TMI Blog2022 (11) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... the said item would be an eligible item for adding back while computing book profits u/s. 115JB of the Act, which had admittedly not done by the Ld. PCIT in the instant case. PCIT has also not applied the ratio decidendi laid down in the case of Apollo Tyres Ltd. [ 2002 (5) TMI 5 - SUPREME COURT] wherein the Ld. AO could not make any additions or deletions beyond what is prescribed in the list of items as per Explanation 1 to section 115JB(2) of the Act. In the instant case, there is no dispute that the said provision for foreseeable loss has been made in accordance with the guidelines and mandate provided in AS-7 issued by ICAI and hence we hold that the said provision is an ascertained liability and hence an allowable expenditure under section 115JB of the Act. It is pertinent to note that the said practice has been consistently followed by the assessee in the previous as well as subsequent years and has been also accepted by the Department except for the year under consideration. Hence, it could be seen that even on merits, the provision made for foreseeable losses would only be an ascertained liability and hence, it does not fall under any of the items listed in Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in respect of details called for. The Ld. AO vide order u/s. 143(3) of the Act dated 20/04/2016 made disallowance under section 14A and 36(1)(iii) of the Act and addition under section 92CA(3) of the Act while computing income under normal provisions of the Act and assessed the total loss at Rs. 97,94,04,731/- and made addition under section 14A and made adjustment for provision for gratuity while computing book profits under Section 115JB of the Act. 3.2. Against the said order, the assessee had preferred an appeal before Commissioner of Income Tax (Appeals)-8 ('CIT(A) ), Mumbai, presently pending before Ld. CIT(A), National Faceless Appeal Centre ('NFAC'). 3.3. Subsequently a notice u/s. 148 of the Act was issued on 29/03/2019 reopening the assessment for A.Y. 2012-13. The reasons recorded for reopening were duly communicated to the assessee. In the said reasons, the Ld. AO had stated that an amount of Rs. 2,18,98,416/- paid to contractor towards supply of manpower to contractor Smt. Mayaben Vijay Parmar (holding bank account with Shri Vijay G. Parmar (HUF)) was not substantiated in as much as the funds received by them from the assessee were immediately wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 263 of the Act on 09/02/2022 asking to submit other representation/submissions along with supporting documents/information. The assessee relying on earlier submissions filed a response to notice vide submission dated 16/02/2022. Further, due to change in incumbent from Ld. PCIT-3 to Ld. PCIT (Central)-4, a notice under section 263 was served on 12/03/2022. The assessee attended the hearing with submissions already filed before Ld. PCIT-3. The Ld. PCIT (Central)-4 disregarded the submissions made by the assessee and passed an order under section 263 dated 30/03/2022 by holding the order dated 09/12/2019 passed under section 143(3) read with section 147 of the Act as erroneous and prejudicial to the interest of the revenue and directing the Ld. AO to complete assessment afresh. 3.7. At the outset, we find that in response to the notice issued u/s. 143(2) and 142(1) of the Act during the course of original scrutiny assessment proceedings, the assessee had furnished the audit report u/s. 115JB of the Act as called for by the Ld. AO. The Ld. AO on verification of the said audit report u/s. 115JB of the Act had even resorted to make disallowance u/s. 14A of the Act and also towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial to the interest of the revenue. The proceedings for reassessment have nothing to do with the said head of income. Doctrine of merger, therefore, would not apply in a case of this nature. 8. Furthermore, Explanation (c) appended to sub-section (1) of section 263 of the Act is clear and unambiguous as in terms thereof doctrine of merger applies only in respect of such items which were the subject-matter of appeal and not which were not. The question came up for consideration before this Court in CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297. Therein the assessee raised a contention that once jurisdiction under section 147 of the Act is invoked, the whole assessment proceeding became reopened, which was negatived by the Court opining: Section 147, which is subject to section 148, divides cases of income escaping assessment into two clauses, viz., (a) those due to the non-submission of the return of income or non-disclosure of true and full facts, and (b) other instances. Explanation (1) defines as to what constitutes escape of assessment. In order to invoke jurisdiction under section 147(a) of the Act, the ITO must have reason to believe that some income char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 147(b) read with Explanation (I) thereto. (p. 309) 9. We may at this juncture also notice the decision of this Court in Hind Wire Industries Ltd.'s case (supra) wherein the decision of this Court in V. Jaganmohan Rao v. CIT/CEPT [1970] 75 ITR 373 interpreting the provisions of section 34 of the Act was reproduced which reads as under: 'Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment, he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-section (2) of section 22, the previous underassessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1)(b), the Income-tax Officer had not only the jurisdiction, but it was his duty to levy tax on the entire income that had escaped assessment during that year'. (p. 643) 10. There may not be any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. . . . (p. 319) It was furthermore held: As a result of the aforesaid discussion, we find that in proceedings under section 147 of the Act, the Income-tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of notice under section 148 and where reassessment is m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K. Thanga Pillai's case (supra), in our opinion, has rightly considered the matter albeit under section 17 of the Wealth-tax Act, 1957 which is in pari materia