K Vishwanathan, Prop: Vijaya Enterprises, Bangalore V. The Assistant Commissioner Of Income Tax, Circle-4(3)(1), Bangalore

ITA 1482/BANG/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5038 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 23-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Reassessment proceedings
• Section: 147; 154; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER I TA NO. 1482/BANG/2017 ASSESSMENT YEAR : 2008 - 09 SHRI K. VISHWANATHAN, PROP: VIJAYA ENTERPRISES, NO.155, SKC NILAYAM, 19 TH MAIN ROAD, 6 TH BLOCK, KORAMANGALA, BENGALURU 560 095. PAN: AAGPV 6055Q VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4(3)(1), BANGALORE. APP EL L ANT RESPONDENT APP ELL ANT BY : SHRI RAVISH RAO, CA RE SPONDENT BY : SHRI R.N. SIDDAPPAJI, ADDL.CIT(DR), ITAT, BENGALURU. DATE OF HEARING : 03 .01.2019 DATE OF PRONOUNCEMENT : 06 . 0 2 . 201 9 O R D E R PER N V VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 29.03.2017 OF THE CIT(APPEALS)-4, BANGALORE RELATING TO ASSESS MENT YEAR 2008-09. 2. THE ASSESSEE IN GROUND NOS.1 TO 7 CHALLENGED THE VALIDITY OF INITIATION OF PROCEEDINGS U/S. 147 OF THE INCOME-TA X ACT, 1961 [THE ACT] ACT. THE FACTS IN THIS REGARD ARE THAT THE ASSESSE E, WHO IS AN INDIVIDUAL AND WHO CARRIES THE BUSINESS OF ELECTRICAL CONTRACT OR UNDER THE NAME AND STYLE OF M/S. VIJAYA ENTERPRISES, FILED A RETURN OF INCOME FOR THE AY 2008-09 ITA NO. 1482/BANG/2017 PAGE 2 OF 10 DECLARING A TOTAL INCOME OF 59,27,400. IN THE COMP UTATION OF TOTAL INCOME, THE ASSESSEE HAS DEDUCTED FROM THE PROFIT AS PER PR OFIT & LOSS ACCOUNT A SUM OF RS.66,65,994 WHICH WAS RETENTION MONEY RETAI NED BY THE CONTRACTORS FOR WORK DONE BY THE ASSESSEE AND TO BE RELEASED TO THE ASSESSEE ONLY AFTER CERTAIN CONDITIONS ARE FULFILLE D. THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE RET URN FILED BY THE ASSESSEE WAS TAKEN UP FOR SCRUTINY ASSESSMENT AND O RDER OF ASSESSMENT DATED 13.12.2010 WAS PASSED BY THE AO IN WHICH THE TOTAL INCOME DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME WAS ACCEPTE D BY THE AO AFTER DISALLOWANCE OF CERTAIN EXPENSES. 3. THE AO ISSUED A NOTICE U/S. 154 OF THE ACT DATED 3.5.2013 IN WHICH HE TOOK THE VIEW THAT RETENTION MONEY WHICH WAS CLA IMED AS A DEDUCTION IN THE COMPUTATION OF TOTAL INCOME OUGHT TO HAVE BEEN OFFERED TO TAX, BECAUSE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING AND THE RETENTION MONEY WAS INCOME THAT ACCRUED TO THE ASSE SSEE. THE AO PASSED AN ORDER DATED 19.7.2013 U/S. 154 OF THE ACT ADDING THE RETENTION MONEY TO THE TOTAL INCOME DETERMINED IN THE ORDER U /S. 143(3) OF THE ACT. 4. THE ASSESSEE FILED AN APPEAL AGAINST THE ORDER U /S. 154 OF THE ACT AND THE CIT(APPEALS) BY AN ORDER DATED 30.01.2015 C ANCELLED THE ORDER U/S. 154 OF THE ACT FOR THE REASON THAT ISSUES THAT ARE DEBATABLE AND INVOLVE LONG DRAWN PROCESS OF REASONING CANNOT BE SAID TO B E MISTAKE APPARENT ON THE FACE OF THE RECORD AND CANNOT BE RECTIFIED IN P ROCEEDINGS U/S.154 OF THE ACT. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE CIT(A):- ON PERUSAL OF THE RATIOS LAID DOWN IN THE FORM OF BINDING PRECEDENTS, IT IS AMPLY CLEAR THAT DEBATABLE ISSUES DO NOT COME ANYWHERE WITHIN THE AMBIT OF SECTION 154. I HAVE A BSOLUTELY NO HESITATION IN HOLDING THAT THE AO WAS NOT AUTHORIZE D TO MAKE AN ASSESSMENT BY RECTIFYING HIS EARLIER ORDER U/S. 143 (3). SINCE HE ITA NO. 1482/BANG/2017 PAGE 3 OF 10 HAS SURPASSED HIS JURISDICTION, THE ORDER UNDER SEC TION 154 IS HEREBY QUASHED AS IT IS LEGALLY UNTENABLE. BUT HOW EVER, THE AO SHALL ENSURE THAT THE RECEIPT HAS BEEN OFFERED ON C OMPLETION OF CONTRACT. FURTHER GROUNDS TAKEN BY THE ASSESSEE DO NOT SURVIVE FOR ADJUDICATION. 5. SUBSEQUENTLY, THE AO ISSUED A NOTICE U/S. 147 OF THE ACT DATED 31.03.2015 FOR THE REASON THAT THERE WAS ESCAPEMENT OF INCOME IN AS MUCH AS THE RETENTION MONEY HAS NOT BEEN OFFERED TO TAX BY THE ASSESSEE IN THE RETURN OF INCOME. IN THE SAID ORDER, THE AO CAME TO THE FOLLOWING CONCLUSION:- 5. THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTE M OF ACCOUNTING. IN THE BOOKS OF ACCOUNT. THE ASSESSEE HAD DECLARED THE GROSS RECEIPTS AND HAS CLAIMED DEDUCTION FROM T HE NET PROFIT. IN THE MERCANTILE SYSTEM OF ACCOUNTING, WITH REGARD TO THE RETENTION MONEY, ONE BASIC SITUATION MAY ARISE: WHE THER THE ASSESSEE HAD OFFERED THE RETENTION MONEY AS GROSS C ONTRACT RECEIPTS AS A RESULT OF WHICH HE HAD MADE AN ENTRY UNDER SUNDRY DEBTORS FOR THE AMOUNT RECEIVABLE. IT IS SEEN THAT THE ASSESSEE HAD NOT MADE ANY ENTRIES FOR THE RETENTION MONEY RECEIV ABLE AS SUNDRY DEBTORS. IT IS NOT POSSIBLE TO CLAIM A DEDUCTION FR OM THE NET PROFIT. 6. MERCANTILE SYSTEM OF ACCOUNTING INCLUDES ALL TRA NSACTIONS RECORDED IRRESPECTIVE OF PERIOD OF AMOUNT RECEIVED OR PAID. ACCORDINGLY, THE RETENTION MONEY IS A PART OF SALE AND IS ACCRUED RECOGNIZED AS REVENUE TO THE ASSESSEE AS SOON THE E NTRIES ARE POSTED RH THE BOOKS OF ACCOUNT. THE ACCRUAL OF INCO ME DEPENDS ON ITS RIGHT TO RECEIVE SE SAME FROM THE PERSON TO WHOM IT HAD RENDERED SERVICES OR SOLD GOODS. THE RETENTION WAS ONLY TO ENSURE THAT THE ASSESSEE COMPLIED WITH DEFECT LIABILITY CL AUSE AND OTHER CONDITIONS RELATING FULFILLING THE CONDITIONS AS PE R THE CONTRACT. THE DEFECT LIABILITY CLAUSE DOES NOT IMPINGE UPON T HE RETENTION AMOUNT AND THEREFORE IS NOT A PERMISSIBLE DEDUCTION FROM THE TAXABLE TURNOVER. IT IS ONLY A DEFERRED PAYMENT TH AT THE ASSESSEE WAS ENTITLED TO RECEIVE THE GROSS AMOUNT CHARGED IN THE RA BILL AT A LATER DATE. THEREFORE, SINCE THE ASSESSEE HAS FO LLOWED THE ITA NO. 1482/BANG/2017 PAGE 4 OF 10 MERCANTILE SYSTEM OF ACCOUNTING SUCH SUM IS TAXABLE AS REVENUE RECEIPTS IN THIS YEAR I.E. A.Y. 2008-09. 6. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) CONF IRMED THE ORDER OF AO. ON THE LEGALITY OF REOPENING OF ASSESSMENT, TH E CIT(APPEALS) HELD AS FOLLOWS:- LEGAL ISSUES :- THE ASSESSEE HAS RAISED SEVERAL GROUNDS ON THE ISSU E OF VALIDITY OF RE-ASSESSMENT PROCEEDINGS. I DO NOT FIND MYSELF IN AGREEMENT WITH THE SAME. THE BASIC LEGAL REQUIREMENTS OF RECO RDING OF REASONS AND COMMUNICATION OF THE SAME TO THE APPELL ANT HAVE BEEN MET, AS IS EVIDENT FROM THE RECORDS. THE ASSES SEE HAS DULY COMPLIED WITH THE NOTICES AND PARTICIPATED IN THE P ROCEEDINGS. THE OBJECTIONS RAISED BY THE APPELLANT HAVE BEEN DU LY ADDRESSED BY THE AO. THE QUESTIONS OF LIMITATION AND ESCAPEME NT OF INCOME ARE CONTINGENT ON THE CORE-REASONS ON BASIS OF WHIC H A RE- ASSESSMENT PROCEEDING IS INITIATED. IT IS AMPLY CLE AR IN THE PRESENT CASE THAT, THE ASSESSEE'S EXCESS CLAIM OF DEDUCTION OF RETENTION MONEY FROM THE NET-PROFIT, (EVEN THOUGH RECORDED IN THE ASSESSED COMPUTATION) DID INFACT RESULT IN EXCESS CLAIM, WOU LD BE EVIDENT IN THE ENSUING DISCUSSION ON MERITS OF THE CASE. IN THESE FACTS AND CIRCUMSTANCES, I DO NOT FIND ANY SERIOUS LEGAL ABERRATIONS IN THE IMPUGNED ORDER OF RE-ASSES SMENT AND THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD ARE THEREFORE DISALLOWED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS ON THE VALID ITY OF INITIATION OF REASSESSMENT PROCEEDINGS. ADMITTEDLY, THE PROVISO TO SECTION 147 OF THE ACT WILL APPLY TO THE PRESENT CASE BECAUSE THE REAS SESSMENT PROCEEDINGS HAVE BEEN INITIATED AFTER THE END OF FOUR YEARS FRO M THE END OF RELEVANT ASSESSMENT YEAR AND AN ORDER OF ASSESSMENT U/S. 143 (3) OF THE ACT HAD ALREADY BEEN PASSED FOR THE AY 2008-09 ON 31.12.201 0. THEREFORE, THE INITIATION OF REASSESSMENT PROCEEDINGS CAN BE ONLY ON THE BASIS THAT THE ASSESSEE HAS FAILED TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS WHICH ARE ITA NO. 1482/BANG/2017 PAGE 5 OF 10 RELEVANT FOR ASSESSMENT OF TOTAL INCOME FOR THE REL EVANT ASSESSMENT YEAR. A COPY OF THE COMPUTATION OF THE TOTAL INCOME FILED BY THE ASSESSEE IS GIVEN AS ANNEXURE-I TO THIS ORDER. A PERUSAL OF THE SAME WOULD SHOW THAT THE ASSESSEE HAD CLEARLY DISCLOSED THE FACT OF RETENTIO N MONEY HAVING NOT BEEN OFFERED TO TAX. IN THE CIRCUMSTANCES, IT CANNOT BE SAID THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW TH AT THE REOPENING OF THE ASSESSMENT IS NOT VALID. THE ORDER OF ASSESSMENT I S ACCORDINGLY LIABLE TO BE ANNULLED. 