{"id":13459,"date":"2019-06-20T16:16:14","date_gmt":"2019-06-20T10:46:14","guid":{"rendered":"http:\/\/itatonline.org\/info\/?p=13459"},"modified":"2019-06-20T16:16:14","modified_gmt":"2019-06-20T10:46:14","slug":"assessment-of-firms-cbdt-circular-explains-imp-issues-to-be-considered-by-aos","status":"publish","type":"post","link":"https:\/\/itatonline.org\/info\/assessment-of-firms-cbdt-circular-explains-imp-issues-to-be-considered-by-aos\/","title":{"rendered":"Assessment Of Firms: CBDT Circular Explains Imp Issues To Be Considered By AOs"},"content":{"rendered":"<p>The CBDT has issued Circular No. 12\/2019 dated 19th June 2019 in which it has systematically set out the important issues to be kept under condieration by AOs while making assessment of firms. The recommendations are based on the report of the C&#038;AG. The CBDT has desired that these issues should be considered in order to improve the quality of assessments being framed in these cases and also to reduce the scope for committing errors<\/p>\n<p><script async src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script><br \/>\n<!-- responsive --><br \/>\n<ins class=\"adsbygoogle\"\n     style=\"display:block\"\n     data-ad-client=\"ca-pub-6440093791992877\"\n     data-ad-slot=\"6406297397\"\n     data-ad-format=\"auto\"><\/ins><br \/>\n<script>\n(adsbygoogle = window.adsbygoogle || []).push({});\n<\/script> <\/p>\n<div class=\"journal2\"><a href=\"https:\/\/itatonline.org\/info\/assessment-of-firms-cbdt-circular-explains-imp-issues-to-be-considered-by-aos\/cbdt-assessment-firms\/\" rel=\"attachment wp-att-13460\">Click here to download CBDT&#8217;s Circular No. 12\/2019 dated 19th June 2019<\/a><\/div>\n<blockquote><p>Circular No. 12\/2019<br \/>\nGovernment of India<br \/>\nMinistry of Finance<br \/>\nDepartment of Revenue<br \/>\nCentral Br Board of Direct Taxes<br \/>\nNorth Block, New Delhi, the 19th of June, 2019<\/p>\n<p>Subject: &#8216;Assessment of Firms&#8217;-some of the important issues to be kept under<br \/>\nconsideration by the Assessing Officers while framing assessment-reg.-<\/p>\n<p>C&#038;AG had carried out a Performance Audit regarding &#8216;Assessment ofFirms\/under the Incometax<br \/>\nAct, 1961 ( Act&#8217;) and in its Report NO.7 of 2014, has made certain suggestions so that in future ,<br \/>\nassessments in these cases are handled in a more effect ive manner by the Assessing Officers (AOs).<br \/>\nVarious recommendations made by the C&#038;AG in its Report have been duly considered by the Board.<br \/>\nIn order to improve the quality of assessments being framed in these cases and also to reduce the<br \/>\nscope for committing errors, the Board desires that Assessing Officers should duly take into<br \/>\nconsideration the following issues while making assessments in case of firms:<\/p>\n<p>( i) Expenses in the hands of the firm such as interest on capital paid to the partners,<br \/>\nremuneration payable to the working partners etc. are taxable in the hands of respective partners.<\/p>\n<p>Therefore, while framing assessment in case of firms, a cross-verification of such amounts with<br \/>\nincome-tax return of firm&#8217;s partner will be desirable and any discrepancy between the tax return of a<br \/>\nfirm and its partners should be dealt with as per provisions of the Act. <\/p>\n<p>Further, AOs should invariably<br \/>\ncall for a copy of the partnership deed during the course of assessment proceedings and examine it<br \/>\ncarefully so that instances of payment of remuneration to any non-working partner or remuneration<br \/>\npayment for period prior to the date of partnership deed but claimed as deductible are identified and<br \/>\ncognizance of these are duly taken in assessment.<\/p>\n<p>(ii) Section 40(b)(iv) stipulates followinq three conditions for allowability of interest to the<br \/>\npartners of a firm:<br \/>\na) the payment should be in accordance with the terms of the partnership deed; and<br \/>\nb) it should relate to any period falling after the date of such partnership deed; and<br \/>\nc) it should not exceed the amount calculated at the rate of twelve percent simple interest per<br \/>\nannum.<\/p>\n<p>Instances have been noticed where the interest in the partnership deed was stated to be<br \/>\n&#8211; &#8212; &#8211; &#8211;<br \/>\nbelow twelve percent, yet, the same was allowed at the rate of twelve percent by the AO. Such<br \/>\nmistakes should be avoided. Further, in case the rate prescribed in the partnership deed is in excess<br \/>\nof twelve percent, the excess should be disallowed in assessment. <\/p>\n<p>The AO is also required to<br \/>\nascertain whether payment of interest is duly authorized by the partnership deed or not. Further,<br \/>\nwhile calculating interest payable to the partners for purposes of section 40(b)(iv) of the Act, AOs are<br \/>\ntaking different yardsticks for calculating interest viz. opening balance of capital, closing balance of<br \/>\ncapital, fixed capital or current capital etc. In this regard, section 40(b)(iv) of the Act prescribes that<br \/>\npayment of interest to partners should be authorized by and be in accordance with the partnership<br \/>\ndeed. <\/p>\n<p>Therefore, while framing assessment, AOs should refer to the terms of the partnership deed<br \/>\nfor purpose of computation of interest on capital payable to a partner.