Ita/54/2016 Of Haryana Agro Industries Corporation Ltd v. Commissioner Of Income Tax, Panchkula

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.54 of 2016 (O&M)Date of decision: 26.4.2016 Haryana Agro Industries Corporation Limited Vs, ..-.-- Appe Commissioner of Income Tax, Panchkula Circle, Panchkula .....Responde CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’BLE MRS. JUSTICE RAJ RAHUL GARG 1. Whether Reporters of local papers may be allowed to see thejudgment?2. To be referred to the Reporters or not?YES3. Whether the judgment should be reported in the Digest?Present:Mr. H.N.Mehtani, Advocate for the appellant. Ajay Kumar Mittal,J. 1]This appeal has been preferred by the appellant-assessee undersection 260A of the Income Tax Act, 1961 (in short, “the Act’) against theorder dated 29.9.2015, Annexure A.3 passed by the Income Tax AppellateTribunal, Chandigarh in ITA No.118/Chd/2015, for the assessment year ITA No.54 of 2016 (O&M) 2008-09, claiming following substantial questions of law:- “A. Whether in the facts and circumstances of the case, the Hon'bleIncome Tax Appellate Tribunal and learned Commissioner ofIncome tax (Appeals) Panchkula have not erred in law in notquashing the action of the Assessing Officer regardingreopening of assessment under the provisions of section 148 ofthe Income Tax Act, 1961 without appreciating the fact that atthe time of reopening of assessment, the proceedings undersection 154 were pending and no evidence of the service or thedisposal of the proceedings initiated under section 154 wereprovided to the appellant?Income Tax Appellate Tribunal and learned Commissioner ofIncome tax (Appeals) Panchkula have not erred in law in notquashing the action of the Assessing Officer regardingreopening of assessment under the provisions of section 148 ofthe Income Tax Act, 1961 without appreciating the fact that atthe time of reopening of assessment, the proceedings undersection 154 were pending and no evidence of the service or thedisposal of the proceedings initiated under section 154 wereprovided to the appellant? B. Whether in the facts and circumstances of the case, the Hon'bleIncome Tax Appellate Tribunal and learned Commissioner ofIncome Tax (Appeals), Panchkula, have not erred in law in notquashing the action of the Assessing Officer regardingreopening of assessment under the provisions of section 148 ofthe Income Tax Act, 1961 without appreciating the fact thatreopening of assessment was made on the basis of auditobjections only?Income Tax Appellate Tribunal and learned Commissioner ofIncome Tax (Appeals), Panchkula, have not erred in law in notquashing the action of the Assessing Officer regardingreopening of assessment under the provisions of section 148 ofthe Income Tax Act, 1961 without appreciating the fact thatreopening of assessment was made on the basis of auditobjections only? C. Whether in the facts and circumstances of the case, the Hon'bleIncome Tax Appellate Tribunal and learned Commissioner ofIncome Tax (Appeals), Panchkula, are not justified in notquashing the action of the Assessing Officer regardingreopening of assessment under the provisions of section 148 ofthe Income tax Act, 1961 which was reopened withoutcomplying with the provisions of section 147 of the IncomeTax Act, 1961?Income Tax Appellate Tribunal and learned Commissioner ofIncome Tax (Appeals), Panchkula, are not justified in notquashing the action of the Assessing Officer regardingreopening of assessment under the provisions of section 148 ofthe Income tax Act, 1961 which was reopened withoutcomplying with the provisions of section 147 of the IncomeTax Act, 1961? C. Whether in the facts and circumstances of the case, the Hon'bleIncome Tax Appellate Tribunal and learned Commissioner ofIncome Tax (Appeals), Panchkula, are not justified in notquashing the action of the Assessing Officer regardingreopening of assessment under the provisions of section 148 ofthe Income tax Act, 1961 which was reopened withoutcomplying with the provisions of section 147 of the IncomeTax Act, 1961?Income Tax Appellate Tribunal and learned Commissioner ofIncome Tax (Appeals), Panchkula, are not justified in notquashing the action of the Assessing Officer regardingreopening of assessment under the provisions of section 148 ofthe Income tax Act, 1961 which was reopened withoutcomplying with the provisions of section 147 of the IncomeTax Act, 1961? D. Whether in the facts and circumstances of the case, the Hon'bleIncome tax Appellate Tribunal and learned Commissioner ofIncome Tax (Appeals), Panchkula, were justified in confirmingthe addition of|LT17,55,845/- made by the Assessing Officer onaccount of prior period expenses without considering the factIncome tax Appellate