TMI Blog2015 (2) TMI 1333X X X X Extracts X X X X X X X X Extracts X X X X ..... said provision and note that there is inconsistency between the provision and the explanation offered, but when the CBDT issued such instruction granting that benefit to the assessee that has to be respected. In that view of the matter, the approach of the three authorities in denying the benefit to the assessee was not justified. It is contrary to the said explanation found in the circular which the CBDT wanted to extend to the assessee in order to overcome the hardship by virtue of the said statutory provision. Therefore, the impugned orders cannot be sustained. As contended that, when the partnership deed was not enclosed to the return filed, there is non-compliance of Section 184(2) and, therefore, the consequences mentioned in Section 184 has to follow. But, it is on record before the assessment, a partnership deed duly certified and signed by all the partners were produced before the assessing authority. There is substantial compliance with sub-section (2) of Section 184. As could be seen from the language employed in Section 185, if there is non-compliance with the provisions of Section 184, the firm shall be so assessed and no deduction would be granted. It is at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee to the extent of ₹ 65,661/- were disallowed. In addition, there were other disallowances like disallowance of 25% of HSD oil, machinery and vehicle maintenance, telephone expenses and bonus payment to the tune of ₹ 18,376/-. Consequently, an income of ₹ 4,12,230/- was determined on which tax was levied besides interest under Sections 234A, 234B and 234C of the Act. 3. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). The Appellate Authority without proper consideration of the arguments and the documents produced dismissed the appeal and upheld the order of the assessing authority. 4. Aggrieved by the said order, the assessee preferred a second appeal to the Tribunal. The Tribunal also dismissed the appeal, affirming the findings recorded by both the authorities. It is against the said order, the present appeal is filed. 5. This appeal was admitted to consider the following substantial questions of law on 15.12.2009:-- 1. Whether in the circumstances, the Tribunal was justified in passing the ex-parte order without affording an opportunity to the appellant while denying the status ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not complied with, the consequences which are enumerated in Sections 184 (5) and 185 automatically applies and, therefore, denial of deductions under Section 28 of the Act is valid and cannot be found fault with. Therefore, he submits that a case for interference is not made out. 8. Section 139 of the Act provides that, every person, being a company or a firm or being a person other than a company or a firm, shall, on or before the due date, furnish a return of his income in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, if his total income is assessable under the Act during the previous year exceeded the maximum amount which is not chargeable to income-tax. Explanation (2) to Section 139 explains the meaning of the word due date prescribed in different dates as the last date for filing the returns in respect of a company, a firm and a person. Section 139(1), 139(4) and 139(5) provides for filing of returns on different dates. Section 144(1) of the Act provides for best judgment assessment. If any person fails to make the return required under sub-section (1) or (4) or (5) of Section 139 or fails to com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to comply with the requirement mentioned in Section 184, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head Profits and gains of business or profession and such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28. 11. Therefore, once there is non-compliance of Section 144, though the assessee firm is assessed as a firm, it shall not be entitled to the deduction which are allowable in respect of a firm as provided under sub-section (5) of Section 28 of the Act. Similarly, the substituted provision Section 185 provides that, if the firm does not comply with the provisions of Section 184, namely non-furnishing of partnership deed along with the return, then the firm would again be not entitled to the benefit of deduction allowable in respect of a firm as provided in clause (v) of Section 28 of the Act. 12. Now, the question for consideration is, when admittedly the assessee has not complied with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat only assessees, who comply with the statutory provisions which include filing of regular returns in time and co-operating with the Department by complying with the terms of notices issued under ss. 142, 143(2) are entitled to the benefit of deductions. All what s. 148 conveys is that reassessment under s. 147 based on the return filed pursuant to notice issued under the said section should be completed in the same way a regular assessment is completed based on a return filed under s. 139 (1). However, it cannot be said that an assessee, who filed a return based on notice issued under s. 148 is not involved in any of the failures referred to in s. 144(1) which the assessee admittedly has commuted inasmuch as the assessee has not filed a regular return under s. 139. The very purpose of introducing a fiction in s. 148 is that but for the fiction available therein, a return filed against notice issued under s. 148 cannot be treated as a regular return under s. 139. However, filing of return against notice issued under s. 148 itself is not the same as filing a return under s. 139 of the Act. So much so, failures referred to in s. 144(1) are absolute failures which cannot be remedied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-Tax Act. 66.4 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. 