DCIT, New Delhi V. M/s Food Corporation of India, New Delhi

ITA 546/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4300 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-04-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 01-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: STEPHEN GEORSE
• Assessee Lawyers: HARISH KAPOOR
• Keywords: Depreciation; Difference of opinion; Unabsorbed depreciation; Change of opinion; Reassessment proceedings
• Section: 143(3); 142(1); 147; 148; 37

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES B: NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.546/DEL/2011 ASSESSMENT YEAR: 2003-04 DCIT, VS. FOOD CORPORATION OF INDIA, CIRCLE 11(1), ROOM NO. 312, 16-20, BARAKHAMBA ROA D, C.R. BUILDING, NEW DELHI. NEW DELHI. AAACF0365N (APPELLANT) (RESPONDENT) CROSS OBJECTION NO. 71/DEL/2011 ASSESSMENT YEAR: 2003-04 FOOD CORPORATION OF INDIA, VS. DCIT, 16-20, BARAKHAMBA ROAD, CIRCLE 11(1), ROOM NO. 3 12, NEW DELHI. C.R. BUILDING, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : STEPHEN GEORSE, CIT(DR) RESPONDENT BY : HARISH KAPOOR, CA ORDER PER I.P. BANSAL, J.M. THE APPEAL IS FILED BY THE REVENUE AND CROSS OBJE CTION BY THE ASSESSEE. BOTH ARE DIRECTED AGAINST ORDER PASSED B Y LD. CIT(A) DATED 29.11.10 FOR A.Y. 2003-04. 2. GROUNDS OF APPEAL READ AS UNDER : - 1. THE ORDER OF LD. CIT(A) IS WRONG, PERVERSE, IL LEGAL AND AGAINST THE PROVISIONS OF LAW, LIABLE TO BE SET ASIDE. ITA NO. 546 & CO 71/D/11 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1349.99 LAKH ON ACCOUNT OF PRIOR PERIOD EXPENSES. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. GROUNDS OF CROSS OBJECTION READ AS UNDER : - 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN UPHOLDING THE REASSESSMENT PROC EEDINGS MADE BY THE AO U/S 148 OF THE INCOME TAX ACT, 1961. 2. THAT THE ASSESSEE CRAVES TO ADD, ALTER AND/OR D ELETE ANY GROUNDS OF APPEAL AT LATER STAGE, IF NECESSARY. 3. THE ASSESSEE IS A GOVERNMENT OF INDIA UNDERTAKIN G. AS PER COMPUTATION OF INCOME ITS RETURN OF INCOME WAS FILE D AT NIL ON 28.11.03 AND SUBSEQUENTLY THE SAID RETURN WAS REVISED ON 17.3.05 SHOWING LOSS OF RS. 96,06,000/-. ORIGINAL ASSESSMENT ORDER CAME TO BE PASSED ON 16.1.06 AT A NIL INCOME, WHEREIN TWO ADDITIONS WERE MADE TO THE RETURNED LOSS NAMELY A SUM OF RS. 2,93,000/- AND 23,53,00,000/- ON ACCOUNT OF PRIOR PERIOD EXPENSES AND PENAL INTEREST RESPECTIVELY. THEREBY ASSESSING THE INCOME OF THE ASSESSEE AT A SUM OF RS. 22,60,87,000/- BY REDU CING THE AFOREMENTIONED LOSS OF RS. 96,06,000/-. THE SAID I NCOME WAS ADJUSTED AGAINST THE BROUGHT FORWARD UNABSORBED DEPRECIATION TO THAT EXTENT AND INCOME WAS ASSESSED AT NIL. 4. NOTICE U/S 148 WAS ISSUED ON 11.10.07. IN RESPO NSE TO NOTICE VIDE LETTER DATED 16.11.07 THE ASSESSEE SUBMITTED THAT R ETURN ORIGINALLY FILED SHOULD BE TAKEN AS RETURN FILED IN RESPONSE TO NOTI CE U/S 