Tribunal and learned Commissioner ofIncome Tax (Appeals), Panchkula, were justified in confirmingthe addition of|LT17,55,845/- made by the Assessing Officer onaccount of prior period expenses without considering the fact that liability to pay these prior period expenses arose andcrystalized during the year under question (assessment year2008-09)? E. Whether the impugned order passed by the Hon'ble Income TaxAppellate Tribunal is erroneous, suffers from error of lawperverse and deserves to be set aside?” ?DA few facts relevant for the decision of the controversyinvolved as narrated in the appeal may be noticed. The assessee is acompany registered under the Companies Act, 1956. The return of incomewas e-filed by the assessee on 1.10.2008 declaring income of —=2,/0,18,880/- for the assessment year 2008-09 which was assessed undersection 143(3) of the Act vide order dated 24.12.2010 at an income ofL5,35,46,930/-. Later on, after recording reasons, a notice was issued undersection 148 of the Act by the Assessing Officer to the assessee on14.22.2013. It was noticed that the assessee had claimed expenses ofL17,55,845/- for the financial year 2006-07 on account of service chargespayable on procurement of gunny bags. It was observed by the AssessingOfficer that since the assessee company was following mercantile system ofaccounting, the said expenditure could not be allowed in the subsequentassessment year 2008-09 and thereby the income had escaped assessmentwithin the meaning of section 147 of the Act. The appellant filed a return ofincome in response to the notice under section 148 of the Act. The assesseelalso filed preliminary objections to the reopening of the assessment whichwere disposed of by the Assessing Officer vide interim order dated15.1.2014. After rejecting the submissions made by the assessee, theAssessing Officer completed the assessment at an income of LT4,79,66,220/- after making an addition of“a17,55,845/- on account of prior period ITA No.54 of 2016 (O&M)Aexpenses vide order dated 6.2.2014, Annexure A.|. Aggrieved by the order,the assessee filed appeal before the Commissioner of Income Tax (Appeals)[CIT(A)]. Vide order dated 28.11.2014, Annexure A.2, the CIT(A) partlyallowed the appeal. Still not satisfied, the assessee filed appeal before theTribunal. Vide order dated 29.9.2015, Annexure A.3, the Tribunaldismissed the appeal. Hence the instant appeal by the appellant-assessee. 3,We have heard learned counsel for the appellant-assessee. after making an addition of“a17,55,845/- on account of prior period ITA No.54 of 2016 (O&M)Aexpenses vide order dated 6.2.2014, Annexure A.|. Aggrieved by the order,the assessee filed appeal before the Commissioner of Income Tax (Appeals)[CIT(A)]. Vide order dated 28.11.2014, Annexure A.2, the CIT(A) partlyallowed the appeal. Still not satisfied, the assessee filed appeal before theTribunal. Vide order dated 29.9.2015, Annexure A.3, the Tribunaldismissed the appeal. Hence the instant appeal by the appellant-assessee. 3,We have heard learned counsel for the appellant-assessee. 4The primary issue raised in the present case was whether thenotice under section 148 of the Act on the basis of audit objection was validor not. On appreciation of evidence on record and relevant case law on thepoint, it has been categorically recorded by the Tribunal that the audit partyhad raised an objection that certain expenses which pertained to earlieryears had been claimed in the current assessment year. Reliance was placedon the judgment of the Apex Court inCIT vs. P.V.S.Beedies Pvt. Limited,(1999) 237 ITR 13 holding that reopening on the basis of audit objectioncould be done if some factual error was pointed out by the audit party whichhad been overlooked by the Assessing Officer but no reopening on the basisof audit objection could be done if the objection pertained to someinterpretation of law. The error pointed out by the audit party in the presentcase was held to be factual. Detailed reasons had been recorded by theCIT(A) justifying reopening on the basis of the audit objection. Whileconcurring with the findings recorded by the CIT(A), it was concluded bythe Tribunal as under:- “8. From the reading of the above, it is quite clear that reopeningmade by the Assessing Officer on the basis of audit objection isas per law. The case of Locus 7T.V.S. Limite(supra) reliedupon by the assessee is not applicable to the present case as inmade by the Assessing Officer on the basis of audit objection isas per law. The case of Locus 7T.V.S. Limite(supra) reliedupon by the assessee is not applicable to the present case as in an earlier decision of the Hon'ble Supreme Court in the case ofIndian & Eastern Newspaper Society(supra), it was held