TMI Blog2016 (10) TMI 1341X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order passed by the Assessing Officer is not valid in the eyes of law. Assessing Officer was bound to drop the re-assessment proceedings - AO was of course at liberty to record fresh reasons and initiate re-assessment proceedings in case any another escaped income was found by him, as permitted under the law. But once the Assessing Officer was of the view that the escaped income as alleged in the reasons recorded by him was not the income actually escaped, but already included in its taxable income and offered to tax by the assessee, it was not legally permissible for him to continue with the reassessment proceedings. There must be existence of some tangible material indicating escapement of income - AO is permitted to resort to provisions of reopening contained in sections 147 to 151 of the Act. Because, once an assessment is reopened on valid basis, entire pandara s box is open before the AO. Therefore the AO may then bring to tax not only income escaped from tax which was mentioned in the Reasons recorded, but also any other escaped income that may come to his notice during the course of reassessment proceedings. Reopening of an assessment attacks and pierces the conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Per ASHWANI TANEJA, AM: There are two appeals filed by the assessee for assessment years 2006-07 and 2007-08. First we shall take up the appeal for A.Y. 2006-07 in ITA No.1272/Mum/2013. First we shall take up appeal for AY 2006-07 in ITA 1272/Mum/2013: 2. This appeal has been filed by the assessee against the order of Commissioner of Income-tax (Appeals)-7, Mumbai [hereinafter called CIT(A)] dated 26-09-2012 passed against the assessment order u/s 143(3) r.w.s. 147 dated 30-12-2009 on the following grounds: The assessee objects to the order dated 26 September 2012 passed by the Commissioner of Income-tax (Appeals) - 7, Mumbai ( CIT(A) ) for the assessment year 2006-07 on the following among other grounds: 1. The CIT(A) erred in holding that the Dy. Commissioner of Income Tax- 3(3) ( DCIT ) was justified in reopening the assessment under section 147 of the Act. 2. The CIT(A) erred in confirming the addition of ₹ 1,16,50,971 as deemed income under sections 69B/69C of the Act. 3. The CIT(A) erred in confirming the disallowance of ₹ 9,00,000 being professional fees paid to consultants. 4. The CIT(A) erred in confirming the disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished by the Assessing Officer in response to the request of the assessee and the objections were raised by the assessee with regard to reopening of the case but the objections raised by the assessee were not disposed of by the Assessing Officer before framing the assessment order. It was explained to the Assessing Officer that the income alleged to have been escaped in the Reasons had already been included by the assessee in its return of income filed originally. It was also requested to the Assessing Officer to drop the reassessment proceedings as there was no escapement of income. The Assessing Officer was satisfied with the reply of the assessee and, therefore, he did not make any addition in the re-assessment order in respect of the income alleged to have been escaped in the Reasons recorded. But the Assessing Officer did not accept the request of the assessee for dropping the proceedings and framed the assessment order making additions on other issues which were not raised in the reasons recorded. It was submitted that the assessment order framed by the Assessing Officer is not permissible under the law in view of the judgment of the Hon ble Bombay High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice dated 2/6/2008 u/s 148 of the Act asking the assessee to file the return of income for reassessment for the escapement of income which was not disclosed. 9. In response, the assessee filed its return of income and requested for supplying copy of reasons. Accordingly, the Assessing Officer supplied copy of reasons recorded to the assessee which reads as under: A survey under section 133A of the Act was carried out on 23.08.2005 at the office premises of the assessee at Leela Business Park, Andheri (E), Mumbai 400059. During the course of survey a statement of Capt. Shridhar Bharalhan, Managing Director was recorded. In answer to question no.25 of his statement, the MD has admitted undisclosed income at ₹ 50,00,000/-. The assessee has filed return of income on 18.11.2006, a paper copy of which was furnished on 21.11.2006. In the return of income the assessee has not shown any income from other sources. The additional income disclosed during survey should have been disclosed in the return as income from other sources. The return fled does not indicate that the additional income of ₹ 50,00,000/- admitted during the course of survey, has been inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the return he was not able to make out whether the impugned income has been included in the return or not. Even if we appreciate the difficulty faced by the Assessing Officer, then also, the same was clarified by the assessee by way of his reply submitted during the course of re-assessment proceedings. The facts and evidences were brought on record showing that the impugned income has been included in the return filed by the assessee. Thereafter, no doubt was left and, therefore, no further query was asked by the Assessing Officer in this regard. It was so confirmed by the AO when he made no addition in this regard in the assessment order. This factual situation has been accepted by the Assessing Officer in his remand report also. Under these circumstances, the Assessing Officer was obliged under the law to drop the re-assessment proceedings as per the mandate given under the law as also explained by the jurisdictional High Court in the case of CIT vs Jet Airways Ltd (supra) observing as under:- 14. The second line of precedent is reflected in a judgment of the Rajasthan High Court in (CIT v. Shri Ram Singh 306 ITR 343. The Rajasthan High Court construed the words used b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such issue were not included in the notice under section 148 (2). The decisions of the Kerala High Court in Travancore Cements Lid. 