148. THE SOLE ITA NO. 546 & CO 71/D/11 3 REASON FOR INITIATION OF REASSESSMENT PROCEEDING WA S REGARDING THE CLAIM OF THE ASSESSEE OF PRIOR PERIOD EXPENSE OF RS. 1349.99 LAKHS WHICH ACCORDING TO DEPARTMENT WAS NOT DISALLOWED DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. TO BE PRECISE, THE REASONS AS STATED FOR INITIATION OF REASSESSMENT PROCEEDINGS ARE AS FOLLOWS: - THE ASSESSMENT U/S 143(3) OF THE I.T. ACT, 1961 (T HE ACT) WAS COMPLETED ON 16.1.2006 AT AN INCOME OF RS. NIL. EXAMINATION OF THE PROFIT & LOSS ACCOUNT REVEALED T HAT THE ASSESSEE HAS CLAIMED PRIOR PERIOD EXPENSE OF RS. 13 49.99 LAKHS DURING THE YEAR WHICH ARE NOT TO BE ALLOWED A S THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG. IN VIEW OF THIS I, THEREFORE, HAVE REASONS TO BELIE VE THAT THE ABOVE SUM HAVE ESCAPED ASSESSMENT WITHIN THE MEANIN G OF SEC. 147 AND THE CASE IS REOPENED TO RE-ASSESS THE INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04 BY ISSUE OF NOTICE U/S 148 OF THE I.T. ACT, 1961. 5. THE ASSESSEE, IN OBJECTION FOR VALID INITIATION OF REASSESSMENT PROCEEDING VIDE LETTER DATED 25.9.08, HAD SUBMITTED THAT DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS INITIATED VIDE N OTICE U/S 143(2) DATED 24.10.03, THE ASSESSEE WAS REQUIRED TO EXPLAIN REGA RDING ALLOWABILITY OF SUCH EXPENSES. IN RESPONSE TO QUERY ISSUED BY THE AO VIDE NOTICE U/S 142(1) DATED 7.12.05 THE AO REQUIRED THE ASSESSEE T O EXPLAIN THE ALLOWABILITY OR OTHERWISE OF PRIOR PERIOD EXPENSES VIDE SL. NO. 16 AND ASSESSEE VIDE ITS LETTER DATED 4.1.06 HAD FURNISHED THE REQUISITE DETAILS AND AFTER CONSIDERING THOSE DETAILS, THE THEN AO HAD ON LY DISALLOWED AN AMOUNT OF RS. 2.93 LAKHS BOOKED UNDER THE HEAD PRIOR PERI OD EXPENSES RELATING TO ITA NO. 546 & CO 71/D/11 4 MISSING AND UNCONNECTED WAGONS AND THE REPLY OF THE ASSESSEE ON OTHER POINT WAS DULY ACCEPTED. IT WAS SUBMITTED THAT INC OME/EXPENDITURE RELATING TO PREVIOUS YEAR WERE DULY CONSIDERED DURING THE CO URSE OF ORIGINAL ASSESSMENT PROCEEDING. IT WAS SUBMITTED THAT REASS ESSMENT PROCEEDINGS HAVE BEEN INITIATED ONLY ON THE MATERIALS WHICH ARE ON THE RECORD OF THE AO AND WERE DULY CONSIDERED DURING THE COURSE OF ASSES SMENT PROCEEDINGS AND, THEREFORE, REOPENING OF THE ASSESSMENT IS BAD IN LAW. IT WAS FURTHER SUBMITTED THAT ALL THE PRIMARY FACTS NECESSARY FOR THE ASSESSMENT WERE DULY AND TRULY DISCLOSED DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHICH WERE CONSIDERED BY THE OFFICER AND ADDITION OF PART AMOUNT WAS ALSO MADE UNDER THE SAID HEAD AND REASSESSMENT PROCEEDINGS AR E NOT PERMITTED MERELY ON THE BASIS OF CHANGE OF OPINION. FOR THE SAKE OF CONVENIENCE THE RELEVANT PORTION OF THE REPLY OF THE ASSESSEE FILED ON25.9.08 (COPY OF WHICH IS PLACED AT PAGES 132 TO 134 OF THE PAPER BOOK) AR E REPRODUCED BELOW: - 03. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, I NITIATED VIDE NOTICE U/S 143(2) DATED 24.10.03, THE DETAILS AS ASKED FOR BY THE THEN AO WERE FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN FACT, DURING THE PROCEE DINGS A QUESTIONNAIRE ALONG WITH NOTICE U/S 142(1) DATED 7 TH DECEMBER, 2005 WAS ISSUED TO THE ASSESSEE AND AS PE R POINT 16 OF THE SAID QUESTIONNAIRE [ISSUED ALONG WI TH NOTICE U/S 142(1)] THE ASSESSEE WAS ASKED TO GIVE DETAILS REGARDING PRIOR PERIOD EXPENSES, IF ANY CLAIMED DURING THE YE AR. THE SAID QUERY WAS DULY REPLIED VIDE LETTER DATED 4 TH JANUARY, 2006 AND PAGE 10 OF PAPER BOOK FILED DURING THE COU RSE OF ASSESSMENT PROCEEDINGS GIVE DETAILS THEREOF. ITA NO. 546 & CO 71/D/11 5 AFTER CONSIDERING THE ABOVE REPLY AND ALSO THE DETA ILS FURNISHED BY THE ASSESSEE, THE THEN AO HAS SPECIFIC ALLY DISALLOWED AN AMOUNT OF RS. 2.93 LAKHS BOOKED UNDER THE HEAD PRIOR PERIOD EXPENSES RELATING TO MISSING AN D UNCONNECTED WAGONS AND REPLY OF THE ASSESSEE ON THE OTHER POINTS WERE DULY ACCEPTED. IN OTHER WORDS, THE INCOME/EXPENDITURE RELATING TO PREVIOUS YEARS WERE DULY CONSIDERED DURING THE COURSE OF ASSESSMENT PROCEEDI NGS. 04. NOTICE U/S 147 ISSUED BASED ON THE REASONS A S ENUMERATED ABOVE CLEARLY INDICATES AND SHOW THAT TH E REOPENING OF THE ASSESSMENT HAS BEEN DONE ON THE MATERIALS ALREADY ON RECORD OF THE AO, AND DULY CON SIDERED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE REOPENING OF THE ASSESSMENT AS SUCH IS BAD IN LAW. 05. IT IS SUBMITTED THAT PRIMARY FACTS NECESSARY F OR ASSESSMENT WERE FULLY AND TRULY DISCLOSED, DURING T HE COURSE OF ASSESSMENT PROCEEDINGS AND THESE WERE CONSIDERED AND AN ADDITION WAS ALSO MADE OUT OF THE SAID HEAD AP PEARING IN THE ACCOUNTS. THE AO IS NOT ENTITLED TO CHANGE OF OPINION TO COMMENCE PROCEEDINGS FOR REASSESSMENT AND ALSO REASSESSMENT BASED ON NEW VIEW ON THE SAME FACTS IS NOT PERMISSIBLE. IN THIS REGARD WE RELY ON THE FOLLOWING JUDGMENTS: CIT VS. BHANJI LAVJI (1971) 79N ITR 582 (SC) ITO VS. NAWAB MIR BARKAT ALI KLHAN BAHADUR (1974) 97 ITR 239 (SC) SIRPUR PAPER MILLS LTD. VS. ITO (1978) 114 ITR 404 (AP) ITA NO. 546 & CO 71/D/11 6 6. FOR THE SAKE OF CONVENIENCE THE QUERY RAISED BY THE AO VIDE LETTER DATED 7.12.05 WITH REGARD TO PRIOR PERIOD EXPENSES AS PER SL. NO. 6 IS AS UNDER: (COPY OF REPLY IS PLACED AT PAGES 122 AND 12 3 OF THE PAPER BOOK): - 16. DETAILS OF PRIOR PERIOD EXPENSES, IF ANY, CLA IMED DURING THE YEAR. 7. THE RELEVANT PORTION OF THE REPLY OF THE ASSESSE E VIDE LETTER DATED 4.1.06 (COPY OF WHICH IS PLACED AT PAGES 124 TO 127 OF THE PAPER BOOK IS AS UNDER): - 16. DURING THE PREVIOUS YEAR, THE CORPORATION HAS SHOWN NET INCOME OF RS. 1346.13 LAKHS TOWARDS PRIOR PERIO D ITEMS. THE DETAILS ARE ALREADY AVAILABLE AT PAGE 70-71 OF THE ANNUAL REPORT APPENDED TO THE RETURN OF INCOME. 8. THE DETAILS AS MENTIONED IN THE SAID REPLY ARE P ART OF THE PRINTED AUDIT REPORT AND ARE WELL DESCRIBED IN SCHEDULE V A NNEXED TO THOSE ANNUAL ACCOUNTS. THE COPY OF THE SAID DETAILS IS FURNISHE D AT PAGE 36 OF THE PAPER BOOK. ON PAGE 35 THE TYPE COPY OF SUCH SCHEDULE IS FURNISHED WHICH FOR THE SAKE OF CONVENIENCE IS REPRODUCED BELOW: - FOOD CORPORATION OF INDIA YEAR ENDED 31 ST MARCH, 2003 SCHEDULE V DETAILS OF INCOME/EXPENSES RELATING TO PREVIOUS YEA RS (FIGURES IN LAKHS OF RUPEES) PARTICULARS AMOUNT PARTICULARS AMOUNT INCOME EXPENSES SALES 626.18 PURCHASES 18.25 LIABILITIES WRITTEN BACK 7.31 FREIGHT 9.64 (CR.) RECOVERY FROM CONTRACTORS TOWARDS DEMURRAGES/HANDLING ITA NO. 546 & CO 71/D/11 7 CHARGES 0.28 RENT 19 0.28 (CR.) ADJUSTMENT IN RESPECT OF LINKING OF MISSING & UNCONNECTED WAGONS 1.51 TAXES 10 8.74 (CR.) INCOME FROM CLAIMS 501.03 REPAIR & MAI NTENANCE 10.77 MISCELLANEOUS INCOME 96.07 HANDLING C HARGES 101.30 INTEREST ON SUGAR OPERATIONS 1078.15 SALARY, WAG ES & ALLOWANCES 76.10 (CR.) PURCHASE 36.35 (DR.) ELECTRICITY CHAR GES 0.40 RAILWAY SIDING CHARGES 53.10 ADJUSTMENT IN RESPECT OF LINKING OF MISSING & UNCONNECTED WAGONS 2.93 DEMURRAGES 3.76 (CR.) MISCELLANEOUS EXPENSES 7.24 PORT CLEARANCE CHARGES 41.42 SALE (MARGIN ON SUGAR) 3.01 INTEREST ON FOOD OPERATIONS 1078.15 2274.18 928.05 NET INCOME 1346.13 9. THUS, ON MERITS IT WAS PLEADED THAT INCOME RELAT ING TO PREVIOUS YEARS AMOUNTING TO 2272.18 LAKH WAS CREDITED AND EXPENSES RELATING TO PREVIOUS YEARS AMOUNTING TO RS. 928.08 LAKH WAS DEBITED AND NET INCOME IN RESPECT OF PREVIOUS YEARS WAS SHOWN AT RS. 1,346.13 LAKHS. IT WAS SUBMITTED THAT ASSESSEE HAS BEEN FOLLOWING THIS PRACTICE FROM YEAR TO YEAR AS AT THE POINT OF TIME WHEN EITHER INCOME OR EXPENDITURE IS CRYSTA LLIZED WITH REGARD TO ISSUES RELATING TO EARLIER YEARS, THE INCOME OR EXP ENDITURE IS CREDITED OR DEBITED IN THE ACCOUNTS OF THE CURRENT FINANCIAL YE ARS. IT WAS SUBMITTED THAT IN THIS MANNER, THE ASSESSEE HAS NOT CLAIMED ANY EX PENDITURE RELATING TO PRIOR YEARS EXCEPT IN THE MANNER REGULARLY AND CONS ISTENTLY FOLLOWED ON THE ITA NO. 546 & CO 71/D/11 8 BASIS OF CRYSTALLIZED LIABILITY. THE ASSESSEE ALSO IN RESPECT OF EACH AND EVERY ITEM UNDER THE BROAD HEADS AS DESCRIBED IN SC HEDULE V HAD FILED BEFORE AO TO CONTEND THAT HOW THE LIABILITY WITH RE SPECT TO EACH ITEM OF SUCH EXPENDITURE OR INCOME HAD CRYSTALLIZED DURING THE F INANCIAL YEAR AND THESE DETAILS HAVE BEEN FILED BY THE ASSESSEE AT PAGES 85 TO 98 OF THE PAPER BOOK AND THE BROAD HEADS DIVIDED ARE PURCHASES, REPAIR A ND MAINTENANCE, HANDLING CHARGES, ELECTRICITY AND POWER, RAILWAY SL IDING CHARGES, MISCELLANEOUS EXPENDITURE, BOARD CLEARANCE CHARGES AND RETAILER MARGIN. THUS, DETAILS REGARDING EACH OF THE ITEM WAS PLACED ON RECORD TO CONTEND AND TO SHOW THAT THESE ENTRIES WERE MADE DURING THE CURRENT FINANCIAL YEAR ONLY ON THE BASIS OF CRYSTALLIZATION OF THE ITEMS A ND THUS, IT WAS PLEADED THAT NO INCOME HAS ESCAPED FROM ASSESSMENT. HOWEVER, THE AO MADE THE ADDITION AND HAS ADDED A SUM OF