Deduction from Interest & Remuneration of the partner of the firm & power of AO U/s 154

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Deduction from Interest & Remuneration of the partner of the firm & power of AO U/s 154

 

The power of Rectification of the mistake committed in the return of income is an issue with divergent opinion and views. What can be rectified U/s 154 and what not?

Here is an interesting issue before Rajkot ITAT regarding the deduction of remuneration of partner in case of presumptive income.

The case detail is as under:

 

ITAT RAJKOT

M/S. J. DOSHI & CO. VERSUS THE ITO, WARD-3 (1) (2) , RAJKOT

 ITA No. 79/Rjt/2020

 

It is not the claim of the Department that the assessee was not eligible to be assessed to tax under section 44AD of the Act or that the interest and remuneration paid to partners did not find support from the terms of the partnership deed, however, the Ld. DR has suggested that the assessee is open to pursuing alternate remedy under section 154 of the Act. – matter restored back – AT

Let us have a short overview of the case:

  1. The issue was with regard to the rectification of the mistake committed in the return of income.
  1. Assessment of the returned loss.
  1. Demand was raised on the Assessee while processing return u/s 143(1) of the Act.
  1. Notice under section 139(9) had been served upon the assessee within the due time.
  1. Assessee submitted that it was mistake committed by the assessee at the time of filing return of income. Though the assessee was not required to maintain the books of accounts since the return was filed under section 44AD of the Act, Assessee in the return form had inadvertently stated “yes” in the option asking whether the books of accounts are required to be maintained or not by the assessee.
  1. In short, the demand was raised on the assessee owing to the fact that at the time of filing return of income, the assessee inadvertently made certain errors as a result of which the remuneration and interest paid to partners was not allowed to the assessee

ITAT observed as under:

  1. We observe that in the instant set of facts, the demand is arising on the assessee owing to the fact that at the time of filing return of income, the assessee inadvertently made certain errors as a result of which the remuneration and interest paid to partners was not allowed to the assessee.
  1. It is not the claim of the Department that the assessee was not eligible to be assessed to tax under section 44AD of the Act or that the interest and remuneration paid to partners did not find support from the terms of the partnership deed. The Ld. DR has suggested that the assessee is open to pursuing alternate remedy under section 154 of the Act.
  1. High Court in the case of Devendra Pai [2021 (12) TMI 1218 – KARNATAKA HIGH COURT] held that AO not supposed to take advantage of assessee’s ignorance to collect tax more than legitimate tax.
  1. Keeping in view of the above principles, and in the interest of justice, we are hereby restoring the file to the assessing officer to grant a fresh opportunity of hearing to the assessee, and if the assessee is able to substantiate its claim as stated before us, then an opportunity may be granted for the assessee to rectify the inadvertent mistake made by the assessee in filing the return of income, which could not be rectified since notice under section 139(9) of the Act could not be served on the assessee within time so as to enable the assessee to rectify the mistake which had been done in the return of income.
  1. Appeal of the assessee is allowed for statistical purposes

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