Landbase India Ltd., Haryana vs Assessee

ITA No. 3812/Del/2010 Assessment Year: 2000-01 DCIT, vs. Landbase India Ltd., Circle 4(1), PO Hasasnpur Dist. Gurgaon, New Delhi. Tauru, Gurgaon (Hr.) (PAN: AAACL0053F) (Appellant) (Respondent)

Appellant by: S/Shri Rohit Jain & Shika Sharma, CAs Respondent by: Ms. Sulekha Verma, CIT(DR)

Date of hearing : 30 .03.2015 Date of pronouncement: 21 :05.2015

ORDER

PER I.C. SUDHIR: JUDICIAL MEMBER ITA No. 4027/Del/2010: The assessee has questioned first appellate order on the following

grounds:

"1. That on the facts and circumstances of the case, the CIT(A) has erred in upholding the validity of the order of the Assessing Officer passed under sec. 143(3) read with sec. 147 of the Income-tax Act, 2

1961 ('the Act'), without appreciating that the order of Assessing Officer was beyond jurisdiction, bad in law and void-ab-initio. 1.1 That on the facts and circumstances of the case, the CIT(A) has erred in not appreciating that the reassessment proceedings were initiated by the Assessing Officer on a mere change of opinion without forming reasonable belief of escapement of income and consequently, the reassessment order was illegal and bad in law. 1.2 That on the facts and circumstances of the case, the CIT(A) has erred in holding that there was no conscious application of mind by the Assessing Officer at the time of regular assessment proceedings completed under sec. 143(3) of the Act, even though the entire material was available on record.

2. That on the facts and circumstances of the case, the CIT(A) has erred in upholding the action of the Assessing Officer in disallowing the deduction of "provision for construction" amounting to Rs.2,77,52,000, claimed by the appellant during the relevant previous year.

2.1 That on the facts and circumstances of the case, the CIT(A) has erred in holding that the liability on account of construction cost did not accrue to the appellant during the relevant previous year. 2.2 Without prejudice, that the CIT(A) erred on facts and in law in not directing to allow the expenses in respect of which provision was made in the subsequent year(s)."

Ground Nos. 1 to 1.2

2. In these grounds, validity of reassessment framed under sec. 147 read

with 143(3) of the Income-tax Act, 1961 has been questioned on several 3

basis. The Learned AR submitted that the assessee had filed return of

income on 28.11.2000 declaring a loss of Rs.8,85,98,137. The assessment

under sec. 143(3) of the Act was originally completed on 28.3.2003

assessing at the returned loss. Thereafter, reassessment proceedings were

initiated under sec. 147 of the Act vide notice dated 29.9.2004 issued under

sec. 148 of the Act on the basis of alleged escapement of income on account

of provisions for construction expenses. In the reassessment, the Assessing

Officer assessed the loss of assessee at Rs.5,49,00,749 against the loss of

Rs.8,85,98,137 assessed in the original assessment. The aggrieved assessee

questioned the validity of initiation of reassessment and the assessments

framed in furtherance thereto before the Learned CIT(Appeals) but could not

succeed.

3. The Learned AR contended that in the reasons recorded for initiation

of reopening proceedings, the Assessing Officer was having reason to

believe that an income of Rs.2,77,52,000 chargeable to tax has escaped

assessment. He submitted that assessee had claimed an expense of

Rs.57,71,65,568.61 on account of construction expenses (civil work) which

included an amount of Rs.2,77,52,000 as provisions for construction. The

Assessing Officer in the original assessment proceedings had examined the

issue as the assessee had filed all the relevant details/documents on the issue 4

of provisions for construction expenses. The Learned AR referred page No.9

of the paper book i.e. copy of letter dated 25.3.2003 vide which the assessee

has submitted details of provisions made for construction expenses as on

31.3.2000 with copies of bills submitted by the parties, before the Assessing

Officer. In the said letter, the assessee had categorically submitted that since

the company was following accrual concept of accounting, it was mandatory

to provide for expenses. It was also clarified that such provision is not ad

hoc provision but based on invoices received and against which payment has

also been made subsequently. The aforesaid details were filed on the specific

directions of the Assessing Officer. The Learned AR also referred page No.

