Case Law Details
ACIT Vs Sri B. Sreeramulu (HUF) (ITAT Hyderabad)
Briefly stated, assessee-HUF is deriving income from house property and trading of jewellery etc. There were survey operations conducted on 02-02-2006 and scrutiny assessment U/s. 143(3) of the Act was computed on a total income of Rs. 37,96,220/-. In that assessment, AO has allowed remuneration of Rs. 13,00,290/- to the three members of the HUF for their services. On the reason that remuneration to co-parceners is not allowable U/s. 184 or U/s. 40(b) of the Act, proceedings were reopened U/s. 147 by issuance of notice U/s. 148 on 13-03-2013. In the re-assessment proceedings, inspite of objections from assessee, the remuneration paid to the three members were disallowed.
Before the Ld.CIT(A), it was the contention that the remuneration was paid to three persons, who are members of the HUF for their services rendered to the business and further, these aspects were examined in the course of survey and the assessment was completed after the survey proceedings were completed. It is also contended that the said remunerations are being allowed in earlier years also.
The remuneration to the members of the HUF were paid for the services rendered in the business which is allowable U/s. 37(1) and invoking the provisions of Section 184 and Section 40(b) does not arise on the facts of the case at all.
FULL TEXT OF THE ITAT JUDGMENT
This is an appeal by Revenue against the order of the Commissioner of Income Tax (Appeals)-Kurnool, dated 23-05-2017. The issue in this appeal is whether cancellation of re-assessment proceedings are valid or not?
2. Briefly stated, assessee-HUF is deriving income from house property and trading of jewellery etc. There were survey operations conducted on 02-02-2006 and scrutiny assessment U/s. 143(3) of the Act was computed on a total income of Rs. 37,96,220/-. In that assessment, AO has allowed remuneration of Rs. 13,00,290/- to the three members of the HUF for their services. On the reason that remuneration to co-parceners is not allowable U/s. 184 or U/s. 40(b) of the Act, proceedings were reopened U/s. 147 by issuance of notice U/s. 148 on 13-03-2013. In the re-assessment proceedings, inspite of objections from assessee, the remuneration paid to the three members were disallowed.
3. Before the Ld.CIT(A), it was the contention that the remuneration was paid to three persons, who are members of the HUF for their services rendered to the business and further, these aspects were examined in the course of survey and the assessment was completed after the survey proceedings were completed. It is also contended that the said remunerations are being allowed in earlier years also. Apart from the merits, it was contended that the assessment was reopened after four years from the end of the assessment year and as per the proviso to Section 147, there should be failure on the part of assessee in making full and true disclosure. Since there is no information other than what was claimed in the P&L A/c, the reopening is coming within the concept of ‘change of opinion’ and the re-assessment proceedings are bad in law. Ld.CIT(A) considered the objections and decided the issue as under by treating the assessment as Void ab initio:
“5.1. Ground Nos.2 and 4 relate to issue of notice U/s. 148 after a period of four years and approval for re-opening of assessment was taken from the JCIT. The submissions of the appellant, statement of facts, grounds of appeal and order U/s. 143 of the Act have been perused. The Assessing Officer reopened the assessment by issue of notice U/s. 148 and the assessment was completed by disallowing remuneration paid to coparceners by the appellant. In the context of reopening of assessment U/s. 147, the appellant’s AR submitted that no fresh information come to the knowledge of the Assessing Officer for initiation of proceedings U/s. 147 of the Act and the initiation of proceedings U/s. 147 is not valid. The appellant’s AR further place reliance on the decision of the Hon’ble Supreme in the case of CIT Vs. Kelvinator of India Limited (320 ITR 561). The contention of the appellant’s holds water. It is also to note that the appellant’s AR submitted that the Assessing Officer under the letter dated 21.05.2013 communicated the reasons stating that the approval from the JCIT was obtained, whereas approval of the Commissioner of Income-Tax was required. A plain reading of section 151 is reproduced as follows:-
“For section 151 of the Income-tax Act, the following section shall be substituted with effect from the 1st day of June, 2015, namely:-
“15.1. Sanction for issue of notice – (1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.
(2) In a case other than a case falling under sub-section (1), no notices shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.
(3) For the purposes of sub-section (1) and sub-section (2), the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner or the Joint Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself”.
5.2. Considering the facts, issues and circumstances of the instant case and keeping in view the statutory provisions and also the decision of Hon’ble Supreme Court, Ground Nos. 2 and 4 are allowed and the assessment is treated as void ab-initio”.
4. The only ground raised is with reference to the fact that permission was obtained from Ld.CIT(A) and not from the JCIT, which was considered by the Ld.CIT(A) in the order.
5. Ld. DR placed on record the approval obtained from the CIT in support of the contention. It may be true that AO has obtained permission from the Ld.CIT but the fact is that assessment has been reopened after the end of four years from the relevant assessment year and there is no failure on the part of assessee in furnishing full and true disclosure of the information. The assessment U/s. 143(3) was completed after survey proceedings on the assessee’s business premises. In view of that, it cannot be stated that assessee has not disclosed any information. The remuneration to the members of the HUF were paid for the services rendered in the business which is allowable U/s. 37(1) and invoking the provisions of Section 184 and Section 40(b) does not arise on the facts of the case at all. In view of that, the action of AO in reopening assessment per se is bad in law. In view of that, we find no merit in Revenue grounds raised. Grounds are dismissed.
6. In the result, appeal of Revenue is dismissed.
Order pronounced in the open court on 18th May, 2018
