DCIT, New Delhi V. M/s. Engineering Projects India Ltd., New Delhi

ITA 2651/DEL/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4074 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-07-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 31-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR SHARMA SENIOR
• Keywords: Reopening of assessment; Revision of order; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 147; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH B BB B : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT AND AND AND AND SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NO S SS S . .. . 281/DEL/2011, 2028/DEL/2012 & 2651/DEL/2012 281/DEL/2011, 2028/DEL/2012 & 2651/DEL/2012 281/DEL/2011, 2028/DEL/2012 & 2651/DEL/2012 281/DEL/2011, 2028/DEL/2012 & 2651/DEL/2012 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR S SS S : : : : 2001 2001 2001 2001 - -- - 02, 2000 02, 2000 02, 2000 02, 2000 - -- - 01 & 2003 01 & 2003 01 & 2003 01 & 2003 - -- - 04 0404 04 DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -11(1), 11(1), 11(1), 11(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS. VS. VS. VS. M/S ENGINEERING PROJECTS INDIA M/S ENGINEERING PROJECTS INDIA M/S ENGINEERING PROJECTS INDIA M/S ENGINEERING PROJECTS INDIA LIMITED, LIMITED, LIMITED, LIMITED, CORE CORE CORE CORE- -- -3, SCOPE COMPLEX 3, SCOPE COMPLEX 3, SCOPE COMPLEX 3, SCOPE COMPLEX, ,, , 7, 7, 7, 7, INSTITUTIONAL AREA, LODHI ROAD, INSTITUTIONAL AREA, LODHI ROAD, INSTITUTIONAL AREA, LODHI ROAD, INSTITUTIONAL AREA, LODHI ROAD, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. PAN : AAACE0061C. PAN : AAACE0061C. PAN : AAACE0061C. PAN : AAACE0061C. (APPELLANT) (RESPONDENT) CROSS OBJECTION CROSS OBJECTION CROSS OBJECTION CROSS OBJECTION NO NONO NO S SS S .45/DEL/2011, 239/DEL/2012 & 279/DEL/2012 .45/DEL/2011, 239/DEL/2012 & 279/DEL/2012 .45/DEL/2011, 239/DEL/2012 & 279/DEL/2012 .45/DEL/2011, 239/DEL/2012 & 279/DEL/2012 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR S SS S : : : : 2001 2001 2001 2001 - -- - 02, 2000 02, 2000 02, 2000 02, 2000 - -- - 01 & 2003 01 & 2003 01 & 2003 01 & 2003 - -- - 04 0404 04 M/S ENGINEERING PROJECTS M/S ENGINEERING PROJECTS M/S ENGINEERING PROJECTS M/S ENGINEERING PROJECTS INDIA LIMITED, INDIA LIMITED, INDIA LIMITED, INDIA LIMITED, CORE CORE CORE CORE- -- -3, SCOPE COMPLEX, 3, SCOPE COMPLEX, 3, SCOPE COMPLEX, 3, SCOPE COMPLEX, 7, INSTITUTIONAL AREA, 7, INSTITUTIONAL AREA, 7, INSTITUTIONAL AREA, 7, INSTITUTIONAL AREA, LODHI ROAD, LODHI ROAD, LODHI ROAD, LODHI ROAD, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. PAN : AAACE0061C. PAN : AAACE0061C. PAN : AAACE0061C. PAN : AAACE0061C. VS. VS. VS. VS. DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME T INCOME T INCOME T INCOME TAX, AX, AX, AX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -11(1), 11(1), 11(1), 11(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ANIL KUMAR