to attract s.144. The failure to produce books of account and vouchers in the assessment proceedings (para 4 of the assessment order), as also noted by the ld. CIT(A), would though stand to be covered by the failure to comply with the terms of notice u/s. 142(1) or, as the case may be, s. 143(2). The non-issue of notice u/s. 144, as again noted by the ld. CIT(A), is excepted by the second proviso to section 144(1). I, accordingly, find no reason to interfere; the assessment/s having been rightly framed u/s. 144.

5 ITA Nos. 146 & 147/Asr/2014 (AYs 2007-08 & 2008-09) Gulzar Singh Gurbachan Singh v. CIT 4.3 The assessee during hearing relied on the decision in Vijay Veer Singh v. ITO [2015] 153 ITD 506 (Agra) (SMC). As rightly pointed out in the said order, section 184(5) gets attracted not as a result of the assessment being u/s. 144, but as a result of the lapses mentioned in section 144. That is, the disabling provision of section 184(5) comes into play only when the assessment is framed u/s. 144 for the reason of the assessee committing any failure as mentioned in section 144. This is precisely what has happened in the instant case, with there being a series of failures as specified in sections 144(1)(b) and 144(1)(c). In the facts of that case, section 144 was invoked on account of application of section 145(3) of the Act. There was, clearly, no default of the nature specified in section 144, for section 184(5) to become applicable. The cited decision in Vijay Veer Singh (supra), thus, on facts, as well as in law, supports the case of the Revenue and not of the assessee. At the same time, without doubt, the interest disallowed cannot be assessed u/s. 28(v) in the hands of the partners, i.e., in view of section 184(5) itself, so that, where so, the same would require being excluded.

4.4 I decide accordingly, dismissing Grounds (c) to (f) of the appeal; Grounds (a) and (b) being general in nature, warranting no adjudication.

6 ITA Nos. 146 & 147/Asr/2014 (AYs 2007-08 & 2008-09) Gulzar Singh Gurbachan Singh v. CIT 6. The last Gd. (h) of the appeal is qua confirmation of the disallowance of the cash discount expenditure, claimed at Rs.22,905, in the absence of any corroborative evidence. The assessee’s contention before me as to no vouchers having been called for in the assessment proceedings, stood repelled by the ld. DR with reference to the AO’s clear finding of the failure to produce books of account and vouchers (at para 4 of his order); he, rather, going on to state that no books of account were maintained in the regular course of business. The assessee, a commission agent, has disclosed a gross commission receipt of Rs.5.42 lacs, with the maximum expenditure incurred being under the head ‘staff salary’ (at Rs.48,000). The total sales for the year are at Rs.0.71 lacs. The claim of cash discount is, under the circumstances, wholly untenable and, besides, unexplained at any stage. I decide accordingly, confirming the impugned disallowance.