with the provisions of the Act. Relying on Sun Engg. Works (P.) Ltd.'s case (supra), it was held: Under section 17 of the Wealth-tax Act, 1957, even as it is under section 147 of the Income-tax Act, proceedings for reassessment can be initiated when what is assessable to tax has escaped assessment for any assessment year. The power to deal with underassessment and the scope of reassessment proceedings as explained by the Supreme Court in the case of Sun Engg. [1992] 198 ITR 297, is in relation to that which has escaped assessment, and does not extend to reopening the entire assessment for the purpose of redoing the same de novo. An assessee cannot agitate in any such reassessment proceedings matters forming part of the original assessment which are not required to be dealt with for the purpose of levying tax on that which had escaped tax earlier. Cases of underassessment are also treated as instances of escaped assessment. The order of reassessment is one which deals with the assessment already made in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read with section 147 constitutes an error which can be revised in exercise of the jurisdiction under section 263. The submission cannot be accepted either as a matter of first principle, based on a plain reading of the provisions of sections 147 and 263, nor is it sustainable in view of the law laid down by the Supreme Court. The Supreme Court has now clearly held in the decision in Alagendran Finance that the doctrine of merger does not apply where the subject-matter of reassessment and of the original order of assessment is not one and the same. In other words, where the assessment is sought to be reopened only one or more specific grounds and the reassessment is confined to one or more of those grounds, the original order of assessment would continue to hold the field, save and except for those grounds on which a reassessment has been made under section 143(3) read with section 147. Consequently, an appeal by the assessee on those grounds on which the original order of assessment was passed and which do not form the subject of reassessment would continue to subsist and would not abate. The order of assessment cannot be regarded as being subsumed within the order of reassessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of limitation would be with reference to the order of reassessment. The present case does not fall in that category. (Emphasis supplied by us) 11. Counsel appearing on behalf of the revenue relied upon the judgment of the Supreme Court in ITO v. K.L. Srihari (HUF) [2001] 118 Taxman 890. That was a case where an assessment was reopened under section 147. The Supreme Court, after considering the original order of assessment dated 19-3-1983 and the order of reassessment dated 16-7-1987 passed under section 147 held that the subsequent order made a fresh assessment of the entire income of the assessee. Once, in the exercise of the power under section 147, the Assessing Officer had reassessed the entire income of the assessee, the Supreme Court held that the original order would stand effaced by the subsequent order. Srihari was, therefore, a case where the subject-matter of the original order of assessment as well as of the order of reassessment was the same. This is distinct from the situation in the subsequent judgment of Alagendran Finance Ltd.'s case (supra) where the Supreme Court noted that the subject-matter of the original assessment and the order of reasses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diately. Thus, assessee is required to estimate its total contract costs (i.e., sum of costs incurred and expected future costs) and recognize the expected losses (e. difference between the contract revenue and total contract costs). Further, in the subsequent year in which the pending work is completed, the provision for foreseeable loss is reversed against which actual loss is booked. During the year under consideration, the assessee has made disclosure in the financials as per Accounting Standard-7. Further it is pertinent to note that in the notes to financial statements, it has been stated that Full provision is made for any loss in the period in which it is foreseen . To substantiate its claim further, the assessee has also submitted details of year wise provision for foreseeable loss created and reversed for project named IIM Kashipur from FY 2015-16 and party wise details of provision for foreseeable created for Engineering and Construction division for the year under consideration. These details are enclosed in pages 169 to 170 of the Factual Paper Book filed before us. The Ld. AR further submitted the year wise details of provision of foreseeable loss and its reversal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Closing Balance 18.71 48.02 42.24 24.83 39.33 74.48 66.16 68.28 76.03 130.22 167.33 As per FS 18.71 48.02 42.24 24.83 39.33 74.48 66.50 68.62 76.37 130.56 167.67 3.12. Thus, it is clearly evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Apollo Tyres Ltd. reported in 255 ITR 273 (SC), wherein the Ld. AO could not make any additions or deletions beyond what is prescribed in the list of items as per Explanation 1 to section 115JB(2) of the Act. In the instant case, there is no dispute that the said provision for foreseeable loss has been made in accordance with the guidelines and mandate provided in AS-7 issued by ICAI and hence we hold that the said provision is an ascertained liability and hence an allowable expenditure under section 115JB of the Act. It is pertinent to note that the said practice has been consistently followed by the assessee in the previous as well as subsequent years and has been also accepted by the Department except for the year under consideration. 3.14. Hence, it could be seen that even on merits, the provision made for foreseeable losses would only be an ascertained liability and hence, it does not fall under any of the items listed in Explanation 1 to Section 115JB (2) of the Act warranting addition thereon. Hence, even on merits, this provision deserves to allowed while computing book profits u/s. 115JB of the Act. 4. In the result, the appeal of the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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