's case (supra) and of the Punjab Haryana High Court in Vipan Khanna s case (supra) would, therefore, no longer hold the field. However, insofar as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh's case (supra), Explanation 3 as inserted by Parliament would not take away the basis of that decision. The view which was taken by the Rajasthan High Court was also taken in another judgment of the Punjab Haryana High Court in CIT v. Atlas Cycle Industries [19891 180 IJR 3191. The decision in Atlas Cycle Industries' case (supra) held that the Assessing Officer did not have jurisdiction to proceed with the reassessment, once he found that the two grounds mentioned in the notice under section 148 were incorrect or non-existent. The decisions of the Punjab Haryana High Court in Atlas Cycle Industries' case (supra) and of the Rajasthan High Court in Shri Ram Singh's case (supra) would not be affected by the amendment brought in by the insertion of Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words and also are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words and also by the Rajasthan High Court in Shri Ram Singh case (supra). Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147(1) as they stood after the amendment of 1-4-1989 continue to hold the field. In that view of the matter and for the reasons that we have indicated, we do not regard the decision of the Tribunal in the present case as being in error. The question of law shall, accordingly, stand answered against the revenue and in favour of the assessee. The appeal is, accordingly, dismissed. There shall be no order as to costs. 13. It is well accepted legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings, which was found by him to have escaped assessment. 13.3. Hon ble Chattisgarh High Court in the case of ACIT v. Major Deepak Mehta 344 ITR 641 held that if AO finally found that there was no escapement of income in respect of the head which form reason to believe in notice issued u/s 148, then impugned reassessment order was to be set aside. 13.4. Under these circumstances, we find that the re-assessment order passed by the Assessing Officer is not valid in the eyes of law. The Assessing Officer was bound to drop the re-assessment proceedings. The Assessing Officer was of course at liberty to record fresh reasons and initiate re-assessment proceedings in case any another escaped income was found by him, as permitted under the law. But once the Assessing Officer was of the view that the escaped income as alleged in the reasons recorded by him was not the income actually escaped, but already included in its taxable income and offered to tax by the assessee, it was not legally permissible for him to continue with the reassessment proceedings. 14. It is further noted by us from the perusal of the Reasons recorded that Reasons have been recorded on the basis of mere do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion I15JB of the Income-tax Act. 3.The above grounds are without prejudice to each other. 17. Ground 1: In this ground, the assessee has challenged the action of Ld. CIT(A) in confirming the aggregate disallowance of Rsa.7,83,672 made by the Assessing Officer on the ground that these expenses represent the amount of professional fees paid by the assessee for issuing fresh shares and, therefore, these are capital in nature. 18. The brief facts are that during the year, the assessee paid a sum of ₹ 7,50,000 to M/s DM Harish Co and a sum of ₹ 33,672 to M/s Lodha Co on account of professional fees for consultancy in various matters. The Assessing Officer disallowed the same on the ground that this consultancy was given for valuation of shares carried out for issuance of shares of the company and, therefore, these are not allowable as revenue expenses. Being aggrieved, the assessee filed appeal before the Ld. CIT(A) and submitted that these expenses are revenue in nature in as much as the expenditure has been incurred for valuation of shares. It was alternatively argued that in any case, the entire amount of professional fees is not connected with valuati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of Accounting Standard-15. The assessee filed detailed submission before the Ld. CIT(A) attacking the addition made by the Assessing Officer. Relevant part of the same is reproduced hereunder for the sake of ready reference:- 5.1 The relevant portion of section 115JB of the Act is reproduced herewith for your good self s ready reference: 115JB Explanation [1].-For the purposes of this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- (a) the amount of income-tax paid or payable, and the provision thereof, or (b) the amounts carried to any reserves, by whatever name called other than a reserve specified under section 33.4C; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in case of Bharat Earthmovers (supra). Therefore in our view no adjustments could be made on this account while computing the book profit. The order of CIT(A) deleting the addition is accordingly upheld Treatment under normal provisions of the Act and under section 115JB are not comparable 5.7 At para 7.5 of the assessment order the DCIT also observed as under: The two different stands of the assessee on the same issue is contradictory. While computing the profit u/s 115JB, the provisions of the Ad cannot change. A provision cannot become ascertained liability if the taxes are paid according to provisions of section 115JB .. 5.8 The relevant portion of section 43B of the Act is reproduced here under for your Honour's ready reference: 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of - (a) (f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115....... 5.15. In view of the above, the Company submits Book Profits under section 115JB ought not to be increased by the leave encashment provision. 23. Per contra, the Ld. DR relied upon the orders of the lower authorities. It is noted that it is an admitted fact that provision for leave encashment has been made on the basis of actuarial valuation report. Relevant notes in this regard have also been given by the assessee in its annual financial statements. These facts have not been disputed by the lower authorities. Under these circumstances, it cannot be said that provision for leave encashment is an unascertained liability. We find force in the submissions of the assessee made before the Ld. CIT(A) wherein relying upon the judgement of Hon ble Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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