2018 (5) TMI 1383 - AT - Income Tax

Validity of re-assessment proceedings - remuneration paid to the three members were disallowed - case reopened after the end of four years from the relevant assessment year - Held that - 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. - Decided in favour of assessee.

Summary

Issues:
Validity of cancellation of re-assessment proceedings.

Analysis:
The appeal by Revenue was against the order of the Commissioner of Income Tax (Appeals)-Kurnool, questioning the validity of the cancellation of re-assessment proceedings. The primary issue was whether the cancellation of re-assessment proceedings was valid or not. The assessee, a Hindu Undivided Family (HUF), derived income from house property and trading of jewelry. The Assessing Officer (AO) had allowed remuneration to three members of the HUF for their services in the initial assessment. However, the proceedings were reopened under Section 147 as the remuneration to co-parceners was considered not allowable under certain sections of the Income Tax Act. Despite objections from the assessee, the remuneration paid to the three members was disallowed in the re-assessment proceedings.

Before the Ld.CIT(A), the contention was that the remuneration was paid for services rendered to the business by the three members of the HUF. It was argued that the assessment was reopened after four years from the end of the assessment year without any failure on the part of the assessee in making full and true disclosure. The Ld.CIT(A) considered the objections and concluded that the assessment was void ab initio due to the failure to obtain approval from the appropriate authority for reopening the assessment after four years.

The only ground raised was regarding the permission obtained from the Ld.CIT(A) instead of the Joint Commissioner of Income Tax (JCIT), which was considered by the Ld.CIT(A) in the order. The Departmental Representative (DR) provided the approval obtained from the Commissioner of Income Tax (CIT) but the assessment had been reopened after four years without any failure on the part of the assessee to disclose information. It was argued that the remuneration paid to the HUF members for services rendered in the business was allowable under Section 37(1), and the provisions of Section 184 and Section 40(b) were not applicable in this case. Therefore, it was concluded that the action of the AO in reopening the assessment was legally flawed, and the Revenue's grounds were dismissed.

In conclusion, the appeal of the Revenue was dismissed, and the order was pronounced in the open court on 18th May 2018.