THE LOUIS BERGER GROUP INC. GURGAON,GURGAON vs. DCIT-1, INTERNATIONAL TAXATION, HYDERABAD, HYDERABAD

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ITA 527/HYD/2016Status: DisposedITAT Hyderabad29 November 2021AY 2007-085 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal found no merit in the Revenue's contention that the Assessing Officer had valid reasons to reopen the assessment. The Tribunal quashed the reopening because the notice was issued beyond four years from the end of the relevant assessment year, and the Assessing Officer did not establish that income escaped assessment due to a failure to fully disclose relevant particulars.

What were the facts?

The assessee's appeal for AY 2007-08 was listed for the 20th time, and the assessee did not appear. The Assessing Officer reopened the assessment based on reasons suggesting that income might have escaped assessment due to the treatment of 'reimbursable expenses' and 'expenses reimbursed'.

What were the issues?

The primary issue was the validity of the reopening of assessment under Section 147, particularly when the notice was issued beyond the four-year period and the reasons for reopening were deemed insufficient.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C,Section 147,Section 148

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B” : HYDERABAD

Before: SHRI S.S.GODARA & SHRI LAXMI PRASAD SAHU

PER S.S.GODARA, J.M. :

1.

This assessee’s appeal for AY.2007-08 arises against the DCIT-1, International Taxation, Hyderabad’s assessment dated 29-01-2016 framed in furtherance to Dispute Resolution Panel (DRP)-1, Bengaluru’s directions dt.28-12-2015, in F.No.442/DRP-BNG/2015-16, involving proceedings u/s.143(3) r.w.s.144C r.w.s.147 of the Income Tax Act, 1961 [in short, ‘the Act’]; respectively.

Case called twice. None appears at assessee’s behest despite the fact that the instant appeal is being listed to-day for 20th occasion. It is accordingly proceeded ex-parte.

2.

We straightaway advert to the assessee’s former three substantive grounds challenging validity of impugned re- opening taken recourse to by the Assessing Officer after recording the following reasons:

For the AY 2007-08, the income of the assessee was assessed u/s 143(3) r.w.s.147 r.w.s.144C of the IT Act 1961 and the taxable income was arrived at Rs.7,16,94,997/- with a consequent tax demand of Rs. 64,67,941/-. The assessee provides infrastructure projects related consultancy. As per the understanding gained from agreements entered into by assessee with third parties for whom the taxpayer carries out the consultancy work, it is understood that assessee incurs some expenditure in the nature of travel, reporting etc. and classifies the same as ' reimbursable expenses' and passes on the same to the client on cost basis. Further, such expenses which are reimbursed by the client are classified as 'Expenses Reimbursed'. From the Profit and Loss statement for FY 2006-07 pertaining to projects of the company started after 01.04.2003, it is seen that the assessee has shown 'Expenses Reimbursed' amounting to Rs. 3,42,23,230.59/- against 'reimbursable expenses' amounting to Rs. 8,28,87,268.25/-. In case of reimbursable expenses and Expanses reimbursed, three scenarios arise (1) Reimbursable expenses = Expenses reimbursed In this scenario, the expenses reimbursed are part of income and Reimbursable expenses are part of cost (2) Reimbursable expenses < Expenses reimbursed In this scenario, the part of expenses equal to reimbursable expenses should be offered as income and the excess amount will come as liability in the balance sheet. (3) Reimbursable expenses> Expenses reimbursed In this scenario, the total reimbursable expenses should be offered as income and the same should form part of total cost. The difference amount should form part of receivable in balance sheet. The assessee's case qualifies for third scenario, but following infirmities are observed from the financials: (a) The assessee claims it follows mercantile system of accounting. For the year under consideration, the reimbursable expenses amount to Rs.8,28,87,268.25/- while expenses reimbursed are Rs. 3,42,23,230.59/-. Thus in an ideal situation, amount of Rs. 8,28,87,268.25/- crores should have been offered as income and corresponding receivable entry amounting to Rs. Rs. 4,86,64,037,66/ - being shown in the balance sheet. Therefore, on the basis of discussion made above, I have reason to believe that either income has escaped assessment or excess expenditure has been claimed by the assessee for this assessment year and the case needs to be reopened u/ s 147 of the I. T. Act.

3.

learned CIT-DR has vehemently contended during the course of hearing that the Assessing Officer had rightly recorded the above extracted reasons to believe that the assessee’s taxable income had escaped assessment. We find no merit in the Revenue’s instant stand. We make it clear that the Assessing Officer had framed his Section 143(3) assessment determining the assessee’s taxable income at Rs.7,16,94,997/-. We observe that he had nowhere indicated as to whether the assessee’s alleged taxable income had escaped assessment on account of its failure in fully and truly disclosing all the relevant particulars in light of Section 147, 1st proviso as we are in AY.2007-08 and Section 148 notice is dated 28-03-2014 i.e., issued beyond a period of four years from the end of the relevant assessment year. Case law Hindustan Lever Ltd., Vs. R.B. Wadkar [268 ITR 332] (Bom) holds that an assessing authority’s re-opening reasons have to be read as it is without having any scope for additions, deletions or substitutions at any later stage. We thus quash the impugned re-opening for this precise reason alone. All other pleadings on merits are rendered academic.

4.

This assessee’s appeal is allowed in above terms.

Order pronounced in the open court on 29th November, 2021

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