TaxTMI 
TaxTMI 
2021 (10) TMI 444
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed on 22/9/2015. Thereafter notice u/s 143(2) dated 29/7/2016 was issued selecting the case for scrutiny for limited purposes. Copy of the notice received u/s 143(2) is enclosed at page no. 1. 2. A perusal of the notice u/s 143(2) will show that the case was selected for scrutiny for limited purposes for four specific reasons which stand mentioned in the notice itself in the following manner ;- a) Custom duty payment mismatch b) payment to related persons mismatch c) unsecured loans d) duty drawback received/receivable 3. Thereafter assessment was completed u/s 143(3) through order dated 11/12/2017. 4. Notice u/s 263 dated 18/1/2019 reads as under :- I.T.A No. 115/ASR/2020 3 "On perusal of the order u/s 143(3) of the Income tax Act, 1961 dated 11.12.2017, in your case and on the examination of record for the Assessment Year 2015-16, the following discrepancies were noticed. (i) Perusal of the partnership deed filed during the course of assessment proceedings shows that in para 9 of the deed, it has been mentioned that the remuneration payable to the working partners shall be equal to the limits laid down ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....asons for which the case was selected for limited scrutiny under CASS. The order u/s 263 was consequently quashed. Copy of the order is enclosed at page no. 6 to 11 [please see para no. 8 at page no. 11]. b) Sonali Hemant Bhavsar vs. Pr. CIT (ITAT Mumbai): It was held that a limited scrutiny case cannot be expanded unless the AO converted into complete scrutiny with the approval of the Pr. CIT and if the AO after considering the submissions of the assessee does not come to the conclusion of potential escapement the Ld. Pr. Cannot hold the order to be erroneous on the ground that AO ought to have reached to such conclusion. The order u/s 263 was accordingly quashed. Copy of the order is enclosed at page no. 12 to 25 [please see para no. 6 and para no. 7 at page no. 18 to 25]. c) Storewell Construction & Engineers vs. Pr. CIT [ITAT Pune]: In this case the revisionary jurisdiction had been invoked by the Pr. CIT to look into the issues which were not within the purview of limited scrutiny. In view of the circular issued by CBDT and judicial decisions, the order u/s 263 was quashed. Copy of the order is enclosed at page no. 26 to 30 [please see para no. 4, 5 & 6 at pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat in such cases where communication is issued without a DIN this fact along with approval taken from Chief Commissioner / Director General this shall stand mentioned on the communication itself. In para no. 4 of the above circular it has been stated that any communication which is not in conformity with para-2 and para-3 shall be treated as invalid and shall be deemed to have never been issued. In fact realizing that the order had been passed without DIN, an intimation letter dated 21/2/2020 was issued where in it was mentioned that the order/notice/letter dated 20/2/2020 is having DIN: ITBA/COM/M/17/2019- 20/1025539552(1). Copy of the intimation letter is enclosed at page no. 54. In the impugned order u/s 263 neither DIN has been mentioned nor has the fact that the communication was being issued without a DIN after taking approval of appropriate authority been mentioned. The order u/s 263 has thus to be treated as invalid and never to have been issued. Necessary relief may please be allowed as the impugned order is being treated as the basis of framing fresh assessment. 9. As far as merits of allowability of salary/ remuneration to partners is concerned, it is submitted that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... computation of remuneration was laid down by the partnership deed, deduction of remuneration was allowable u/s 40(b). Copy of the order is enclosed at page no. 56 to 60. b) Durga DassDevki Nandan vs. CIT reported at 342 ITR 17 (Himachal High court): The view expressed in the case of Anil Hardware Store was reiterated and salary held to be allowable even though not fixed in the partnership deed. Copy of the decision is enclosed at page no. 61 to 65. c) Rubber Wings vs. ITO (ITAT Amritsar): It was held that the claim of salary was allowable if the manner of quantification of salary was specified. Copy of the decision is enclosed at page no. 66 to 70 [please see para no. 6 at page no. 69 & 70]. This decision which was in favour of the assessee was delivered after considering the decision of the Punjab & Haryana High Court in the case of Sood Bhandari & Co. vs. CBDT reported at 246 CTR 90 which was been wrongly relied upon by the ld. Pr. CIT to decide the issue against the assessee. d) CIT vs. Asian Marketing reported at 254 CTR 453 (Rajasthan High Court): It was held that even where it was provided that where the relevant clause of the partnership deed prov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ning to the pre-amended provisions of section 263 would not hold good. For the sake of convenience in reference Explanation-2 to section 263 is reproduced below: "Explanation-2.- For the purpose of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person." 13. The ld Pr. CIT has not mentioned which specific clause of Explanation-2 is deemed to have been invoked in this case. Assuming that clause (a) or (b) have been invoked, it is submitted that thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessing officer should have moved proposal to convert the case into a complete scrutiny as per instructions of CBDT. No. 20 of 2015 dated 29/12/2015 and No. 5 of 2016 dated 14/7/2016. This aspect has already been discussed above. Further circular no. 739 has also been referred and section 40 which has been incorporated at page no. 9 & 10 of the impugned order. She concluded by stating that section 40(b) relates to firm and the clauses (i) to (v) are interconnected and have to be read harmoniously. As per these clauses, one of the prescribed condition is that payment of remuneration should be authorized by and in accordance with the terms of the partnership deed and salary should relate to a period falling after the date of such partnership deed. In this regard it is submitted that the clause in the partnership deed dealing with remuneration to partners is in accordance with law and also supported by the circular no. 739 and well as various judicial decisions. 16. In para no. 8.1 of the impugned order the ld. Pr. CIT had drawn support from two high court decisions and these are discussed below: a) Sood Bhandari & Co. vs. CBDT reported at 246 CTR 89 (Punjab & Haryana H....