Assessment of Firms - CBDT directions to Assessing Officers

Central Board of Direct Taxes (CBDT) has preferred that Assessing Officers (AO) should suitably take into consideration the following issues while conducting assessments of firms, including limited scrutiny:

• Interest on capital & remuneration paid to partners shall be cross-verified from the ROI of the partners;
• Interest on capital & remuneration shall be allowed as per Section 40(b)(iv);
• ‘Book Profit’ shall be computed for the payment of remuneration to the working partners and shall be the net profit for the relevant previous year which shall be increased by the remuneration paid to partners;
• Non-compliance with provisions of section 184 may result in dis-allowance of expenses claimed by firm such as remuneration, interest, etc, payable to partners which are otherwise allowable under this provision;
• AO should verify the claim of firm regarding carry forward & set off of losses as per Sec 78 and shall disallow the claim in case of change of constitution of firm or on succession; and
• Instruction No.9/2008, dated 31.7.2008, of CBDT should be followed scrupulously, with respect to issues concerning possible action against Tax Auditor.

Circular No. 12/2019, dated 19/06/2019

Instruction No.09/2008, dated 31/07/2008

Source: CBDT & Taxmann