THE COMMISSIONER OF INCOME-TAX, TVPM vs. M/S. HYDROTECH ENGINEERS AND CONTRACTORS

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON WEDNESDAY,THE 14TH DAY OF NOVEMBER 2018 / 23RD KARTHIKA, 1940 ITA.No. 1379 of 2009 AGAINST THE ORDER/JUDGMENT IN ITA 151/2006 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 14-01-2008 APPELLANT/S: THE COMMISSIONER OF INCOME-TAX, THIRUVANANTHAPURAM. BY SRI. PKR MENON, SR SC FOR GOI TAXES SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S. HYDROTECH ENGINEERS AND CONTRACTORS SANTHA BHAVAN, KALANJOOR, PATHANAPURAM. BY ADVS. SMT.NIVEDITHA A. KAMATH SRI.ANIL D. NAIR OTHER PRESENT: THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14.11.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA 1379/2009 2 JUDGMENT The assessee, a partnership firm, is engaged in civil contract. A return of income was filed for the assessment year 1998-99, which was processed under Section 143(1). Subsequently, assessment was reopened by issue of a notice under Section 148 and re-assessment completed under Section 143(3) read with Section 147. A rectification of mistake was also carried out to the order of re-assessment. Later on 12.12.2003, after the four year period as stipulated in Section 147, a further notice under Section 148 was issued. The present notice was with respect to the repetition of a claim made in the subject year, which was actually allowed in the previous year. 2. The assessee claimed that even during the re-assessment proceedings initiated earlier, within the four year period, there was a full disclosure made and hence there could be no re-assessment on the basis of

ITA 1379/2009 3 non-disclosure of true and full material facts for the purpose of assessment. 3. The question of law framed is as to whether mere disclosure in a re-assessment proceedings would permit the assessee to be absolved of the liability of re-assessment, after four years but within six years, if there was no full and true disclosure at the time of the original assessment, ie., under Section 143(1)(a). 4. We notice on facts that for the year 1997-98, the assessment was completed under Section 143(3) read with Section 147 estimating the profit from the business. This was on account of bills received on 31.03.1997, which were not credited into the Profit & Loss Account. The credit was actually made on 01.04.1997 and the expenses deducted. Rs.3,08,621/- which was claimed for the assessment year 1998-99 was actually granted in the assessment year 1997-98 was the ground on which the re-assessment proceedings were initiated after four years. Similarly, the expenditure incurred with respect to the contracts on which bills received

Rs.19,14,244/-,

Rs.4,84,030/-

and

ITA 1379/2009 4 Rs.27,38,020/- were also allowed while estimating the profit on the said contract amounts. The expenditure claimed at Rs.12,40,539/- was also credited to the Profit & Loss Account. 5. We do not think any question arises as to whether non-disclosure at the time of first re-assessment was the ground on which the First Appellate Authority or the Tribunal set aside the second re-assessment proceedings. We find that there can be no allegation raised of non- disclosure of full and true material facts, especially since it to be noticed that the estimation of profits on the contract bills were made by the A.O. himself for the previous assessment year. The expenses were also allowed on the estimation of profits. The assessee had claimed the benefit, since the receipt was accounted by the assessee in the previous year to the subject assessment year. What is pertinent is that the earlier years, assessment was completed making the estimation on certain contract receipts on 24.11.2000 under Section 143(3) read with Section 147. The return of income for 1998-99 was filed on

ITA 1379/2009 5 31.03.2000 prior to the completion of assessment of the previous assessment year. The estimation and allowance of expenditure would not be in the knowledge of the assessee at the time when the returns were filed for the subject assessment year, ie., 1998-99. 6. We are surprised that the proceeding was initiated under Section 147 on the ground of non-disclosure of full and true material facts for the purpose of assessment. As we noticed, the return of income for the assessment year 1998-99, the subject assessment year, was filed on 31.03.2000. An assessment was completed under Section 143(1) on 11.09.2000 and a scrutiny assessment under Section 143(3) was completed on 18.03.2002. The present proceedings were initiated by notice dated 12.12.2003, on the premise that there was double claim with respect to certain expenditures. The said claim of expenditure was never raised by the assessee in the previous year. In fact, while completing the assessments for the previous assessment year being 1997-98 under Section 143(3) r/w Section 147, certain additions were made estimating the

ITA 1379/2009 6 profit from business with respect to certain receipts said to have been received by the assessee on 31.03.1997. The expenditure relating to the said contract bills also stood allowed for the assessment year 1997-98. Such scrutiny assessment for the earlier assessment year 1997-98 was completed on 24.11.2000, long after return of income for 1998-99 was filed. It was even after the first order of assessment on 11.09.2000 under Section 143(1). Later in the subject assessment year a scrutiny assessment was also carried out on 18.03.2002. Even when such claim of expenditure relating to profits was not interfered with. The Assessing Officer who carried out such assessment under Section 143(1) and 143(3) ought to have been more careful in having scrutinized the assessment order of the earlier year wherein the additions were made estimating a profit with respect to certain contract receipts. In any event, there could not have been any non-disclosure of full and true material facts alleged by the assessee since the return was filed long prior to the estimation made. In such circumstances, we are of the opinion that the

ITA 1379/2009 7 proceedings itself was misconceived and the assessee had to file a first appeal in which the proceedings under Section 147 was set aside. Revenue has again gone in appeal before the Tribunal and revision before this Court. In such circumstances, we are of the opinion that the assessee has to be reimbursed the costs before the Tribunal and this Court which we quantify it as Rs.10,000/-. We, hence, concur with the order of the Tribunal as to the proceedings being bad, on the different reasoning adopted by us as above and refuse to answer the question of law, which does not arise in the facts of the case. The appeal stands rejected. Costs as ordered above. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON dkr JUDGE

ITA 1379/2009 8 APPENDIX APPELLANT'S/S ANNEXURES: ANNEXURE A COPY OF THE ORDER OF THE ASSESSING OFFICER U/S 143(3)/147 OF INCOME TAX ACT DATED 28.03.2005 ANNEXURE B COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 24.10.2005. ANNEXURE C COPY OF THE ORDER OF THE APPELLATE TRIBUNAL DATED 14.01.2008.