TMI Blog2013 (5) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... EME COURT OF INDIA] which does not permit change of opinion of AO at the time of reopening of assessment. These aspects need not be gone into when the challenge of petitioner on the main ground itself has succeeded effectively. Thus the impugned notice of re-opening needs to be quashed. In favour of assessee. - Special Civil Application No. 16062 of 2012 - - - Dated:- 28-2-2013 - AKIL KURESHI AND MS. SONIA GOKANI, JJ For the Appellant Manish J. Shah. For the Respondent Mrs. Mauna M. Bhatt. JUDGMENT:- Ms. Sonia Gokani, J. - The petitioner is an individual assessed in the same status for last several years under the Income-tax Act, 1961 (for short, hereinafter referred to as "the Act"). The petitioner herein has challenged the validity of the notice issued under Section-148 of the Act dated 21.11.2011, seeking to reopen the assessment framed by the Assessing Officer on scrutiny under Section-143(3) of the Act for the Assessment Year 2007-2008. The facts details for appreciating the issue raised by the petitioner herein in the present petition under Article 226 of the Constitution of India are as under. 1.1 The petitioner, in the Assessment Year 2007-2008, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n etc. the net business loss of Rs.15,85,666 was claimed to be carried forward for set off in future assessment years. Thus, allowance of net provision of Rs.71,65,489.92 (1,24,189.18-52,65,669) was not therefore, laid out or expended wholly and exclusively for the purpose of business profession and was, therefore, not an admissible expenditure leaving a provision only. Thus there was escapement of taxable income for the assessment year 2007-2008, and as such notice u/s. 148 has been issued." 1.5 Objections were filed by the petitioner on 05.09.2012 wherein it is emphasized that the said notice is nothing but a mere change of opinion on the part of the Assessing Officer. Instead of dealing with these objections and pass any order, Assessing Officer passed straightway an assessment order dated 17.10.2012 making an addition of Rs.71,65,490/- and sent a demand notice dated 17.10.2012 of Rs.34,96,100/-. 1.6 Resultantly, this petition with a prayer to quash and set aside the notice. 2. On issuance of notice to the other side, affidavit-in-reply has been filed by the Deputy Commissioner, Income-tax, denying all averments of the petition. It is urged that the notice has been issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion of the Assessing Officer invalid. 5. Upon thus hearing both the sides and also on perusal of the original file of the Assessing Officer pertaining to the assessment in question, this petition requires to succeed for the following reasons. 5.1 As can be noted from submissions made by both the sides, on three grounds, challenge is made to the notice of re-assessment. (i) On scrutiny assessment, the issue raised in the impugned notice has been finalized and therefore, this notice of reopening is nothing but only a change of opinion on the part of the Assessing Officer. (ii) The Assessing Officer proceeded to frame fresh assessment without disposing of the objections by a separate reasoned order and thereby, violated the law on the subject. (iii) Despite the initial disagreement of Assessing Officer to the objections raised by the audit party, this notice of reopening is issued only at the instance of the audit party. 5.2 Taking firstly, the last contention of the petitioner, it can be noted that for the Assessment Year 2007-2008, a return of income was filed by the petitioner on 31.10.2007, giving all details and statements coupled with the audit report. A notice was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 71,65,489.92 (1,24,31,189.18 - 52,65,699) was not, therefore, laid out or expended wholly and exclusively for the purpose of business or profession and was, therefore, not an admissible expenditure being a provisionally. This resulted in irregular allowance of expenses of Rs. 71,65,490 involving short levy of tax of Rs. 32,07,832 as mentioned below" 5.4 On the basis of such audit objection, notice had been issued to the petitioner on 21.11.2012 under Section 148 of the Income-tax Act, 1961 without furnishing copy of reasons recorded for reopening the assessment. The same were supplied to the assessee on 29.08.2012. The reasons recorded are as follows: "It will be appreciated that under section 37 of the Income tax act, 1961, any expenditure, not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure of personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of the business of profession shall be allowed in computing the income chargeable under the head "Profit and gains of business or profession. It is seen that you are a dealer in Securities. You filed return of income for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason that an incomplete sale cannot contribute to the profit or loss for any period. It is equally true that accounting entries do not create an income or expenditure and Court have ruled in number of cases that Income Tax is not dependent on the accounting entries passed. Under the circumstances the sales recorded in our books does not give rise to any surplus or loss. However by way of abundant caution the assessee has balance a contractual sale (incomplete) by way of purchases MTM against these incomplete sales to ascertain true profit for the said previous year, had the transaction was completed at the year end at prices prevailing on last