Loading judgment…
No AI summary yet for this case.
Before: Shri Bhavnesh Saini & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: This appeal at the instance of assessee is directed against the order dated 17.04.2014 of ld. CIT(A)-XVI, Delhi for the assessment year 2002-03 on the following grounds :
“ 1. That the Commissioner of Income-tax (Appeals) ("CIT(A)") erred on facts and in Jaw in not holding that the assessment order, dated 28.12.2006, passed by the assessing officer under section 143(3) read with section 147 of the Income Tax Act, 1961 ("the Act") is beyond jurisdiction, bad in law and void ab initio, since proceedings under that section were initiated (i) on mere change of opinion, without any new material/information coming to the possession of the assessing officer and (ii) on the basis of audit observations, without any independent satisfaction of the assessing officer having been reached regarding escapement of income. 1.1 That the CIT(A) erred on facts and in law in holding that re-assessment proceedings under section 147 were not initiated on the basis of mere change
ITA No. 4147/Del./2014 2 of opinion, since the issues on which re-assessment proceedings were initiated were not discussed in the assessment order under section 143(3) of the Act, nor any query thereto was raised during the course of assessment proceedings.
Merits 2. That the CIT(A) erred on facts and in law in upholding the disallowance of Rs. 1,83,14,900, being loss incurred on write-off of work-in-progress relating to development of software, on the ground that the same as capital in nature, since the appellant had disclosed the same as 'capital work in progress' in the balance sheet.
2.1. That the CIT(A) erred on facts and in law in holding that loss incurred on account of write-off work-in-progress was prior period expenditure and was inadmissible as business deduction during the relevant assessment year.”
The brief facts of the case are that the assessee is a company engaged in the business of development and export of software. The original Return of income was filed on 31.10.2002 alongwith computation of income with notes thereto and audit report with financial statements, declaring a loss of Rs.3,67,32,019/-. The original assessment was completed u/s. 143(3) on 24.02.2005 accepting the loss as returned by the assessee. Subsequently, on the basis of audit objection, the AO noticed that the assessee had written off an amount of Rs.1,83,32,019/- which was capital expenditure not allowable as revenue expenditure and that assessee did not deposit employer’s and employees’ contribution to PF and ESI within the stipulated time and therefore, the Assessing officer issued notice u/s. 148 after recording the reasons (PB-49A), copy of which was supplied to the assessee on 27.11.2006. The reasons recorded read as under :
ITA No. 4147/Del./2014 3
“It has been noticed that the assessee has not deposited employer’s as well as employee’s contribution to PF and ESI amounting to rupees 14,12,034/- within a stipulated time as per provisions of section 43B read with section 36(1) (iv). It has been noted that the assessee has written off capital work in progress amounting to Rs. 1,83,14,900/- in the profit and loss account during the year under consideration. The assessee has itself accounted for expenses as capital expenditure, therefore, being capital expenditure, this is not an item to be claimed in profit and loss account. On the basis of above- mentioned, I have reasons to believe that the assessee has enhanced the loss by Rs. by Rs.1,97,26,934/-. In view of this, permission to issue the notice under section 148 may be accorded in the case.”
The objections raised by the assessee on reopening of assessment were disposed of by the AO vide speaking order dated 30.11.2006. The assessee was asked to explain as to why (i) the work in progress amounting to Rs.1,83,14,900/- written off during the year should not be disallowed considering it as capital expenditure and also pertaining to the earlier years and (ii) employer’s and employees’ contribution amounting to Rs.14,12,034/- to PF and ESI should not be added to the income for the year under consideration as the same have not been deposited within stipulated time as per law. In response to notice u/s. 148, the assessee filed return of income declaring the loss at Rs.3,60,80,470/- by adding back the employees’ contribution to PF, amounting to Rs.6,51,931/- as income of the assessee in the return of income. The assessee in response to show cause notice, filed detailed submissions before the AO which are placed at pages 54 to 60 of the paper book. However, the ld. Assessing Officer did not concur with the ITA No. 4147/Del./2014 4 submissions of the assessee and added a sum of Rs.1,83,14,900/- as expenditure debited for the earlier years and Rs.14,12,034/- as employers and employees contribution to PF and ESI Fund and accordingly, reduced the loss to Rs.1,70,05,086/- as against Rs.3,67,32,019/- declared by the assessee in the original return of income. The assessee carried the matter before the ld. CIT(A) and challenged the validity of reopening proceedings as well as the additions on merits. Before the ld. CIT(A), the assessee made written submissions which are placed at pages 61 to 70 and 71 to 72 of the paper book. The ld. CIT(A) after considering the detailed submissions of the assessee, facts of the case and various case laws, held the initiation of proceedings as legally valid and sustained the addition of Rs.1,83,14,900/-, but deleted the addition of Rs.14,12,034/- u/s. 43B in respect of Employer’s contribution to PF and ESI fund vide the impugned order.
Aggrieved, the assessee is in appeal before the Tribunal.
3. The learned AR of the assessee submitted that the ld. CIT(A) was not justified in holding the issuance of notice U/s. 148/147 as legally valid ignoring the fact that the reassessment has been done after considering the same material which was already on the record at the time of original assessment proceedings. It was submitted that the factual position pertaining to impugned additions was well narrated in the notes to computation of income at the time of filing the original
ITA No. 4147/Del./2014 5 return and was very much existing on the record of Assessing Officer in the original proceedings. These notes to computation of income (PB-1C) read as under :
“Amounts of provident fund deposited beyond the due date but within the previous year has been considered as an admissible deduction during the year. In this connection we have relied upon the decision of Madras Tribunal in the case of Madras Radiators vs. DCIT 59 ITD 515 (1996).
2. The cost incurred on certain marketable software products under developments were brought forward from previous as capital WIP. Due to uncertainty in revenue which could be realised in future from marketing such products, the management has charged off to P&L account. Since the amount is for software developed for business purpose is of revenue nature, the same is being claimed as detection.
ESI the month of March 2002 towards employee contribution and towards employers contribution which was not payable during the year have not disallowed under section 43B since explanation 2 to section 43B is applicable only to items mentioned in clause (a) of the said section, in view of the decision of Delhi Bench of ITAT in case of Sylvania Laxman 41 ITD 192.”
Therefore, it was submitted, that the re-assessment proceedings are based on change of opinion, which is impermissible under the provisions of section 147 of the Act, as the Assessing Officer had no tangible material to reopen the completed assessment. Reliance is placed on the decision of Hon’ble Supreme Court in the case of Kelvinator of India, 320 ITR 561 (SC) and of Hon’ble Delhi High Court in DIT vs. Rolls Royce Industries Power India Ltd., 394 ITR 547 (Del.) and Delhi High
ITA No. 4147/Del./2014 6 Court in Indu Lata Rangwala vs. DCIT, 384 ITR 337 Del.). Several other decisions have also been relied upon by the assessee (copies placed on record).
On the other hand, the ld. DR relied on the order of the ld. Authorities below and submitted that the lapse on the part of Assessing Officer to examine a particular claim, does not preclude him to reopen the completed assessment u/s. 147/148, as held by various authorities. The tax auditors have not disclosed the actual facts in regard to writing off of capital work in progress into the profit and loss account. It was submitted that the capital expenditure of Rs.1,83,14,900/- was found not pertaining to the current year’s expenditure, rather the assessee itself has classified it as capital work-in-progress in the previous year and shown under the head “Fixed Assets”. Therefore, the AO was justified to reopen the case and to make addition of the impugned amount.
We have considered the rival submissions and have gone through the entire material available on record. On perusal of the reasons recorded, as reproduced above, we find that the ld. Assessing Officer has no where recorded his satisfaction that the income chargeable to tax has escaped assessment. Moreover, the reasons so recorded, further do not have any mention about the tangible material, which triggered the AO to reopen the completed assessment. The assessee had produced
ITA No. 4147/Del./2014 7 books of accounts before the AO in original proceedings which were test checked by the AO. It is also born out on record that specific notes to the computation of income, as reproduced above, were available on record before the Assessing Officer while completing the original assessment order. Therefore, it can hardly be said that there was any omission on the part of the assessee to produce all the material facts necessary for completion of assessment. The reasons recorded are silent as to the tangible material, whatsoever, leading the AO to form a belief of escapement. In presence of all these facts, we find that the decisions relied upon by the assessee are squarely applicable to the present case. In the present fact situation, we further lay our hands on the decision of Hon’ble Delhi High court in the case of Techman Buildwell P. Ltd. ACIT, 370 ITR 771 (Del.), wherein the Hon’ble Court has held as under :
“In the present case the reasons to believe extracted above nowhere highlight what, if at all, was the material which the AO came up or became aware of subsequent to the original assessment. In other words, what triggered the AOs curiosity to impel him to re-examine the files and documents pertaining to a completed assessment is unknown. Nor does the materials placed in the assessment show that the petitioner had unjustifiably suppressed valid or relevant information which was otherwise available. The advertence to the disallowance of a provision for an unascertained liability points to the AO indulging in what amounts to nothing but a masked review. What appears to have excited the Aos mind was that the original assessment order was not framed properly as it overlooked certain materials which led to loss of revenue. The AO in the first instance did not perform his job properly for which the assessee cannot be faulted with. In Calcutta Discount Company Ltd. v. I.T.O. 41 ITR 191 the Supreme Court had pointedly observed that the assessee is required to fairly disclose what is expected of him the primary facts while submitting the returns. It is up to the AO to draw the necessary inferences. In the present case the Aos omission appears to have been the sole basis for issuing the reassessment notice and consequently proceeding to make the impugned demand.
ITA No. 4147/Del./2014 8
In the light of the above discussion this petition has to succeed. The impugned notice dated 20.3.2012 and the demands arising consequent to it through the notice dated 03.10.2012 and 09.11.2012 are hereby quashed.”
In view of the above discussion, we find merit in the legal grounds raised by the assessee against the validity of re-opening of assessment. Accordingly, the notice issued u/s. 148 of the Act is held as invalid, thereby quashing the consequential assessment u/s. 147 of the Act. Hence, the grounds on merits of addition become academic in nature and we need not to adjudicate the same. We, therefore, direct the AO to delete the addition of Rs.1,83,14,900/- only, which is under challenge in this appeal before us.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 17.11.2017.