JUDGMENT :

J.B. Pardiwala, J.

1. Draft amendment is allowed. Necessary incorporation shall be carried out by today itself.

2. By this writ application under Article 226 of the Constitution of India, the writ applicant/an assessee seeks to challenge the Notice issued by the Income Tax Department dated 31.03.2018 under Section 148 of the Income Tax Act, 1961 (for short 'the Act, 1961) for reopening of the assessment under Section 147 of the Act with respect to A.Y. 2011-12.

3. It appears from the reasons recorded by the Income Tax officer that the department intends to reopen the assessment on the ground that the writ applicant herein as one of the partners of the partnership firm, failed to show the remuneration and interest received from the partnership firm when the return of the writ applicant was processed under Section 143(1) of the Act on 06.03.2012. The case of the department is that the total remuneration and interest paid is to the tune of Rs.75,11,147/-. Each of the partners have a share of 50% in the partnership firm. The writ applicant herein has been shown as a "Working Partner". The writ applicant filed her objections dated 28.10.2018 pointing out that she had not received any income in the form of remuneration and interest from the partnership firm and therefore, there was no question of adding some income or showing such income in the return of income.

4. The objections raised by the writ applicant came to be disposed of vide the order dated 01.11.2018 on the ground that the writ applicant/assessee had received share of profit from the firm and such share received by the writ applicant/assessee as per the partnership deed would include the remuneration and interest which has not been debited from the profit and loss account of the firm.

5. We have heard Mr. Bandish Soparkar, the learned counsel appearing for the writ applicant and Mr. M.R. Bhatt, the learned Senior Counsel appearing for the Revenue.

6. Mr. Soparkar, pointed out that the department also thought fit to proceed against the partnership firm and restricted the deduction under Section 10A by applying the provisions of Section 10A read with Section 80-IA(8) and 80-IA(10) of the Act.

7. It appears that the partnership firm challenged the order passed by the CIT(A) by filing an appeal before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal allowed the appeal holding as under:

"8. We have heard the rival contentions and perused the materials available on record. The controversy in the case before us relates to the deduction of remuneration/interest on partner's capital not claimed by the assessee in its profit and loss account. The fact is that there was a specific clause in the deed of partnership. Therefore, the deduction for the remuneration/interest on capital was made by the AO which was subsequently confirmed by the ld. CIT(A) with the direction to allow the claim of deduction to the firm for the remuneration/interest on capital but tax the same in the hands of the partners of the firm.

8.1. It is an undisputed fact that the deed of partnership requires a partner to claim the deduction for the remuneration and the interest on capital. The dispute arises whether the clause mentioned in the deed of partnership is compulsory/mandatory on the part of the assessee.

8.2. The partnership firm comes into existence with mutual understanding between the persons. These understanding can be reduced in writing or without in writing the same. Thus, it is clear that it is not necessary to execute the deed of partnership in writing. However, in the current scenario, it is not possible to work under the module of the partnership without executing the same in writing. It is because to run the business one needs to have a bank account, PAN, etc. which is not possible to obtain without having the deed of partnership in writing. Thus, the deed of the partnership will reveal the understanding on the basis of which partners agreed to work between them.

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