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Before: Shri Bhavnesh Saini & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the assessee against the order of ld. CIT(A)-16, New Delhi dated 27.07.2015 for the assessment year 2010-11 on the following grounds : 1. That there is no mistake apparent from record capable of being rectified u/s 154 of the Act in this case and as such too the disallowance as made in the order under appeal is unlawful.
2. That the Ld. Commissioner of Income Tax (Appeals) [Ld. CIT(A)] has erred in confirming the disallowance in order u/s 154 of Rs. 100,000/- of deduction claimed u/s 80C by revised return on the incorrect ground that the same was not permissible under law because it was not claimed in the original return and was claimed by way of revised return which is non-est return as the original return filed was belated.
3. That the Ld. CIT(A) has erred in holding that an HUF cannot be a partner in a firm ignoring the fact that the assessee HUF has been assessed for years as partner in the firm.
4. That the Ld. CIT(A) has erred in treating the original return filed by the assessee on 1.10.2010 (as extended by the Board) as belated return on the incorrect ground that: i) An HUF cannot be a partner in a firm and accordingly, ii) Provisions of Explanation-2 (iii) to section 139(1) are not applicable to an HUF and accordingly, iii) The due date of filing of the return as applicable to an HUF even if a partner in a firm whose accounts are required to be audited under the Act, is 31st July and not 30th September.
5. That the Ld. CIT(A) has erred in not considering the alternative claim of the assessee that as per the Board Circular No. 14 dated 11.4.1955 and much precedents in favour of the assessee, any claim permissible under law can be made even during the course of assessment proceedings without filing a revised return. The AO is to assess the correct income as per the provisions of the Act even if a claim permissible under the Act is not made in the return. As such non allowance of the claim of the assessee u/s 80C is based on erroneous views and / or non-appreciation of the facts and law involved. The claim of the assessee deserves to be allowed.
That the interest charged u/s 234B & 234C of Rs.13104 and Rs. 11007/- respectively is incorrect.
7. That the grounds of Appeal as herein are without prejudice to each other.
2. From the above grounds, it is clear that the sole issue involved in this appeal is regarding disallowance of deduction claimed u/s. 80C of Rs.1 lakh made by the assessee.
The brief facts of the case are that the assessee filed return of income declaring income of Rs.36,69,790/- on 01.10.2010. Subsequently, the assessee filed revised return of income on 20.11.2011 claiming deduction u/s. 80C of Rs. 1 lakh and declaring total income of Rs.35,69,770/-. The case was selected for scrutiny and the revised return was accepted by the Assessing Officer. Later on, the case was taken up for internal audit and they pointed out vide audit memo No. 04/IAP-X/2013-14/45 dated 16.08.2013 and made objection as under :
"The due date of filing the return, where the assessee is a "Working Partner" in a firm whose accounts are required to be audited under any law is 30the September of the AY as per section 139(1) of the I T Act, 1961. Here the emphasis should be given on the working partner. "Working Partner shall have the meaning assigned to it in the explanation 4 of clause (b) of Section 40, “Working partner" means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner. In the instant case, the assessee is an HUF and not an individual, therefore working partner condition does not apply in this case as HUF cannot be a working partner. As per Section 139(1), the due date of filing of the return for any other assessee is 31st July of the relevant AY. The assessee has filed his original return on 01.10.2010 which is a belated return. As per section 139(5), belated return filed u/s 139(4) cannot be revised .- as held in the case of Kumar Jagdish Chandra Sinha Vs. CIT(1996) 86 ITR 122 (SC). Therefore, the revised return filed by the assessee is invalid in which assessee has claimed deduction u/s 80C amounting to Rs. 1,00,000/- which the assessee inadvertently could not claim in the Original return. As such, Rs. 1,00,000/- should be disallowed and added to the income of the assessee. As per above audit memo, the Assessing Officer rectified his order u/s. 154 of the Act by holding that the HUF cannot become a working partner and therefore, the assessee does not come within the definition of working partner as per section 40(b) , Explanation-4 of the Act and disallowed the deduction claimed through the revised return. The assessee filed appeal before the ld. CIT(A), where he made a written submission and the first appellate authority after considering the submissions of the assessee and the order of the Assessing Officer affirmed the order of the Assessing Officer after relying on some case laws. Aggrieved, the assessee is in appeal before the ITAT.