<\/p>\n<p>(iii) Clause (ii) and (v) of section 40(b) of the Act lays down that payment of remuneration to a<br \/>\nworking partner should be authorized by the partnership deed, be in accordance with the terms of<br \/>\nthe partnership deed, should relate to a period after the partnership deed and should also not exceed<br \/>\nthe maximum amounts prescribed therein. <\/p>\n<p>However, it has been noticed that in some assessments,<br \/>\nAOs had allowed expenditure on remuneration to the working partners though the same was either<br \/>\nnot authorized by the partnership deed or was in excess of the amount specified therein. In order to<br \/>\nprevent recurrence of mistakes and allowing the expenditure strictly as per provisions of the Act, the<br \/>\nAOs should ensure that claim under section 40(b)(v) of the Act is allowed only after a thorough<br \/>\nverification of the partnership deed. <\/p>\n<p>Further, while computing remuneration which is allowable to a<br \/>\nworking partner under section 40(b)(v) of the Act, the term &#8216;in accordance with the terms of the<br \/>\npartnership deed&#8217;in clauses (ii) and (v) of section 40(b) of the Act implies that remuneration should<br \/>\nnot be undetermined or undecided. Hence, in all situations, partnership deed should form the basis<br \/>\nfor determination of remuneration payable to the working partners. <\/p>\n<p>Furthermore, in situations where<br \/>\nthe remuneration either so specified in the partnership deed or computed as per the method<br \/>\nindicated therein falls short of the amount allowable under section 40(b)(v) of the Act, it would be<br \/>\nrestricted to the figure computed on the basis of the partnership deed.<\/p>\n<p>(iv) While computing remuneration payable to the working partners under section 40(b)(v) of the<br \/>\nAct, the remuneration should not exceed a particular aggregate amount which is based upon the<br \/>\nfigure of &#8216;book profit&#8217;. The Explanation 3 to section 40(b) of the Act contains definition of &#8216;book profit&#8217;<br \/>\nfor the purposes of determination of remuneration of the partners and provides that &#8216;book profit&#8217;<br \/>\nshall mean the net profit, as shown in the profit &#038; loss account for the relevant previous year,<br \/>\ncomputed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the<br \/>\nremuneration paid or payable to all the partners of the firm if such amount has been deducted while<br \/>\ncalculating the net profit. <\/p>\n<p>Therefore, while computing &#8216;book profit&#8217; for purposes of section 40(b)(v) of<br \/>\nthe Act, all incomes such as capital gain, interest, rental income, income from other sources etc.<br \/>\nwhich do not fall under the head &#8216;profit or gain of business or profession&#8217;, should be excluded.<br \/>\n&#8212;&#8211;<\/p>\n<p>(v) AOs are advised to apply the provisions of Chapter XVI of the Act in assessment of firms<br \/>\nwhenever required. It should be taken into consideration that under section 185 of the Act, any noncompliance<br \/>\nby the firm or its partners with provisions of section 184 of the Act may result in denial of<br \/>\nexpenses such as remuneration, interest etc. payable to the partners which are otherwi se allowable<br \/>\nunder the provisions of the Act.<\/p>\n<p>( vi) It has also come to notice that some firms try to inflate the profits eligible for deduction under<br \/>\nsection 80IA of the Act by not claiming expenditure towards remuneration, salary, interest etc. which<br \/>\nare payable to the partners. <\/p>\n<p>In such situations, Assessing Officers may examine these transactions in<br \/>\nlight of provisions of sub-section (10) of section 80IA of the Act which empower Assessing Officer to<br \/>\nre-compute profit of the eligible business after excluding the profits of the related activity\/ business<br \/>\nwhich produced the excessive profit.<\/p>\n<p>(vii) While framing assessments in case of firms claiming carry forward and set off of losses,<br \/>\nAssessing Officers are requested to verify such claims taking into consideration provisions of section<br \/>\n78 of the Act which disallow such a carry forward and set off in case of change in constitution of the<br \/>\nfirm or on succession.<\/p>\n<p>(viii) Regarding the issue concerning possible action against the tax auditor for furnishing<br \/>\nincomplete information in the Tax-Audit Report and effective utilization of information in the Tax<br \/>\nAudit Report by the Assessing Officers, it is reiterated that directions given earlier viz. Instruction No.<br \/>\n09\/2008 dated 31.07.2008 of CSOT should be followed scrupulously by the field authorities.<\/p>\n<p>2. It is hereby clarified that this circular would also be applicable to limited scrutiny cases if the<br \/>\nassessee is a registered firm.<\/p>\n<p>3. This Circular may be brought to the notice of all concerned.<\/p>\n<p>4. Hindi version to follow.<br \/>\n(F.No. 22S\/S4\/2014\/ITA.I1)<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>The CBDT has issued Circular No. 12\/2019 dated 19th June 2019 in which it has systematically set out the important issues to be kept under condieration by AOs while making assessment of firms. The recommendations are based on the report of the C&#038;AG. The CBDT has desired that these issues should be considered in order to improve the quality of assessments being framed in these cases and also to reduce the scope for committing errors<\/p>\n<div class=\"read-more\"><a href=\"https:\/\/itatonline.org\/info\/assessment-of-firms-cbdt-circular-explains-imp-issues-to-be-considered-by-aos\/\">Read more &#8250;<\/a><\/div>\n<p><!-- end of .read-more --><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1,7],"tags":[],"class_list":["post-13459","post","type-post","status-publish","format-standard","hentry","category-all-information","category-others"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/posts\/13459","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/comments?post=13459"}],"version-history":[{"count":0,"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/posts\/13459\/revisions"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/media?parent=13459"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/categories?post=13459"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/info\/wp-json\/wp\/v2\/tags?post=13459"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}