164 of the paper book showing that vide note No.(vii) in the notes to

accounts forming part of audited financial statement for the year. It was

stated regarding revenue reorganization from the sale of land and

constructed apartments - Laburnun Projects on the basis of percentage

completion method and inclusion of estimated cost in the profits

computation. From the above details/documents, it is apparent that on the

issue of provisions for construction expenses, the assessee had made

adequate disclosures and the Assessing Officer, in the original assessment

proceedings, had, in fact, made specific inquiries/investigations. In support,

he referred page Nos. 10 to 81 of the paper book i.e. details of provisions for 5

construction work amounting to Rs.2.77 crores along with the copies of bills

submitted by the parties, before the Assessing Officer. The Assessing

Officer after due application of mind and after duly considering the

exhausted details/documents furnished by the assessee, aggrieved with the

claim and, therefore, did not make any adjustment/disallowance on any of

the aforesaid issues in the original assessment order. There is nothing to

suggest, either from the reasons recorded and/or from the assessment order

that any new fact/information came to the notice of the Assessing Officer

subsequent to the original assessment. The Learned AR contended that on

perusal of the reasons recorded by the Assessing Officer before initiating the

impugned assessment proceedings, it is clearly evident that the Assessing

Officer has merely reappraised the details forming part of the original

assessment proceedings. Thus, the reassessment initiated is nothing but a

change of opinion, hence, it is not valid in law. In support, he placed reliance

on the following decisions:

i) CIT vs. Foramer France - 264 ITR 567 (S.C); ii) CIT vs. Kelvinator India Ltd. - 320 ITR 561 (S.C);

iii) NYK Line (India) Ltd. vs. DCIT - 346 ITR 355 (Bombay); iv ) CIT vs. Shri Amitab Bachan - ITA No. 4646/Bom/2010;

v ) CIT vs. Usha International Ltd. - 348 ITR 485 (Del.) (F.B); vii ) CIT Vs. Orient Craft Ltd. - 555/2012 (Delhi);

viii) ICICI Prudential Life Insurance Co. Ltd. Vs. ACIT - 325 ITR 6

471 (Bombay).

4. Learned AR submitted further that the decisions in the cases of Gruh

Finance Vs. JCIT - 243 ITR 482 (Guj.) and CIT vs. S.R. Talwar - 305 ITR

286 (All.) relied upon by the Learned CIT(Appeals) having distinguishable

facts are not relevant in the present case.

5. The Learned CIT(DR) on the other hand tried to justify orders of the

authorities below with this contention that no objection was raised before the

Assessing Officer against the validity of initiation of reopening proceedings.

The assessee participated in the reassessment proceedings. She submitted

that provisions for construction cannot be claimed by the assessee either in

mercantile or cash system of accounting. She further pointed out that the

documents submitted before the Assessing Officer during the original

assessment proceedings vide letter dated 25.3.2003 by the assessee were

dated 11.4.2000, 22.6.2000, 25.8.2000 etc. which are after the closure of

financial year as on 31.3.2000. The Learned CIT(Appeals) submitted that the

Learned CIT(Appeals) has rightly upheld the validity of reassessment

framed by the Assessing Officer. She placed reliance on the following

decisions:

7

i) CIT vs. PVS Beedies (P) Ltd. (1999) - 103 Taxman 294 (S.C);

ii) CIT vs. First Leasing Co. of India Ltd. (2001) - 118 Taxman 181 (Madras);

In rejoinder the Learned AR submitted that the documents of later dated

were related to the transactions of the relevant previous year only.

