Commissioner Of Income Tax-I, Jodhpur v. M/S Vaishali Avenue

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJODHPUR :ORDER: Commissioner of Income Tax-I, JodhpurVs.M/s Vaishali Avenue D.B.INCOME TAX APPEAL NO.218/2013 Date of Order :: 25[th] February 2014 PRESENT HON'BLE MR. JUSTICE DINESH MAHESHWARI HONBLE MR. JUSTICE P.K.LOHRA ' Mr.Sheetal Kumbhat for the appellant BY THE COURT:(Per Dinesh Maheshwari,J.) By way of this appeal under Section 260A of the Income TaxAct, 1961 [‘the Act’], the Revenue seeks to question the order dated04.07.2013 passed by the Income Tax Appellate Tribunal, JodhpurBench, Jodhpur [‘ITAT’] in ITA No.113/Jodh/2013 relating to theAssessment Year 2006-07 wherein the ITAT has found the re-assessment proceedings not sustainable for being based only onchange of opinion; and has, accordingly, quashed the re-assessmentorder passed against the respondent-assessee. In brief, the relevant background aspects of the matter couldbe noticed in the following: The respondent-assessee filed the returnof income on 31.10.2006 declaring total income of Rs.87,24,190/- forthe assessment year 2006-07. The order under Section 143(3) waspassed by the Assessing Officer ['the AO'] on 19.12.2008 accepting the income as declared. However, the successor AO proceeded toexamine the assessment record and purportedly believed that theincome chargeable to tax had escaped assessment or had beenunder-assessed. The successor AO, therefore, proceeded to issue the notice under Section 148 of the Act while stating as under:- “The assessee filed return of income on 31.10.2006declaring an income of Rs.87,24,190/- which was processed on28.03.2007. Assessment u/s 143(3) of the Act was completed on19.12.2008 at returned income. On perusal of the assessment record it was noticed thatthe assessee had debited Rs.87,35,400/- on account ofdevelopment expenses in P&L account for the year underconsideration. However, only Rs.52,35,400/- was incurred duringthe year and Rs.35 lacs was taken to Balance Sheet as provisionsfor project development. In the order of assessment, the AOallowed the provision as a known liability on the ground thatassessee had submitted the details of development expensesincurred in subsequent assessment year. The assessment ofA.O. that, provision of Rs.35 lacs was a known liability is not asper provision of the Act ibid. A known liability meant any paymentof any services rendered by any person or any supply made byany person or in relation to any work, if any other work order forcertain items of work has been issued. In this case the provisionwas made on the basis of quotations, which not qualify for certainliability. Since this amount was not an expenditure, it should beadded to total income. Thus, Rs.35 lacs debited in P&L accountwas in violation of section 145 of the Act and liable to bedisallowed. Further, Rs.33,48,915/- was debited towards registrationand stamp charges and sale of plot, in P&L account. Theregistration expenses are generally borne by the purchaser andnot by seller. These expenses have been wrongly claimed byassessee. In view of above facts and circumstances of the case Ihave reasons to believe that the income chargeable to tax hasescaped assessment/been under assessed within the meaning ofsection 147 of the Income Tax Act, 1961 for the A.Y.2006-07, forwhich proceedings u/s 147 are initiated. Notice u/s 148 of the Income Tax Act, 1961, issued today.” The assessee objected to the proceedings for re-opening ofthe assessment but the objections were rejected. Thereafter, the AOobserved that under the Act, only that much of the expenditure couldbe allowed against business receipts which were actually incurredduring the year; and that only a sum of Rs.52,35,400/- was actuallyincurred and the rest amount of Rs.35,00,000/- was taken as 3 In view of above facts and circumstances of the case Ihave reasons to believe that the income chargeable to tax hasescaped assessment/been under assessed within the meaning ofsection 147 of the Income Tax Act, 1961 for the A.Y.2006-07, forwhich proceedings u/s 147 are initiated. Notice u/s 148 of the Income Tax Act, 1961, issued today.” The assessee objected to the proceedings for re-opening ofthe assessment but the objections were rejected. Thereafter, the AOobserved that under the Act, only that much of the expenditure couldbe allowed against business receipts which were actually incurredduring the year; and that only a sum of Rs.52,35,400/- was actuallyincurred and the rest amount of Rs.35,00,000/- was taken as 3 provision, which could not have been allowed. With theseobservations, the AO disallowed the said amount of Rs.35,00,000/-and added the same to the income. Aggrieved of the re-assessment order so made on 29.12.2011,the assessee preferred an appeal which was considered anddismissed by the Commissioner of Income Tax (Appeals), Jodhpur['the CIT(A)'] on 16.01.2013, while holding that the AO was justifiedin disallowing the claim of expenditure of Rs.35,00,000/-, being theprovision for development. In further appeal, the ITAT, however, found the approach of theAO and CIT(A) unjustified. The ITAT held that all the facts wereavailable before the AO at the time of framing the originalassessment order; and the AO having taken one of the possibleviews, the same AO or his successor AO could not have taken adifferent view as it would amount to a change of opinion. Withreference to the decision of the Hon'ble Supreme Court in CIT Vs.Kelvinator of India Ltd.: 320 ITR 561, the ITAT found unsustainablethe re-assessment proceedings, based merely on change of opinionand proceeded to quash the same. The ITAT observed and held asunder:- “3.1 We have found that full facts relating to debitedexpenses of Rs.87,35,400/- on account of developmentexpenses in the profit and loss account and the fact that theassessee had incurred a sum of Rs.52,35,400/- during therelevant year, and remaining Rs.35 lakhs was taken