TMI Blog2023 (9) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... sion not mandatory in nature so as to lead to an inference that, the assessee had to pay interest on capital and remuneration to its partners. It provided for interest on partner's capital and remuneration, the same is subject to their mutual agreement. Even after 01.04.2009, interest on capital as well as the remuneration were not to be paid to the partners. We do not find any material on record to indicate that, the writ applicant has actually received any interest on capital and remuneration from the partnership firm. Record further indicates that, for the assessment year 2010-11, deduction under Section 80 IB(10) was claimed without paying any interest on capital and remuneration to partners and such claim was not disturbed by the assessing officer. In this view of the matter, the conclusion arrived at by the assessing officer that, the assessee has claimed deduction without providing interest on capital and remuneration to partners as per the clause 6 and 7 of the deed, has escaped assessment on account of failure on the part of the assessee in filing of the return of income disclosing fully and truly all material facts are contrary to law and without jurisdiction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the partnership deed was amended and it was mutually agreed upon that with effect from 01.04.2009, no interest on capital shall be payable to the partners of the firm. Thus, Financial Year 2009-10 onwards, neither any interest on capital nor any remuneration was payable to the partners. Accordingly, the partnership firm did not pay either any interest on capital or any remuneration to its partners, including the petitioner, during the year under consideration. The partnership firm filed return of income for the Assessment Year 2012-13 on 29.09.2012 declaring total income at Rs. Nil after claiming deduction of Rs. 15,78,260/- under section 80IB(10) of the Act. 2.3 The case of the partnership firm for the Assessment Year 2010-11 was selected for scrutiny assessment. The then Assessing Officer framed assessment under section 143(3) of the Act vide order dated 20.03.2013, whereby income of Rs. 76,25,000/- disclosed by the petitioner during the course of survey was treated as Income from other sources as against Business Income and accordingly, the partnership firm s claim for allowing deduction under section 80IB(10) of the Act on such income was denied. 2.4 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. My Home Developers) as income. 2.7 The petitioner, vide letter dated 30.08.2019, raised objections against reopening wherein various factual and legal submissions were made. The respondent revenue, vide order dated 27.09.2019, disposed off such objections holding reopening of the petitioner s case to be valid. SPECIAL CIVIL APPLICATION No. 20720 20722 of 2019. 3 Basic facts of these two petitions are also the same. The petitioners are partners in a partnership firm, namely, My Home Developers , engaged in the business of developing housing projects. For the year under consideration, the partnership firm did not pay either any interest or capital or any remuneration . Notice under sec. 148 of the Income Tax Act, was issued for the reasons akin to the petitioner of Special Civil Application No. 18957 of 2019. 3.1 Mr. Tushar Hemani, learned Senior Counsel appearing with Ms. Vaibhavi Parikh, learned advocate for the petitioner, in Special Civil Application No. 18957 of 2019 would make the following submissions: (a) That the condition precedent for the purpose of resorting to reopening proceedings is that there must be escapement of any income chargeabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the said deed, neither any interest on capital nor remuneration was payable by the partnership firm to its partners. The reference made to a partnership deed by the respondent in the order disposing off objections is also on factually incorrect premise and without appreciating correct facts as well as the settled legal position. 4. For Special Civil Application No. 20720 of 2019, since the notice under section 148 of the Act was also reopened on two other counts, namely, that the petitioner sold immoveable property for Rs. 32,28,800/-, but no capital gain was offered in the return of income and that the source of investment in two immoveable properties purchased along with other co-owners remained unexplained, Mr. Hemani, learned Senior Counsel, would submit that: (1) As regards sale of immovable property (i) The property sold for Rs. 32,28,800/- was owned by Lavjibhai Ambaliya HUF ; (ii) Such property was reflected in Balance-sheet of HUF as at Rs. 31.03.2011 i.e. Plot (Aakar society Rs. 5,48,250/-) (iii) Sale consideration of Rs. 32,28,800/- was received by cheque by HUF on 16.09.2011. (iv) Resultant Long Term Capital Gain ( LTCG for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that no interest shall be payable to any partner with effect from 01.04.2009. In this connection, the Respondent has provided a copy of partnership deed of M/s. My Home Developers, which was documented on a stamp paper of Rs. 100 purchased on 20.03.2009 and is effective from 01.04.2009. In the said partnership deed which is also applicable from 01.04.2009 the clause 6 dealing with provision of interest on capital to partner is still in the force. This abundantly proves that the partnership deed documented on a stamp paper of Rs. 