6. Considering the above submissions, we find that the reopening proceedings were initiated on the following reasons:

"The assessee has claimed an expense of Rs.57,71,65,568.61 P on account of construction expenses (Civil Work), which includes an amount of Rs.2,77,52,000 as "Provision for construction". Under the Income-tax Act, 1961, a provision made in the accounts for an accrued or known liability is an admissible expenditure while other provisions made do not qualify for deduction. Since this liability has actually not arisen and incurred during the previous year, the same is not an allowable deduction for the assessment year 2000-01".

I have reason to believe that an income of Rs.2,77,52,000 chargeable to tax has escaped assessment for the assessment year 2000-01.

Issue notice u/s. 148 for the A.Y. 2000-01."

7. On perusal of the above reasons, we find it apparent that the Assessing

Officer has initiated reopening proceedings merely on reappraisal of the

details forming part of the original assessment proceedings. It is evident

from the paper book that vide letter dated 25.3.2003, the assessee had

furnished details of provisions made for construction expenses as on 31.3.

2000 with copies of bills submitted by the parties, before the Assessing

Officer during the original assessment proceedings. Thus, there is nothing to

suggest that any new fact/information had come to the notice of the 8

Assessing Officer subsequent to the original assessment to acquire

jurisdiction by him to initiate reopening proceedings under sec. 147 of the

Act. The Hon'ble Supreme Court in the case of CIT vs. Kelvinator India Ltd.

(supra) affirming the decision of Full Bench of the Hon'ble Delhi High Court

has been pleased to hold that sec. 147 of the Act does not postulate

conferment of powers upon the Assessing Officer to initiate reassessment

proceedings upon his mere change of opinion. The Hon'ble Delhi High

Court in the case of CIT vs. Usha International (supra) has been again

pleased to hold that the reassessment proceedings will be invalid in case the

assessment order itself records that the issue was raised and is decided in

favour of the assessee. Reassessment proceedings in the cases will be hit by

the principles of "change of opinion". Reassessment proceedings will be

invalid in case an issue or query is raised and answered by the assessee in

original assessment proceedings but thereafter the Assessing Officer does

not make any addition in the assessment order. In such situations, it should

be accepted that the issue was examined but the Assessing Officer did not

find any ground or reason to make addition or reject the stand of the

assessee. He forms an opinion. The reassessment will be invalid because the

Assessing Officer had formed an opinion in the original assessment, though

he had not recorded his reasons. The expression "change of opinion" 9

postulates formation of opinion and then a change thereof. The Hon'ble High

Court held further that a distinction must be drawn between erroneous

application/interpretation/understanding of law and cases where fresh or new

factual information comes to the knowledge of the Assessing Officer

subsequent to the passing of the assessment order. Again in the case of CIT

vs. Orient Craft Ltd. (supra), the Hon'ble jurisdictional Delhi High Court

after discussing the issue in detail has come to the conclusion that in that

case the reasons disclosed that the Assessing Officer reached a belief that

there was escapement of income "on going through the return of income"

filed by the assessee after he accepted the return under sec. 143(1) without

scrutiny, and nothing more. This is nothing but a review of the earlier

proceedings and an abuse of power by the Assessing Officer. In that case

also, there was no whisper in the reasons recorded, of any tangible material

which came to the possession of the Assessing Officer subsequent to the

issue of the intimation. The Hon'ble High Court held that it reflects an

arbitrary exercise of the powers conferred under sec. 147 of the Act. Almost

similar are the facts of the present case before us. Though in the present

case, original assessment was framed under sec. 143(3) of the Act after

compliance of furnishing of the details of provisions made for construction

expenses as on 31.3.2000 with copies of bills submitted by the parties 10

mentioned therein (vide letter dated 25.3.2003 of the assessee ) as required

by the Assessing Officer during the course original assessment proceedings.

