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2016 (8) TMI 368 - GUJARAT HIGH COURT

2016 (8) TMI 368 - GUJARAT HIGH COURT - TMI - Reopening of assessment - claim of deduction under Section 10B - whether the assessee firm had not paid any interest to its partner on their capital? - Held that:- To summarize, the partnership deed was available on record, from which itself the Assessing Officer has recorded that there were provisions for payment of interest on capital and remuneration to the partners. The fact that no such payments were made during the year under consideration was .....

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- Decided in favour of assessee - Penalty under Section 271D - failure to comply with the provisions of Section 269SS of the Act i.e. acceptance of loan or deposit otherwise than by account payee cheque or bank draft - Held that:- Second ground recorded by the Assessing Officer in the reasons, it has two elements. First is acceptance of loan without disclosing the mode of acceptance and second, the repayment of the said loan. Regarding acceptance of loan, the Assessing Officer refers to pena .....

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to scrutinize the same further. It is held by series of judgments of this Court and other Courts that for mere scrutiny, reopening of the assessment would not be permissible. The reopening of assessment could be made if the Assessing Officer had formed a belief that income chargeable to tax had escaped assessment. In order to do so, the Assessing Officer must have some tangible material having live link with the escapement of the income on the basis of which he can form a bonafide belief of esc .....

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) 1. The petitioner has challenged a notice dated 8.8.2011 issued by the respondent - Assessing Officer for reopening the assessment for the Assessment Year 2006-07. 2. Brief facts stated are as under; 2.1 The petitioner is a partnership firm. For the Assessment Year 2006-07, petitioner had filed a return of income on 18.8.2006 declaring total income of ₹ 56.98 lacs (rounded off). Such return was taken in scrutiny by the Assessing Officer, who passed an order of assessment under Section 14 .....

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inized u/s. 143(3) on 23.12.2008 assessing the total income at ₹ 65,14,32/-. 2. On perusal of the records of the assessee firm it is noticed that the assessee firm had not paid any interest to its partner on their capital. Though there was a clear provision in partnership deed (clause 12) Partner s capital as on 1/4/2005 ….Rs.1,31,46,154/- Interest @ 12 % per annum ….Rs. 15,77,538/- Underassessment ….Rs. 15,77,538/- 3. Similarly, no any remuneration was paid by the ass .....

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llowed ….Nil Less:Interest allowable to partners ….Rs.15,77,538/- Book profit for the purpose of remuneration u/s.49(b)(v) ….Rs.1,50,55,544/- Allowable remuneration ….Rs.60,74,717/- Computation of profit of the business : Profit computed as per statement of income Before interest & remuneration to partners =Rs.1,66,33,082/-(A) Less : Remuneration allowable =Rs.60,74,717/-(a) Interest payable to partners =Rs.15,77,538/-(b) Profit of the business {A-(a+b) =Rs.89,80, .....

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ings or computer software, as the case may be, shall be allowed from the total income of the assessee. 5. The Hon ble Supreme Court in the case of Mcdowell & Company Vs. CIT (154 ITR 148) held that tax planning should be legitimate and within the framework of law. Colourable device cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious method. 6. The assessee firm had not paid interest to i .....

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e of tax on the said interest income in the hands of partners. 7. Also the assessee firm had accepted the loan of ₹ 18,42,907/- (from M/s.Ratilal Patel - HUF) annexure 10 to the 3CD report) in respect of which the mode of acceptance of loan was mentioned as NA. The auditor had written in footnote that necessary evidence was not in possession of the A hence the mode of taking or accepting loan could not be verified. Moreover, no bank statement was available on records from which this transa .....

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/2005, ₹ 30,000/- Chq No. 444460 HDFC Dt.3.2.2006, ₹ 872,907/- Chq No.444478 HDFC Dt.10.2.2006 during the year. 9. On verifying the account details it is crystal clear that the assessee had repaid the above loan as discussed above. However, looking to the revenue point there is repayment of loan for which there is no reflection of entries in bank account details as furnished by the assessee (on perusal of SBS ban A/c.), which needs to be scrutinizes further. 10. In view of the above, .....

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cts for his assessment for the above assessment year. Hence, the assessment has been reopened by issue of notice u/s.148 of the Act,1961. 3. The petitioner raised objections to the notice for reopening under a communication dated 7.3.2013. These objections were, however, rejected by the Assessing Officer by an order dated 19.3.2013, upon which the petitioner filed the present petition. 4. Taking us to the material on record, learned counsel for the petitioner submitted that the impugned notice w .....

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e Act was examined by the Assessing Officer during the original assessment proceedings. Regarding the question of acceptance of loan of ₹ 18.42 lacs and return thereof, learned counsel submitted that this ground was not germane for reopening the assessment. Mere possibility of institution of penalty proceedings would not mean income chargeable to tax had escaped the assessment. Further, the Assessing Officer cannot resort to reopening of assessment for scrutinizing the issue further, as wa .....