SHARMA, SENIOR DR. ASSESSEE BY : SHRI TARANDEEP SINGH, CA. DATE OF HEARING : 28.07.2016 28.07.2016 28.07.2016 28.07.2016 DATE OF PRONOUNCEMENT : 11.08.2016 11.08.2016 11.08.2016 11.08.2016 OR OROR ORDER DER DER DER PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP : :: :- -- - THE APPEALS BY THE DEPARTMENT AND THE CROSS-OBJECTIO NS BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2001-02, 2000-01 & 2003-04 ARE ITA-281/DEL/2011 & 5 OTHERS 2 DIRECTED AGAINST SEPARATE ORDERS OF LEARNED CIT(A)-XI II, NEW DELHI DATED 03.11.2010, 02.02.2012 AND 12.03.2012. ASSESSEES CROSS ASSESSEES CROSS ASSESSEES CROSS ASSESSEES CROSS- -- -OBJECTION NO.45/DEL/2011 OBJECTION NO.45/DEL/2011 OBJECTION NO.45/DEL/2011 OBJECTION NO.45/DEL/2011 (AY 2001 (AY 2001 (AY 2001 (AY 2001- -- -02) 02) 02) 02) : :: :- -- - 2. IN THIS CROSS-OBJECTION, THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS :- 1. THAT ON FACTS AND IN LAW THE COMMISSIONER OF INCOM E TAX (APPEALS) (HEREINAFTER REFERRED TO AS THE CIT(A) ) ERRED IN UPHOLDING THE ASSUMPTION OF JURISDICTION UND ER SECTION 147 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) BY THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO'). 2. THAT WITHOUT PREJUDICE THE CIT(A) ERRED IN NOT APPRECIATING THAT THE PREREQUISITES FOR ASSUMPTION OF V ALID JURISDICTION IN TERM OF PROVISO TO SECTION 147 ARE NOT MET RENDERING THE REASSESSMENT ORDERS PASSED THERETO AS BAD IN LAW. 3. THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN NOT APPRECIATING THAT ASSUMPTION OF JURISDICTION U/S 147 BA SED ON A MERE CHANGE OF OPINION IS BAD IN LAW AND VOID A B INITIO RENDERING THE ASSESSMENT ORDER PASSED PURSUANT THERETO ALSO AS BAD IN LAW. 3. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTED B Y THE LEARNED COUNSEL THAT FOR THE YEAR UNDER CONSIDERATION, ASSESSMENT HAS BEEN REOPENED BEYOND THE PERIOD OF FOUR YEARS WHEN ORIGIN AL ASSESSMENT WAS COMPLETED U/S 143(3). HE REFERRED TO THE COPY OF REASONS RECORDED WHICH IS PLACED IN THE ASSESSEES PAPER BOOK AND POINTED OUT THAT AS PER REASONS RECORDED, PRIOR PERIOD EXPENSES ARE NOT ALLOWABLE AND SIMILARLY, THE AMOUNT DEBITED TOWARDS GRATUITY AN D LEAVE ENCASHMENT IN PROFIT & LOSS ACCOUNT IS PARTLY ALLOWABL E. IN THE REASONS RECORDED, THERE IS NO MENTION THAT THERE WAS ANY FAIL URE ON THE PART OF THE ASSESSEE TO DISCLOSE ANY MATERIAL FACTS. ADMITTEDLY, ALL THE MATERIAL RELATING TO PRIOR PERIOD EXPENSES, GRATUITY, LEAVE ENCASHMENT ETC. IS DULY DISCLOSED IN THE ASSESSEES PROFIT & LOSS ACCOU NT WHICH WERE ITA-281/DEL/2011 & 5 OTHERS 3 FILED ALONG WITH THE RETURN OF INCOME. THUS, WHEN T HERE IS NO FAILURE ON THE PART OF THE ASSESSEE, THE ASSESSMENT CANNOT BE REOPENED BEYOND THE PERIOD OF FOUR YEARS WHEN ORIGINAL ASSESSMENT WAS CO MPLETED U/S 143(3). IN SUPPORT OF THIS CONTENTION, HE RELIED UPO N THE FOLLOWING DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT :- (I) HARYANA ACRYLIC MANUFACTURING CO. VS. CIT AND AN OTHER [2009] 308 ITR 38 (DELHI). (II) SWAROVSKI INDIA P. LTD. VS. DCIT [2014] 368 IT R 601 (DELHI). 