Padinjarekkara Agencies P.Ltd, Kottayam V. The ACIT, Kottayam

ITA 375/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81341 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 11-08-2014
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: IYPE JOHN
• Keywords: Principle of natural justice; Earning of tax free income; Reasonable cause; Condonation of delay; Reassessment proceedings
• Section: 143(3); 115JB; 147; 131; 148; 10; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NO. 375/COCH/2014 ASSESSMENT YEAR : 2005-06 PADINJAREKARA AGENCIES PVT. LTD., KODIMATHA, KOTTAYAM. [PAN: AAACT 7598K] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOTTAYAM. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI IYPE JOHN, CA REVENUE BY SHRI K.K.JOHN, SR. DR DATE OF HEARING 08/10/2014 DATE OF PRONOUNCEMENT 17/10/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER DATED 05-12-2013 PASSED BY THE CIT(A)-IV, KOCHI FO R THE ASSESSMENT YEAR 2005-06. 2. THERE WAS A DELAY OF 160 DAYS IN FILING THE ABOV E APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL. THE ASSESSEE HAS FILED A PETITION SEEKING CONDONATION OF DELAY AND ALSO HAS FILED AN AFFIDAVIT EXPLAINING THE REASONS FOR DELAY IN FILING THE APPE AL BEFORE THE TRIBUNAL WITHIN THE DUE DATE. THE ASSESSEE SUBMITT ED THAT ONE OF THE ISSUES INVOLVED IN THIS APPEAL WAS THE APPLICAB ILITY OF THE I.T.A. NO. 375/COCH/2014 2 ACCOUNTING STANDARDS. THE CIT(A) HAS NOT CONSIDERE D THIS ASPECT. IN THE RECENT JUDGMENT IN THE CASE OF CIT VS. PUNJA B STAINLESS STEEL INDUSTRIES & ORS. (364 ITR 144), THE SUPREME COURT HAS HELD THAT MEANING GIVEN BY BODY OF ACCOUNTANTS HAVING STATUTO RY RECOGNITION CAN BE ADOPTED. SO BASED ON THE ACCOUNTING STANDAR DS, THE PETITIONER WAS ENTITLED TO THE CLAIM. THIS JUDGMEN T WAS RENDERED BY THE APEX COURT ONLY ON 05-05-2014 AND THE COPY O F THE INCOME TAX REPORT REPORTING THIS CASE WAS RECEIVED ONLY ON 07-06-2014. ACCORDING TO THE ASSESSEE, THE DELAY OCCURRED DUE T O REASONS BEYOND ASSESSEES CONTROL AND THERE WAS NO WILLFUL LATCHES OR OMISSIONS OR NEGLECT ON THE PART OF THE ASSESSEE IN FILING THE APPEAL WITHIN THE DUE DATE. THE ASSESSEE PLEADED THAT IF THE DELAY WAS NOT CONDONED AND THE APPEAL NOT ADMITTED, IT WOULD CAUSE SERIOUS AND IRREPARABLE HARDSHIP AND MONETARY LOSS TO THE A SSESSEE. 3. THE LD. DR HAS NOT RAISED ANY SERIOUS OBJECTION FOR CONDONATION OF DELAY IN FILING THE APPEAL BY THE AS SESSEE. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. WE FIND THAT THERE EXISTS REASONABLE CAUSE FOR NOT FIL ING THE APPEAL IN TIME AND THE REASONS ADVANCED BY THE ASSESSEE FOR T HE DELAY ARE I.T.A. NO. 375/COCH/2014 3 BONA FIDE. BEING SO, WE CONDONE THE DELAY IN FILING THE APPEAL BY THE ASSESSEE AND ADMIT THE APPEAL FOR ADJUDICATION. 5. REGARDING THE FIRST ISSUE RELATING TO RE-OPENING OF ASSESSMENT, THE LD. AR SUBMITTED THAT THE ONLY REAS ON RECORDED IS THAT AGRICULTURAL INCOME REDUCED FROM THE NET PROFI T IS RS.81,47,859/- IN PLACE OF RS.5,229 IN NORMAL COMPU TATION. SECTION 115JB STIPULATES THAT THE AMOUNT OF INCOME TO WHICH THE PROVISIONS OF SEC. 10 APPLIES CAN BE REDUCED FROM THE NET PROF IT ONLY IF SUCH AMOUNT IS CREDITED TO THE P&L ACCOUNT. NO AGRICULTU RAL INCOME WAS CREDITED TO THE P&L ACCOUNT OTHER THAN RS.5,228/- I NCLUDED IN THE OTHER INCOME. CORRECT COMPUTATION OF BOOK PROFIT W AS RS,1,04,79,620/-. 6. THE LD. AR SUBMITTED THAT THE LIMITED OBJECTI ON WAS THAT THE SUM SUBSTRACTED AS AGRICULTURAL INCOME WAS NOT CRED ITED TO THE P&L ACCOUNT, AS SUCH THIS FIGURE COULD NOT BE SUBSTRACT ED FROM THE NET PROFIT. BEING SO, THE LD. AR SUBMITTED THAT IF THE AMOUNT OF RS. 81,47,859/- WAS CREDITED TO P&L ACCOUNT, HE REASONS RECORDED CANNOT SURVIVE AND THE NOTICE UNDER SECTION 148 WOU LD BE WITHOUT AUTHORITY OF LAW. ACCORDING TO THE LD. AR, THERE WA S NO CASE FOR THE I.T.A. NO. 375/COCH/2014 4 AO THAT IT WAS NOT AGRICULTURAL INCOME BUT THE CASE WAS ONLY THAT IT WAS NOT CREDITED TO P&L ACCOUNT. 