Ita/374/2009 Of The Commissioner Of Income Tax(Central) v. M/S.skyline Builders,Rajaji Road,Cochin

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE ACTING CHIEF JUSTICE MR.P.R.RAMAN & THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR WEDNESDAY, THE 10TH MARCH 2010 / 19TH PHALGUNA 1931 ITA.No. 374 of 2009() --------------------- ITA.1161/COCH/2005 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ----------------------------- THE COMMISSIONER OF INCOME TAX(CENTRAL), COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): --------------- M/S.SKYLINE BUILDERS, RAJAJI ROAD, COCHIN-35. ADV. SRI.MOHAN PULIKKAL SRI.P.BALAKRISHNAN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 10/03/2010 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -------------------------------------------- I. T. A. No. 374 OF 2009 -------------------------------------------- Dated this the 10th day of March, 2010 JUDGMENT Ramachandran Nair, J. The question raised in the appeal filed by the revenue is whetherthe Tribunal was justified in confirming the order of the first appellateauthority cancelling income escaping assessment made under Section147 of the I.T. Act as impermissible. The assessee, a builder, claimedvarious items of expenditure amounting to above Rs. 6 lakhs, whichwere not strictly relatable to the expenses incurred during the relevantprevious year. However, in the return filed, there was no specificmention about the year to which these expenses were attributable andtherefore the assessing officer believing the expenditure as thoserelatable to the relevant previous year allowed the claim. However,later it was noticed that various items of expenditure were for priorperiods and not liability of the previous year and therefore theassessment was revised under Section 147 disallowing the claim. 2. When the assessee filed appeal challenging reopening as well as assessee's claim of deduction on merit, the first appellate authorityallowed the claim on both grounds. It is pertinent to note that the firstappellate authority held that expenditure involved was disputed and thesame got settled and crystalised for the previous year relevant to theassessment year in question. 3. The Department filed second appeal before the Tribunalchallenging the orders of the first appellate authority. Even though thefindings of the first appellate authority on merits were also challengedin the appeal before the Tribunal, the Tribunal considered only thejurisdictional aspect, that is justification for reopening under Section147. It is the finding of the Tribunal that statement of accountscontained material facts and therefore reopening of assessment was notpermissible beyond four years. Accordingly they upheld the order ofthe first appellate authority cancelling reassessment. Since appeal wasallowed on this ground, the Tribunal did not go into the questionwhether the assessee was entitled to deduction of the entire items ofexpenditure as liability crystalised in the relevant previous year. Seniorstanding counsel appearing for the department challenged the findings of the Tribunal by referring to the decision of the Supreme Court in203 ITR 456. Even though facts in this case are not identical to thefacts of the case decided by the Supreme Court, we are inclined to takethe view that finding of the first appellate authority as well as Tribunalis not tenable on the question of jurisdiction because the assessee hadnowhere stated in the statement of accounts, Balance Sheet,or Profitand Loss Account, that the expenditure claimed relates to prior periods.On the other hand, the only disclosure made is only the Note to theAccounts produced detailing the claim of prior period expenses. Wedo not find this as a true and full disclosure in accounts which formAnnexures to the return. The Assessing Officer obviously could nothave taken note of the disclosure alleged to have been made by theassessee by way of Note to the accounts. We are therefore of the viewthat the accounts do not disclose that the expenditure debited are notrelatable to the previous year and the Note cannot be termed as true andfull disclosure of material facts. Further the Explanation to the Sectionmakes it clear that what is discernible or what the Officer could havefound out through due diligence cannot be said to be true and full disclosure of the information required for assessment. We therefore allow the appeal by reversing the order of theTribunal and that of the first appellate authority on this issue.However, since the Tribunal has not considered department's appeal onmerits, pertaining to challenge against the order of the CIT (Appeals)on merits, we remand the case back to the Tribunal for deciding theissue as to whether liability got crystalised only in the previous yearentitling the assessee for deduction for the assessment year in question.The Tribunal is directed to decide the case afresh on the issue abovestated after hearing both sides. (P.R. RAMAN) Ag. Chief Justice 0 (C.N.RAMACHANDRAN NAIR) Judge. kk