Decided on April 12,1994



S. Kannan, Accountant Member - (1.) THIS appeal by the assessee is directed against the order dated 19-12-1988 of the Dy. Commissioner of Income-tax (Appeals), 'B' Range, Madurai, relating to the assessment year 1984-85.
(2.) The assessee, a firm of eight partners, is a dealer of the products of Hindustan Petroleum Corporation Limited. It is common ground that, barring Venkatachellapathy, who is a partner in the firm in his individual capacity, all the other seven partners were representing their respective Hindu Undivided Families. In other words, to use the phraseology of Explanation 2 to Section 40B [inserted by the Taxation Law (Amendment) Act, 1984] with effect from 1-4-1985, the said 7 persons were partners in a representative capacity. For the assessment year 1984-85 which is now before us, the assessee-firm on 15-6-1984 filed a return of income disclosing an income of Rs. 15,893 and on 27-11-1984, the assessment for the assessment year 1984-85 was completed under Section 143(1) of the Act, by accepting the income returned.
(3.) SUBSEQUENTLY, the Assessing Officer noticed that the assessee had not added back, under Section 40B of the Act, an aggregate sum of Rs. 69,985 being the interest paid by it to the partners on the ground that, such add-back was not called for in the light of the ratio of the Gujarat Case of CIT v. Sajjanraj Divanchand [1980] 126 ITR 654. He further found that the decision in the said case was over-ruled by a Full Bench decision of the same High Court in the case of Chhotalal and. Co. v. CIT [1984] 150 ITR 276. Relying on the said decision of the Full Bench, the Assessing Officer initiated reassessment proceedings under Section 147(b) of the Act. The assessee responded by filing a return of income on 27-1-1987, admitting the income as originally assessed under Section 143(1) of the Act. And the Assessing Officer completed the reassessment on 11-10-1988 disallowing the said aggregate interest payment of Rs. 69,985 by invoking the provisions of Section 40B(b) of the Act.;

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