The assessee company was also required under the accrual concept of

accounting to provide for all expenses related to the construction of the flats

till 31.3.2000. In compliance, the assessee had submitted that this provision

made was not an ad hoc provision but was made based on the invoices

submitted by the various contractors who were engaged in the construction

activity and payment was also made by the assessee company against such

bills. In the present case also, as it is evident from the reasons recorded that

there is no whisper of any tangible material which came to the possession of

the Assessing Officer subsequent to framing of the original assessment. We

thus respectfully following the ratios laid down in the above cited decisions

by the Learned AR hold that the initiation of reopening proceedings in the

present case by the Assessing Officer under sec. 147 of the Act was nothing

but a review of earlier proceedings and thus an arbitrary exercise of the

powers conferred under sec. 147 of the Act. We thus concur with the

contentions of the Learned AR that the reassessment impugned was nothing

but change of opinion which is not permitted under the provisions of the law

under sec. 147 to acquire jurisdiction by the Assessing Officer to initiate

reopening proceedings. It is also pertinent to discuss over here that the 11

decisions relied upon by the Learned CIT(Appeals) in the cases of Gruh

Finance Vs. CIT (supra) and CIT vs. S.R. Talwar (supra), having

distinguishable facts are not helpful to the revenue. The Learned

CIT(Appeals) has rejected the contention of the assessee on the validity of

reassessment proceedings on two counts. Firstly that sufficiency of reasons

for reopening and assessment does not call for determination at the stage of

reopening assessment and secondly though the material were available on

record, there was no conscious consideration of the same because there was

no application of mind by the Assessing Officer at the time of regular

assessment proceedings, therefore, there was no change of opinion by the

Assessing Officer. As discussed above, the factual finding of the Learned

CIT(Appeals) that there was no application of mind by the Assessing Officer

is contrary to the record. However, it has been fairly admitted by the

Learned CIT(Appeals) that the materials were already available on record.

The facts in the case of Gruh Finance Vs. JCIT (supra) are different as in the

present case, the Assessing Officer had, in fact, considered the issue of

allowability of provisions for construction expenses. Similarly, in the case of

SR Talwar (supra), it was found that there was failure on the part of the

assessee to disclose material facts necessary for assessments. The issue

raised in the grounds under consideration on the validity of initiation of 12

reopening proceedings and framing of reassessment in furtherance thereto is

thus decided in favour of the assessee with this finding that the reassessment

being invalid is quashed. These grounds are accordingly allowed.

9. Ground Nos. 2 to 2.2: In these grounds, the validity of disallowances

made has been questioned. Since hereinabove we have, while deciding the

ground Nos. 1 to 1.2, held that the initiation of reopening proceedings and

framing of reassessment in furtherance thereto were invalid and the very

reassessment has been quashed, the other grounds do not survive as the same

have become academic only.

10. In result, the appeal is allowed.

ITA No. 3812/Del/2010:

11. The Revenue has impugned the validity of the relief given by the

Learned CIT(Appeals) while deleting the disallowances made by the

Assessing Officer.

12. In the above appeal preferred by the assessee against the same First

Appellate Order on the issue of validity of the reassessment order, we have

held the reassessment as invalid and the same has been quashed as such the 13

remaining grounds raised by the Revenue in the present appeal have become

infructuous. These grounds are accordingly rejected.

13. In result, the appeal is dismissed.

14. In summary, the appeal preferred by the assessee is allowed and that

preferred by the Revenue is dismissed.

Decision pronounced in the open court on 21 .05.2015

Sd/- Sd/-

( N.K. SAINI ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 21 /05/2015 Mohan Lal

Copy forwarded to:

1) Appellant

2) Respondent

3) CIT

4) CIT(Appeals)

5) DR:ITAT

ASSISTANT REGISTRAR 14

Date Draft dictated on computer 20 .05.2015 Draft placed before author 20 .05.2015 Draft proposed & placed before the second 21.05.2015 member Draft discussed/approved by Second Member. Approved Draft comes to the Sr.PS/PS 22.05.2015 Kept for pronouncement on 21.05.2015 File sent to the Bench Clerk 22.05.2015 Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order.