ITAT Delhi Remands Partnership Firm's Reassessment, Faults Authorities' Cryptic Orders

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has remanded a reassessment involving a partnership firm's write-back of a retired partner's capital balance after finding that the tax authorities passed cryptic orders without specifying the provision under which the amount was chargeable to tax.

A coram of Judicial Member Yogesh Kumar US and Accountant Member Ramit Kochar partly allowed the appeal for statistical purposes.

While upholding the reopening of the assessment, it restored the matter to the Assessing Officer (AO) for a fresh examination of the addition on merits.

"Neither the AO nor ld. CIT(A) has went on to look into in details as to the chargeability to tax of the same under the provisions of the 1961 Act. Both the authorities passed cryptic orders rejecting the contentions of the assessee without even specifying the relevant provision of the 1961 Act under which the said amount is chargeable to tax and reasons thereof to bring it within the ambit of tax. This is an irregularity which is curable, and not an illegality.", the tribunal noted.

Accurate Pressings, a partnership firm engaged in manufacturing automotive parts, filed its return for the 2015-16 assessment year declaring nil income. The assessment was reopened after the AO noticed that the firm had claimed a deduction of 54.10 lakh towards "partners capital waived off" while computing its taxable income without furnishing supporting details.

The firm explained that partner Puneet Ahuja retired during the 2012-13 financial year and that his share of profits was transferred to a payable account. It contended that the amount remained unpaid under a mutual understanding among the partners and was later written back through the profit and loss account as a transfer entry that did not give rise to taxable income. The AO rejected the explanation, treated the amount as taxable income, and the Commissioner of Income Tax (Appeals) upheld the addition.

Before the tribunal, the firm challenged both the reopening of the assessment and the addition. The tribunal upheld the reassessment, observing that the assessee had not disclosed the basis for claiming the deduction in its original return and had also not filed a return in response to the reopening notice. It held that the AO had valid reasons to believe income had escaped assessment.

In addition, however, the tribunal found the factual record to be incomplete. It noted the absence of the retirement deed, documents explaining the composition of the retired partner's capital account, and evidence of the alleged mutual understanding under which the amount was waived.

It also found that the AO and the Commissioner of Income Tax (Appeals) had not identified the relevant provision of the Income-tax Act under which the amount was chargeable to tax.

"Since the assessee is claiming the said amount to be exempt from tax, onus is on the assessee to file complete details to demonstrate through cogent material that the said amount is not chargeable to tax within the ambit and mandate of the 1961 Act.", the tribunal added

The tribunal restored the matter to the AO for a fresh assessment.

For the Assessee: Anil Kumar Gupta, Chartered Accountant

For the Revenue: Ravi Kant Choudhary, Senior Departmental Representative