2015 (11) TMI 493 - AT - Income Tax

Reopening of assessment - Held that - A careful perusal of the return of income filed by the assessee would show that the assessee has declared income from capital gains and income from other sources. In the return of income it is nowhere mentioned that the assessee is a partner in the firm M/s Go Go International either in his individual capacity or as representative of M/s Sham Sunder Goenka Trust. Further it is no where mentioned that the due date for filing return of income for the year under consideration was 30-11-2003 as per the extended time limit. Hence in our view it cannot be said that the assessee has disclosed all the material facts necessary for assessment fully and truly as required by the first Proviso to Section 147 of the Act. Whether assessee should be considered as working partner within the meaning of Explanation 4 to Section 40(b)? - Held that - The working partner should be an individual actively engaged in conducting the affairs of the business or process of the firm of which he is a partner meaning thereby the individual should be a partner of the firm. In the instant case the assessee is not a partner of the firm M/s Go Go international. He is only representing the actual partner. Accordingly we are of the view that the AO was justified in holding that the assessee cannot be considered as working partner of M/s Go Go international. Even otherwise the assessee has nowhere said that the accounts of M/s Go Go International is required to be audited under the provisions of the Act or under any other law though the same is no relevant here. - Decided in favour of revenue

Summary

Issues:
1. Validity of reopening assessment under section 147 of the Income Tax Act.
2. Interpretation of the term "working partner" under Explanation 4 to Section 40(b) of the Act.

Analysis:

Issue 1: Validity of Reopening Assessment
The Revenue appealed against the decision of the ld. CIT(A) regarding the validity of reopening the assessment for the assessment year 2003-04. The AO reopened the assessment due to the belated filing of the return by the assessee, which impacted the carry forward of Long Term Capital Loss (LTCL). The assessee argued that he should be considered a "working partner" of a partnership firm, justifying the extended filing deadline. The ld.CIT(A) annulled the assessment order, citing failure to disclose all material facts. However, the ITAT found that the assessee did not fully disclose his status as a partner in the firm, rendering the reopening valid under the provisions of Section 147.

Issue 2: Interpretation of "Working Partner"
The assessee claimed to be a "working partner" of the partnership firm M/s Go Go International, based on Explanation 4 to Section 40(b) of the Act. The definition of a "working partner" requires active engagement in the firm's affairs as a partner. The ITAT noted that the assessee was not a direct partner but represented a trust that was the actual partner. As per the definition, an individual must be a partner of the firm to qualify as a working partner. Since the assessee was not a direct partner, the AO's decision to deny the working partner status was upheld. Furthermore, the absence of any mention of the firm's audit requirement in the proceedings further supported the AO's stance.

In conclusion, the ITAT allowed the Revenue's appeal, setting aside the ld. CIT(A)'s order and reinstating the AO's decision regarding the reopening of the assessment for the assessment year 2003-04. The judgment emphasized the importance of full and accurate disclosure of material facts by the assessee for a valid assessment under Section 147 of the Income Tax Act.