7. THE LD. AR SUBMITTED THAT THE CIT(A) REFERRED TO THE REVENUES STAND THAT PROFIT OR LOSS ON THE DISPOSAL OF AN ASSET WAS TO BE DULY INCORPORATED IN THE PROFIT AND LOSS ACCO UNT OF A COMPANY PREPARED IN ACCORDANCE WITH PARTS II & KKK OF SCHEDULE VI TO THE COMPANIES ACT, 1956, THE NET PROFIT PER W HICH IS TO BE ADOPTED BY IT FOR COMPUTING THE BOOK PROFIT UNDER THE MAT PROVISIONS INCLUDING 115JB. AS SUCH THERE WAS NO B ASIS FOR EXCLUDING THE PROFIT DERIVED FROM THE SALE OF ITS A GRICULTURAL LAND OUTSIDE THE MUNICIPAL LIMITS AND WAS EXEMPT INCOME UNDER SECTION 10. THE LD. AR SUBMITTED THAT THE CIT(A) RELIED ON THE ORDER OF THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF HAR RISONS MALAYALAM LTD. IN I.T.A. NO. 54/COCH/2009 AND 60/CO CH/2009 DATED 12-05-2009 WHEREIN IT WAS HELD THAT PROFIT AC COUNTED ON SALE OF AGRICULTURAL LAND NAMELY RUBBER ESTATE WAS NOT TO BE CONSIDERED FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. ACCORDINGLY, THE CIT(A) HELD THAT THE INCOME WAS AGRICULTURAL INCOME AND DELETED THE ADDITION OF RS.23.69 LAKHS. ADMITTEDLY, THE AMOUNT WAS CREDITED TO THE P &L ACCOUNT AND WAS ELIGIBLE FOR DEDUCTION. ACCORDING TO THE L D. AR, THE ORDER I.T.A. NO. 375/COCH/2014 5 OF THE CIT(A) PROVED THAT THE REASONS RECORDED WAS BASED ON WRONG ASSUMPTION OF FACTS. 8. THE LD. AR SUBMITTED THAT THE NOTICE ISSUED UNDER SECTION 148 WAS ON WRONG ASSUMPTION OF FACTS THAT THE SALE OF KUMARAKAM PROPERTY WAS DISCLOSED IN THE P&L ACCOUNT , BEING SO, THE NOTICE WAS LIABLE TO BE QUASHED IN VIEW OF THE JUDGMENT OF THE RAJASTHAN HIGH COURT IN THE CASE OF KHEM SINGH SANK HLA VS. UNION OF INDIA (266 ITR 485) WHEREIN IT WAS HELD THAT REA SONS BASED ON WRONG ASSUMPTION OF FACTS THAT CERTAIN INCOME WERE DISCLOSED AMOUNTS, AND OTHER ALLEGED REASONS WHICH APPEAR TO HAVE BEEN INTERPOLATED WITHOUT THE INITIAL OF ANY OFFICER COU LD NOT BE ACCEPTED AS VALID REASONS FOR ISSUANCE OF NOTICE UNDER SECTI ON 148 AND THE IMPUGNED NOTICE WAS QUASHED. ACCORDING TO THE CIT( A), THE NOTICE UNDER SECTION 148 WAS ALSO LIABLE TO BE QUAS HED ALSO IN VIEW OF THE JUDGMENT OF THE BOMBAY HIGH COURT IN TH E CASE OF SIEMENS INFORMATION SYSTEM LTD. VS. ACIT (2007) (29 3 ITR 548) HOLDING THAT WHEN NOTICE UNDER SECTION 148 IS ISSUE D BASED ON A NON-EXISTING REASONS AND HAD BEEN ISSUED UNDER THE MISTAKEN BELIEF, NOTICE WAS NOT VALID SINCE THERE WAS TOTAL NON APPLICATION OF MIND AND NOTICE WAS BASED ON THAT REASONS WOULD AMO UNT TO NON APPLICATION OF MIND. I.T.A. NO. 375/COCH/2014 6 9. THE LD. AR SUBMITTED THAT THE CASE OF AO WAS ONL Y THAT THE LAW DOES NOT REQUIRE AO TO LIMIT HIMSELF TO ONLY TH E GROUND ON WHICH ASSESSMENT WAS REOPENED. THE LD. AR RELIED O N THE JUDGMENT OF APEX COURT IN THE CASE OF CIT VS. SUN EN GINEERING WORKS P. LTD. (1992) (198 ITR 297) WHEREIN IT WAS H ELD THAT IN PROCEEDINGS UNDER SECTION 147, THE AO MAY BRING TO CHARGE ITEMS OF INCOME WHICH HAD ESCAPED ASSESSMENT OTHER THAN O R IN ADDITION TO THAT ITEM OR ITEMS WHICH LED TO THE ISSUANCE OF THE NOTICE UNDER SECTION 148. THE LD. AR SUBMITTED THAT THIS ISSUE ARISES ONLY AT THE ASSESSMENT STAGE AND NOT AT THE NOTICE STAGE. FOR THIS, HE RELIED ON THE JUDGMENT OF THE CALCUTTA HIGH COURT I N THE CASE OF CESC LTD. AND ANOTHER VS. DCIT (263 ITR 402) WHEREIN IT WAS HELD THAT AT THE NOTICE STAGE, THERE WAS NO QUESTION OF HAVING ANY ALTERNATIVE REMEDY EXCEPT CONTESTING THE PROCEEDING S BEFORE THE AUTHORITY CONCERNED. THE NOTICE WAS LIABLE TO BE Q UASHED. HE FURTHER RELIED ON THE JUDGMENT OF THE RAJASTHAN HIG H COURT IN THE CASE OF CIT VS. SHRI RAM SINGH (306 ITR 343) WHEREI N IT WAS HELD THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE PROC EEDINGS FOR RE- ASSESSMENT