8. THE LD. DR, HOWEVER, SUBMITTED THAT THE ASSESSEE HAS NOT INCLUDED IN THE GROSS CONTRACT RECEIPTS THE RETENTION MONEY AND THEREFORE BY CLAIMING RETENTION MONEY AS DEDUCTION, THERE WAS A DOUBLE DE DUCTION CLAIMED BY THE ASSESSEE AND TO THIS EXTENT, THERE WAS A FAILUR E OF THE PART OF ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MATERIAL FACTS AND THEREFORE, INITIATION OF REASSESSMENT PROCEEDINGS IS VALID. 9. THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE A CHART SHOWING PARTY-WISE BREAK-UP OF RETENTION MONEY THAT WAS NOT OFFERED TO TAX BUT INCLUDED IN THE TOTAL TURNOVER DECLARED BY THE ASSESSEE. THE SAME IS GIVEN AS ANNEXURE-2 TO THIS ORDER. THE ASSESSEE HA S ALSO GIVEN A BREAK- UP OF THE SALES/TURNOVER DECLARED IN THE PROFIT AND LOSS ACCOUNT AND THE RELEVANT BREAK UP OF THE TURNOVER LIKE LABOUR CHARG ES, SALES, WORKS CONTRACT ETC. THE SAME IS AT PAGES -12 TO 17 OF TH E ASSESSEES PAPER BOOK. PERUSAL OF THE SAME TOGETHER WITH ANNEXURE-2 SHOWS THAT THE ASSESSEE HAS DECLARED IN THE GROSS RECEIPTS OF HIS BUSINESS THE SUMS WHICH WERE CLAIMED AS RETENTION MONEY AND INCOME WH ICH DID NOT ACCRUE TO THE ASSESSEE. THEREFORE, THE CONTENTION OF THE REVENUE WHICH IS BASED ON OBSERVATIONS IN THE ORDER OF THE AO THAT THE ASS ESSEE DID NOT INCLUDE THE RETENTION MONEY IN THE GROSS RECEIPTS AND THERE FORE THE ASSESSEE IS ITA NO. 1482/BANG/2017 PAGE 6 OF 10 CLAIMING DOUBLE DEDUCTION, IS CONTRARY TO FACTS AND NOT SUPPORTED BY ANY MATERIAL ON RECORD. ON THE CONTRARY THE ASSESSEE H AS DEMONSTRATED BEFORE US THAT THE GROSS RECEIPTS DECLARED IN THE P ROFIT AND LOSS ACCOUNT INCLUDES THE SUM CLAIMED AS RETENTION MONEY WHICH W AS NOT OFFERED TO TAX ON ACCOUNT OF ITS ALLEGED NON-ACCRUAL. THEREFORE, THE ARGUMENT OF THE LEARNED DR THAT THERE WAS FAILURE ON THE PART OF TH E ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MATERIAL FACTS RELEVANT FOR ASSE SSMENT OF HIS INCOME FOR THE RELEVANT ASSESSMENT YEAR IS WITHOUT MERIT. CON SEQUENTLY, THE PROVISO TO SEC.147 OF THE ACT IS APPLICABLE IN THE PRESENT CASE. SINCE THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE AS IS CONTEMPLA TED BY THE PROVISO TO SEC.147 OF THE ACT AND SINCE THE ASSESSMENT U/S.147 IS SOUGHT TO BE MADE AFTER THE PERIOD CONTEMPLATED UNDER THE PROVISO TO SEC.147 OF THE ACT, WE HOLD THAT THE INITIATION OF THE REASSESSMENT IS BAD IN LAW AND THE ORDER OF REASSESSMENT IS THEREFORE ANNULLED. 10. SINCE THE ORDER OF ASSESSMENT IS ANNULLED, THE OTHER ISSUES OF MERITS DOES NOT REQUIRE ANY CONSIDERATION. 11. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF FEBRUARY, 2019. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT ENCL: ANNEXURE - 1 & 2 BANGALORE, DATED, THE 6 TH FEBRUARY, 2019. / D ESAI S MURTHY / ITA NO. 1482/BANG/2017 PAGE 7 OF 10 COPY TO: 1. THE APP ELLANT 2 . THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE. ITA NO. 1482/BANG/2017 PAGE 8 OF 10 ANNEXURE I ITA NO. 1482/BANG/2017 PAGE 9 OF 10 ITA NO. 1482/BANG/2017 PAGE 10 OF 10 ANNEXURE 2