100 purchased on 29.07.2008 is invalid and misleading. (b) Also as per the above partnership deed with effect from 01.04.2009, the ratio of share in profit and loss of Smt. Artiben B. Ravani is 20%, whereas, as per the partnership deed purchased on a stamp paper of Rs. 100 dated 23.01.2008(with effect from 01.04.2008), the ratio of share of Smt. Artiben B Ravani is 30%. Further, as per the registered partnership deed dated 27.06.2007 and effective from 15.06.2007, the ratio of share in profit and loss of Smt. Artiben B Ravani is 30%. In view of the above, it is on record that all the above-unregistered partnership deeds were executed only for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditional upon the fact that, the assessing officer has some reason to believe that, the income has escaped assessment. Where an assessment under Section 143 or 147 of the Act has been made for the relevant assessment year, no action shall be taken after expiry of 4 years unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to the notice issued under sub-section 1 of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment. 13. We take the notice of the fact that, the applicant firm My Home Developers is a partnership firm engaged in the construction business and the said firm came into existence w.e.f. 15.06.2007 and partnership deed was executed on 27.06.2007 and thereafter, due to change in the constitution in the partnership firm, another deed replacing the earlier was executed on 01.04.2008 and lastly, partnership deed was amended w.e.f. 01.04.2009. It is not in dispute that, earlier there was a clause in the deed as to payment of interest on capital, but no remuneration was payable and af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT was justified in not appreciating the fact that by not providing interest and remuneration to the partners, the firm has claimed higher profits leading to higher claim of deduction u/s 80IB of the Act and thus, devoiding the revenue from due amount of tax? (B) Whether on the facts and circumstances of the case and in law, the Hon ble ITAT was justified in not appreciating that the Section 80IB(10) enables AO to re-compute the profit of undertaking claiming deduction u/s 80IB i.e. the partnership firm as in the present case and not the case of partner s admissibility towards interest/ remuneration as held in the case of Smt. Mala Tandon? Conclusion:- On interpretation of the partnership agreement and considering the wish of the partners reflected in the partnership deed, not to pay/charge interest on the partners capital and the remuneration, the learned tribunal has rightly deleted the dis-allowance made by the Assessing Officer with respect to the deduction claimed under Section 80IB of the Income Tax Act. As rightly observed by the learned tribunal, mere incorporation of interest on the partners capital and remuneration does not signify that the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iya HUF . The Balance-sheet of HUF of the preceding year submitted showed the property on the asset side. No description or situation of the property purchased was given. Sale consideration of Rs. 32,28.800/- was received by cheque. LTCG of Rs. 23,99,559/- duly reflected as is evident from the relevant Statement of Long Term Capital Gain. 9. The reassessment was also therefore based on suspicion. As pointed out by learned Senior Counsel Mr. Hemani, that factors that indicate that income has escaped assessment consists of facts which if established will have a cause and effect relationship, whereas factors which indicate a suspicion about income escaping assessment which would warrant a further inquiry. This is not what is contemplated under section 148 of the Act. The jurisdiction cannot be used to carry out a roving inquiry. 10. In the case of Krupesh Ghanshyambhai Thakkar vs. Deputy Commissioner of Income Tax, reported in (2017) 77 taxmann.com 293 , the Division Bench of this Court has held as under: 11. At the outset, it is required to be noted that by the impugned notice, the assessment for AY 2009- 2010 is sought to be reopened in exercise of power under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer wants to have a roving inquiry as observed hereinabove. Even as per the Assessing Officer in the reasons recorded has specifically mentioned that for the purpose of verification/deep verification of the claim, it is necessary to reopen the assessment. Under the circumstances, it cannot be said that the Assessing Officer had any tangible material to form an opinion that the income chargeable to tax has escaped the assessment. Under the circumstances, the impugned action of reopening of the assessment in exercise of power under Section 148 of the IT Act for the reasons recorded hereinabove cannot be sustained 14. Resultantly both these writ petitions succeed Impugned Notice issued by the Assessing Officer under Section 148 of the Income-tax Act, 1961 in each case is hereby quashed and set-aside. 11. Even when the order disposing of the objections is read, certain observations made on gain made on sale of property and change in amount of interest were not reflected in the reasons for reopening of assessment which also makes the exercise vulnerable. 12. For the aforesaid reasons, all the petitions deserve to be allowed. The impugned notices in the respective petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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