INCOME TAX ACT,1961

Section 143(1), 139(9) & 154

Rectification - Non-maintaining books of account - Remuneration and interest paid to partners -

Assessee, a partnership firm, filed its return under section 139(1) declaring loss. Notice under section 139(9) had been served upon the assessee within the due time , demand was arising on the assessee owing to the fact that at the time of filing return of income, the assessee inadvertently Committed certain errors as a result of which the remuneration and interest paid to partners was not allowed to it. Mistake committed by the firm at the time of filing return of income was that though it was not required to maintain the books of account since the return was filed under section 44AD of the Act, however in the return form firm had inadvertently stated 'yes' in the option asking whether the books of account are required to be maintained or not by the assessee. CIT(A) dismissed the assessee's appeal. Assessee went in appeal to Tribunal. Held: It was not claim of the Department that the assessee was not eligible to be assessed to tax under section 44AD of the Act or that the interest and remuneration paid to partners did not find support from the terms of the partnership deed, however, DR also suggested that it was open for assessee to pursue alternate remedy under section 154 of the Act. High Court in the case of Devendra Pai ((2022) 135 taxmann.com 196 (Karn) : 2021 TaxPub(DT) 6776 (Karn-HC)) held that AO was not supposed to take advantage of assessee's ignorance to collect tax more than legitimate tax. In the interest of justice, matter was restored back to AO to grant a fresh opportunity of hearing to the assessee, and if the assessee is able to substantiate its claim as stated, then an opportunity may be granted to, the firm to rectify the inadvertent mistake made by the assessee in filing the return of income, which could not be rectified since notice under section 139(9) of the Act could not be served on the assessee within time so as to enable the assessee to rectify the mistake which had been done in the return of income.

REFERRED :

FAVOUR : In favour of the assessee

A.Y. : 2014-15

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