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e assessment has been issued beyond the 4 years from the end of relevant assessment. In view of Section 147 of the Act therefore, in order to judge the validity of the notice, the additional requirement to be examined is whether income chargeable to tax had escaped assessment due to the failure on the part of assessee to disclose truly and fully all material facts. The reasons recorded by the Assessing Officer cited two grounds for issuing the notice for reopening. First is with respect to asses .....

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res invested by the partners and had also not remunerated the partners as provided in the partnership deed. According to the Assessing Officer, such interest worked out at ₹ 15.77 lacs and total remuneration payable to the partners came to ₹ 60.74 lacs and thus, the assessee firm inflated the profit of the eligible business to the extent of ₹ 89.80 lacs being a total of unpaid remuneration and interest to the partners. The deduction proportionate to this amount for the purpose .....

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ed by assessee from one M/s.Ratilal Patel-HUF. The mode of acceptance of the loan was not mentioned. The auditor had put a footnote that in business all necessary evidence the mode of taking or accepting the loan could not be verified and no bank statement was available from which this transaction could be verified. According to Assessing Officer therefore, the assessee was liable to penalty under Section 271D of the Act, which as is well known is penalty for failure to comply with the provision .....

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ssessing Officer recorded that on perusal of the records of the assessee firm, it is noticed that the assessee firm has not paid the interest and remuneration to the partners though there was a clear provisions in the partnership deed in this respect. Thus, even the Assessing Officer begins with the starting point that the information leading to his formation of belief that income chargeable to tax had escaped the assessment was available on the record. It is not the case of the Assessing Office .....

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he individual shares of the partners were specified in that instrument. Under sub-section (2) of Section 184, a partnership would produce a certified copy of the instrument of partnership along with return of income of the firm during previous year relevant to the assessment year in respect of which the assessment as a firm is first sought. Sub-section (3) of Section 184 provides that where a firm is assessed as such for any assessment year, it shall be assessed in the same capacity for every su .....

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ms of Section 184 of the Act, thus, the petitioner - firm was required to produce a certified copy of the partnership deed along with return of the initial year of assessment and produce the certified copy of the revised instrument to partnership where any change takes place in said instrument. In the present case, it is not the case of the Revenue that said partnership deed was not produced as required under sub-section (2) of Section 184 of the Act. If it is so, the Assessing Officer had full .....

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(ba) to the partners. In this annexure, it was stated as under : During the year under review the firm has not paid interest and remuneration to partners so these clause is not applicable. 11. This annexure though had reference to Section 40(b) and 40(ba) of the Act pertaining to the limits of remuneration to the partners and payment of interest to the partners, the declaration thereof clearly provided that the firm had not paid either interest or remuneration to the partners. Thus, the fact tha .....

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tioner had provided various details which included the following : 2. In respect of secured loan, we have C.C.A/c. with HDFC Bank Ltd. which is fully secured against hypothecation of stock. Xerox copy of loan sanction letter was furnished with our letter dated 20.12.2007. As regards the addition in partners capital viz.(1) Ratilal B. Dobaria, (2) Babulal B. Dobaria and (3) Mahesh B. DObaria detailed copies of capital accounts and sources thereof were furnished with our letter dated 20.12.2007. 1 .....

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. The assessee is therefore can not be allowed deduction u/s. 10B of the Act on the export of these scrap items. The deduction u/s10B of the Act is recalculated as follows after excluding the value of the aluminum and stainless steel scrap from the export sales: Total turnover as per audited account filed with return 152873141 Total profit of the business audited account filed with return 16633082 Total export turnover as per assessee 100540704 Less :Stainless Steel Scrap as discussed above 3905 .....

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paid interest and remunerations to the partners. 14. It is by now well settled that duty of the assessee is to disclose primary facts and on the basis of such facts, what legal conclusions should be arrived at would be within the purview of the Assessing Officer. It is not the duty of the assessee to advise the Assessing Officer on what legal conclusions should be arrived at on the basis of necessary facts. In case of Calcutta Discount Co. Ltd. V/s. Income- Tax Officer, Companies District I. Cal .....

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of different circumstances, including the frequency of the sales, the nature of the shares sold, the price received as compared with the cost price, and several other relevant facts. It is the duty of the assessee to disclose all the facts which have a bearing on the question; but whether the assessee had the intention to make a business profit as distinguished from the intention to change the form of the investments is really an inference to be drawn by the assessing authority from the material .....

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ontention is that the shares were sold to change the form of investment and not with the intention of making a business profit cannot be expected to say that his true intention was other than what he contended it to be. 15. To summarize, the partnership deed was available on record, from which itself the Assessing Officer has recorded that there were provisions for payment of interest on capital and remuneration to the partners. The fact that no such payments were made during the year under cons .....

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