Reassessment cannot rest on enabling partnership-deed clauses that do not mandate partner interest or remuneration.

The petitioner was a partner of M/s. My Home Developers, a partnership firm engaged in developing housing projects.

The partnership deeds initially contained enabling provisions regarding payment of interest on partners’ capital and remuneration; however, with effect from 1 April 2009, the partners agreed that no interest would be payable, and no remuneration was in fact paid to the partners thereafter.

The firm filed its returns for A.Ys. 2012–13 and 2013–14 claiming deduction under Section 80IB(10) of the Income-tax Act, 1961, and assessments were completed under Section 143(3) at nil income after allowing the deduction.

Subsequently, the Assessing Officer issued notices under Section 148 to the petitioner for reopening the assessments on the ground that interest and remuneration allegedly payable by the firm had not been offered as income by the petitioner.

The petitioner challenged the notices, relying on the Coordinate Bench’s decision in Myhome Developers v. Assistant Commissioner of Income Tax, which had quashed similar reopening proceedings against the partnership firm.

Whether the notices issued under Section 148 of the Income-tax Act, 1961, for reopening the petitioner’s assessments for A.Ys. 2012–13 and 2013–14 were without jurisdiction because they were based merely on enabling clauses in the partnership deeds concerning interest and remuneration.

Whether the existence of such clauses established that the petitioner had actually received, or was mandatorily entitled to receive, taxable interest or remuneration from the partnership firm, resulting in income escaping assessment.

Whether the reopening was sustainable when the relevant assessments had already been completed under Section 143(3), particularly in the absence of any failure by the petitioner to disclose fully and truly all material facts.

Section 147 of the Income-tax Act permits reassessment only where the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment; where the original assessment is under Section 143(3), reopening after four years additionally requires failure by the assessee to disclose fully and truly all material facts necessary for assessment.

Section 148 governs issuance of notice for such reassessment, while Section 80IB(10) concerns deduction available in respect of eligible housing projects.

The Court relied on Alidhara Taxspin (P.) Ltd., holding that clauses in a partnership deed providing for interest on capital or remuneration do not, by themselves, make such payments mandatory where the partnership arrangement shows that the partners did not intend to pay or receive them.

It also followed the Coordinate Bench’s decision in Myhome Developers v. Assistant Commissioner of Income Tax, which held that reopening based solely on such enabling clauses, without evidence of actual payment or receipt, was contrary to law and without jurisdiction.

The Court examined the partnership deeds and found that the provisions concerning interest and remuneration were enabling provisions subject to mutual agreement, not mandatory obligations.

The deed dated 1 April 2009 expressly recorded that no interest would be payable on the partners’ capital or current accounts, and there was no material showing that the petitioner had actually received either interest or remuneration during the relevant years.

The firm had also not claimed deduction for such payments, and its claim under Section 80IB(10) had been accepted in scrutiny proceedings.

Therefore, the Revenue’s inference that the petitioner was entitled to taxable income merely because earlier partnership deeds contained such clauses was unsupported.

Applying Alidhara Taxspin and Myhome Developers, the Court held that the statutory preconditions for reopening were not satisfied and that the notices could not be sustained.

It held that the mere incorporation of provisions for interest on capital and partner remuneration did not establish that such amounts were payable or received, and the reopening proceedings were therefore unjustified.

The writ petitions were allowed; the impugned notices under Section 148 and all consequential proceedings were quashed and set aside. Rule was made absolute.