day of the previous year. [6] Your Honor's observation that any provision in the books does not constitute expenditure and hence must be disallowed does not hold good ground. The proposal to tax the difference between provision for purchase in the beginning of the year and the provision at year end is mere hypothetical and has no legal or account base. The description "provision for purchase" is a nomenclature to describe purchases at MTM for all pending sale deals and cannot be treated at par with any accounting provision to meet any co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for purchaser are reversed on the first day of the Financial year and when actual purchases are made, the net profit or loss relating to subsequent financial year is ascertained. Thus correct bifurcation of profit/loss between two financial years get ascertained and taxed in respective years. 6. The provision sought to be disallowed is not appropriation of profit or contingent expenditure or income of the assessee but a liquidated, ascertained and defined liability as creditors for purchases and purchase of stock is reflected in the books of accounts. This is basic and fundamental principle of accountancy and only method to ascertain correct profit or loss for any financial year. 7. Thus query raised by the audit party is based on the wrong understanding of accounting principles and failure to differentiate between business expenditure and personal expenditure. This provision has no personal nature of expenditure. It is pure and simple business expenditure for which liability is booked on provisional value till the actual event get crystalized." 5.8 It is thus clear from this communication that the Assessing Officer himself was convinced that audit party's query was raised on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or reopening the assessment. (ii) Agricultural Produce Market Committee v. ITO , wherein Division Bench of this Court was pleased to quash the notice for reopening where the only basis was the revenue audit objection as regards the eligibility of the assessee for exemption. (iii) Adani Exports v. Deputy CIT, 240 ITR 224 wherein Division Bench of this Court held as under: "It is true that satisfaction of the assessing officer for the purpose of reopening is subjective in character and the scope of judicial review is limited. When the reasons recorded show a nexus between the formation of belief and the escapement of income, a further enquiry about the adequacy or sufficiency of the material to reach such belief is not open to be scrutinised. However, it is always open to question existence of such belief on the ground that what has been stated is not correct state of affairs existing on record. Undoubtedly, in the face of record, burden lies, and heavily lies, on the petitioner who challenges it. If the petitioner is able to demonstrate that in fact the assessing officer did not have any reason to believe or did not hold such belief in good faith or the belief which is project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant aspects. Counsel further submitted that the Assessing Officer, on the basis of what is pointed out by the audit party, can still form his own opinion with respect to escapement of income and merely because it was pointed out by the Audit party would not render his opinion invalid or the notice illegal. In this regard, counsel relied on the decision of CIT v. P.V.S. Beedies Pvt. Ltd., 237 ITR 13 and in the case of Indian Eastern Newspaper Society v. C.I.T. 119 ITR 996. Having thus heard the learned counsel for the parties, we are not required to go into several contentions put forth by both sides. This is so, because on the available material on record, we are inclined to hold that the Assessing Officer could not have reopened the assessment by issuing the impugned notice. The petitioner has been contending that the Assessing Officer had no independent reason to hold a belief that income chargeable to tax has escaped assessment. It is only at the insistence of the audit party that he had issued notice for reopening. In the petition, it is averred that "the issue on which the case of the petitioner has been reopened is based on the objection raised by the audit part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the income of the assessee has escaped assessment. In fact, after the audit party brought the relevant aspects to the notice of the AO, she held correspondence with the assessee. Taking into account the assessee's explanation regarding non-requirement of TDS collection and ultimately accepted the explanation concluding that in view of the Board's circular, tax was not required to be deducted at source. No income had therefore escaped assessment. Despite such opinion of the Assessing Officer, when ultimately the impugned notice came to be issued the only conclusion we can reach is that the Assessing Officer had acted at the behest of and on the insistence of the audit party. It is well settled that it is only the Assessing Officer whose opinion with respect to the income escaping assessment would be relevant for the purpose of reopening of closed assessment. It is, of course true, as held by the decisions of the Apex Court in the case of P.V.S. Beedies Pvt. Ltd. (supra) and Indian Eastern Newspaper Society (supra), if the audit party brings certain aspects to the notice of the Assessing Officer and thereupon, the Assessing Officer forms his own belief, it may still be a valid ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
