Be careful : No deduction towards Interest, Remuneration etc in the hands of the Firm if such Firm does not respond to notices issued under section 142(1)

Loading

Be careful : No deduction towards Interest, Remuneration etc in the hands of the Firm if such Firm does not respond to notices issued under section 142(1)

There are cases either during Scrutiny Assessment or otherwise wherein due to non submission or appearance, Best Judgment Assessment u/s 144 was made.
Whether under such circumstances AO can deduction towards Interest, Remuneration etc in the hands of the Firm.
One need to understand that Section 184 of the IT Act deals with Assessment relating to Partnership Firm.
Sec 184(5) authorises AO to disallow interest,remuneration paid to Partners in the hands of the Partnership Firm under  circumstances where Best Judgment Assessment u/s 144 is being made in the hands of the Firm by the assessing officer.
Non response to the notices issued u/s 142(1) give rise to Best Judgment Assessment u/s 144 and hence Disallowances of Interest, Remuneation in the hands of Partnership Firm is rightly permissible by AO u/s 184(5).
This view has been affirmed  by Cuttack Tribunal in the case of ” Eastern Engineering Venture Vs. ITO” .
Once Remuneration , Interest is taxed in the hands of the Firm same can not be Taxed in the hands of the Partners as ” Income From Business or Profession.”.
In short, taxpayer and tax professional has to be very cautious in responding to the notices of AO so as to avoid assessment u/s 144.
Non response to notices issued u/s 142(1) by Firm, AO assesed the Firm u/s 144 . Interest and Remuneration can be disallowed in the hands of the Firm.

Menu