TMI Blog2021 (6) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... taking into account all relevant material shall make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment. In the instant appeal it was not a case of the AO where the assessee had not filed its return of income. It was also not a case where the assessee failed to comply with the notice u/s. 142(1) and also it was not a case where the assessee failed to comply with all the terms of a notice issued under section 143(2) of the Act by the AO. The AO made the assessment by estimating the income of the assessee by rejecting the books of account by invoking the provisions of section 145(3) of the Act as he was not satisfied about the correctness of the book results of the assessee. As relying on M/S JAI HANUMAN ENTERPRISES (FIRM) VERSUS ITO, ANGUL WARD, ANGUL, ODISHA [ 2019 (3) TMI 1606 - ITAT CUTTACK] direct the AO to allow the salary paid to partners and allow this ground of appeal - ITA No. 218/CTK/2020 - - - Dated:- 14-6-2021 - Chandra Mohan Garg, Member (J) For the Appellant : S.K. Agarwalla, AR For the Respondents : S.C. Mohanty, DR ORDER This is an appeal f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of trading in agency goods and for the year under consideration filed return of income on 4.10.2020 disclosing total income of ₹ 1,30,805/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short the 'Act') was issued and complied with. The Assessing Officer issued notice u/s. 142(1) of the Act, which was not complied with the assessee properly. The AO found from Co. No. 9(b) of Form No. 3CD of the audit report that the assessee has not maintained any stock register but closing stock was valued at ₹ 9,53,794/-. Hence, the AO completed the assessment under section 144 of the Act on 21.3.2013 on a total assessed income of ₹ 9,71,380/-, after rejecting books of account u/s. 145(3) of the Act and computed the net profit @ 4% on total turnover of ₹ 9,71,381/- and disallowed ₹ 1,20,000/- on account of remuneration to partners. Aggrieved, the assessee filed appeal before the Ld. CIT(A), who partly allowed the appeal of the assessee restricting the net profit to 3% and confirming the disallowance of salary paid to partners. 7. Ld. A.R. of the assessee submitted that the assessment was completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment. 11. In the instant appeal it was not a case of the AO where the assessee had not filed its return of income. It was also not a case where the assessee failed to comply with the notice u/s. 142(1) and also it was not a case where the assessee failed to comply with all the terms of a notice issued under section 143(2) of the Act by the AO. The AO made the assessment by estimating the income of the assessee by rejecting the books of account by invoking the provisions of section 145(3) of the Act as he was not satisfied about the correctness of the book results of the assessee. 12. I find that under similar facts, the Tribunal in ITA No. 233/CTK/.2017 (supra), has dealt the issue in detail and directed the AO to allow the interest and salary paid to partners, by observing as under: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment: Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment: Provided further that it shall 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 date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any failure as mentioned u/s. 144 of the Act. 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) of the Act without any justified and reasonable basis and without bringing any specific allegation of noncompliance 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 bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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