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Income Tax Appellate Tribunal (ITAT) Chandigarh in a recent judgment has held that the filing of the revised/changed instrument of partnership deed along with the return as per section 184(2) or 184(4) is directory in nature and it can be filed at any time before completion of the assessment by the A.O
Case Details:
ITA No.573/Chd/2015 AY : 2010-11
Ved Parkash Contractors (Appellants) vs CIT (Respondent)
Date of Order: 03-11-2015
Case Laws Referred:
CIT Vs. S.R. Batliboi& Associates in ITA No. 190 of 2009 (Calcutta HC)
Brief Facts of the Case:
Commissioner of Income Tax (CIT) observing that in the case of the assessee, the assessment order passed u/s 143(3) was erroneous and prejudicial to the interest of revenue, passed order u/s 263 giving direction to the Assessing Officer (AO) to make a fresh assessment by making few specific addition/disallowances. One of such disallowance was related to deduction on account of interest and salary paid to the partners.
CIT had observed that during the year there was a change in the partnership deed and the copy of the partnership deed submitted before the Assessing officer was attested by the assessee’s Chartered Accountant (CA) instead of all the partners as required under section 184(2) of the Income Tax Act. Therefore According to CIT, the AO allowed salary and interest paid to the partners without examining this aspect which was not allowable as per the provisions.
In this regard the explanation of the assessee was that the partnership deed was re-written on 01-04-2009 and the copy of the same was produced before the Assessing officer during the course of assessment proceedings. The original copy of the deed at the time of filing of photocopy of the deed was shown to the Assessing officer. Accordingly, it was submitted that the assessee has fully complied with conditions of furnishing the partnership deed dated 1.4.2009.
Important Excerpt from ITAT Judgment:
In our opinion, the conclusion drawn by the CIT on this issue is erroneous. Therefore, the CIT was not justified in stating that assessment order is erroneous in as much as prejudicial to the interest of this Revenue. Recently, the Hon'ble Calcutta Hon'ble High Court in the case of CIT Vs. S.R. Batliboi & Associates in ITA No. 190 of 2009 vide its order dated 24.2.2015 held that Section 185 read with Section 184, although worded in emphatic terms, is not intended to be a mandatory provisions. The question before the Hon'ble High Court was as under :-
“Whether the Income Tax Appellate Tribunal was justified in upholding the deletion of the disallowance amounting to a sum of Rs.4,49,60,000/- on account of remuneration of the partners under section 185 of the Income Tax Act when the instrument of change in partnership was not filed along with the return?
In the above case, the Tribunal has made the following observations:-
"We observe that there was a change in partnership deed with effect from 1st August , 2004 and the assessee was required to file a certified copy of the partnership deed along with the return as per section 184(4) of the Act . Section 185 of the Act provides that if a firm does not comply with the provisions of Section 184 for any assessment year, 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 "profit and gains of business or profession".
There is no dispute to the fact that the assessee filed the certified copy of the deed during the course of assessment proceedings. The quest ion arises as to whether non filing of the copy of the changes in partnership deed along with the return is a violation of substantive provision and make the return invalid or it is only a procedural default and is an irregularity in filing the return. We are of the considered view that non-filing of the copy of the changes in partnership deed along with the return is only an omission and does not make the return filed by the assessee as invalid so as to disallow the claim of the assessee. Section 292B of the Act provides that merely by reason of any mistake, defect or omission in such return of income, assessment , etc. shall not be invalid or shall not be deemed to be invalid. The Hon'ble Kerala High Court has held in the case of CIT vs Masoneilan (India) Ltd. [242 ITR 569] that sect ion 292B provides that no return of income shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income if it is in substance and effect in conformity with or according to the intent and purpose of the Act . It is further observed that sect ion 139 also throws some light on the quest ion, if there is any defect, the A.O. is required to give an opportunity to the assessee to rectify the defect within a stipulated time. We are of the considered view that the purpose of filing the copy of the changes in the partnership deed before the A.O. is to enable the A.O. to examine as to whether there is a genuine partnership in existence and the remuneration being paid to the partners is properly distributed and paid in accordance with the partnership deed. Furnishing of certified copy of the revised instrument of partnership deed as per section 184(4) of the Act is procedural in nature though the word "shall" is stated but the filing of the instrument of partnership deed is required by the A.O. as mentioned hereinabove to ascertain the genuineness of the existence of the partnership and to ascertain the share of each of the partner as to whether the remuneration being paid is in accordance with the deed of partnership deed and is also in accordance with the limit prescribed under sect ion 40 (b) of the Act . The defect in not filing the copy of the change in instrument of partnership deed along with the return is a curable defect only through sect ion 184(4) provides that the same should be furnished along with the return of income.”
In the above case, the Tribunal observed that furnishing of certified copy of the revised instrument of partnership deed as per section 184(4) of the Act is procedural in nature, though the word ‘shall’ is stated but the filing of the instrument of partnership deed is required by the Assessing officer to ascertain the genuineness of the existence of the partnership and to ascertain the share of each of the partner as to whether the remuneration being paid is in accordance with the limit prescribed u/s 40(b) of the Act . In this case the Tribunal observed that the filing of the revised/changed instrument of partnership deed along with the return is directory in nature and it can be filed at any time before completion of the assessment by the A.O. The Tribunal further observed that we do not agree with the content ion of the Revenue that after amendment by the Finance Act 2003, non filing of instrument of partnership deed along with return will make the claim of assessee illegal so as to deny the claim of the assessee though the requisite details and the evidence is made available to the Assessing officer before he completes the assessment. The Revenue challenged the order of the Tribunal dated 13.2.2009 by way of appeal before the Hon'ble Calcutta High Court and the Hon'ble High Court vide its order dated 24.2.2015, confirmed the order of the Tribunal .....
In the instant case, Ld. Commissioner has observed that as per the requirement of section 184(2) and 184(4), the assessee is required to submit a certified copy of the partnership deed. According to him, the assessee has not complied with the provisions of section 184(2) and 184(4) of the Act and therefore, assessment order was erroneous in as much as prejudicial to the interest of Revenue. The Ld. CIT presumed that the above provisions of the Act are mandatory. This observation of the Ld. CIT is contrary to the decision of the Hon'ble Calcutta Hon'ble High Court (supra), wherein the Hon'ble High Court has categorically held that Section 185 read with Section 184, although worded in emphatic terms, is not intended to be a mandatory provisions.
In the instant case the Revenue has accepted the return filed by the assessee as perfectly valid and, therefore, there is no occasion to held that the return was in derogation to sub sect ion (4) of sect ion 184 of the Act . In view of the decision of Hon'ble Calcutta High Court referred to above, we find that order of the CIT on this issue is not tenable and accordingly we hold that the assessment order cannot be held erroneous in as much as prejudicial to the interest of Revenue on this issue.
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ITAT-Revised/Supplementary Partnership Deed along with income tax return u/s 184(2) or 184(4) can be filed at any time before Completion of Assessment | 06-11-2015 |
