Taxability of remuneration/interest not claimed by partnership firm in the hands of partners- HC Quashes assessment order

Mamta Bhavesh Dave Vs ITO (Gujarat High Court)

ITAT adjudicated the controversy as regards the deduction of remuneration/interest on the partners capital not claimed by the assessee i.e. the partnership firm in its profit and loss account. The Tribunal took notice of the fact that the CIT Appeals had directed to tax the amount of remuneration/interest on the partners capital account in the hands of the partners. The AO had allowed the claim of the deduction for the remuneration/interest on the partners capital account however, the same was added back by the AO on the ground that it was not claimed as a deduction in the profit and loss account. The CIT Appeals directed to delete the addition made in the hands of the firm and further directed to tax the same in the hands of the partner of the firm. The aforesaid was not approved by the Tribunal taking the view that there was no good ground to tax the remuneration/interest on the capital in the hands of the partners and the CIT(Appeal) could be said to have exceeded its jurisdiction by issuing such directions to the AO for the dispute which was not arising from the order of the AO.

In view of such findings recorded by the Appellate Tribunal, nothing survives in the present matter so far as the reopening of the assessment of the partner of the partnership firm is concerned.

At this stage, Mr. Soparkar, pointed out that a Co­ordinate Bench of this Court while issuing Notice vide order dated 28.11.2018, had directed by way of ad-interim relief that the final order shall not be passed without the permission of the Court. However, the final order of assessment ultimately came to be passed. In such circumstances, the Co-ordinate Bench vide order dated 04.10.2021 directed that there shall be no coercive action inclusive of penalty in connection with the order of the assessment. In view of the aforesaid, even the final order of assessment will have to be quashed and set aside.

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