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Income Tax Appellate Tribunal, Conducted through E-Court, Rajkot
Before: SHRI WASEEM AHMED & SHRI T.R SENTHIL KUMAR
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals), Jamnagar, dated 10/08/2016 arising in the matter of assessment order passed under s.143(3) r.w.s 147 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2011-12.
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The assessee has raised the following grounds of appeal: 1.0 The grounds of appeal mentioned hereunder are without prejudice to one another. 2.0 The learned Commissioner of Income Tax (Appeals), Jamnagar [hereinafter referred to as the "CIT(A)" erred on facts as also in law in rejecting the ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, initiation of action u/s. 147 of the Act is invalid and assessment made on such invalid initiation deserves to be quashed and may kindly be quashed. 3.0 The Id. CIT(A) erred on facts as also in law in confirming addition of' 2,07,1327- on account of alleged excessive payment of remuneration to partners on the alleged ground that the appellant has not given remuneration to its partner as per provision of partnership deed. The addition made is in total disregards to the submissions made and totally unjustified and uncalled for which deserves to be deleted and may kindly be deleted.
4.0 Your Honor's appellant craves leave to add, amend, alter or withdraw any or more grounds of appeal on or before the hearing of appeal.
The first issue raised by the assessee is that the learned CIT(A) erred in upholding the validity of reopening for the assessment framed under section 147 of the Act.
Briefly stated facts are that the assessee is a partnership and engaged in the business of photo studio & photo developing. The assessee for the year under consideration declared income at Rs. 1,02,020/- only which was assessed at Rs. 1,32,020/- vide assessment order under section 143(3) of the Act dated 27-02- 2014.
Subsequently, the assessment was reopened vide notice under section 148 of the Act dated 22-03-2016 for the reason that the partners remuneration to the extent of Rs. 2,07,132/- was wrongly allowed. Finally, the AO framed the assessment under section 147 r.w.s. 143(3) of the Act vide order dated 10-07-2016 and disallowed the excess claim of partners remuneration for Rs. 2,07,132/- only.
The aggrieved assessee preferred an appeal before the learned CIT(A).
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The assessee before the learned CIT(A) submitted that all the details with regard to the computation of partners remuneration were provided or available with the AO at the time of original assessment framed under section 143(3) of the Act. There was no fresh material came to the notice of the AO. Therefore, the reason recorded for reopening the re-assessment under section 147 of the Act is nothing but change of opinion which is not allowed under the provision of the Act. Hence, the reopening of the assessment should be held as void-ab-initio. The assessee in support of its contention relied upon various judgment of different Hon’ble Courts and same were incorporated in the in order of the leaned CIT(A) along with submission.
However the learned CIT(A) after considering the submission of the assessee and finding of the AO upheld the validity of reopening of the assessment by observing as under:
The order u/s.143(3) r.w.s 147 of the Act of the AO as well as submission dated 22/05/2018 of the appellant as reproduced. In earlier paragraphs of this appeal order have been considered. The grounds of appeal of the appellant are reproduced in initial paragraph of this appeal order. The first ground of appeal of the appellant is that on the facts and in the circumstances of the case and in law, the AO has erred in reopening u/s.147 of the Act, the assessment completed u/s.143(3) of the Act as all the details called for during the course of assessment proceedings were furnished and reopening of the case is a change of opinion and which is bad in law. With regard to this ground of appeal, the submission dated 22/05/2018 of the appellant is not found to be tenable. The AO reopened the case of the appellant on the ground that the appellant had claimed excess remuneration of Rs.2,07,132/- and the same was allowed. The AO in the assessment order u/s.143(3) r.w.s 147 of the Act has mentioned that the copy of partnership deed furnished by the appellant during the course of assessment proceedings u/s.143(3) and now is written document duly written on non judicial stamp paper of Rs.1000/- and such deed can be modified/rectified only through written deed on non judicial stamp paper. As per the AO no such document of the effect of modification/rectification In the partnership deed has been submitted by the appellant during the course of assessment proceeding u/s.143(3) of the Act. As per the AO however, the appellant had submitted a resolution for modifying the clause of partnership deed said to be made on 01/04/2010, but the same is not on non judicial stamp paper and hence has no relevance over the modification of original partnership deed. As per the AO the resolution for modifying the clause of partnership deed said to be made on 01/04/2010 as submitted by the appellant was just an afterthought to escape the taxation. As per the AO the appellant had submitted original copy of resolution and the same was also apparent from the quality and appearance of the paper. As per the AO the resolution was also not on non judicial stamp paper and hence it had no relevance. As per the AO the reason behind not making the resolution on non judicial stamp paper might be that the appellant had to make the resolution on back date and non judicial stamp of that date was not available with the appellant. From these findings of the AO as given in the assessment order u/s.143(3) r.w.s 147 of the Act and also from the reason recorded, it can be inferred or it can be said
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that all the details of remuneration paid to partners along with other details were not submitted by the appellant to the AO during the course of original assessment proceedings u/s.143(2) of the Act and also the document i.e resolution for modifying the clause of partnership deed dated 01/04/2010 was not found to be reliable by the AO. Thus the AO had reason to believe that the Income to the extent of Rs.2,07,132/- escaped assessment. In view of these facts, it is held that the AO has validly reopened the case of the appellant u/s.147 of the Act. Thus the first ground of appeal of the appellant is dismissed.
Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
The learned AR before us filed a paper book running from paged 1 to 136 and contended that the proceedings initiated under section 147 of the Act are liable to be quashed as the same was based on same set of document which amounts to the change of opinion.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. In the case on hand, the proceedings under section 147 of the Act were initiated after recording the reasons as extracted below:
On verification of the records, it is noticed that as per the partnership deed the working of remuneration to partners is as under (page no.7 of the Deed) In respect of the first 75,000/- Rs.50,000/- or 90% of the Book profit whichever is higher. In respect of the next Rs.75,000/- @ 60% of the Book Profit. In respect of the balance amount – 40% of the Book profit. The book profit of the firm ( as per the assessee own working comes to Rs.8,48,161/-. Hence, the admissible remuneration works out to Rs.3,91,764/- as per the above condition stipulated in the partnership deed. (viz. 90% of the first 75,000/- =Rs.67,500/- 60% of the next 75,000/- = Rs.45,000/- and 40% of balance (Rs.8,48,161- 75,000= Rs.6,98,161/- x 40% = (Rs.2,79,264/-) Against this the assessee had claimed remuneration of Rs.5,98,897/-. Hence the excess amount of rs.2,07,132/- is required to be taxed.
12.1 From the above reasons recorded by the AO, it is revealed that the proceedings under section 147 of the Act were initiated on the verification of the
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case records which were available with the AO during the original assessment proceedings framed under section 143(3) of the Act.
12.2 The Hon’ble Supreme Court in the case of PCIT vs. Fibers and Fabrics International (P.) Ltd. reported in 139 taxmann.com 562 upheld the finding of the Hon’ble Karnataka High Court, wherein it was held as under:
It is pertinent to mention that no material was gathered in the survey proceeding to suggest that expenditure incurred towards sales commission is not an allowable expenditure and disallowance made in respect of the expenditure for the subsequent Assessment Year 2006-07 cannot be a ground for reopening the assessment. The tribunal has therefore, rightly recorded the findings of fact that there is no tangible material on the basis of which assessment for Assessment Year 2005-06 was reopened and the assessment of the subsequent Assessment Year is based on the inferences drawn from certain facts which cannot be construed as tangible material. The reasons mentioned in the notice for reassessment are based on mere change of opinion and therefore, the reopening of the assessment proceeding is not permissible in the facts and circumstances of the case. The aforesaid finding cannot be said to be perverse. For the aforementioned reasons, the substantial questions of law involved in this appeal are answered against the revenue and in favour of the assessee.
12.3 The principles laid down by the Hon’ble Karnataka High court and subsequently confirmed by Hon’ble Supreme Court in the case cited above are squarely applicable to the facts of the present case. Admittedly, the AO on verification of the same set of documents which were available during the original proceedings formed reasons to believe that there is an escapement of income on account of excess remuneration allowed to the assessee. In view of the above, we hold that the proceedings initiated under section 147 of the Act are not sustainable and therefore liable to be quashed for the reasons discussed above. Hence, the assessee succeeds on technical count raised by it.
12.4 As the assessee succeeds on the technical ground raised by it, we do not find any reason to give independent finding on merit on the grounds raised by it in the memo of appeal. As such, the grounds raised by the assessee on merit becomes
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infructuous and therefore we dismiss the same.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the Court on 16/11/2022 at Ahmedabad.
Sd/- Sd/- (T.R SENTHIL KUMAR) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy)
Ahmedabad; Dated 16/11/2022 Manish