TMI Blog2019 (3) TMI 1606X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Best judgment assessment u/s 144 - treated the status of the assessee firm as AOP on the ground of non-compliance of notices - denying deduction of salary and interest to partners u/s.184(5) - double tax as the partners have offered the interest and salary income in their return - HELD THAT:- Lucknow Tribunal in the case of Surendra Prasad Misra [ 2005 (9) TMI 267 - ITAT LUCKNOW-A] held that mere non-cooperation of the assessee making it difficult to determine the correct income may justify an assessment u/s.144 but that by itself is not sufficient to assess the firm as an AOP u/s.184(5). Disallowance u/s.184(5) does not have a cause and effective relevancy with the assessment framed u/s.144 and this provision can be invoked only as a result of assessee‟s committing any failure as mentioned u/s.144. Considering the totality of circumstances of the present case and the allegation leveled by the AO in the assessment order against the assessee, I am of the considered view that the AO has merely erred in taking provisions of Section 184(5) without any justified and reasonable basis and without bringing any specific allegation of non-compliance against the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of salary and interest to partners is against the principle of natural justice, contrary to facts, arbitrary, excessive, erroneous and bad in law. Ground No.3 4. I have heard the arguments of both the sides and carefully perused the relevant material placed on the record of the Tribunal. Ld. AR submitted that the amount of interest income of ₹ 10,61,806/- disclosed in the profit and loss account is business income of the assessee. Ld. AR further submitted that the assessee firm had availed an overdraft facility from Bank of India which was sanctioned against the pledged of fixed deposit of the borrower during the financial year 2011-2012. Ld. AR submitted that the fixed deposits have been made by the assessee for availing overdraft facility for the purpose of business of assessee and the assessee has paid interest on the amount availed by the assessee firm as overdraft from the bank. Therefore, the interest earned on fixed deposit is inextricably linked with the business activity of the assessee. Hence, the interest has to be treated as business income of the assessee. Ld. AR vehemently pointed out that the ld. CIT(A) has wrongly noted in par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted to treat the interest income on fixed deposit amounting to ₹ 10,61,806/- as business income. Thus, the ground No.3 of the appeal of the assessee is allowed. Ground No.4: 7. I have heard the arguments of both the sides and carefully perused the relevant material placed on the record of the Tribunal. Ld AR submitted that the ld. CIT(A) was not correct and justified in confirming the action of AO in invoking the provisions of Section 144 of the Act and treated the status of the assessee firm as AOP on the ground of non-compliance of notice u/s.142(1) 143(2) of the Act and in denying deduction of salary and interest to partners u/s.184(5) of the Act. Ld. AR vehemently pointed out that from the table drawn by the AO at page No.2 of the assessment order, it is clear that there was non-compliance of some notices and on some dates the assessee‟s representative appeared and furnished audit report, list of sundry debtors and bank statement etc. Therefore, it is not a case of complete non-compliance by the assessee.Ld. AR further drew the attention of the Bench towards para No.4.1 of the assessment order and submitted that the books of accounts were r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in denying allowance of interest and salary to the partners. 10. Placing rejoinder to the above, ld. AR submitted that it is not the case of complete non-compliance but on some dates the assessee‟s representative attended the proceedings and complied with the notices issued u/s.143(2) 142(1) of the Act. Merely non-compliance of some notice and non-production of books of accounts does not legally empower the AO to invoke provisions of Section 184(5) of the Act for denying interest and salary paid to the partners. 11. On careful consideration of the above rival submissions of both the sides, first of all, I find it profitable to reproduce the relevant provisions of Section 184(5) of the Act, which reads as under :- [Assessment as a firm. 184 (1)xxxxxxxxxx (2) xxxxxxxxxxx (3) xxxxxxxxxxx (4) xxxxxxxxxxxx (5) Notwithstanding anything contained in any other provision of this Act, where, in respect of any assessment year, there is on the part of a firm any such failure as is mentioned in section 144, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be necessary to give such opportunity in a case where a notice under sub- section (1) of section 142 has been issued prior to the making of an assessment under this section.] (2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988 ), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988 , or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.] From the relevant para 4.1 of the assessment order, wherein the AO has rejected the book results of the assessee u/s.145(3) of the Act, I observe that the AO has mentioned about non-compliance of two notices. First notice dated 03.11.2014 issued u/s.142(1) of the Act placing the date of hearing on 11.11.2014, in the last column of remarks, there is no mention of non-compliance by the assessee. Therefore, regarding this notice, I am not satisfied with the allegation leveled by the authorities below that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84(5) of the Act without any justified and reasonable basis and without bringing any specific allegation of non-compliance against the assessee. Therefore, disallowance u/s.184(5) of the Act cannot be held as correct and sustainable. I may point out that there was some non-compliance on the part of the assessee but while invoking provisions of Section 145(3) of the Act and proceeding to frame assessment u/s.144 of the Act, the AO has not alleged any other notice except notice dated 03.11.2014 and notice dated 23.01.2015. As I have already mentioned that regarding notice dated 03.11.2014, there is no mention of any non-compliance in the remarks column as mentioned in the assessment order by the AO and in respect of notice dated 23.01.2015 the AO himself noted that the assessee produced bank statement, list of sundry debtors and the assessee did not file reply of questionnaire and documents called for but the AO has not alleged that the assessee did not produce books of accounts as required by the said notice. In these circumstances, invoking provisions of Section 184(5) of the Act cannot be held as justified and I decline to accept the findings of authorities below and, thus, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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