TMI Blog2022 (2) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute which was not arising from the order of the AO. In view of such findings recorded by the Appellate Tribunal, nothing survives in the present matter so far as the reopening of the assessment of the partner of the partnership firm is concerned. Coordinate Bench of this Court while issuing Notice vide order dated 28.11.2018, had directed by way of ad-interim relief that the final order shall not be passed without the permission of the Court. However, the final order of assessment ultimately came to be passed. In such circumstances, the Co-ordinate Bench vide order dated 04.10.2021 directed that there shall be no coercive action inclusive of penalty in connection with the order of the assessment. In view of the aforesaid, even the final order of assessment will have to be quashed and set aside. Writ application succeed and is hereby allowed. - R/SPECIAL CIVIL APPLICATION NO. 17915 of 2018 - - - Dated:- 18-1-2022 - HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MS. JUSTICE NISHA M. THAKORE Appearance: MR B S SOPARKAR(6851) for the Petitioner(s) No. 1 M R BHATT CO.(5953) for the Respondent(s) No. 1 ORAL ORDER (PER : HONOURABLE MR. JU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal holding as under: 8. We have heard the rival contentions and perused the materials available on record. The controversy in the case before us relates to the deduction of remuneration/interest on partner's capital not claimed by the assessee in its profit and loss account. The fact is that there was a specific clause in the deed of partnership. Therefore, the deduction for the remuneration/ interest on capital was made by the AO which was subsequently confirmed by the ld. CIT(A) with the direction to allow the claim of deduction to the firm for the remuneration/interest on capital but tax the same in the hands of the partners of the firm. 8.1 It is an undisputed fact that the deed of partnership requires a partner to claim the deduction for the remuneration and the interest on capital. The dispute arises whether the clause mentioned in the deed of partnership is compulsory/mandatory on the part of the assessee. 8.2 The partnership firm comes into existence with mutual understanding between the persons. These understanding can be reduced in writing or without in writing the same. Thus, it is clear that it is not necessary to execute the deed of partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91/08-09/CIT(AV/Jal and have deleted similar additions as under: 9.5 I have considered the rival submissions carefully. Clause 4 and 5 of the partnership deed providing for interest on capital and salary are as under: 4. The capital of the partners is as per their respective accounts in the books of the partnership. The partners shall be entitled to interest on their capital 18% per annum or at such other rate or rates as the partners may at the end of each financial year mutually settled subject to the maximum amount admissible under the Income-tax Act, 1961. 5. Both the partners shall diligently attend to the business of the partnership and carry on the same for their greatest common advantage. Both the working partners shall be entitled to a remuneration of ₹ 48,000/- per annum each or at such other rate or rates as the partners may at the end of each financial year, mutually settle subject to the maximum amount admissible under the Income-tax Act, 1961. . 9.6. The aforesaid clauses of the partnership deed are clearly enabling clauses since the word used in both the clauses are the partners shall be entitled... . This shows that the partners w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the AO was not justified in making the addition on account of interest on capital in M/s. Dynamech and remuneration receivable from M/s. Dynamech. This ground of appeal is allowed. 3.5. Following the decision in the case of Sh. Rohit Tandon (supra), ground No.3 of appeal is allowed. 6.1. In view of the above, we do not find any infirmity in the findings of the CITIA), as the same are based on proper appreciation of the legal and factual position of the case. Accordingly, this appeal of the revenue is dismissed. From the above we note that it is not compulsory to claim the remuneration/interest on partner's capital account despite the fact there was a specific clause in the deed of partnership. 8.3 The next controversy arises in the case before us from the directions given by the Id. CIT(A) to tax the amount of remuneration/ interest on partner's capital account in the hands of the partners. It is a fact that the AO allowed the claim of the deduction for the remuneration/interest on partner's capital account in his computation of income. But the same was added back by the AO on the ground that it was not claimed as a deduction in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer on 5th January 2011. Obviously, the assessment must have attained finality, by the time the Assessing Officer came to know of these directions, since in terms of Section 153(1) no order of assessment shall be made under section 143 or section 144 at any time after the expiry of (a) two years from the end of the assessment year in which the income was first assessable; or (b) one year from the end of the financial year in which a return or a revised return relating to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, is filed under sub-section (4) or sub-section (5) of section 139, whichever is later . No doubt, under section 153(2A), when an assessment is set aside or cancelled under section 250, 254, 263 or 264 a fresh assessment, as a result of such a cancellation, can be framed within one year from the end of the financial year in which the order under section 250 or section 254 is received by the Commissioner or the order under section 263 or section 264 is passed by the Commissioner. However, this provision comes into play only when the order passed under section 250, 254, 263 or 264 in the case of the assessee himself. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ened to give effect to such findings or directions. 16. There is, however, an even more fundamental issue, and that issue is whether the direction that the deemed dividend income being brought to tax in the hands of Shri Asnani is a direction necessary for the disposal of case. This issue assumes significance in view of the legal position that, as held by Hon'ble Supreme Court in the case of Rajinder Nath v. CIT [1979] 120 ITR 14/2 Taxman 204, As regards the expression direction in s. 153(3)(ii) of the Act, it is now well settled that it must be an express direction necessary for the disposal of the case before the authority or Court. It must also be a direction which the authority or Court is empowered to give while deciding the case before it. Their Lordships then added that The expressions finding and direction in s. 153(3)(ii) of the Act must be accordingly confined and that Sec 153(3) (ii) is not a provision enlarging the jurisdiction of the authority or Court. 17. As to what constitutes an express direction necessary for disposal of a case , we find the following guidance from Their Lordships: To be a necessary finding, it must be directly i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in whose income is to be taxed, and being a shareholder is only one such precondition. Learned CIT(A) has, as noted earlier in this order, observed that If the recipient of loan is not a shareholder and the transaction is covered by this provision, the addition is to be made in the hands of the shareholder , but then it is difficult to comprehend as to how one can come to a conclusion that a transaction is covered by this provision, i.e. deeming fiction of the deemed dividend, without examining the transaction between the shareholder of the company and the company in which such shares are held. Without even giving a finding about satisfaction of all these conditions, learned CIT(A) proceeds to hold that it is an income to be taxed in the hands of the shareholder i.e. Mehul P Asnani. It is a classic case of putting cart before the horse and is wholly based on fallacious logic. The direction is thus not only unnecessary but patently incorrect. Viewed thus, the direction given by the CIT(A), for taxability of this deemed dividend in the hands of Shri Asnani, does not constitute ant express direction necessary for disposal of a case . Nothing really turns on his direction, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has allowed. In view of above, we hold that the ld. CIT(A) erred in directing the AO to tax the amount of remuneration and interest in the hands of the partner of the firm. Thus, we set aside the order of ld. CIT(A) and direct the AO to the addition in terms of the above. Thus, the ground of appeal of the assessee is allowed. 8. Thus, the ITAT adjudicated the controversy as regards the deduction of remuneration/interest on the partners capital not claimed by the assessee i.e. the partnership firm in its profit and loss account. The Tribunal took notice of the fact that the CIT Appeals had directed to tax the amount of remuneration/interest on the partners capital account in the hands of the partners. The AO had allowed the claim of the deduction for the remuneration/interest on the partners capital account however, the same was added back by the AO on the ground that it was not claimed as a deduction in the profit and loss account. The CIT Appeals directed to delete the addition made in the hands of the firm and further directed to tax the same in the hands of the partner of the firm. The aforesaid was not approved by the Tribunal taking the view that there was no good g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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