Paranjape & Paranjape Vs ITO (ITAT Mumbai Bench)
CPC Cannot Quietly Rectify What It Had Earlier Allowed: Partner’s Remuneration Cannot Be Disallowed U/s 154 Without Notice, Reasons or a Mistake Apparent From Record – ITAT Mumbai
The assessee, a partnership firm of Chartered Accountants, filed its return of income for AY 2019-20 claiming deduction of remuneration paid to its partners. While initially processing the return u/s 143(1), the CPC accepted the claim and allowed the partner’s remuneration.
However, the CPC subsequently passed an order u/s 154 and disallowed the remuneration. Curiously, the rectification order did not specify any intelligible reason for making the disallowance. No notice proposing the adjustment was issued to the assessee and no opportunity was given to explain why the remuneration was legally allowable.
The assessee challenged the rectification before the appellate authority. The Addl./JCIT(A), NFAC, however, dismissed the appeal and sustained the disallowance. The assessee, therefore, carried the matter before the Mumbai ITAT.
Before the Tribunal, the assessee submitted that the claim had been duly allowed when the return was originally processed u/s 143(1). It was only through a subsequent order u/s 154 that the CPC withdrew the deduction and disallowed the remuneration paid to the partners.