4. LEARNED DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF AUTHORITIES BELOW. 5. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. PROVISO OF SECTION 147 READS AS UNDER :- PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDE R THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE E ND OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) OF SEC TION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR: 6. FROM THE ABOVE, IT IS EVIDENT THAT WHERE AN ASSESSMEN T IS COMPLETED U/S 143(3), AFTER THE EXPIRY OF FOUR YEAR S FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THE ASSESSMENT CANNOT BE REOPENED UNLESS THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT BY T HE REASON ITA-281/DEL/2011 & 5 OTHERS 4 OF FAILURE ON THE PART OF THE ASSESSEE (I) TO MAKE A RETURN U/S 139(1) AND (II) TO DISCLOSE FULLY AND TRULY ALL MATERIAL FAC TS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. 7. THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2001-02. O RIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) VIDE ORDER DATED 22 ND JANUARY, 2004. THE NOTICE U/S 148 WAS ISSUED ON 15 TH JUNE, 2007. THUS, ADMITTEDLY, THE NOTICE U/S 148 WAS ISSUED BEYOND THE P ERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THE REASONS RECORDED FOR REOPENING WERE SUPPLIED TO THE ASSESSEE VID E LETTER DATED 10 TH SEPTEMBER, 2008 OF THE ASSESSING OFFICER. THE SAME REA DS AS UNDER:- SUB :- REASONS FOR NOTICE U/S 148 OF THE IT ACT, 1 961 REG.- PLEASE REFER TO THIS OFFICE LETTER DATED 22-06-2007. THE REASONS FOR NOTICE U/S 148 ARE AS UNDER:- 1. PRIOR PERIOD EXPENSES OF RS.1,92,47,833/- ARE NOT ALLOWABLE BECAUSE YOU ARE FOLLOWING MERCANTILE SYSTEM OF ACCOUNT. 2. FURTHER, THE COMPANY HAS DEBITED AN AMOUNT OF RS.1,99,83,977/- AND RS.73,44,382/- TOWARDS GRATUITY A ND LEAVE ENCASHMENT PAYMENTS IN ITS P & L A/C FOR THE STAF F WHO OPTED FOR VOLUNTARY RETIREMENT SCHEME INSTEAD OF RESTRICTING IT TO RS.1,25,29,000/- BEING EXPENDITURE AS PER AUDITORS REPORT. 8. THUS, IN THE REASONS RECORDED FOR REOPENING OF ASSE SSMENT, THERE IS NO MENTION THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ANY MATERIAL FACT BY REASON O F WHICH THERE WAS ALLEGED ESCAPEMENT OF INCOME. IN THE ASSESSMENT ORDER A LSO, THE ASSESSING OFFICER RECORDED ALMOST SIMILAR FINDING WHICH R EADS AS UNDER:- ITA-281/DEL/2011 & 5 OTHERS 5 2. FROM THE VERIFICATION OF CASE RECORDS, IT HAS BE EN OBSERVED THAT THE ASSESSEE HAD CLAIMED PRIOR PERIOD EXPENSES OF RS.1,92,47,833/- WHICH ARE NOT ALLOWABLE A S THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT. FURTHER, IT HAS BEEN OBSERVED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.1,99,83,977/- AND RS.73,44,38 2/- TOWARDS GRATUITY AND LEAVE ENCASHMENT PAYMENTS IN ITS P&L ACCOUNT FOR THE STAFF WHO OPTED FOR VOLUNTARY RETIREMENT SCHEME INSTEAD OF RESTRICTING IT TO RS.1,25,29,000/- BEING EXPENDITURE AS PER AUDITORS RE PORT. THE ASSESSEE WAS, THEREFORE, ASKED TO EXPLAIN AS WHY THESE SHOULD NOT DISALLOWED. 