D.M Builders Vs ACIT (ITAT Raipur)
ITAT Raipur held that there is no bar on an individual to join a partnership firm in his representative capacity of a firm being represented by him. In short, partnership firm can be formed by partners represented by their respective firms.
Facts- The case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act. During the course of the assessment proceedings, it was observed by the A.O that the assessee firm was constituted vide a partnership deed dated 05.03.2009 comprising of four partners who represented their respective firms. Partners were having 25% share in their representative capacity as a partner of their respective firms.
Accordingly, A.O assessed the assessee firm in the status as that of an “AOP”. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals) but without any success. Being aggrieved, the present appeal is filed.
Conclusion- Hon’ble Apex Court held that even if a person nominated by the HUF joins a partnership, then the partnership will be between the nominated person and the other partners of the firm. It was further observed by the Hon’ble Court that where the Karta of an HUF enters into a partnership agreement with a stranger, the Karta alone in the eyes of law is the partner.
Held that there is no bar on an individual to join a partnership firm in his representative capacity of a firm being represented by him.
I am of the considered view that there was no justification on the part of the lower authorities to have recharacterized the assessee firm i.e. a firm comprising of individual partners (representing their respective firms) as an “AOP”.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-II, Raipur dated 02.11.2018, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 29.12.2016 for the assessment year 2014-15. The assessee has assailed the impugned order on the following grounds of appeal:
“1. In the facts and circumstances of the case and in law, Ld. CIT(A) erred in upholding the action of the A.O of assessing the appellant in the status of “AOP” instead of “partnership firm” and in holding that the appellant is not a valid partnership firm. The appellant is liable to be assessed in the status of “partnership firm” and not as “AOP”.
2. The Assessing Officer erred in confirming the disallowance of Rs.13,19,518/- made by the A.O invoking Sec.14A, without appreciating the facts and the law properly. The disallowance u/s.14A made by the A.O and confirmed by the Ld. CIT(A) is arbitrary and not justified.
3. CIT(A) erred in not adjudicating upon ground no.3 taken by the appellant regarding disallowance of Rs.28,600/- on account of donation.
4. The appellant reserves the right to add, amend or modify any of the ground/s of appeal.”
2. Succinctly stated, the business premises of the assessee firm which is engaged in construction business was visited by the department u/s.133A of the Act on 09.04.2013. The assessee firm, thereafter, filed its return of income for A.Y.2014-15 on 15.10.2014, declaring an income of Rs.69,310/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act.
3. During the course of the assessment proceedings, it was observed by the A.O that the assessee firm was constituted vide a partnership deed dated 05.03.2009 comprising of four partners who represented their respective firms, as under:
a. Shri Suresh Chandra Dayabhai Manik (Representative of a firm namely Manik Brothers Raipur)
b. Shri Hemendra Kumar Dayabhai Manik ( Representative of a firm namely M/s. Thackers H.P & Co, Raipur)
c. Shri Paresh Kumar Dayabhai Manik (Representative of a firm namely M/s. Everest Leaves Co. Raipur)
d. Shri Yogesh Kumar Dayabhai Manik (Representative of a firm namely M/s. Manik & Co.)
On a perusal of the records, it was observed by the A.O that each of the aforesaid partners was having 25% share in their representative capacity as a partner of their respective firms. Also, it was observed by the A.O that all the four partners had contributed the following properties by way of their capital contributions in the assessee firm on 05.03.2009, as under:
