2007 (7) TMI 341 - AT - Income Tax

Reopening of assessment u/s 148 after four years on the basis of change of opinion - disallowance on previous year expenses - copy of vouchers filed at the time of regular assessment u/s 143(3)/147 - HELD THAT - In view of the legal position the reassessment made in this case after the expiry of four years from the end of the relevant assessment year cannot be justified in law because the department has not been able to bring out any material to show that there was any failure on the part of the assessee to disclose material facts truly and fully to the Assessing Officer during the assessment proceedings. Thus in view of the proviso to section 147 the reopening of the assessment cannot be justified and consequently the notice issued u/s 148 is held to be invalid. The entire reassessment proceedings are therefore found to be null and void and on this basis the assessment order is liable to be quashed. We therefore cancel the assessment on this ground and allow ground Nos. 1 and 2 in favour of the assessee. Although we have cancelled the reassessment by allowing ground Nos. 1 and 2 in favour of the assessee and by holding that the reassessment made in the case of the present assessee was null and void however we proceed to decide the issue relating to the sustenance of disallowance on merits also. We have already set out relevant details and submissions of the parties in this regard in earlier part of this order. We have pointed out that in assessment year 1988-89 a similar issue relating to disallowance in respect of previous year s expenses was allowed in favour of the assessee by the ITAT. The relevant observations of the ITAT has also been reproduced by us. In that case the Tribunal had examined the method of accounting followed by the assessee and held that since the bills were received subsequent to the finalization of the appellant s preceding year s accounts the said expenses have been booked under prior period expenses and that there was no justification for disallowing the claim of prior period expenses. In assessment year 1985-86 also the issue was decided in favour of the assessee. In the year under consideration also the assessee has clarified the position by pointing out that the bills were received after the close of the year i.e. after the close of the accounting year and therefore they were accounted for in the subsequent year. This explanation of the assessee therefore is fully acceptable. On going through the details furnished by the assessee in the tax audit report statement of expenses and by following post orders in the case of the assessee there is no justification for disallowing the previous year s expenses. Hence even on merits we hold that the disallowance was not justified and consequently we delete the disallowance on merits also. In the result the appeal is allowed.

Summary

Issues Involved:
1. Validity of reopening the assessment under section 148 after four years.
2. Disallowance of Rs. 75,96,534 on account of previous year expenses.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 148 After Four Years:

The assessee contested the validity of the reopening of the assessment under section 148, arguing that it was done after four years from the end of the relevant assessment year without any failure on their part to disclose fully and truly all material facts. The original assessment was completed under section 143(3) on 29-2-2000, and the notice under section 148 was issued on 7-2-2003, which was beyond the four-year limit stipulated by the proviso to section 147.

The assessee had disclosed all relevant facts during the original assessment, including details of prior period expenses in the balance sheet, profit and loss account, and tax audit report. The Assessing Officer had raised queries regarding these expenses during the original assessment, and the assessee had provided detailed replies and supporting documents, which were considered by the Assessing Officer.

The CIT(A) upheld the reopening, stating that the assessee had not made a true and full disclosure. However, the Tribunal found that the assessee had indeed disclosed all material facts and that the Assessing Officer had applied his mind and taken a conscious decision during the original assessment. The Tribunal noted that the reopening was based on a change of opinion, which is not permissible under the law.

The Tribunal relied on several judicial precedents, including the decision of the Hon'ble Delhi High Court in the case of Sita World Travels (India) Ltd. v. CIT and the Hon'ble Supreme Court's decision in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd., to conclude that the reassessment was invalid. Consequently, the Tribunal held that the notice issued under section 148 was invalid, and the entire reassessment proceedings were null and void.

2. Disallowance of Rs. 75,96,534 on Account of Previous Year Expenses:

The assessee argued that the disallowance of Rs. 75,96,534 on account of previous year expenses was unjustified as these expenses had crystallized during the year under consideration. The assessee provided a breakup of the expenses and explained that they were accounted for in the subsequent year because the bills were received after the closure of the books of account for the relevant year.

The CIT(A) upheld the disallowance, but the Tribunal found that similar expenses had been allowed in previous years and that the assessee had consistently followed the same method of accounting. The Tribunal noted that the assessee had provided detailed explanations and supporting documents, including copies of bills, to substantiate their claim.

The Tribunal referred to its own decisions in the assessee's case for earlier years, where similar disallowances had been deleted, and found no justification for disallowing the previous year's expenses in the year under consideration. The Tribunal concluded that the disallowance was not justified and deleted it on merits.

Conclusion:

The Tribunal allowed the appeal, holding that the reassessment proceedings were invalid due to the improper reopening of the assessment under section 148 after four years, and also deleted the disallowance of Rs. 75,96,534 on account of previous year expenses on merits.