9. FROM THE ABOVE, IT IS EVIDENT THAT THE ASSESSING OFFI CER HIMSELF HAS MENTIONED THAT FROM VERIFICATION OF THE CASE RECO RD, IT HAS BEEN OBSERVED THAT THE ASSESSEE HAS CLAIMED PRIOR PERIOD EXPEN SES AND HAS DEBITED CERTAIN AMOUNT TOWARDS GRATUITY AND LEAVE EN CASHMENT IN ITS PROFIT & LOSS ACCOUNT. THUS, DISCLOSURE ON THE PART O F THE ASSESSEE OF ALL MATERIAL FACTS HAS BEEN ADMITTED. IN THE ABOVE CIRCUMSTANCES, IN OUR OPINION, THE PROVISO TO SECTION 147 DEBARS THE ASSE SSING OFFICER FROM ISSUE OF NOTICE U/S 148 BEYOND THE PERIOD OF FOUR YEARS. SINCE IN THIS CASE, ADMITTEDLY, THE NOTICE WAS ISSUED BEYOND THE PERIOD OF FOUR YEARS, IN OUR OPINION, THE SAME IS BARRED BY LIMITATIO N. ACCORDINGLY, THE SAME IS QUASHED. SINCE THE NOTICE U/S 148 HAS BEEN QUASHED, CONSEQUENTLY, THE ASSESSMENT ORDER PASSED IN PURSUANCE TO SUCH NOTICE IS ALSO QUASHED. THE CROSS-OBJECTION FILED BY T HE ASSESSEE IS ALLOWED. ITA NO.281/DEL/2011 ITA NO.281/DEL/2011 ITA NO.281/DEL/2011 ITA NO.281/DEL/2011 REVENUES APPEAL FOR AY 2001 REVENUES APPEAL FOR AY 2001 REVENUES APPEAL FOR AY 2001 REVENUES APPEAL FOR AY 2001- -- -02 : 02 : 02 : 02 :- -- - 10. SO FAR AS REVENUES APPEAL IN ITA NO.281/DEL/20 11 IS CONCERNED, IN OUR OPINION, ONCE THE ASSESSMENT ORDER HAS BEEN QUASHE D, THE DEPARTMENTS APPEAL WOULD NOT SURVIVE FOR ADJUDICATIO N. THE SAME IS, THEREFORE, DISMISSED. ITA-281/DEL/2011 & 5 OTHERS 6 ASSESSEES CROSS ASSESSEES CROSS ASSESSEES CROSS ASSESSEES CROSS- -- -OBJECTION NO. OBJECTION NO. OBJECTION NO. OBJECTION NO.239 239 239 239/DEL/201 /DEL/201 /DEL/201 /DEL/2012 22 2 (AY 2000 (AY 2000 (AY 2000 (AY 2000- -- -01) 01) 01) 01) : :: :- -- - 11. IN THIS CROSS-OBJECTION, THE ASSESSEE HAS RAISED THE FO LLOWING GROUNDS :- 1. THAT ON FACTS AND IN LAW THE COMMISSIONER OF INCOM E TAX (APPEALS) (HEREINAFTER REFERRED TO AS THE CIT(A) ) ERRED IN UPHOLDING THE ASSUMPTION OF JURISDICTION UND ER SECTION 147 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) BY THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO'). 2. THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN NOT APPRECIATING THAT THE AO BY NOT PASSING A SPEAKING ORD ER DISPOSING OFF THE OBJECTIONS RAISED BY THE ASSESSEE VIDE SUBMISSIONS DATED 03 RD JULY 2007 HIS ASSUMPTION OF JURISDICTION U/S 147 WAS VOID AB INITIO AND BAD IN LAW . 12. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL ADMITTED THAT FOR THE YEAR UNDER CONSIDERATION, THE ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(1) THOUGH THE REOPENING WAS BEYOND THE PERIOD OF FOUR YEARS. HE STATED THAT THE ASSESSING OFFICER HAS REOP ENED THE ASSESSMENT BECAUSE, IN HIS OPINION, PRIOR PERIOD EXPENSES O F `67,38,391/- ARE NOT ALLOWABLE IN MERCANTILE SYSTEM O F ACCOUNTING. HE STATED THAT THE ISSUE OF ALLOWABILITY OF PRIOR PERIOD EXPENSES IS SETTLED WAY BACK IN 1985 AND THE CIT-II, DELHI, IN HIS ORDER U/S 264 DATED 17.01.1985, HELD THAT THE PRIOR PERIOD EXPENSES ARE A LLOWABLE. SUCH ORDER WAS FOLLOWED IN ANOTHER ORDER U/S 264 DATED 24 TH DECEMBER, 1996 FOR ASSESSMENT YEAR 1992-93. THAT IN THE COMPUTA TION OF INCOME, BY WAY OF NOTE NO.2, THE ASSESSEE HAS REFERRED T HE ORDER U/S 264 DATED 17.01.1985 AND HAS MENTIONED THAT IN VIEW OF THE ABOVE ORDER, THE PRIOR PERIOD EXPENDITURE IS CONSIDERED AS A LLOWABLE. THAT THE ASSESSEE IS EXECUTING TURNKEY PROJECTS AT DIFFERENT SI TES. THAT MANY A TIMES, THERE IS DELAY IN THE RECEIPT OF BILLS A ND VOUCHERS FOR EXPENSES. THEREFORE, THE SAME ARE BOOKED UNDER THE HE AD PRIOR PERIOD EXPENSES. SIMILARLY, THERE IS PRIOR PERIOD IN COME ALSO WHICH IS ITA-281/DEL/2011 & 5 OTHERS 7 ALSO DISCLOSED IN THE YEAR UNDER CONSIDERATION. HE REF ERRED TO THE NOTE SUBMITTED ALONG WITH THE COMPUTATION OF INCOME AND P OINTED OUT THAT FOR THE YEAR UNDER CONSIDERATION, THE PRIOR PERIOD E XPENDITURE IS `67,38,391/- WHILE PRIOR PERIOD INCOME DISCLOSED BY T HE ASSESSEE WAS `1,06,09,004/-. HE STATED THAT THE REOPENING OF ASSESSM ENT IS MADE BY THE ASSESSING OFFICER BECAUSE, IN HIS OPINION, PRIOR PERIOD EXPENSES ARE NOT ALLOWABLE. HOWEVER, THERE IS NO BASIS FOR SUCH AN OPINION BY THE ASSESSING OFFICER. THEREFORE, THE REOPENING OF AS SESSMENT IS BAD IN LAW. IN SUPPORT OF THIS CONTENTION, HE RELIED UPO N THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SMCC CONSTRUCTION INDIA LTD. VS. ACIT [2014] 220 TAXMAN 354 (DELHI) AND CI T VS. BATRA BHATTA COMPANY [2008] 321 ITR 526 (DELHI). 13. LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT LEARNED CIT(A) AT PAGE 3 OF HIS ORDER HAS REPRODUCED THE REASONS RECORDED FOR REOPENING OF ASSESSMENT, WHICH READ AS UNDER:- YOU HAVE CLAIMED PRIOR PERIOD EXPENSES OF RS.6738391 /- IN THE PROFIT AND LOSS ACCOUNT WHILE YOU ARE FOLLOWIN G MERCANTILE SYSTEM OF ACCOUNTING. THUS THE INCOME OF RS.6738391/- HAS ESCAPED ASSESSMENT. 15. THUS, THE ASSESSING OFFICER HAS FORMED AN OPINION TH AT PRIOR PERIOD EXPENDITURE IS NOT AN ALLOWABLE EXPENDITURE I N THE MERCANTILE SYSTEM OF ACCOUNTING. WE FIND THAT THE ABOVE OPINION OF THE ASSESSING OFFICER IS CONTRARY TO THE OPINION GIVEN BY HIS SENIO R OFFICERS OF THE REVENUE IN ASSESSEES OWN CASE IN EARLIER ASSESSMENT YEAR. T HE CIT, IN THE ORDER U/S 264 DATED 17.01.1985, HAS HELD THAT PRIOR PERIOD ITA-281/DEL/2011 & 5 OTHERS 8 EXPENDITURE IS ALLOWABLE. FOLLOWING THE ABOVE ORDER , ANOTHER CIT FOR ASSESSMENT YEAR 1992-93 VIDE ORDER DATED 24.12.1996, HE LD PRIOR PERIOD EXPENDITURE TO BE ALLOWABLE. THE ASSESSING OFFI CER HAS NOT GIVEN ANY REASON OR BASIS FOR HIS OPINION THAT PRIOR PE RIOD EXPENDITURE IS NOT ALLOWABLE. WE FIND THIS ISSUE TO BE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH C OURT IN THE CASE OF SMCC CONSTRUCTION INDIA LTD. (SUPRA). AT PAR AGRAPH 14 OF THE JUDGMENT, THEIR LORDSHIPS HELD AS UNDER:- 14. THE REASON TO BELIEVE RECORDED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED A SUM OF RS.1,20,765/- IN THE P & L ACCOUNT ON ACCOUNT OF PRI OR PERIOD EXPENSES AFTER NETTING INCOME OF RS.30,34,463/- AND EXPENDITURE OF RS.31,55,228/-. THE EXPENDITURE OF RS.31,55,228/- HAS NOT BEEN CRYSTALLIZED DURING THE YE AR 2001-02 RELEVANT TO THE ASSESSMENT YEAR 2002-03, SUCH PRIOR PERIOD EXPENSES SHOULD HAVE BEEN DISALLOWED IS NOT BASED ON ANY MATERIAL THAT HAD COME TO THE KNOWLEDGE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS PLACED RELIANCE ON THE NOTES TO THE ACCOUNTS THAT WERE AVAIL ABLE AT THE TIME OF THE SCRUTINY ASSESSMENT. BUT THE NOTES ALSO STATES THAT THE PRIOR PERIOD EXPENSES HAD CRYSTALLIZED/SETTLED IN THE YEAR. THE REASONS TO BELIE VE RECORDED DO NOT SHOW AS TO ON WHAT BASIS THE ASSESSING OFFICER HAS FORMED A REASONABLE BELIEF THAT THE SAID EXPENDITURE HAD NOT CRYSTALLIZED DURING THE YEAR REL EVANT TO THE ASSESSMENT YEAR. IT IS APPARENT THE ASSESSING OFFICER SUSPECTS THAT THE INCOME HAS ESCAPED ASSESSMENT. BUT MERE SUSPICION IS NOT ENOUGH. THE REASONS TO BELIEV E MUST RECORD REASONS, THE READING OF WHICH SHOULD DEMONSTRATE, THAT SUCH A REASONABLE BELIEF COULD BE FORMED ON SOME BASIS/FOUNDATION AND WAS IN FACT FORMED BY THE ASSESSING OFFICER THAT INCOME HAS ESCAPED ASSESSMENT. NO SUCH REASONABLE BELIEF CAN BE FORMED FROM THE REASONS TO BELIEVE RECORDED. 16. THE FACTS OF THE ASSESSEES CASE ARE IDENTICAL. THER EFORE, THE ABOVE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT W OULD BE SQUARELY APPLICABLE. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT REOPENING OF ITA-281/DEL/2011 & 5 OTHERS 9 ASSESSMENT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2000- 01 WAS NOT VALID. ACCORDINGLY, THE NOTICE ISSUED U/S 148 IS QUASHED. THE CROSS-OBJECTION FILED BY THE ASSESSEE IS ALLOWED. ITA NO. ITA NO. ITA NO. ITA NO.2028/DEL/2012 2028/DEL/2012 2028/DEL/2012 2028/DEL/2012 REVENUES APPEAL FOR AY 200 REVENUES APPEAL FOR AY 200 REVENUES APPEAL FOR AY 200 REVENUES APPEAL FOR AY 2000 00 0- -- -0 00 01 11 1 : :: :- -- - 17. SO FAR AS REVENUES APPEAL IN ITA NO.2028/DEL/201 2 IS CONCERNED, IN OUR OPINION, ONCE THE ASSESSMENT ORDER HA S BEEN QUASHED, THE DEPARTMENTS APPEAL WOULD NOT SURVIVE FO R ADJUDICATION. THE SAME IS, THEREFORE, DISMISSED. ASSESSEES CROSS ASSESSEES CROSS ASSESSEES CROSS ASSESSEES CROSS- -- -OBJECTION NO. OBJECTION NO. OBJECTION NO. OBJECTION NO.279 279 279 279DEL/201 DEL/201 DEL/201 DEL/2012 22 2 (AY 2003 (AY 2003 (AY 2003 (AY 2003- -- -04) 04) 04) 04) : :: :- -- - 18. IN THIS CROSS-OBJECTION, THE ASSESSEE HAS RAISED THE FO LLOWING GROUNDS :- 1. THAT ON FACTS AND IN LAW THE COMMISSIONER OF INCOM E TAX (APPEALS) (HEREINAFTER REFERRED TO AS THE CIT(A) ) ERRED IN UPHOLDING THE ASSUMPTION OF JURISDICTION UND ER SECTION 147 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) BY THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO'). 2. THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN NOT APPRECIATING THAT THE ASSUMPTION OF JURISDICTION U/S 14 7 WAS PREMISED UPON A MERE CHANGE OF OPINION AND IS THUS BAD IN LAW AND VOID AB INITIO RENDERING THE ASSESSMENT ORDER PASSED PURSUANT THERETO ALSO AS BAD IN LAW. 19. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE COPY OF REASONS RECORD ED IS AT PAGE 8 OF THE ASSESSEES PAPER BOOK, WHICH READ AS UNDER:- FROM THE VERIFICATION OF CASE RECORDS, IT HAS BEEN OBSERVED THAT PRIOR PERIOD EXPENSES OF RS.1,43,55,769/- HAS NOT BEEN DISALLOWED ALTHOUGH THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE AMOUNT OF RS.1,43,55,769/- HAS REMAINED TO BE DISALLOWED. ITA-281/DEL/2011 & 5 OTHERS 10 20. FROM THE ABOVE, IT IS EVIDENT THAT THE REASONS REC ORDED FOR REOPENING OF ASSESSMENT ARE IDENTICAL TO THE REASONS REC ORDED FOR ASSESSMENT YEAR 2000-01. THIS ISSUE HAS BEEN DISCUSSED AT LEN GTH BY US WHILE DISPOSING OF ASSESSEES APPEAL FOR ASSESSMENT YEAR 20 00-01. IN ADDITION, IT WAS POINTED OUT BY THE LEARNED COUNSE L THAT FOR THE YEAR UNDER CONSIDERATION, ORIGINAL ASSESSMENT WAS COMPLETED U /S 143(3) AND THIS ISSUE WAS EXAMINED BY THE ASSESSING OFFICER BY RAI SING A SPECIFIC QUERY. SINCE THE REASONS RECORDED FOR ASSESSMENT YEAR 2003- 04 ARE IDENTICAL TO THE REASONS RECORDED FOR ASSESSMENT Y EAR 2000-01, FOR THE DETAILED DISCUSSION IN THE ABOVE PART OF THIS O RDER, WE QUASH THE REOPENING OF ASSESSMENT FOR ASSESSMENT YEAR 2003-04 ALSO. THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. ITA NO. ITA NO. ITA NO. ITA NO.2651/DEL/2012 2651/DEL/2012 2651/DEL/2012 2651/DEL/2012 REVENUES APPEAL FOR AY 200 REVENUES APPEAL FOR AY 200 REVENUES APPEAL FOR AY 200 REVENUES APPEAL FOR AY 2003 33 3- -- -0 00 04 44 4 : :: :- -- - 21. SO FAR AS REVENUES APPEAL IN ITA NO.2651/DEL/201 2 IS CONCERNED, IN OUR OPINION, ONCE THE ASSESSMENT ORDER HA S BEEN QUASHED, THE DEPARTMENTS APPEAL WOULD NOT SURVIVE FO R ADJUDICATION. THE SAME IS, THEREFORE, DISMISSED. 22. IN THE RESULT, ALL THE APPEALS OF THE REVENUE ARE DISMISSED AND THE CROSS-OBJECTIONS OF THE ASSESSEE ARE ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 11.08.2016. SD/- SD/- (SUDHANSHU SRIVASTAVA (SUDHANSHU SRIVASTAVA (SUDHANSHU SRIVASTAVA (SUDHANSHU SRIVASTAVA ) )) ) ( (( ( G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VK. ITA-281/DEL/2011 & 5 OTHERS 11 COPY FORWARDED TO: - 1. REVENUE : DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -11(1), NEW DELHI. 11(1), NEW DELHI. 11(1), NEW DELHI. 11(1), NEW DELHI. 2. ASSESSEE : M/S ENGINEERING PROJECTS INDIA LIMITED, M/S ENGINEERING PROJECTS INDIA LIMITED, M/S ENGINEERING PROJECTS INDIA LIMITED, M/S ENGINEERING PROJECTS INDIA LIMITED, CORE CORE CORE CORE- -- -3, SCOPE COMPLEX, 7, INSTITUTIONAL AREA, 3, SCOPE COMPLEX, 7, INSTITUTIONAL AREA, 3, SCOPE COMPLEX, 7, INSTITUTIONAL AREA, 3, SCOPE COMPLEX, 7, INSTITUTIONAL AREA, LODHI RO LODHI RO LODHI RO LODHI ROAD, NEW DELHI. AD, NEW DELHI. AD, NEW DELHI. AD, NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR