The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the Assessing Officer had rightly invoked Section 154 of the Income Tax Act to disallow deduction since HUF cannot be treated as a working partner in the partnership firm.
In the instant case, the Assessing Officer initially accepted the original return filed by the assessee, an HUF wherein the assessee claimed that it is a partner in a partnership firm. Subsequently, the officer rectified the order by holding that the HUF cannot become a working partner and therefore, the assessee does not come within the definition of working partner as per section 40(b), Explanation-4 of the Act and disallowed the deduction claimed through the revised return.
Aggrieved by the order, the assessee approached the Tribunal contending that there is no mistake apparent from record capable of being rectified u/s 154 of the Act and as such the disallowance as made in the order under appeal is unlawful.
Relying on the Delhi High Court decision in Coal India Ltd. vs. M/s. Continental & Eastern Agency (RFA), the Tribunal noted that in that case, the High Court concluded that the HUF itself cannot become a working partner in the partnership firm.
“Therefore, there is no question for the HUF to become a working partner,” the Tribunal said.
“In our considered opinion, the Assessing Officer has rightly invoked section 154 because the assessee wanted to take benefit of the notification issued by the CBDT. In the present case, as per judicial precedents, the HUF itself cannot become a partner in the partnership firm and as such the HUF can also not be a working partner in partnership firm as defined u/s. 40(b) Expln. 4 of the IT Act. The due date of filing of IT return will be 31st July and in the given case, the assessee has filed his return on 01.10.2010 which has been later on revised and claimed deduction u/s. 80C of Rs. 1 lakh which was accepted by the Assessing Officer in the original assessment proceedings. The return cannot be revised because the assessee had filed belated return. Therefore, there was a mistake apparent from the record.” the Tribunal said.
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