Wp/3474/2014 Of Kirloskar Ferrous Industries Ltd v. Deputy Commissioner Of Income Tax, Cirlce 9, Pune And Anr

Digitally signedby MEERAMEERAMAHESHMAHESHJADHAVDate:JADHAV2024.01.3012:53:23+0530 1/5 201-wp-3474-14.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAYCIVIL APPELLATE JURISDICTION WRIT PETITION NO. 3474 OF 2014 Kirloskar Ferrous Industries Ltd.)13, Kirloskar Oil Engines Compound, )Laxmanrao Kirloskar Road, Khadki,)Pune – 411003)….PetitionerV/s.1. Deputy Commissioner of Income)Tax Circle 9, Pune)Pratyakshakar Bhavan, Dr. Ambedkar)Marg, Near Akurdi Railway Station, )Pradhikaran, Pune 411044)2. Union of India, through the )Secretary, Ministry of Finance, )North Block, New Delhi 110 001) ....Respondents ---- Mr. Mihir Naniwadekar i/b Mr. Ruturaj H. Gujar for Petitioner.Mr. Ajeet Manwani a/w Ms Samiksha Kanani for Respondents-Revenue. ---- CORAM : K. R. SHRIRAM & Dr. NEELA GOKHALE, JJ.DATED : 25[th] JANUARY 2024 ORAL JUDGMENT (PER K. R. SHRIRAM J.): 1Petitioner is engaged in the business of manufacture and trading ofgray iron castings etc. For AY-2008-09, petitioner filed its return of incomeon 29[th] September 2008. The return was accompanied by petitioner’scomputation of income, tax audit report alongwith annextures, etc.Petitioner had debited prior period expenses in its profit and loss accountamounting to Rs.1,25,06,591/- 2The assessment order under Section 143(3) of the Income Tax Act 1961 (the Act) came to be passed on 20[th] December 2010. Subsequently,petitioner received a notice dated 28[th] March 2013 under Section 148 ofthe Act, proposing to reopen petitioner’s assessment because there wasreason to believe escapement of income. At petitioner’s requests, the reasons to believe was made available and it reads as under: “It has been come to my notice that, on going through the Tax AuditReport (TAR) submitted with return of income, as per para NO.22(b)of the said report, assessee company stated that sum ofRs.1,25,06,591/- has been debited in P & L account as prior periodexpenses. Since the assessee is following mercantile system ofaccounting and prior period expenses claimed in P & L account as notallowable. Therefore, I am of the opinion that, income chargeable to tax to theextent of Rs.1,25,06,591/- has escaped assessment within meaning ofsection 147 of the Income Tax Act, 1961.” 3Petitioner filed its objections vide letter dated 23[rd] November 2013alleging that reopening is based entirely on information contained in thereturn itself and not on any fresh tangible material and, therefore, it waschange of opinion. It was also submitted that when petitioner’s case wasselected for scrutiny, the notice alongwith questionnaire was issued topetitioner on 27[th] August 2010 and in the questionnaire, petitioner wasasked to submit copies of return of income, computation of income and alsodetails of prior period income and expenses. In response, petitionersupplied those details during the assessment proceedings, which has beenacknowledged by the Assessing Officer (AO) in the assessment order.According to petitioner, as the fact of prior period expenses had clearlycome on record during the course of assessment, it would be a mere change 3/5 201-wp-3474-14.doc of opinion by the AO and hence, the reopening would be invalid.Petitioner’s objections were rejected by an order dated 27[th] February 2014on the ground that petitioner’s contentions are not acceptable since inpetitioner’s own case for AY-2010-2011, the AO had made additions of priorperiod expenses of Rs.7,97,780/- and passed the assessment order underSection 143(3) of the Act on 21[st] March 2013. Hence, the fresh tangiblematerial has come on record to reopen. 3/5 201-wp-3474-14.doc of opinion by the AO and hence, the reopening would be invalid.Petitioner’s objections were rejected by an order dated 27[th] February 2014on the ground that petitioner’s contentions are not acceptable since inpetitioner’s own case for AY-2010-2011, the AO had made additions of priorperiod expenses of Rs.7,97,780/- and passed the assessment order underSection 143(3) of the Act on 21[st] March 2013. Hence, the fresh tangiblematerial has come on record to reopen. 4Mr. Naniwadekar submitted, at the outset, that the reliance of theofficer to reject petitioner’s objections on the basis of assessment order forAY-2010-2011 should not be accepted, in as much as, the said assessmentorder for AY-2010-2011 came to be challenged by petitioner before theCommissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) allowed theprior period expenses and the AO was directed to delete the addition made.Paragraph 4 to 4.2 of the order of the CIT(A) passed on 18[th] February 2015 for AY-2010-2011 reads as under: “4. In ground of appeal no.2 raised the appellant has contested thedisallowance of prior period expenses of Rs.7,97,780/-. The AssessingOfficer has discussed this issue in para 5 of the assessment order. TheAssessing Officer held that since the assessee was following mercantilesystem of accounts the claim of prior period expenditure debited tothe profit and loss account was not allowable in the year underconsideration and was added back to the total income. 4.1……………… 4.2In view of the above facts following the ratio of aforesaiddecisions of the Hon’ble Bombay High Court and jurisdictional ITATBench in appellant’s own case the Assessing Officer is directed todelete the addition made on account of prior period expenses and theground of appeal no.2 raised by the appellant is allowed.” 4/5 201-wp-3474-14.doc 5Mr. Naniwadekar submitted that the said order of CIT(A) was carriedin appeal by the Revenue to the Income Tax Appellate Tribunal (ITAT). Butthis finding of the CIT(A) has not been challenged. Mr. Manwani agrees. 6Mr. Manwani submitted that when petitioner is following themercantile system of accounting, prior period expenses claimed in profitand loss account is not allowable and that issue has been taken by the AOfor a later year and that would be a fresh tangible material. 7We would agree with Mr. Naniwadekar that if the basis for reopeningto disallow prior period of expenses was the assessment order for AY-2010-2011, that assessment order for AY-2010-2011 having been set aside byCIT(A) in his order dated 18[th] February 2015 and Revenue having acceptedthe order, it cannot be said that there was any tangible material to reopenthe assessment for AY 2008-2009. Moreover, in ITXA No.622 of 2010 thatwas decided by this court on 4[th] July 2011 (copy of the order at Exhibit C-4of the petition), one of the question of law raised was whether the ITAT wasjustified in deleting the disallowance of Rs. 40,47,074/- on account of priorperiod expenses which did not pertain to the year under considerationwhen the assessee was following mercantile system of accounting. Thecourt was pleased to hold that the expenditure would be allowable. In theaffidavit in reply, none of the averments in the petition has been specificallydenied, save and except, it states that the notice has been issued afterobtaining prior permission of the concerned authority. 8In view of the above, we are satisfied that the reopening cannot be sustained. Therefore, Rule issued on 16[th] July 2014 is made absolute in terms of prayer clause (a), which reads as under: 8In view of the above, we are satisfied that the reopening cannot be sustained. Therefore, Rule issued on 16[th] July 2014 is made absolute in terms of prayer clause (a), which reads as under: “(a) That this Hon’ble Court may be pleased to call for the papers andproceedings and records and to declare the impugned reassessmentproceedings in the petitioner’s case for AY-2008-09, based on thenotice u/s 148 u/s 147-148 of the Income Tax Act dated 28.3.2013(Exhibit F) and the impugned order dated 27.2.2014 (Exhibit L), to bewholly without jurisdiction, illegal and liable to be quashed and setaside.” (Dr. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)