2021 (3) TMI 345 - HC - Income Tax

Tax Notices Quashed: Court Upholds Consistency Principle, No Failure to Disclose Material Facts for 2011-14 Assessments.

Myhome Developers Versus The Assistant Commissioner Of Income Tax

The HC quashed the impugned notices issued under Section 148 of the Income Tax Act, 1961, for assessment years 2011-12, 2012-13, and 2013-14, finding no ... Reopening of assessment u/s 147 - assessee had claimed excessive deductions u/s 80 IB(10) without providing interest on capital and remunerations to the partners for the respective years under consideration, which had escaped assessment - case of the assessee is that, both the interest and remuneration stipulations were incorporated earlier which contained clause as to payment of interest and remuneration, which was not at all paid to the partners - revenue has considered the partnership deed 23.01.2008 and concluded that, interest and remuneration were payable to the partners - HELD THAT:- Clauses of the partnership deed provided for interest on partner's capital and remuneration, the same is subject to their mutual agreement - clauses contained are only enabling provision not mandatory in nature so as to lead to an inference that, the assessee had to pay interest on capital and remuneration to its partners. Even after 01.04.2009, interest on capital as well as the remuneration were not to be paid to the partners. No material on record to indicate that, the writ applicant has actually received any interest on capital and remuneration from the partnership firm. Record further indicates that, for the assessment year 2010-11[2015 (8) TMI 1160 - ITAT AHMEDABAD] deduction u/s 80 IB(10) was claimed without paying any interest on capital and remuneration to partners and such claim was not disturbed by the assessing officer. In this view of the matter, the conclusion arrived at by the assessing officer that, the assessee has claimed deduction without providing interest on capital and remuneration to partners as per the clause 6 and 7 of the deed, has escaped assessment on account of failure on the part of the assessee in filing of the return of income disclosing fully and truly all material facts are contrary to law and without jurisdiction. We hold that, the contention raised by learned Sr. counsel Mr. Hemani merits consideration that mere incorporation of clauses in the partnership deed for interest on the partner’s capital and remuneration, does not signify that, interest and remuneration is to be paid to the partners mandatorily. The issue involved in the present case is squarely covered by the case of Alidhara Taxspin (P) Ltd. [2017 (5) TMI 1684 - GUJARAT HIGH COURT] and applying the principles of law as propounded by this Court, we hold that, re-opening of the assessment is not justified. - Decided in favour of assessee. Issues Involved:1. Legality of reopening assessments under Section 148 of the Income Tax Act, 1961.2. Validity of excessive deductions claimed under Section 80 IB(10) without providing interest on capital and remuneration to partners.3. Compliance with the principles of consistency in tax assessments.4. Evaluation of full and true disclosure of material facts by the assessee.Issue-wise Analysis:1. Legality of Reopening Assessments under Section 148 of the Income Tax Act, 1961:The court examined the legality of the notices issued under Section 148 for reopening assessments for the assessment years 2011-12, 2012-13, and 2013-14. The writ applicant challenged these notices on the grounds that the reopening was unjustified. The court noted that the Assessing Officer has the power to reassess any income that has escaped assessment, but this power is conditional upon having 'reason to believe' that income has indeed escaped assessment. Additionally, no action can be taken after four years unless the income escaped due to the assessee's failure to disclose fully and truly all material facts necessary for assessment.2. Validity of Excessive Deductions Claimed under Section 80 IB(10):The court scrutinized the claim of excessive deductions under Section 80 IB(10) without providing interest on capital and remuneration to partners. The original partnership deed included clauses for payment of interest on capital and remuneration, but these were later amended to state that no interest or remuneration would be paid. The court emphasized that merely having clauses in the partnership deed does not mandate payment unless there is an actual transaction. The court relied on the precedent set in the case of Alidhara Taxspin Engineers, which held that the mere provision in the partnership deed does not make the payment mandatory.3. Compliance with the Principles of Consistency in Tax Assessments:The writ applicant argued that for the assessment year 2010-11, similar deductions were claimed without paying interest on capital and remuneration to partners, and these were not disturbed by the Revenue. The court noted that the principle of consistency should be maintained, and the Revenue could not take a different stand in subsequent years without a valid reason. This principle was upheld, reinforcing that the Revenue's actions should be consistent across different assessment years.4. Evaluation of Full and True Disclosure of Material Facts by the Assessee:The court evaluated whether the assessee had failed to disclose fully and truly all material facts necessary for assessment. The assessee had mentioned in the return of income and the tax audit report that no interest and remuneration had been paid to the partners. The court found no evidence that the assessee had actually received any interest on capital or remuneration. Thus, the court concluded that there was no failure on the part of the assessee in making a full and true disclosure, making the reopening of assessments unjustified.Conclusion:The court concluded that the reopening of assessments was not justified as there was no failure on the part of the assessee to disclose fully and truly all material facts. The court held that the mere incorporation of clauses for interest and remuneration in the partnership deed does not mandate their payment. The principle of consistency was upheld, and the court quashed the notices issued under Section 148, thereby terminating all subsequent proceedings.Final Judgment:The court allowed all the writ applications, quashing the impugned notices dated 23.03.2018 and terminating all subsequent proceedings pursuant to these notices.