UNDER SECTION 148/147 WERE INITIATED BY THE AO, ON NON-EXISTING FACTS, BECAUSE ULTIMATELY, THE ASSESSE E HAS BEEN ABLE TO EXPLAIN THE INCOME, WHICH WAS BELIEVED TO HAVE B EEN ESCAPED I.T.A. NO. 375/COCH/2014 7 ASSESSMENT, WAS EXPLAINABLE. IT WAS FURTHER HELD T HAT THE AO WAS JUSTIFIED IN INITIATING THE PROCEEDINGS UNDER SECTI ON 147/148, BUT THEN, ONCE HE CAME TO THE CONCLUSION THAT THE INCOM E, WITH RESPECT TO WHICH HE HAD ENTERTAINED REASON TO BELI EVE TO HAVE ESCAPED ASSESSMENT, WAS FOUND TO HAVE BEEN EXPLAINE D, HIS JURISDICTION, TO PUT TO TAX, ANY OTHER INCOME, WHIC H WERE FOUND BY HIM, TO HAVE ESCAPED ASSESSMENT. THUS WHEN THE VER Y BASE OF THE REOPENING GOES, THE REASON FOR REOPENING ALSO G OES. THUS, IT WAS FOUND THAT THE ACTION TAKEN BY THE AO UNDER SEC TION 147/148 WAS ILLEGAL AND NOTICE ISSUED UNDER SECTION 148 WAS AB INITIO VOID AND WAS THUS QUASHED. 10. THE LD. AR SUBMITTED THAT THE CIT(A) TOTALLY OM ITTED TO DEAL WITH THE REASONS RECORDED ON OBJECTIONS AND AFTER H OLDING THAT THE INCOME CREDITED TO P&L ACCOUNT IS AGRICULTURAL INCO ME AND AFTER DELETING THE ADDITION MADE BY THE AO BASED ON CREDI T IN P&L ACCOUNT, THE ORDER OF THE CIT(A) ON THIS GROUND IS A CLEAR CONTRADICTION AND IF THERE IS NO CREDIT IN P&L ACCO UNT THERE WAS NO QUESTION OF ALLOWING THE CLAIM WHICH IS IN TOTAL VI OLATION OF PRINCIPLES OF NATURAL JUSTICE. FOR THIS, THE LD. A R RELIED ON THE JUDGMENT OF APEX COURT IN THE CASE OF 9 SCC 496, A SUMMARY OF WHICH IS GIVEN BY THE PUNJAB AND HARYANA HIGH COURT IN THE CASE I.T.A. NO. 375/COCH/2014 8 OF ATM FORGINGS VS. CIT (359 ITR 314) WHEREIN IT WA S HELD THAT ALL THESE DECISIONS SERVE ONE COMMON PURPOSE WHICH IS T O DEMONSTRATE BY REASON THAT THE RELEVANT FACTORS HAV E BEEN OBJECTIVELY CONSIDERED WHICH IS IMPORTANT FOR SUSTA INING LITIGANTS FAITH IN THE JUSTICE DELIVERY SYSTEM. THE INSISTEN CE ON REASON IS A REQUIREMENT FOR BOTH JUDICIAL ACCOUNTABILITY AND TR ANSPARENCY. THE REASONS IN SUPPORT OF DECISIONS MUST BE COGENT, CLE AR AND SUCCINCT. A PRETENCE OF REASONS OR RUBBER STAMP REASONS IS NO T TO BE EQUATED WITH A VALID DECISION-MAKING PROCESS AND TH E JUDGMENT OF THE SUPREME COURT IN THE CASE OF TAMIL NADU MERCANT ILE BANK LTD. VS. STATE REPORTED IN 2013 (4) KLT S.N. 143(SC) WHE REIN IT WAS HELD THAT REASON WOULD MEAN A JUSTIFYING REASON, OR MORE SIMPLE A JUSTIFICATION FOR A DECISION IS A CONSIDERATION, IN A NON-ARBITRARY WAYS IN FAVOUR OF MAKING OR ACCEPTING THAT DECISION . IF THERE IS NO JUSTIFICATION IN SUPPORT OF A DECISION, SUCH A DECI SION IS WITHOUT ANY REASON OR JUSTIFYING REASON. HE FURTHER RELIED ON THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF 2012 (4)KLT SN 131 WHEREIN IT WAS HELD THAT NON DISCLOSURE OF REASONS IS FATAL TO THE DECISION WHICH IS RENDERED AND REASONS FORM THE ELIXIR OF AD JUDICATION PROCESS AND THE RESULT AND DECISION. I.T.A. NO. 375/COCH/2014 9 11. THE LD. DR SUBMITTED THAT THE REASONS RECORDED BY THE AO ARE SUFFICIENT TO JUSTIFY THE REASSESSMENT, NO MATT ER WHETHER ANY ADDITION SUSTAINED IN THE ASSESSMENT WITH SPECIFIC REASONS OR GROUNDS FOR REOPENING AND THERE IS A VALID REASON F OR REOPENING THE ASSESSMENT AND THAT CANNOT BE THE REASON TO CAN CEL THE ASSESSMENT. FOR THIS, THE LD. DR RELIED ON THE JU DGMENT OF THE KERALA HIGH COURT IN THE CASE OF CIT VS. TBS PUBLIS HERS & DISTRIBUTORS (2010) (325 ITR 257) WHEREIN IT WAS HE LD THAT THE ASSESSING OFFICER HAVING NOTICED THAT THE ASSESSEE HAS CLAIMED CREDIT BASED ON TDS CERTIFICATE VIS--VIS RENT WITH OUT DISCLOSING INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND ALSO DOUBTED THE GENUINENESS OF THE SUNDRY CREDITORS, TH E SAME CONSTITUTED SUFFICIENT REASONS FOR RE-OPENING OF TH E ASSESSMENT, EVEN THOUGH NO RENTAL INCOME WAS ASSESSED IN THE RE ASSESSMENT. THE ASSESSEES CLAIM THAT THE ASSESSING OFFICER COU LD HAVE