thatno reopening can be made on the basis of audit objection whichis on some interpretation of law. This judgment of the Hon'bleSupreme Court has been followed by the Hon'ble Punjab andHaryana High Court in the case ofSant Ram Mangat Ram(supra). In the judgment of.P.V.S. Beedies Pvt. Limite(supra),it was held that reopening of the assessment on the basis oferror pointed out by the audit party is valid. From the conjointreading of all these judgments given by the Hon'ble SupremeCourt, it infers that reopening on the basis of an audit objectioncan be done if some error is pointed out by the audit party,however, no reopening on the basis of audit objection can bedone if the objection pertains to some interpretation of law. Inthis background, we now analyze the facts of the present case,It is noted that the audit party has raised an objection thatcertain expenses which pertained to earlier years have beenclaimed in the current assessment year, which are not soallowable as per law. This information in the form of objectionraised by the audit party to the Assessing Officer, only providesthe background for forming a belief that the income hadescaped assessment. This is not an interpretation of law madeby the audit party. This is just a factual error pointed out by theaudit party. In this background, we hold that reopening on thebasis of audit objection is as per law in the given facts andcircumstances of the case and the learned ClIT(Appeals) havery aptly analyzed the validity of notice under section 148 ofthe Act and we do not find any infirmity in the findingsrecorded by the learned CIT(Appeals). Therefore, we upholdthe order of the learned CIT(Appeals) on this account. 9. On the merits of the case, the learned counsel for the assesseesubmitted that the assessee is paying service charges for thepurchase of gunny bags to the Food & Supply Department ofGovernment of Haryana, who buys the gunny bags for use ofState of Haryana at lower rates and charges at 1% of the purchase. It is submitted that it is not a tax, by whatever namecalled. Since the expenditure has been accepted by the assesseeduring the year under consideration and accordingly, risen|during the year under consideration, in this view, it was prayedthat the same may be allowed in the year under consideration.In the alternative, it was submitted that same expenses may beallowed in the year in which they have arisen. 11. We have heard the learned representatives of both the parties,perused the findings of the authorities below and considered thematerial available on record. We see that the _ learneCIT(Appeals) has given very detailed findings on this issue,which are recorded at page 13, paras 6.2 and 6.3 of his orderwhich read as under:-perused the findings of the authorities below and considered thematerial available on record. We see that the _ learneCIT(Appeals) has given very detailed findings on this issue,which are recorded at page 13, paras 6.2 and 6.3 of his orderwhich read as under:- “6.2 I have gone through the tacts of the case, writtensubmissions filed by the appellant and the assessment record,It is noted that the AO has disallowed the amount consideringit aS prior period expenses as per annual report after issue ofShow cause notice and consideration of appellant's reply,Though, the appellant has submitted that the service chargeliability on account of purchase of gunny bags arose duringthe year but the appellant has not provided any evidence insupport of its claim except the copy of ledger account. TheAO has given its finding in the assessment order. Therefore, |am not in agreement with the submissions made by theappellant and the payment made on account of prior periodexpenses as quantified by its auditors is disallowable as perprovisions of section 37(1) of the Act, 6.3 Regarding the non disputed nature of expenditure it isnoted that the expenses on account of service charge payableon purchase of gunny bags have been disallowed on accountof being prior period expenses. However, any expenseincurred by the appellant during the year on this account isallowable. The AO is directed to verify and grant relief to theextant the expense on this account for which the expenseswere incurred during the year under consideration and ITA No.54 of 2016 (O&M) provide relief to that extent of expenditure. This ground ofappeal is partly allowed.” 5 Learned counsel for the appellant-assessee has not been able to show any error in the findings recorded by the Tribunal on appreciation ofevidence and relevant case law on the point, warranting interference by thisCourt. Thus, no substantial question of law arises. Consequently, the appealStands dismissed. (Ajay Kumar Mittal)Judge April 26, 2016gS’ (Raj Rahul Garg)Judge