The ld. AR of the assessee submitted a written synopsis, which is as under :
GROUND NO. 1 2. This ground relates to validity of the order u/s 154 of the Act confirmed by the Ld. CIT(A) by disregarding the fact that there is no mistake apparent from record capable of being rectified u/s 154 of the Act in this case and as such too the disallowance as made in the order under appeal is unlawful. SUBMISSION 3. At the outset it is submitted that in the present case, there is no mistake apparent from record capable of being rectified u/s 154 of the Act and as such the disallowance as made in the order under appeal is unlawful. Section 154 of the Income-tax Act provides for rectification of mistakes, which are apparent from the record. The phraseology "mistake apparent from the record" has been considered by several judicial opinions and all those judicial opinions uniformly held that an error, which is not self-evident, and has to be detected by a process of reasoning, can hardly be said to be an error apparent on the face of the record. There is a clear distinction between an erroneous order and an error apparent on the face of the record, while the first could be corrected by the higher forum, the latter only could be corrected by exercise of power of rectification.
3.1 In the present appeal, the assessee HUF is partner in Firm represented by its Karta and accordingly assessee filed the return of income as per the due date prescribed in Explanation 2 clause (a) sub clause (iii) of Section 139(1) of the Act i.e 30th September of the Assessment Year. The Ld. AO accepted the returned income and the fact that assessee is partner in Firm and accordingly completed the assessment proceedings u/s 143(3) of the Act. However later Ld. AO Invoked Section 154 of the Act to rectify the mistake that assessee cannot be working partner in Firm. There is no mistake apparent from record capable of being rectified u/s 154 of the Act. Powers under section 154 can be exercised only when the mistake, which is sought to be rectified is an obvious mistake, which is apparent from the record and not a mistake, which is required to be established by long drawn process of reasoning on points.
3.2 The scope and amplitude of section 154 of the Income-tax Act, 1961, has been considered by the Supreme court in the case of T.S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 wherein it was held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record, which is not amenable for rectification under section 154 of the Income-tax Act.
In view of the above stated facts and law, it is submitted that there is no mistake apparent from record capable of being rectified u/s 154 of the Act in this case and as such too the disallowance as made in the order under appeal is unlawful.
GROUND NO. 2 to 4 4. These grounds relate to the validity of revised return filed by the assessee on 21.11.2011. The Assessing Officer has treated the revised return as invalid return on the ground that the assessee has filed original return on 1.10.2010 which is a belated return and the same cannot be revised u/s 139(5) of the Act.
SUBMISSIONS 5. While passing the rectification order u/s 154, the Ld. A.O. has erred in treating the original return filed by the assessee on 1.10.2010 as belated return on the incorrect ground that the assessee being an HUF cannot be a working partner in the firm and accordingly the due date of filing the return cannot be that applicable to firm where accounts are required to be audited. Further, the Ld. A.O. has erred in relying upon the definition of working partner as defined in explanation 4 of clause (b) of section 40 in context of section 139(1). Further the said definition of ‘Working Partner’ is only for the purpose of Section 40(b) only and the same cannot be used in context of Section 139(1) for the purpose of determining ‘Due Date’ of filing of return of income. 5.1 Mr. Ajay Kumar Gupta is Karta of the assessee HUF, Sh. Ajay Kumar Gupta (HUF). As borne out from the partnership deed, Sh. Ajay Kumar Gupta, an individual, is a partner in the firm, M/S Arushi Exports in his representative capacity as Karta of Ajay Kumar Gupta (HUF). Ajay Kumar Gupta HUF as such is not a partner in the firm. The assessee HUF is represented by its karta who is an individual and is involved in the conduct of the business of the firm.
5.2 Explanation-4 to section 40(b) as mentioned in the audit objection is only for the purpose of section 40(b) where salary is paid to the working partner. As no salary is being paid to the Karta of HUF, the term ‘working partner’ defined in explanation-4 to section 40(b) cannot be applied to provisions of 139(1).
5.3 Even otherwise it is submitted that Mr. Ajay Gupta being individual and being partner in the firm in his representative capacity, is actively engaged in conducting the affairs of the business of the firm and is a working partner in the firm. It is trite law and settled past position that income of HUF includes income from firm in which karta is partner/working partner in his representative capacity on behalf of HUF. In view of the Ld. AO himself if an HUF can be a partner through its Karta, how HUF cannot be a working partner through its Karta. Further the assessee HUF has been assessed for years as Partner in the Firm.
5.4 Ld. CIT(A) has relied on the judgment of Apex Court in Rashik lal & Co Vs CIT [1998] 96 Taxmann 16 wherein the issue was whether section 40(b) will not be applicable where an individual person is partner in the firm as representative of the firma as claimed by the assessee. The said judgment is in context of allowability of interest/remuneration paid to partner as Karta of HUF wherein the apex courts held as below In this case before your honours the issue is quite different which is a procedural issue. In the present case, as no salary is paid to Karta of HUF, hence the judgment relied upon by the Ld. CIT(A) is not applicable in the case of the assessee.