ISSUED NOTICE U/S. 143(2) OF THE ACT WAS NOT TENABLE AS SU CH A RECOURSE OPEN TO THE ASSESSING OFFICER DOES NOT STAND IN HIS WAY OF REOPENING THE ASSESSMENT U/S. 147 OF THE ACT. HE A LSO RELIED ON THE JUDGMENT OF FULL BENCH OF THE KERALA HIGH COURT IN THE CASE OF CIT VS. BEST WOOD INDUSTRIES AND SAW MILLS (2010) ( 331 ITR 63) (KER.) (FB) WHEREIN IT WAS HELD THAT IN THE COURSE OF REASSESSMENT IT COMES TO THE NOTICE OF THE ASSESSING OFFICER OF ANY ITEM OR ITEMS I.T.A. NO. 375/COCH/2014 10 OTHER THAN ITEM OF ESCAPED INCOME FOR WHICH ORIGINA L ASSESSMENT WAS REOPENED HAVE ALSO ESCAPED ASSESSMENT, HE IS BO UND TO ASSESS SUCH ITEM OR ITEMS OF INCOME ALSO IN THE COU RSE OF REASSESSMENT. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. IN THIS CASE, THE ASSESSMENT WAS REOPENED ON THE REASO N THAT WHILE COMPUTING BUSINESS LOSS UNDER THE NORMAL PROVISIONS OF THE ACT, THE ASSESSEE ADDED BACK TO THE INCOME AS PER P&L A/ C., AGRICULTURAL EXPENSES AMOUNTING TO RS.10,943/- AND SUBTRACTED AGRICULTURAL INCOME OF RS.5,228/-. HOWEVER IN COMP UTING MAT U/S. 115JB, THE ASSESSEE SUBTRACTED FROM NET PROFIT, A S UM OF RS.81,47,859/- AS AGRICULTURAL INCOME. WHILE MAKI NG ADJUSTMENTS FROM THE NET PROFIT, IN ORDER TO ARRIVE AT BOOK PRO FIT FOR THE PURPOSE OF MAT, ONLY THOSE SUMS CAN BE DEDUCTED WHICH ARE C REDITED TO THE P&L A/C (CLAUSE II TO EXPLANATION TO SECTION 115JB). SINCE THE ASSESSEE HAD CREDITED ONLY RS.5,228 UNDER OTHER INCOME, THIS ALONE CAN BE SUBTRACTED. 13. NOW THE CONTENTION OF THE ASSESSEE IS THAT WHE N THE REASSESSMENT PROCEEDINGS ARE INITIATED, THE AO NEED TO LIMIT HIMSELF TO THE GROUND ON WHICH THE ASSESSMENT WAS R EOPENED I.T.A. NO. 375/COCH/2014 11 AND HE CANNOT TRAVEL BEYOND THE REASONS RECORDED. FOR THIS, HE RELIED ON VARIOUS JUDGMENTS. AS PER PROVISIONS OF S EC. 147, ONCE THE ASSESSMENT IS REOPENED, FOR BRINGING TO TAX ANY INCOME THAT HAS ESCAPED ASSESSMENT, IN TERMS OF SEC. 148 TO 153 , THEN THE AO HAS TO ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT. THE PURPOSE OF THIS PROVISION IS THAT IF IN THE PROCESS OF REASSES SMENT INITIATED UNDER SECTION 147 TO BRING TO TAX ANY ITEM OF ESCAP ED INCOME IT COMES TO THE NOTICE OF THE AO THAT ANY OTHER INCOME HAS ALSO ESCAPED ASSESSMENT, THEN THE ASSESSING OFFICER HAS TO BRING TO TAX SUCH INCOME ALSO. THE PROCEDURE FOR INCOME THAT HA S ESCAPED ASSESSMENT UNDER SECTION 147 IS CONTAINED IN SECTIO N 148 WHEREUNDER SUB-SECTION (2) MAKES IT MANDATORY FOR T HE ASSESSING OFFICER TO RECORD REASONS BEFORE PROCEEDING TO ISS UE NOTICE. HOWEVER, ONCE ASSESSMENT IS REOPENED AFTER RECORDIN G REASONS, THE ASSESSING OFFICER HAS TO COMPLETE THE INCOME ES CAPING ASSESSMENT BY FOLLOWING THE PROVISIONS OF THE ACT AS IF THE RETURN FURNISHED AGAINST NOTICE U/S. 148 AS ONE FILED U/S. 139 OF THE ACT. THIS OBVIOUSLY MEANS THAT SO FAR AS PROCEDURE TO BE FOLLOWED IS CONCERNED, THERE IS NO DIFFERENCE BETWEEN INCOME ES CAPING ASSESSMENT AND REGULAR ASSESSMENT BECAUSE THE PROVI SIONS GENERALLY PROVIDE FOR ISSUE OF NOTICE, HEARING OF T HE ASSESSEE AND I.T.A. NO. 375/COCH/2014 12 TAKING OF EVIDENCE, ETC., WHICH ARE THE SAME FOR RE GULAR ASSESSMENT AND INCOME ESCAPING ASSESSMENT. THEREFO RE, IN THE COURSE OF INCOME ESCAPING ASSESSMENT, IF IT COMES T O THE NOTICE OF THE ASSESSING OFFICER THAT ANY OTHER ITEM OR ITEMS OF INCOME OTHER THAN THE ITEM OF ESCAPED INCOME FOR THE ASSESSMENT OF WHICH, ASSESSMENT ORIGINALLY COMPLETED WAS REOPENED, ALSO HAVE ESCAPED FROM ORIGINAL ASSESSMENT, HE IS BOUND TO ASSESS SUC H ITEM OR ITEMS OF INCOME ALSO IN THE COURSE OF REASSESSMENT U/S. 1 47. IN VIEW OF THE SPECIFIC PROVISION PROVIDING FOR ASSESSMENT OF OTHER ITEMS OF INCOME THAT HAVE ESCAPED ASSESSMENT, AND THAT COMES TO THE NOTICE OF THE ASSESSING OFFICER IN THE COURSE OF IN COME ESCAPING ASSESSMENT, THE REASSESSMENTS MADE ARE VALID. BEIN G SO, IN OUR OPINION, THERE IS NO INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. MORE SO, THIS ISSUE IS FULLY COVERED BY THE JURISDICTIONAL HIGH COURT, CITED SUPRA. ACCORDINGLY, THIS GROUND IS DISMISSED. 14. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF PROVISION OF SALES TAX OF RS.2,36,99,806/-. 14.1. LD. AR SUBMITTED THAT THE DISALLOWANCE OF P ROVISION FOR SALES TAX OF RS.2,36,99,806/- WAS NOT SUSTAINABLE. ACCORDING TO THE AO, THE PROVISIONS RELATE TO DEMANDS FROM A.Y. 1982-93 TO I.T.A. NO. 375/COCH/2014 13 1999-2000 BASED ON ASSESSMENT ORDERS AND THE MATTER WAS STILL IN THE STAGE OF APPEAL, REASSESSMENT ETC. AND THE ASSE SSEE HAS NOT PAID THE DEMAND. THEREFORE, AS PER SECTION 43B, TH IS AMOUNT CANNOT BE ALLOWED UNDER NORMAL COMPUTATION. AGAINS T THIS, THE LD. AR SUBMITTED THAT THE CLAIM IS UNDER SECTION 11 5JB. ACCORDING TO THE LD. AR, ADDITION AS PER THE EXPLANATION IN CL AUSE (C) IS ONLY IN RESPECT OF AMOUNT OR AMOUNTS SET ASIDE TO PROVIS IONS MADE FOR MEETING LIABILITIES OTHER THAN THE ASCERTAINED LIAB ILITIES. ACCORDING TO THE LD. AR, THE LIABILITIES HAVE NOT CRYSTALLIZE D AND HENCE IT DOES NOT RELATE TO THE PREVIOUS YEAR IN QUESTION. THE O NLY DISPUTE IS WHETHER IT IS AN ASCERTAINED LIABILITY OR NOT. 15. THE LD. AR SUBMITTED THAT IN THE P&L ACCOUNT, T HE PROVISIONS FOR SALES TAX OF RS.2,36,99,808/- WAS MA DE AND THE ABOVE PROVISION RELATES TO THE ASSESSMENT YEARS 198 2-83 TO 1999- 2000. ACCORDING TO THE LD. AR, JUST BECAUSE THE A PPEALS ARE PENDING, THAT DOES NOT MAKE IT UNASCERTAINED LIABIL ITY NOT TO BE PROVIDED FOR. THE LD. AR RELIED ON THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF CIT VS. KUMARAN AND CO. ( 194 ITR 85) AND THE JUDGMENT OF APEX COURT IN THE CASE OF CIT V S. APOLLO TYRES LTD. (255 ITR 273). MOREOVER THE ISSUE WAS C OVERED BY JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. KHETAN I.T.A. NO. 375/COCH/2014 14 CHEMICALS AND FERTILIZERS LTD. (307 ITR 150) AND TH E LATEST JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. P UNJAB STAINLESS STEEL INDUSTRIES & ORS. (364 ITR 144). 16. THE LD. AR RELIED ON THE JUDGMENT OF KERALA HIG H COURT IN THE CASE OF M/S. ABAD FISHERIES VS. CIT REPORTED IN 1995 TAX L.R. 571. HOWEVER CONSEQUENT TO SUBSEQUENT APPELLATE ORD ERS, THE ASSESSEE GOT REFUND OF RS. 2,53,49.742/- FOR ASSESS MENT YEAR 2012-13 WHICH WAS CREDITED IN THE P&L ACCOUNT AND O FFERED FOR ASSESSMENT. THE LD. AR RELIED ON THE DECISION OF T HE APEX COURT IN THE CASE OF UNION OF INDIA VS. NATIONAL FEDERATI ON OF THE BLIND REPORTED IN 2013 (4) KLT SN 51 WHEREIN IT WAS HELD THAT WHILE INTERPRETING ANY PROVISION OF A STATUTE THE PLAIN M EANING HAS TO BE GIVEN EFFECT AND IF LANGUAGE THEREIN IS SIMPLE AND UNAMBIGUOUS, THERE IS NO NEED TO TRAVERSE BEYOND THE SAME. THE L D. AR ALSO RELIED ON CONSTITUTION BENCH JUDGMENT OF THE APEX C OURT IN THE CASE OF BHARAT ALUMINIUM CO. VS. KAISER ALUMINIUM T ECHNICAL SERVICE INC. & OTHERS REPORTED IN (2013) 180 COMPAN Y CASES 311 WHEREIN IT WAS HELD THAT THE PROVISIONS IN THE 1996 ACT MUST BE CONSTRUED BY THEIR PLAIN LANGUAGE/TERMS. IT IS NOT PERMISSIBLE FOR THE COURT WHILE CONSTRUING A PROVISION TO RECONSTRU CT THE PROVISION. IN OTHER WORDS, THE COURT CANNOT PRODUCE A NEW JACK ET, WHILST I.T.A. NO. 375/COCH/2014 15 IRONING OUT THE CREASES OF THE OLD ONE. BEING SO, THE LD. AR SUBMITTED THAT THE PROVISION FOR SALE TAX IS AN ASC ERTAINED LIABILITY AND IS TO BE DEDUCTED. ACCORDING TO THE LD. AR, TH E CIT(A) CONFIRMED THE ADDITION BY HOLDING THAT THE LIABILIT Y HAS NOT BEEN QUANTIFIED AS THE ASSESSMENTS WERE IN VARIOUS STAGE S OF APPEAL REVISION ASSESSMENT ETC. 17. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT PR OVISION MADE ON ACCOUNT OF SALES TAX WAS NOT AN ASCERTAINED LIABILITY. 