C.I.T., I- JODHPUR vs. M/S VAISHALI AVENUE, JODHPUR

Facts

The assessee, M/s Vaishali Avenue, filed its return of income for Assessment Year 2006-07 on 31.10.2006, declaring a total income of Rs.87,24,190/-. The Assessing Officer (AO) passed an order under Section 143(3) on 19.12.2008, accepting the declared income. Subsequently, a successor AO, on perusing the assessment record, believed that income had escaped assessment. The AO noted that the assessee debited Rs.87,35,400/- for development expenses, of which Rs.52,35,400/- was incurred during the year and Rs.35,00,000/- was taken as a provision for project development. The original AO had allowed this provision as a known liability. The successor AO issued a notice under Section 148, stating that the provision was not a known liability as per the Act and should be disallowed. The assessee's objections were rejected, and the AO disallowed Rs.35,00,000/-, adding it to the total income. The CIT(A) upheld the AO's decision. The ITAT, however, quashed the reassessment order, holding it unsustainable for being based on a change of opinion.

Held

The Tribunal held that the reassessment proceedings were unsustainable as they were based solely on a change of opinion. The Tribunal found that all the facts regarding the development expenses and the provision of Rs.35,00,000/- were available to the original AO at the time of the initial assessment. The original AO had considered these facts and taken a possible view. The Tribunal reasoned that neither the original AO nor his successor could take a different view on the same set of facts, as this would constitute a change of opinion, which is impermissible in law, citing CIT Vs. Kelvinator of India Ltd. (320 ITR 561). Consequently, the Tribunal quashed the reassessment order as ab initio void. The Tribunal also noted that the cases cited by the Revenue pertained to writ jurisdiction and proceedings at the notice stage, distinguishing them from the present case. The Tribunal explicitly stated that there was no requirement to decide the issue on merits after quashing the reassessment. The appeal of the assessee was allowed on this legal ground.

Key Issues

1. Whether the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, are sustainable when based solely on a change of opinion by the successor Assessing Officer regarding the allowability of a provision for development expenses, which was accepted in the original assessment under Section 143(3). Assessee's Contention (as per ITAT's finding): The ITAT held that all facts relating to the development expenses and the provision were available to the original AO, who had taken a possible view. Therefore, the successor AO could not take a different view, as it amounted to a change of opinion, which is not permitted. The ITAT relied on the Supreme Court decision in CIT Vs. Kelvinator of India Ltd. (320 ITR 561). Revenue's Contention: The Revenue contended that for the mercantile system of accounting followed by the assessee, the provision for expenditure was not allowable as it had not been incurred or arisen. The provision of Rs.35,00,000/- was not based on any scientific basis and was wrongly claimed, justifying the AO's disallowance. The Revenue referred to Gujarat High Court decisions in Praful Chunilal Patel Vs. M.J.Makwana (236 ITR 832) and Gruh Finance Ltd. Vs. Joint Commissioner of Income Tax (243 ITR 482).