17. Paragraph 66.3 makes it clear that, the substituted Sub-section (5) of Section 184 and Section 185 intends to provide that in case a firm does not comply with the other provisions of Section 184 or a best judgment assessment is made in the case of the firm as referred to in Section 144, no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the business income of the firm. In sub-section (5) of Section 184, there is no mention about best judgment assessment. What is provided therein is failure as mentioned in Section 144. On failure to comply with the requirements of Section 144, the assessing authority is vested with the power to pass a best judgment assessment. The said best judgment assessment would be passed by the assessing authority due to non-cooperation of the assessee and, therefore, as a consequence the assessee is deprived of the deductions enumerated in the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expedient so to do for the purpose of proper and efficient management of the work of assessment and collection of revenue, to issue general or special orders in respect of any class of incomes of class of cases, setting forth directions or instructions as to the guidelines, principles or procedures to be followed by other income-tax authorities in the discharge of their work relating to assessment or initiating proceedings for imposition of penalties. The powers of the CBDT are wide enough to enable it to grant relaxation from the provisions of several sections enumerated in clause (a). Such orders may be published in the Official Gazette in the prescribed manner, if the CBDT is of the opinion that it is so necessary. The only bar on the exercise of power is that it is not prejudicial to the assessee. We are not concerned with the provisions in clauses (b) and (c) in the present appeals. In K.P. Varghese v. Income-Tax Officer, Ernakulam [1981 131 ITR 597](SC, it was pointed out by this Court that not only are the circulars and instructions, issued by the CBDT in exercise of the power under section 119, binding on the authorities administering the tax department, but they are als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act which are binding on the authorities in the administration of the Act. Under section 119(2) however, the circulars as contemplated therein cannot be adverse to the assessee. Thus the authority which wields the power for its own advantage under the Act is given the right to forgo the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Hard cases which can be properly categorised as belonging to a class, can thus be given the benefit of relaxation of law by issuing circulars binding on the taxing authorities. In CIT v. Anjum M.H. Ghaswala [2001 252 ITR 1](SC) it was pointed out that the circulars issued by CBDT under Section 119 of the Act have statutory force and would be binding on every income-tax authority although such may not be the case with regard to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or proper administration of this Act . Such authorities and all other persons employed in the execution of this Act are bound to observe and follow such orders, instructions and directions of the CBDT. The powers of the CBDT are wide enough to enable it to grant relaxation from the provisions of several sections enumerated in clause (a). The only bar on the exercise of power is that it is not prejudicial to the assessee. The circulars issued by the CBDT issued under section 119 of the Act are legally binding on the officers and employees employed in the Section and even if they deviate from such construction. Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board has the power, to tone down the rigour of the law and ensure a fair enforcement of its provisions. The authority which wields the power for its own advantage under the Act is given the right to forgo the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in section 119. The power is given for the purpose of just, proper and efficient management of the work of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a benefit is conferred by way of a circular, the authorities are bound by the same. They cannot sit in judgment over the said explanation and deny the benefit to the assessee. Even though this Court can interpret the said provision and note that there is inconsistency between the provision and the explanation offered, but when the CBDT issued such instruction granting that benefit to the assessee that has to be respected. In that view of the matter, the approach of the three authorities in denying the benefit to the assessee was not justified. It is contrary to the said explanation found in the circular which the CBDT wanted to extend to the assessee in order to overcome the hardship by virtue of the said statutory provision. Therefore, the impugned orders cannot be sustained. 22. It was also contended that, when the partnership deed was not enclosed to the return filed, there is noncompliance of Section 184(2) of the Act and, therefore, the consequences mentioned in Section 184 has to follow. But, it is on record before the assessment, a partnership deed duly certified and signed by all the partners were produced before the assessing authority. Therefore, there is substan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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