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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM]
These cross appeals by revenue and assessee are arising out of separate orders of CIT(A)-9, Kolkata vide appeal Nos. 504 & 503/CIT(A)-9/Cir-33/2014-15/Kol dated 29.07.2015. Assessments was framed by DCIT, Circle-33, Kolkata u/s.143(3) r.w.s. 147 of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AYs 2009-10 and 2010-11 vide his separate orders dated 14.10.2014. Since issues are identical and facts are common, we dispose of all the appeals by this consolidated order for the sake of convenience.
The only issue to be decided in the appeals of the revenue is as to whether the Ld. CIT(A) is justified in deleting the disallowance made u/s. 40(b) of the Act in the facts and circumstances of the case.
The ground raised by the assessee in its appeals are with regard to validity of assumption of jurisdiction for reopening the assessment and non-issuance of notice u/s. 143(2) of the Act after issuing notice u/s. 148 of the Act.
The Ld. AR, at the outset, argued that the tax effect in the instant cases in the appeals of the revenue is less than Rs.10 lacs and hence, the appeals are to be dismissed as not maintainable. In response to this, the Ld. DR brought to the attention of the Bench to the written submissions filed by the assessee before the Ld. CIT(A) wherein it had conceded that there was an audit objection in this case which had admittedly triggered the reopening and accordingly, the same would fall under the exception clause contemplated in the CBDT Circular No. 21 of 2015 dated 10.12.2015. In view of this, we dismiss the argument of the assessee and hold that the appeals are maintainable.
With regard to non-issuance of notice u/s. 143(2) of the Act is concerned, the assessment records were made available by the Ld. DR for our verification and on verification of the same, we find that the notice u/s. 143(2) dated 09.10.2014 for AYs 2009-10 and 2010-11 were served on the assessee on 10.10.2014 posting the case for hearing on 20.10.2014. But strangely, the Ld. AO having issued the said notice and posting the case for hearing on 3 ITA No.1109-1110/K/2015, AY 2009-10 & 2010-11 M/s. Rahee GPTJV 20.10.2014, proceeded to complete the assessment on 14.10.2014 making the disallowance in respect of remuneration paid to partners in the sums of Rs.31,84,125/- and Rs.12,70,736/- for AY 2009-10 and 2010-11 respectively. In this regard, we find that though there was violation of principles of natural justice by the AO, it cannot be said that the notice u/s. 143(2) of the Act was never served on the assessee within the prescribed time before the completion of assessment as contended by the Ld. AR. Hence, we dismiss this argument of the Ld. AR.
Another argument advanced by the Ld. AR was that the assessment has been invalidly reopened by the AO by mere change of opinion as there was no tangible material available with the AO on the subject mentioned issue on remuneration paid to partners. We find from the reasons recorded by the AO that it has been mentioned that from the perusal of the records, the Ld. AO found the remuneration to partners is not allowable u/s. 40(b) of the Act as the status of the assessee is not “firm” and instead assessee joint venture is to be assessed as “AOP”. We find that the reliance placed by the Ld. AR on the decision of the Hon’ble Apex court in the case of CIT Vs. Kelvinator of India Ltd. reported in 320 ITR 56 (SC) is very well founded as there was absolutely no tangible material available with the AO which would enable him to form a reasonable belief that income had escaped assessment within the manner of section 147 of the Act. In the said case it was held that –
“"However, one needs to give a schematic interpretation to the words ‘reason to believe’, failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of ‘mere change of opinion’, which cannot be per se reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfilment of certain pre-conditions and if the concept of ‘change of opinion’ is removed as contended on behalf of the department, then in the garb of reopening 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 1-4-1989 , the Assessing Officer has power to reopen, provided there is ‘tangible material’ to come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words ‘reason to believe’ but also inserted the word ‘opinion’ in section 147. However, on receipt of representations from the companies against omission of the words ‘reason to believe’, the Parliament reintroduced the said expression and deleted the word ‘opinion’ on the ground that it would vest arbitrary powers in the Assessing Officer."
4 ITA No.1109-1110/K/2015, AY 2009-10 & 2010-11 M/s. Rahee GPTJV 7. It is not in dispute that the joint venture agreement was duly filed by the assessee in the original scrutiny assessment proceedings u/s. 143(3) of the Act as well as u/s. 147 of the Act. We find that the ld AO did not have any tangible material to form belief that income had escaped assessment. In fact, the very same return was looked into by the ld AO without any new tangible material in his possession. Hence we concur with the argument of the ld AR that the reopening in the instant case was made only on the basis of change of opinion. We find that no fresh evidences were filed before the Ld. CIT(A) by the assessee as contended by the Ld. DR and we hold that there is no violation of Rule 46A of the I. T. Rules. Hence, the grounds raised by the revenue in this regard are dismissed.
On merits of the case, the Ld. CIT(A) had referred to clause 5.3 of the joint venture agreement wherein one of the partners is entitled for supervision charges at 2.5% of the contract price to be determined at the close of the relevant financial year. The Ld. CIT(A) found that one of the partners is entitled for the service charges in the form of supervision charges for the services rendered by them to the assessee joint venture for smooth execution of the project as per the joint venture agreement. We find lot of force in the arguments of the Ld. AR that the ‘substance’ of the transaction would always prevail over its ‘form’. We find that though in the accounts, it was mentioned as remuneration to partners, in effect, what was paid by the joint venture to one of its partners was only supervision charges for smooth execution of the project in accordance with the clauses of the joint venture agreement. Reliance in this regard was well placed by the Ld. AR on the decision of Hon’ble Supreme Court in the case of CIT Vs. Penbari Tea Co. Ltd. reported in 57 ITR 423 (SC) wherein it was held that it is not the ‘form’ but the ‘substance’ of the transaction that matters. The nomenclature used may not be decisive or conclusive. Hence, we hold that the Ld. CIT(A) had rightly allowed the supervision charges paid in the sum of Rs.31,84,125/- and Rs.12,70,736/- for AY 2009-10 and 2010-11 respectively as deduction u/s. 37(1) of the Act.
In view of the aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we do not deem it fit to interfere in the order of the Ld. CIT(A) on merits of the issue in the facts and circumstances of the case. Accordingly, the grounds raised
5 ITA No.1109-1110/K/2015, AY 2009-10 & 2010-11 M/s. Rahee GPTJV by the revenue are dismissed and grounds raised by the assessee on invalid assumption of jurisdiction for reopening the assessment are allowed.
In the result, the appeals of the revenue are dismissed and appeals of assessee are allowed.
Order pronounced in the open court on 19.08.2016