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Facts
The assessee, a company, filed its return of income and subsequently its case was reopened under Section 147 of the Income-tax Act. The reopening was based on a finding that an amount of ₹4,98,70,180, credited to the P&L account for diminution in investment value, was used to compute allowable remuneration to partners, which the AO deemed incorrect. The assessee argued this amount should be considered in book profit calculation. The AO reduced this amount from the book profit and made an addition.
Held
The Tribunal held that the assessee had already reduced the amount of ₹4,98,70,180 while computing the book profit. Reducing it again would lead to double reduction. Therefore, the order of the learned CIT(A) was found to be without infirmity.
Key Issues
Whether the amount credited to P&L account for diminution in investment value should be considered as part of book profit for calculating remuneration to partners, and if reducing it twice amounts to double reduction.
Sections Cited
147, 144B, 143(3), 148
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
This appeal is filed by the Dy. Commissioner of Income Tax, Circle 41(4)(1), Mumbai for A.Y. 2014-15 against the appellate order passed by the National Faceless Appeal Centre, Delhi [the learned CIT (A)], Delhi dated 2nd November, 2023, wherein the appeal filed by the assessee against the assessment order dated 31st March, 2022 passed under Section 147 read with section 144B of the Income-tax Act, 1961 (the Act), was allowed.
The learned Assessing Officer is aggrieved and has preferred this 02. appeal for following grounds:-
“1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A)has erred in deleting
Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in quashing the assessment holding that once the basis of reassessment is gone other additions cannot be sustained, ignoring the fact that addition has been in this case on excess remuneration to partners which is the very reason for which reassessment proceedings were initiated and hence the basis of re- assessment is not gone?”
Brief facts of the case shows that assessee is a company, who filed 03. its return of income on 17th November, 2014, at a total income of ₹28,40,684/-. Subsequently, an assessment under Section 143(3) of the Act on 31st, October, 2016, was passed. Thereafter, the case was reopened under Section 147 of the Act wherein it was found that ₹4,98,70,180/- on account of diminution in the value of investment was credited to the P & L Account. The assessee has computed allowable remuneration to the partners on this sum. According to the reasons this could not be taken for the computation of remuneration to the partner. Therefore, assessee was asked to file return of income. The assessee did not file any return of income in response to notice under Section 148 of the Act but intimated vide letter dated 5th January, 2022, that the return of income filed originally treated as response to the notice. The assessee was asked to explain why the book profit should be considered including the above adjustment for the purpose of computing remuneration to the partners. The assessee The assessee challenged the reopening of assessment stating that it is 04. merely change of opinion and once the addition has already been considered same cannot be repeated. The learned CIT (A) held that the learned Assessing Officer has incorrectly taking the book profit and therefore, he allowed the appeal of the assessee.
The learned Assessing Officer is in appeal before us. The learned 05. Departmental Representative vehemently supported the order of the learned Assessing Officer. The learned Authorized Representative supported the order of the learned Commissioner of Income-tax (Appeals).
We have carefully considered the rival contentions and perused the orders of the lower authorities. The brief controversy in this appeal is that while calculating book profit whether the amount credited by the assessee to the Profit and Loss account of ₹4,98,70,180 on account of diminution in the value of investment is required to be considered as part of book profit or not. Looking into the computation of total income, The assessee has already reduced In the result, the appeal of the learned Assessing Officer is 07. dismissed.
Order pronounced in the open court on 09.07. 2024.