18. THE LD. DR SUBMITTED THAT THE LIABILITY HAS NO T CRYSTALLIZED AS ON DATE AND HAS ALSO RAISED THE ISSUE AS TO WHY THE ASSESSEE HAS NOT PROVIDED ANY EXPLANATION AS TO WHY THE PROV ISION WAS MADE IN THE PREVIOUS YEAR AND NOT IN ANY OF THE YEA RS PRECEDING. IT WAS ALSO CLEAR, ACCORDING TO THE LD. DR, THAT TH E LIABILITY WOULD CRYSTALLIZE ONLY ON THE OUTCOME OF SUCH APPEALS/REA SSESSMENT, ETC. FURTHER, THE ASSESSING OFFICER HAS APPLIED THE RATI O IN THE CASE OF BHARATH EARTH MOVERS VS. CIT (2000) (245 ITR 428), W HEREIN IT WAS HELD THAT IF A BUSINESS LIABILITY HAS ARISEN IN THE RELEVANT ACCOUNTING YEAR THE DEDUCTION SHOULD BE ALLOWED ALT HOUGH THE LIABILILTY IS QUANTIFIED AND DISCHARGED AT A LATER DATE. ACCORDING TO THE ASSESSING OFFICER WHAT SHOULD BE CERTAIN IS THE INCURRING OF I.T.A. NO. 375/COCH/2014 16 LIABILITY AND IT SHOULD ALSO BE CAPABLE OF BEING ES TIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL Q UANTIFICAT ION MAY NOT BE POSSIBLE. ACCORDING TO THE LD. DR, THE PROVISION IS NOT AN ASCERTAINED LIABILITY AND THE ASSESSING OFFICER HAS FURTHER DISTINGUISHED THE DECISION OF THE KERALA HIGH COURT IN CIT VS. KUMARAN & CO. (1991) (194 ITR 85) WHICH HAS BEEN RE LIED UPON BY THE ASSESSEE. ACCORDING TO THE LD. DR, IN THIS CASE, THE ASSESSEE IS AN ABKARI CONTRACTOR WHO INCURRED A LIA BILITY TO PAY LICENCE FEE AND THE ASSESSEE PAID A PART OF IT AND MADE A PROVISION IN THE ACCOUNTS TOWARDS REST OF THE ACCOUNT AND INT EREST THEREON. LATER A COURT DECISION CAME THAT ENDED THE LIABILIT Y FOR WHICH THE PROVISION WAS MADE. ACCORDINGLY, THE LD. DR SUBMITT ED THAT THE ASSESSING OFFICER AND THE CIT(A) DISALLOWED THE PRO VISION AND THE ITAT AND THE HIGH COURT ALLOWED IT. 19. ACCORDING TO THE LD. DR, THE ISSUE IS NOT WHETH ER PRIOR PERIOD ITEMS CAN BE ALLOWED WHILE COMPUTING TAX U/S . 115JB. THE ISSUE IS WHETHER THE PRIOR PERIOD ITEM INVOLVED IS AN ASCERTAINED LIABILITY OR NOT. THE ASSESSEE HAS RECEIVED THE RE FUND OF SALES TAX OF RS.2,53,49,742/-. FOR THE ASSESSMENT YEAR 2005- 06, THE PROVISION FOR SALES TAX LIABILITY OF RS.2,36,99,808 /- WAS MADE WHICH WAS TREATED BY THE ASSESSING OFFICER AS UNASCERTAIN ED LIABILITY AND I.T.A. NO. 375/COCH/2014 17 ADDED BACK BOTH IN REGULAR COMPUTATION AND U/S. 115 JB. ACCORDING TO THE LD. DR, IN RETROSPECT, IT IS NOW A MPLY CLEAR THAT IT IS NOT ONLY THAT THE LIABILITY WAS UNASCERTAINED BU T RATHER, NON- EXISTENT WHICH MEANS THAT THE ASSESSING OFFICER HAS RIGHTLY INFERRED AND ADDED THE LIABILITY FOR THE COMPUTATION OF INCO ME INCLUDING U/S. 115JB OF THE ACT. THE LD. DR SUBMITTED THAT S INCE THE LIABILITY HAS NOT BEEN QUANTIFIED AS THE ASSESSMENTS ARE IN V ARIOUS STAGES OF APPEALS/REVISION/REASSESSMENT, ETC., THE ASSESSI NG OFFICER WAS JUSTIFIED IN MAKING THE ADDITION. 20. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE HAD CONTENDED THAT THE ASSESSING OFFIC ER WAS NOT ENTITLED TO MAKE ADJUSTMENTS TO BOOK PROFIT SHOWN I N THE AUDITED ACCOUNTS. THE QUESTION THAT HAD ARISEN WAS WHETHER THE ASSESSING OFFICER WAS ENTITLED TO DISTURB THE NET P ROFIT SHOWN BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT PREPARE D AS PER THE COMPANIES ACT, 1956. 21. AS PER THE PROVISIONS OF SECTION 211 OF THE COM PANIES ACT, THE COMPANIES HAVE TO FOLLOW THE APPLICABLE ACCOUNT ING STANDARDS. HOWEVER, IF THE PROFIT AND LOSS ACCOUNT AND THE BAL ANCE SHEET DO NOT COMPLY WITH THE ACCOUNTING STANDARDS, SUCH COMP ANIES ARE I.T.A. NO. 375/COCH/2014 18 REQUIRED TO DISCLOSE ABOUT THE DEVIATION, REASONS T HEREOF AND THE FINANCIAL IMPACT THEREON. THIS IS PROVIDED SO IN S UB-SECTION (3A) AND (3B) OF SECTION 211 OF THE COMPANIES ACT. 22. THE ACCOUNTING STANDARDS PRESCRIBE THE METHOD O F TREATING VARIOUS TYPES OF INCOME AND EXPENDITURE FOR THE PUR POSE OF PREPARING THE FINANCIAL STATEMENTS. HENCE, IN ORDE R TO ENSURE UNIFORM ACCOUNTING PRACTICES AND DISCLOSURES, THE A CCOUNTING