TaxTMI 
TaxTMI 
2019 (3) TMI 1606
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....me from other sources is contrary to facts, arbitrary, excessive, erroneous, bad in law and legally not sustainable. 4. That, the Learned C.I.T (Appeals) has misconstrued/ misappreciated the facts and his order dated 28.02.2017 confirming the action of Learned assessing officer of invoking the provisions of Section-144 of the Act and action of treating the status of the firm as AOP on the ground of noncompliance of notice U/S 142(1) & 143(2) of the Act and thereby denying the deduction of salary and interest to partners is against the principle of natural justice, contrary to facts, arbitrary, excessive, erroneous and bad in law." Ground No.3 4. I have heard the arguments of both the sides and carefully perused the relevant material placed on the record of the Tribunal. Ld. AR submitted that the amount of interest income of Rs. 10,61,806/- disclosed in the profit and loss account is business income of the assessee. Ld. AR further submitted that the assessee firm had availed an overdraft facility from Bank of India which was sanctioned against the pledged of fixed deposit of the borrower during the financial year 2011-2012. Ld. AR submitted that the fixed deposits hav....
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....t is inextricably linked with the business activity of the assessee and the impugned interest income has to be treated as business income of the assessee and the same cannot be put under the head "income from other sources‟ in spite of fact that the assessee has shown this interest income in the profit and loss account and has not shown any amount as income from other sources. Accordingly, ground No.3 of the assessee is allowed and the AO is directed to treat the interest income on fixed deposit amounting to Rs. 10,61,806/- as business income. Thus, the ground No.3 of the appeal of the assessee is allowed. Ground No.4: 7. I have heard the arguments of both the sides and carefully perused the relevant material placed on the record of the Tribunal. Ld AR submitted that the ld. CIT(A) was not correct and justified in confirming the action of AO in invoking the provisions of Section 144 of the Act and treated the status of the assessee firm as AOP on the ground of non-compliance of notice u/s.142(1) & 143(2) of the Act and in denying deduction of salary and interest to partners u/s.184(5) of the Act. Ld. AR vehemently pointed out that from the table drawn by the AO at page ....
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.... u/s.144 of the Act while invoking provisions of Section 145(3) of the Act and on the said date the assessee only produced bank statement and list of sundry debtors and no reply of questionnaire was furnished nor there was any documents as called for in the notice produced including books of accounts. Ld.DR submitted that in this situation the AO has assumed valid jurisdiction to invoke the powers u/s.184(5) of the Act and in denying allowance of interest and salary to the partners. 10. Placing rejoinder to the above, ld. AR submitted that it is not the case of complete non-compliance but on some dates the assessee‟s representative attended the proceedings and complied with the notices issued u/s.143(2) & 142(1) of the Act. Merely non-compliance of some notice and non-production of books of accounts does not legally empower the AO to invoke provisions of Section 184(5) of the Act for denying interest and salary paid to the partners. 11. On careful consideration of the above rival submissions of both the sides, first of all, I find it profitable to reproduce the relevant provisions of Section 184(5) of the Act, which reads as under :- "[Assessment as a fir....
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....he best of his judgment and determine the sum payable by the assessee ] on the basis of such assessment: Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment: Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub- section (1) of section 142 has been issued prior to the making of an assessment under this section.] (2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988 ), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988 , or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.]" From the relevant para 4.1 of the assessment order, wherein the AO has rejected the book results of the assess....