to thebalance sheet as provisions for project development, wereavailable before the A.O. at the time of framing the originalassessment order. The fact regarding debiting, registration andstamp charges on sale of plot, in profit and loss account was alsoavailable and considered by the A.O. originally. On the basis ofthe same facts and figures which were considered and onepossible view has been taken the same A.O. or his successorA.O. cannot take a different view as it would amount to a changein opinion which is not permitted in law even after 1.4.1989 andeven after considering the decisions of Hon’ble Apex Courtexpenses of Rs.87,35,400/- on account of developmentexpenses in the profit and loss account and the fact that theassessee had incurred a sum of Rs.52,35,400/- during therelevant year, and remaining Rs.35 lakhs was taken to thebalance sheet as provisions for project development, wereavailable before the A.O. at the time of framing the originalassessment order. The fact regarding debiting, registration andstamp charges on sale of plot, in profit and loss account was alsoavailable and considered by the A.O. originally. On the basis ofthe same facts and figures which were considered and onepossible view has been taken the same A.O. or his successorA.O. cannot take a different view as it would amount to a changein opinion which is not permitted in law even after 1.4.1989 andeven after considering the decisions of Hon’ble Apex Court rendered in this regard. In our considered opinion the primaryfacts necessary for the assessee were fully and truly disclosed bythe assessee so the A.O. is not entitled to change opinion tocommence proceedings for reassessment. Both the groundstaken as reasons for reopening amount to shear and merechange of opinion and nothing more. In this regard, the ratiodecidendi of the case of the Hon’ble Apex Court rendered in thecase of CIT Vs. Kelvinator of India Ltd. 320 ITR 561 would applymutatis mutandis. Accordingly, we hold that the reassessmentbased on change of opinion cannot survive and has to bequashed. We quash the reassessment order as ab initio void andallow the appeal in this legal ground. Having taken the decisionas above, there is no requirement to decide the issue on merits.As a result, the appeal of the assessee succeeds. Seeking to question the order so passed by the ITAT, it iscontended on behalf of the appellant that for the mercantile systemof accounting being followed by the assessee, the provision ofexpenditure was not allowable as having not been incurred or arisen.It is submitted that the provision for the alleged expenses ofRs.35,00,000/- being not based on any scientific basis and simply afigure having been carried to the balance-sheet, the AO had rightlydisallowed the same. In support of his contentions, the learnedcounsel for the appellant has referred to the decisions of Hon'bleGujarat High Court in Praful Chunilal Patel Vs. M.J.Makwana,Assistant Commissioner of Income Tax: 236 ITR 832; and GruhFinance Ltd. Vs. Joint Commissioner of Income Tax: 243 ITR 482. Having given thoughtful consideration to the submissionsmade and having examined the record, we are clearly of the viewthat no substantial question of law is involved; and this appeal doesnot merit admission. The decisions as referred by the learned counsel for theappellant had been essentially of the matters pertaining to thepetitions filed at the stage of notices issued to the concernedassessees for re-assessment proceedings. In the case of Gruh Finance Ltd. (supra), the assessee was found having claimeddepreciation on non-existent machinery which was allowed in originalassessment without consciously examining the scheme. In PrafulChunilal Patel (supra), the Hon'ble Court observed that if a particularitem though reflected on record was not subjected to assessment,the AO could initiate re-assessment proceedings and the cases ofnon-assessment of an item would warrant formation of requisitebelief. In the said case, the assessee and other co-owner hadconverted a property from capital asset to stock-in-trade and sold itto a firm and the amount of capital gains remained to be taxed. Thesaid cases, essentially of the writ jurisdiction and proceedings ontheir own facts, could hardly be considered having application to thepresent case. In the present case, apparent it is that all the facts relating tothe debited expenses of Rs.87,35,400/- on account of developmentexpenses were stated in the profit and loss account wherein, a sumof Rs.35,00,000/- was taken to the balance-sheet as provision forproject development. All the facts were definitely available beforethe AO at the time of framing of the original assessment order. Alook at the reasons recorded by the AO for the purpose of re-openingmakes it clear that the observations were made as if the successorAO was sitting in appeal over the original assessment order dated19.12.2008; and it was sought to be suggested as to what wasmeant by a ‘known liability’ and as to whether the provision made onthe basis of the quotations would qualify for liability or not. It wassuggested that this amount, being not an expenditure, should havebeen added to the total income. It was further suggested that mk mk Rs.33,48,915/- was debited to the registration and stamp chargesand sale of plot though registration charges are generally borne bythe purchaser and not by the seller. Hence, according to the AO,these expenses were wrongly claimed by the assessee. Evidently, all the observations by the successor AO were onlyof the expression of another opinion on the same set of facts. In thegiven circumstances, the ITAT cannot be faulted in finding that there-assessment was based only on change of opinion and hence,unsustainable. In view of the above, we are clearly of the view that nosubstantial question of law is involved in this appeal. The appeal fails and is, therefore, dismissed. (P.K.LOHRA), J.(DINESH MAHESHWARI), J.