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Income Tax Appellate Tribunal, CUTTACK ‘SMC’ BENCH, CUTTACK
Before: SHRI CHANDRA MOHAN GARG
IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK ‘SMC’ BENCH, CUTTACK
BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
ITA No.111/CTK/2019 Assessment Year: 2013-14
Prasanta Kumar Routray, Plot Vs. ITO, Ward 2(1), Bhubaneswar. No.1846, Baruneswar Lane, Old Town, Bhubaneswar. PAN/GIR No.ACBPR 3230 J (Appellant) .. ( Respondent)
Assessee by : Shri D.K.Sheth, AR Revenue by : Shri Subhendu Dutta, DR
Date of Hearing : 23/07/ 2019 Date of Pronouncement : 23/07/ 2019
O R D E R This is an appeal filed by the assessee against the order of the Commissioner of Income Tax(Appeals)-1, Bhubaneswar dated 14.2.2019 for the assessment year 2013-14.
In Ground Nos.1,2, 4 & 5 of appeal, the issue involved is that the Commissioner of Income Tax(Appeals), Cuttack was not justified in confirming the reopening of assessment u/s.147 of the Act.
Brief facts of the case are that the assessee derives income from the proprietorship firm M/s. Krishna Filling Station, House property and other sources. The assessee filed the return of income on 1.10.2013 showing total income of Rs.5,38,830/-. The assessment was completed u/s.143(3) of the Act on 21.9.2015 determining the total income at Rs.8,47,650/-. Thereafter, the AO observed that there is escapement of assessment within a meaning of section 147 of the Act and notice u/s.148 of the Act was
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issued on 15.3.2017 to furnish return of income within 30 days from the service of notice. Since the assessee did not file the return of income in response to notice u/s.148 of the Act, the Assessing officer treated the return filed u/s.139(1) of the Act as return under section 148 of the Act. The reasons recorded for reopening of assessment under section 147 of the Act, as noted by the ITO on 28.2.2017 are as under:
“It is found from the record that the assessee debited Rs.3,60,000/- “in his P&L account towards managerial remuneration. But M/s. Krishna Filling Station was a proprietorship firm, the management of the said firm was controlled by the proprietor Sri Prasanta Kumar Routray and both are inseparable and single entity. As such the managerial remuneration was to be disallowed by the AO. Hence, I have a reason to believe in that income to the extent of Rs.3,60,000/- has escaped assessment within a meaning of section 147 of the Income tax Act, 1961.
Since there was no response from the side of the assessee, the
Assessing officer completed the reassessment u/s.144/147 of the Act on
7.11.2017, assessing total income at Rs.12,07,650/- as against the assessed
income at Rs.8,47,650/- passed in section 143(3) of the Act, inter alia,
disallowing managerial remuneration of Rs.,3,60,000/-.
The assessee carried the matter in appeal but without any success.
At the time of hearing, ld A.R. of the assessee submitted that the
accounts of the assessee are fully audited and the audit report u/s.44AB
was fully considered in earlier assessment. He submitted that the
managerial remuneration paid to two persons namely Nirmal Chandra
Routray and Sonu Routray at Rs.1,80,000/- each was explained during the
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assessment proceedings u/s.143(3) of the Act. He submitted that due to
some personal difficulties, the assessee could not contact his Authorised
Representative to comply with the notices issued by the AO and, therefore,
assessment was completed u/s.144 of the Act. In view of above, the
assessee was not allowed proper opportunity to comply with the notices.
Even otherwise, he submitted that during the course of original assessment,
the remuneration to partners was intimated and produced books of
account and other details which have been examined and the assessment
was completed. Therefore, the reassessment u/s.147 of the Act is not
valid.
Replying to above, ld D.R. supported the orders of lower authorities.
He submitted that since the remuneration of Rs.3,60,000/- was not
considered during original assessment u/s.143(3), therefore, the Assessing
Officer after recording the reasons, issued notice u/s.148 of the Act and
the assessee did not comply with the notices. Therefore, the reassessment
proceedings u/s.147 of the Act is valid.
In rejoinder, ld A.R. submitted that no new material had come to the knowledge of the Assessing Officer after framing of assessment u/s.143(3) of the Act on 21.9.2015 for assessment year under consideration, which may afford ‘reason to believe’ that income of the appellant had escaped assessment. He submitted that the remuneration paid to two partners of Rs.3,60,000/- was furnished before the AO in the form audit report
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u/s.44AB of the Act. Hence, it cannot be considered that the remuneration paid to partners was not furnished during the course of original assessment.
He relied on the decision of the Hon’ble apex Court in CIT v. Kelvinator of India Ltd.: 320 ITR 561(SC). The relevant observations of the apex Court are as under: "On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re- opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the- Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-lst April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to reassess. But re-assessment has to be based on fulfillment of certain precondition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief."
I have heard the rival submissions and perused the record of the case. The argument of ld A.R. of the assessee is that the impugned reassessment order was nothing but a change of opinion and there was no fresh information available on record to justify the reopening of assessment. I find that the accounts of the assessee are duly audited u/s.44AB of the Act and the fact of remuneration of Rs.3,60,000/- paid to two partners of Rs.1,80,000/- each was also reflected in the audit report. In the reasons
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recorded by the AO, it was stated that the remuneration of Rs.3,60,000/- was not considered during the course of original assessment proceedings u/s.143(3) of the Act. Considering the peculiar situation under which the proceedings were started u/s.147/148 of I.T.Act, I find that law relating to change of opinion being not permissible for invoking proceedings u/s 147 of the Act is now well settled by Hon’ble Supreme Court in the case of Kelvinator of India Ltd., (supra). In this case, on the basis of change of opinion, the Assessing officer has resorted to section 147 of the Act in reopening of assessment and, therefore, I quash the reassessment proceedings u/s.147 of the Act and allow this ground of appeal. 10. Since, I have quashed the reassessment proceedings u/s.147 of the Act on legal ground, hence, other grounds taken by the assessee on merits have become infructuous. 11. In the result, appeal of the assessee is allowed.
Order pronounced on 23/07/2019. Sd/ (Chandra Mohan Garg) JUDICIALMEMBER Cuttack; Dated 23 /07/209 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : Prasanta Kumar Routray, Plot No.1846, Baruneswar Lane, Old Town, Bhubaneswar 2. The Respondent. ITO, Ward 2(1), Bhubaneswar. 3. The CIT(A)-1, Bhubaneswar 4. Pr.CIT-1, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// By order Sr. Pvt. Secretary, ITAT, Cuttack
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