STANDARDS HAVE BEEN MADE MANDATORY FOR THE COMPANIE S AND, HENCE, THEY ARE REQUIRED TO FOLLOW THEM WHILE PREPA RING THE FINANCIAL STATEMENTS. IF ANY COMPANY DEVIATES FROM THE PRESCRIBED ACCOUNTING STANDARDS, IT HAS TO DISCLOSE, INTER ALI A, THE FINANCIAL EFFECT ARISING DUE TO SUCH DEVIATION. THUS, THERE IS AN OPTION FOR THE COMPANIES NOT TO FOLLOW THE ACCOUNTING STANDARD S, IF IT FEELS SO FOR ANY REASON. SUCH DEVIATION MAY HAVE IMPACT TO THE PROFIT DISCLOSED IN THE PROFIT AND LOSS ACCOUNT PREPARED I N ACCORDANCE WITH PART II AND PART III OF SCHEDULE VI OF THE COM PANIES ACT. HENCE IN ORDER TO ENABLE ANYBODY TO UNDERSTAND THE IMPLICATION OF SUCH DEVIATION, IT WAS MADE MANDATOR Y FOR THE COMPANIES TO DISCLOSE THE FINANCIAL IMPLICATIONS OF SUCH DEVIATION. SUCH KIND OF DEVIATIONS ARE ACCEPTABLE UNDER THE CO MPANIES ACT, HOWEVER, THEY ARE NOT ALWAYS ACCEPTABLE TO THE INCO ME-TAX I.T.A. NO. 375/COCH/2014 19 AUTHORITIES. UNDER THE INCOME-TAX, THE ASSESSING O FFICER IS ENTITLED TO EXAMINE THE SAID DEVIATIONS, PARTICULARLY WHEN I T HAS AN IMPACT ON THE BOOK PROFIT. THERE CANNOT BE ANY DISPUTE THA T IT IS THE RESPONSIBILITY OF THE ASSESSEE TO SUBSTANTIATE THE LEGALITY OF ANY ITEM OF EXPENDITURE/INCOME FOUND DEBITED/CREDITED I N THE PROFIT AND LOSS ACCOUNT BY DRAWING SUPPORT FROM ANY DOCUME NT OR BUSINESS PRACTICES OR ACCOUNTING REQUIREMENTS. 23. WITH REGARD TO THE CLAIM OF PRIOR PERIOD CHARGE S/CREDITS IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEES EXPLANA TION IS THAT IT WAS CRYSTALLIZED IN THIS ASSESSMENT YEAR. FROM THE EXPLANATIONS FURNISHED BY THE ASSESSEE, IT WAS EVIDENT THAT THE ASSESSEE HAD PASSED THE ENTRY FOR PRIOR PERIOD CREDITS/CHARGES I N THE ASSESSMENT YEAR ONLY TO ENSURE THAT THE FINAL BOOK PROFIT (S URPLUS) WAS TO BE REDUCED. ON MAKING CAREFUL OBSERVATIONS OF THE FAC TS OF THE CASE, THE SAID INTENTION OF THE ASSESSEE WAS VERY MUCH AP PARENT AND GLARING. BESIDES, THE ASSESSEE ALSO COULD NOT SUBS TANTIATE THE SAID CLAIM WITH A LEGALLY TENABLE EXPLANATION. IT WAS A LSO NOT SHOWN THAT THE BOOKING OF SUCH KIND OF ENTRIES ARE PERMIT TED UNDER THE ACCOUNTING PRINCIPLES. I.T.A. NO. 375/COCH/2014 20 24. THE QUESTION THAT WOULD ARISE, THEREAFTER, WAS WHETHER THE ASSESSING OFFICER WAS STILL DEBARRED FROM MAKING AN Y ADJUSTMENT TO THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCO UNT, EVEN IF ANY ENTRY MADE THEREIN COULD NOT BE PROPERLY EXPLAINED IN ACCORDANCE WITH THE ACCOUNTING PRINCIPLES/BUSINESS PRACTICES. THE ANSWER COULD BE NO ONLY. THAT WAS IN VIEW OF THE FACT THA T WHEN THE ASSESSEE COULD NOT FURNISH LEGALLY TENABLE EXPLANAT ION AND ALSO COULD NOT SHOW THAT IT WAS IN ACCORDANCE WITH ESTAB LISHED ACCOUNTING PRINCIPLES, THEN IT COULD NOT BE SAID TH AT THE FINANCIAL STATEMENTS HAD BEEN PREPARED IN ACCORDANCE WITH THE PROVISION OF THE COMPANIES ACT, EVEN IF THE MANAGEMENT/AUDITORS WERE SILENT ON THAT POINT. ADMITTEDLY, IN THE PRESENT CASE, TH E PROVISION MADE BY THE ASSESSEE RELATES TO THE SALES TAX DEMAND FOR THE ASSESSMENT YEARS 1982-93 TO 1999-2000, BASED ON THE ASSESSMENT ORDER OF THE RESPECTIVE YEARS. THERE IS NO EVIDENCE BROUGHT ON RECORD BY THE ASSESSEE TO SUGGEST THAT T HESE ASSESSMENT ORDERS HAVE BEEN RECEIVED BY THE ASSESSE E IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE, HAVING RECEIVED THE SALES TAX ASSESSMENT ORDERS NOT IN THI S ASSESSMENT YEAR AND THE LIABILITY BEING QUANTIFIED IN THE EARL IER ASSESSMENT YEARS, IT CANNOT BE CLAIMED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. IN OTHER WORDS, IT WAS NOT AN ASCER TAINED LIABILITY OF I.T.A. NO. 375/COCH/2014 21 THE ASSESSMENT YEAR UNDER CONSIDERATION. BEING SO, THE PROVISION MADE BY THE ASSESSEE CANNOT BE CONSIDERED AS ALLOWA BLE EXPENDITURE IN THE ASSESSMENT YEAR UNDER CONSIDERAT ION. IN SUCH KIND OF SITUATIONS, THE ASSESSING OFFICER WOULD DEF INITELY BE ENTITLED TO MAKE SUITABLE ADJUSTMENT TO THE NET PROFIT SHOWN BY THE ASSESSEE TO NULLIFY THE EFFECT OF SUCH KIND OF ACCO UNTING ENTRIES. 