5.5 Ajay Kumar Gupta HUF as such is not a partner in the firm. The assessee HUF is represented by its karta who is an individual and is involved in the conduct of the business of the firm. As per Explanation 2(a)(iii) of Section 139(1) of the Act, the date of filing the return of income for a working partner of a firm whose accounts are required to be audited under this Act or under any other Law for the time being in force is 30th September of the assessment year. The assessee HUF being the working partner of the firm represented by its Karta, therefore undoubtedly the due date in case of the assessee for filing of return of the income shall be as per the aforesaid provisions.
As such it is submitted that the order of the Ld. AO in treating the original return as belated return and accordingly, the revised return as invalid return is based on misunderstanding of facts and law and the same deserves to be quashed.
GROUND NO. 5 6. This ground relate to disallowance of Rs. 1,00,000/- being the amount of deduction claimed u/s 80C by way of revised return. The said disallowance has been made by the Ld. AO on the ground that the same was not permissible under law because the 6. This ground relate to disallowance of Rs. 1,00,000/- being the amount of deduction claimed u/s 80C by way of revised return. The said disallowance has been made by the Ld. AO on the ground that the same was not permissible under law because the same was not claimed in the original return and was claimed by way of revised return which is invalid return.
SUBMISSIONS 6.1 As submitted in Para 5 above, the original return is not a belated return and the revised return filed by the assessee is a valid return. Accordingly, the deduction claimed u/s 80C of Rs. 1,00,000/- as per the revised return and allowed as per the order u/s 143(3) is in accordance with law. Disallowance thereof as made as per the order u/s 154 is unmerited and the same deserves to be deleted.
6.2 Without prejudice to the above, it is submitted that the claim of the assessee u/s 80C of Rs. 1 Lac on account of premium paid on LIC cannot be disallowed even if claimed during the course of the assessment proceedings and without filing a revised return. As per the CBDT circular No. 14(XL-35) dated 11.04.1955, officers of the department must not take advantage of ignorance of an assessee as to his rights. The income has to be assessed as per the provisions of the Act. (copy of the Board Circular attached). This Circular is very much binding on the Department.
6.3 In number of judgments various High Courts and Tribunal benches based on the above CBDT circular, have held that a claim can be made during assessment proceedings provided the same is as per provisions of the Act.
Hon’ble Delhi Tribunal in the case of ACIT v. Technofab Engg. Ltd., 2009 TIOL, 664 ITAT (Del.) while allowing the claim of the assessee on account of interest paid, during the course of the assessment proceeding, which was not claimed in the original return has held as under:
‘The CBDT has issued circulars, which are binding on the Department, to the effect that the assessee should be properly guided in relation to the claims. The CBDT has emphasized upon the AOs to assess the correct income to tax. If the assessee is following a particular method of accounting and he has omitted to claim the deduction or exemption, to which he is otherwise entitled, the Board has emphasized that the AO should guide the assessee so that the correct income is assessed as per the provisions of the Act. In Circular No. 14 dated 11.4.1955 CBDT has emphasised that the department should not take advantage of the assessee’s ignorance to collect more tax out of him than the liability due from him. This circular is very much binding on the Department. In the light of the said Circular and also in view of the findings of the CIT(A) that the claim made by the assessee was a perfectly legal claim supported by the method of accounting which the AO has accepted from year to year, the Tribunal upheld the order of CIT(A).’ Hon’ble Punjab & Haryana HC in its judgment dated 8.12.2008 in the case of CIT Vs. Ramco International, 332 ITR 0306 (P&H), wherein assessee’s claim u/s 80-IB during assessment proceedings which was made through letter was not admitted by the AO, while allowing the claim of the assessee has held as under: “the assessee was not making any fresh claim and had duly furnished the documents and submitted the form for claim under section 80-IB. There was no requirement for filing any revised return. 6.4 In any case, as per the decision of the Apex Court in the case of Goetze (India) and various decisions of other High Courts, if claim is not made before the assessing officer, it can be made before appellate authorities. As such, we request your goodself to kindly consider and allow the appellant’s additional claim of deduction u/s 80C which was inadvertently could not be claimed in the income tax return due to non-availability of the documents at the time of filing return. In view of the above, disallowance of deduction u/s 80C vide order u/s 154/143(3) is unlawful and deserves to be deleted. The assessee is duly entitled for the deduction u/s 80C as explained above. Ground No. 6 relates to charging of interest which is incorrect.”
On the other hand, the ld. DR relied on the order of the lower authorities and submitted that the lower authorities are justified by holding that the HUF cannot become working partner as per provision of the Act. Therefore, the return filed by the assessee is a belated return as per section 139. In view of this return cannot be revised. Assessing Officer has made rectification correctly, which is supported by many judicial precedents as relied by the ld. CIT(A). Therefore, the orders of the lower authorities should be restored.
6. After hearing both the sides and perusing the entire material available on record, we observe that the assessee has claimed HUF as a working partner which is not correct as per many judicial precedents as relied by the ld. CIT(A) in the impugned order. This issue has been settled by Hon’ble jurisdictional High Court in Coal India Ltd. vs. M/s. Continental & Eastern Agency (RFA) OS 37/2003 dated 14.12.2011, where it has been held as under :
“26. In the case reported as (1967) 66 ITR 613 (SC) Ram Laxman Sugar Mills v. Commissioner of Income-Tax, U.P. & Ors. the Hon"ble Supreme Court has categorically held that it is open to the manager of a joint Hindu Family as representing the family to agree to become a partner with another - person. The partnership agreement in that case is between the manager and the other person and by the partnership agreement no members of family, except the manager acquires a right or interest in the partnership. The junior members of the family may make a claim against the manager for treating the income or profits received from the partnership as a joint family asset, but they cannot claim to exercise the rights of partners nor be liable as partners.
The authority relied upon by the learned counsel for the appellants in the case reported as (1998) 2 SCC 49 Rashiklal & Co. V. Commissioner of Income Tax is not helpful to him. In this case R, the karta of a HUF, was a partner in a firm which was carrying on, inter alia, the business of mining. The Hon"ble Supreme Court observed that a firm is a compendious way of describing the individuals constituting the firm. An HUF directly or indirectly cannot become a partner of a firm because the firm is an association of individuals. Even if a person nominated by the HUF joins a partnership, the partnership will be between the nominated person and the other partners of the firm. It further observed that if a karta or any other member of the HUF joins a partnership, he can do so only as an individual. His rights and obligations vis-a-vis other partners are determined by the Partnership Act and not by Hindu Law. Whatever may be the relationship between an HUF and its nominee partner, in a partnership, neither the HUF nor any member of the HUF can claim to be a partner or connected with the partnership through a nominee.
From the judgments cited above it stands established that an HUF as such cannot be a partner in a firm but it is competent to the manager or karta acting on behalf of the HUF to enter into a valid partnership with a stranger or with the karta of another family.”
From the above judgment, it is clear that the Hon’ble Court has considered the earlier judgments and concluded that the HUF itself cannot become a working partner in the partnership firm. Therefore, there is no question for the HUF to become a working partner.
The due date of filing of return of income will be 31st July of the relevant assessment year as per section 139 of the Act and the due date for filing of return for working partner has been mentioned in Section 139(1) Explanation 2(iii). The benefit of extended date by the CBDT will not help the assessee as contended by him that due date for filing of income-tax return cannot be 15th October, 2010.
The next issue raised by the assessee is that the order passed u/s. 154 is not a mistake apparent from the record which has been rectified by the Assessing Officer. In our considered opinion, the Assessing Officer has rightly invoked section 154 because the assessee wanted to take benefit of the notification issued by the CBDT. In the present case, as per judicial precedents, the HUF itself cannot become a partner in the partnership firm and as such the HUF can also not be a working partner in partnership firm as defined u/s. 40(b) Expln. 4 of the IT Act. The due date of filing of IT return will be 31st July and in the given case, the assessee has filed his return on 01.10.2010 which has been later on revised and claimed deduction u/s. 80C of Rs. 1 lakh which was accepted by the Assessing Officer in the original assessment proceedings. The return cannot be revised because the assessee had filed belated return.
Therefore, there was a mistake apparent from the record. Accordingly, this issue is rejected.
The next issue raised by the assessee is that the Assessing Officer is always required to assess correct income of the assessee even if the claim was not made in the original return. For this, he has referred to CBDT circular No. 14 dated 11.04.1955 and also relied on the decision of Co-ordinate Bench of Delhi Tribunal in the case of ACIT vs. Technofab Engineering Ltd. (2009) TIOL 664 (ITAT Delhi). He has also relied on a judgment in the case of CIT vs. Remco International, 332 ITR 306 (P&H) and decision in the case of Goetz India Ltd. by Apex Court. Respectfully following the above judgments, cited by the assessee, we allow the appeal of the assessee and the assessee will get deduction of Rs.1 lakh claimed u/s. 80C of the Act.