Dismissing the Department’s appeal the Court held that the notice issued by the Commissioner there was no explanation as to why the order of the Assessing Officer was prejudicial to the interests of the Revenue. Even if prejudice to the Revenue was to be reckoned in terms of the actual loss to the exchequer, no figures had been given in the notice to suggest that the average rate of Income-tax on the total income of the association of persons would be far higher than the average rate of Income-tax applied to the firm. That if the Revenue’s stand of disallowing under section 40(b), the remuneration paid by the assessee to its partners was upheld, then the total tax that would be paid by the assessee and its partners would amount to Rs.7,11,81,848. If the stand of the assessee was accepted, still the tax paid collectively by the firm and the partners in their individual assessment would amount to Rs. 7,11,81,848. Therefore, there was no prejudice that could be stated to have been caused to the Revenue.  Court also  held that a firm is a compendious way of describing the individuals constituting the firm. The view of the Commissioner that the assessee’s partner MDK acted in two capacities, i.e., on his own behalf and as a partner in a representative capacity of DHSM and, therefore, should be counted as two in numbers thereby adding one more partner to the existing strength of 20 partners was erroneous. On the facts and circumstances, DHSM could not be added as a partner of the assessee-firm. The Tribunal was right in holding that the Commissioner in his power under section 263 had erroneously directed the Assessing Officer to modify the assessment order passed under section 143(3) treating the status of assessee as association of persons.(AY. 2008-09)