25. IN VIEW OF THE FOREGOING DISCUSSION, WE HOLD T HAT THE ASSESSING OFFICER WAS ENTITLED TO ADOPT THE NET PRO FIT AFTER SUITABLE ADJUSTMENT FOR THE PURPOSE OF COMPUTING THE BOOK PR OFIT U/S. 115JB. THE JUDGMENT RELIED UPON BY THE ASSESSEE IN THE CASE OF APOLLO TYRES, CITED SUPRA, CANNOT BE APPLIED TO THE PRESENT FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. ACCORDINGLY , THIS GROUND IS REJECTED. 26. THE NEXT GROUND IS WITH REGARD TO VALIDITY OF A SSESSMENT PASSED UNDER SECTION 147 OF THE I.T. ACT. 26.1 LD. AR SUBMITTED THAT THE ABOVE ORDER WAS PASS ED WITHOUT AUTHORITY. ACCORDING TO THE LD. AR, PURSUANT TO RE TURN FILED ON REOPENING, IT WAS NOT PROCESSED UNDER SECTION 143(1 ). ACCORDING TO THE LD. AR, THE RETURN WAS PROCESSED UNDER SECTI ON 143(1) ON I.T.A. NO. 375/COCH/2014 22 THE BASIS OF ORIGINAL RETURN ON 24-01-2006 AND THE ORDER WAS PASSED UNDER SECTION 147 AND NOT UNDER SECTION 147 READ WITH SECTION 143(3) WHICH MAY BE DUE TO NON ISSUANCE OF NOTICE UNDER SECTION 143(2). THE LD. AR SUBMITTED THAT IN VIEW OF JUDGMENTS OF THE CALCUTTA HIGH COURT IN THE CASE OF INDIAN AL UMINIUM CO. LTD. VS. UNION OF INDIA & ORS. (271 ITR 73), JODHPUR BEN CH OF THE TRIBUNAL IN THE CASE OF SMT. MANSUKHI DEVI BIHANI J AN HITKARI TRUST VS. CIT (94 ITD 1) AND THE APEX COURT JUDGMENT IN T HE CASE OF L.N. HOTA & COMPANY VS. CIT (301 ITR 184), THE ORDE R PASSED IS WITHOUT AUTHORITY. 27. THE LD. DR SUBMITTED THAT THIS ISSUE CANNO T BE ADJUDICATED AT THIS STAGE AS THERE IS NO SUCH ISSUE RAISED BEFO RE THE LOWER AUTHORITIES AND THERE IS NO PETITION FOR ADMISSION OF ADDITIONAL GROUND. 28. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. IN THIS CASE, THE ASSESSEE HAD CONTINUOUSLY APPEARED B EFORE THE ASSESSING AUTHORITY AS WELL AS BEFORE THE CIT(A) AN D PARTICIPATED IN ALL THE RE-ASSESSMENT PROCEEDINGS, ANSWERED ALL QUE RIES RAISED BY THE ASSESSING OFFICER. IT IS NOT THE CASE OF THE A SSESSEE THAT NO PROPER OPPORTUNITY WAS GIVEN IN THIS CASE. THE ONL Y CONTENTION IS I.T.A. NO. 375/COCH/2014 23 THAT THERE WAS NO NOTICE U/S. 143(2) BEFORE COMPLET ING THE RE- ASSESSMENT. ANOTHER RELEVANT POINT THAT MUST BE TA KEN INTO ACCOUNT IS THAT THE ASSESSEE BY LETTERS DATED 10-09 -2007, 17-09- 2007, 18-07-2008 ETC., SENT VARIOUS SUBMISSIONS TO THE ASSESSING OFFICER IN RESPONSE TO THE VARIOUS LETTERS ISSUED B Y THE ASSESSING OFFICER, EXPLAINING THE ASSESSEES POSITION. BEING SO, THE ASSESSING OFFICER MIGHT HAVE THOUGHT THAT IT WAS NOT NECESSAR Y TO GIVE NOTICE IN THE PRESCRIBED FORMAT U/S. 143(2) OF THE ACT. T AKING INTO ACCOUNT THE ABOVE FACTORS, IT IS CLEAR THAT EVEN IF THERE IS ANY DISCREPANCY IN THE FORMAT OF THE NOTICE U/S. 143(2) , I.E., NON- ADHERENCE TO SOME PRESCRIBED RULE OR MODE OF PROCEE DINGS, IT DOES NOT MAKE THE ASSESSMENT ORDERS NULL AND VOID. NUL LITY IS WHERE THERE IS A VOID ACT OR AN ACT HAVING NO LEGAL FORCE OR VALIDITY. IN THIS CASE, THE ASSESSING OFFICER, HAVING FOLLOWED T HE RULE PRESCRIBED, HAS GIVEN ADEQUATE OPPORTUNITY OF HEARING TO THE AS SESSEE AND THERE IS NO FAILURE TO CONSIDER THE VARIOUS OBJECTI ONS RAISED BY THE ASSESSEE IN ITS LETTERS, DOES NOT AMOUNT TO NULLITY IN LAW. THE SAME IS TO BE UPHELD. ACCORDINGLY, WE ARE INCLINED TO D ISMISS THIS GROUND OF THE ASSESSEE. I.T.A. NO. 375/COCH/2014 24 29. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 17- 10-2014 SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 17TH OCTOBER, 2014 GJ COPY TO: 1. PADINJAREKARA AGENCIES PVT. LTD., KODIMATHA, KO TTAYAM. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1, KOTTAYAM. 3. THE COMMISSIONER OF INCOME-TAX(APEALS)-IV, KOCHI . 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN