2024 (1) TMI 1233 - HC - Income Tax

Reopening of assessment - reason to believe - disallowance prior period of expenses - revenue submitted that when petitioner is following the mercantile system of accounting prior period expenses claimed in profit and loss account is not allowable and that issue has been taken by the AO for a later year and that would be a fresh tangible material - HELD THAT - We would agree with Petitioner that if the basis for reopening to disallow prior period of expenses was the assessment order for AY-2010- 2011 that assessment order for AY-2010-2011 having been set aside by CIT(A) in his order dated 18th February 2015 and Revenue having accepted the order it cannot be said that there was any tangible material to reopen the assessment for AY 2008-2009. Moreover as decided by this court 2011 (7) TMI 1210 - BOMBAY HIGH COURT one of the question of law raised was whether the ITAT was justified in deleting the disallowance on account of prior period expenses which did not pertain to the year under consideration when the assessee was following mercantile system of accounting. The court was pleased to hold that the expenditure would be allowable. In the affidavit in reply none of the averments in the petition has been specifically denied save and except it states that the notice has been issued after obtaining prior permission of the concerned authority. Thus in view of the above we are satisfied that the reopening cannot be sustained. Assessee appeal allowed.

Summary

Issues involved:
The issues involved in the judgment are related to the reopening of assessment for Assessment Year (AY) 2008-09 by the Income Tax Department based on prior period expenses claimed by the petitioner in the profit and loss account.

Details of the Judgment:

Issue 1: Reopening of Assessment
The petitioner, engaged in the business of manufacture and trading, filed its return of income for AY 2008-09, accompanied by the computation of income and tax audit report, debiting prior period expenses in the profit and loss account. The assessment order was passed under Section 143(3) of the Income Tax Act 1961. Subsequently, a notice was issued under Section 148 proposing to reopen the assessment due to the alleged escapement of income based on the disallowance of prior period expenses in the profit and loss account.

Issue 2: Objections by the Petitioner
The petitioner objected to the reopening, arguing that it was a change of opinion as the prior period expenses were already disclosed during the assessment proceedings for the same year. The objections were rejected by the Assessing Officer, citing additions made in a later assessment year as fresh tangible material for reopening.

Issue 3: CIT(A) Order for AY 2010-2011
The petitioner challenged the CIT(A) order for AY 2010-2011, where the disallowance of prior period expenses was deleted, and the AO was directed to remove the addition made. This order was not challenged further by the Revenue, indicating acceptance of the decision.

Issue 4: Court's Decision
The Court agreed with the petitioner that the basis for reopening the assessment for AY 2008-09, i.e., the assessment order for AY 2010-2011, had been set aside by the CIT(A) and accepted by the Revenue. Therefore, there was no tangible material to support the reopening. Additionally, previous court decisions supported the allowability of prior period expenses under the mercantile system of accounting. Consequently, the Court declared the reassessment proceedings for AY 2008-09 as without jurisdiction and quashed them.

This summary provides a detailed overview of the judgment, highlighting the key issues, arguments presented, and the final decision reached by the Court.