SAROJ PRINT ARTS,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX - 21, MUMBAI

Brief facts are, the assessee is a partnership firm. For the assessment year under dispute, the assessee filed its return of income on 24th September 2010, declaring total income of ` 1,48,970. On the basis of information received from the DGIT (Inv.), Mumbai, and the Sales Tax Department, Government of Maharashtra that the assessee is a beneficiary of accommodation entries provided by some entities identified as hawala operators by the Sales Tax Department, the Assessing Officer re–opened the assessment under section 147 of the Act. In the course of assessment proceedings, the Assessing Officer called upon the assessee to prove the genuineness of purchases worth ` 2,55,018, claimed to have been made from Mayur Paper. As alleged by the Assessing Officer, in spite of the statutory notice issued under section 143(2) of the Act, the assessee neither appeared nor made any compliance. Finally, the assessee on 5th November 2015 furnished tax audit report and audited Balance Sheet and Profit & Loss Account. Thereafter, the Assessing Officer called upon the assessee to furnish some more details and in view of non–compliance by the assessee, the Assessing Officer issued a notice under section 142(1) r/w section 144 of the Act, on 25th January 2016, calling upon the assessee to furnish various details as mentioned in the said notice. As observed by the Assessing Officer, on 2nd February 2016, the assessee could only furnish copies of invoices and ledger account, whereas, it failed to 3 Saroj Print Arts furnish other information called for by the Assessing Officer. Due to failure on the part of the assessee in furnishing the required details, the Assessing Officer proceeded to complete the assessment under section 144 r/w section 147 of the Act, to the best of his judgment, vide order dated 12th February 2016, determining the income at ` 4,03,980. Subsequently, learned Principal Commission, in exercise of power conferred under section 263 of the Act, called for the assessment records for examination. After examining the assessment records, he found that, though, the Assessing Officer completed the assessment under section 144 of the Act to the best of his judgment, however, he has wrongly allowed deduction towards interest and remuneration paid to partners totaling ` 6,67,153, completely overlooking the provisions of section 184(5) of the Act. Therefore, he issued a show cause notice to the assessee requiring it to explain as to why the assessment should not be revised under section 263 of the Act. After considering the submissions of the assessee in the context of facts and material on record, learned Principal Commission observed that when the Assessing Officer has completed the assessment under section 144 of the Act, he was required to disallow the interest and remuneration paid to partners as per section 184(5) of the Act. The Assessing Officer having failed to do so, learned Principal Commission held the assessment order to be erroneous in as much as prejudicial to 4 Saroj Print Arts the interests of Revenue. Accordingly, he set aside the assessment order with a direction to the Assessing Officer to assessee the income of the assessee afresh after following due procedure and affording reasonable opportunity of being heard to the assessee.

Challenging the validity of the order passed under section 263 of the Act, the learned Authorised Representative submitted, as per section 144(1) of the Act, there should be complete failure on the part of the assessee in complying to the notices issued under section 142(1) and 143(2) of the Act. He submitted, the assessee has not only filed its return of income voluntarily, but has complied with all the statutory notices issued by the Assessing Officer. The learned Authorised Representative submitted, in response to the notices issued under section 148 of the Act, the assessee had filed its objections before the Assessing Officer. Similarly, in response to the notices issued under section 143(2) and 142(1) of the Act, the assessee has also furnished certain details. Therefore, it is not a case of complete non–compliance to the statutory notices issued by the Assessing Officer. He submitted, the provision of section 184(5) of the Act can be brought into play only if there is complete non–compliance by the assessee in terms of section 144(1) of the Act. He submitted, since the assessee had complied to the statutory notices issued by the Assessing Officer, though, it may not be to the satisfaction of the Assessing

The learned Departmental Representative strongly relying upon the observations of learned Principal Commission submitted, once the Assessing Officer proceeds to invoke the provisions of section 144 of the Act and completes the assessment to the best of his judgment, it is mandatory on his part to give effect to the provision of section 184(5) of the Act. He submitted, section 184(5) of the Act makes it clear that in a case where the assessment is completed under section 6 Saroj Print Arts 144 of the Act, no deduction on account of payment of interest and remuneration to the partners can be allowed. He submitted, while completing the assessment, the Assessing Officer totally ignored to give effect to the provision of section 184(5) of the Act and erroneously allowed deduction on account of interest and salary payment to the partners. Thus, he submitted, due to the aforesaid reason, the assessment order passed being erroneous and prejudicial to the interests of Revenue, learned Principal Commission has correctly revised it under section 263 of the Act.

We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. Undisputedly, for whatever may be the reason, the Assessing Officer has completed the assessment invoking the provisions of section 144 of the Act, to the best of his judgment. In the present appeal, we are neither required nor called upon to adjudicate the correctness / validity of the assessment order passed by invoking the provisions of section 144 of the Act. The short issue before us is, whether the assessment order passed is erroneous and prejudicial to the interests of Revenue due to non–application of the provision contained under section 184(5) of the Act while allowing interest / remuneration paid to the partners. Before we proceed to deal with the issue, it is necessary to examine the relevant statutory provisions. A reading of section 144 of the Act

In the facts of the present case, admittedly, the Assessing Officer has completed the assessment under section 144 of the Act to the best of his judgment alleging non–compliance to the statutory notices issued under section 142(1) and 143(2) of the Act. Provisions of section 184 of the Act lay down the procedure for the assessment in case of a partnership firm. Sub–section (5) of section 184 of the Act, which begins with a non–obstante clause, makes it clear that in a case where the assessment is completed under section 144 of the Act for any such failure on the part of the firm as mentioned in the said provision, assessment has to be made without allowing any deduction by way of payment of interest, salary, bonus, commission or remuneration, etc., to any partner. Thus, once the assessment is completed under section 144 of the Act, the provision of section 184(5) of the Act gets triggered automatically and it will override all

In the result, appeal stands dismissed. Order pronounced in the open Court on 02.12.2019