RS. 1349.99 LAKH ON ACCOUNT OF PRIOR PERIOD EXPENSES AND AFTER GIVING SET OFF OF LOSS RE TURNED AND SET OFF OF UNABSORBED DEPRECIATION BROUGHT FORWARD FROM EARLIE R YEAR THE INCOME HAS BEEN ASSESSED AT NIL. 10. LD. CIT(A) AFTER EXAMINING ALL THE DETAILS AND CONTENTION OF THE ASSESSEE, THOUGH HAS UPHELD THE VALIDITY OF INITIAT ION OF REASSESSMENT PROCEEDINGS MAINLY ON THE BASIS OF CONSOLIDATED PHO TO AND FINVEST LTD. VS. ACIT 281 ITR 394 (DEL.), HAS DELETED THE ADDITION A FTER GOING THROUGH ALL THE DETAILS SUBMITTED BY THE ASSESSEE AND WHILE DELETIN G THE ADDITION ON MERITS HIS FINDINGS ARE AS UNDER: - ITA NO. 546 & CO 71/D/11 9 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LD. AR ON THE ISSUE VIS--VIS OF THE FACTS OF THE CASE. AN ADDITION OF RS. 1349.99 LACS HAS BEEN MADE BY TH E AO PICKING UP THE DEBITS IN VARIOUS SUB-HEAD UNDER THE HEAD ADJUSTMENT RELATING TO PREVIOUS YEARS. ON GOING THROUGH THE DETAILS, IT REVELS THAT THE APPELLANT BOOKED RS . 1346.13 LACS (NET) AS INCOME TOWARDS ADJUSTMENTS RELATING TO PREVIOUS YEARS. FURTHER, IT HAS BEEN RIGHTLY POINT ED OUT THAT THERE IS A CONTRA-ENTRY AMOUNTING TO RS. 1078.15 LA CS APPEARING ON BOTH SIDE INCOME AS WELL AS EXPENSE S UNDER THE ACCOUNT HEAD EXPENSES AND INCOME RELATING TO P REVIOUS YEAR. THE NATURE AND METHOD OF ACCOUNTING FOLLOWE D BY THE APPELLANT IS UNIFORM FOR BOTH INCOME AND EXPENSE . THE AO HAS UNILATERALLY, INSTEAD OF CONSIDERING BOTH IN COME AND EXPENSE BOOKED UNDER THE SAID HEAD, MADE ADDITION R ELATING TO EXPENSE BOOKED UNDER THE SAID HEAD. IF THE APPE LLANT IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, IT I S FOR BOTH INCOME AND EXPENSE. IN ANY CASE, THE APPELLANT HAS SHOWN INCOME (NET) UNDER THE HEAD ADJUSTMENTS RELATING T O PREVIOUS YEARS. MOREOVER IN THE PRECEDING YEAR I.E. A.Y. 2002-03 T HE AO DISALLOWED AN EXPENSE CLAIMED UNDER A SUB-HEAD ADJUSTMENT RELATING TO MISSING AND UNCONNECTED WAG ONS BOOKED UNDER THE HEAD PRIOR PERIOD ADJUSTMENTS AS THE AO WAS OF THE VIEW THAT AS THE EXPENSE DID NOT CRYS TALLIZED OR ACCRUED DURING THE YEAR. THE APPELLANT WENT IN APPEAL BEFORE THE HONBLE TRIBUNAL AND THE HONBLE TRIBUNA L KEEPING IN VIEW THE NATURE OF TRANSACTIONS BEING UN DERTAKEN BY THE CORPORATION DELETED THE SAID ADDITION BY MAK ING THE FOLLOWING OBSERVATIONS: - THE GAIN/LOSS IS BOOKED UNDER THE HEAD ADJUSTMENT RELATED TO PREVIOUS PERIOD EXPENDITURE/INCOME. THIS IS ACCOUNTED FOR ON CRYSTALLIZATION OF ITA NO. 546 & CO 71/D/11 10 THIS EXPENSE/INCOME. THE DIFFERENCE BETWEEN THE QU ANTITY DISPATCHED VIS--VIS, QUANTITY RECEIVED IS SHOWN AS ADJUSTMEN T RELATING TO PREVIOUS PERIOD AS THE TRANSACTION WAS INITIATED IN THE P REVIOUS PERIOD, HOWEVER CONCLUDED IN THE YEAR UNDER CONSIDERATION. THAT TH E RECONCILIATION IS A ON GOING PROCESS AND CANNOT BE DONE AT THE YEAR END KEEPING IN VIEW THE VOLUME OF TRANSACTIONS, SPREAD OF THE CENTERS A ND INVOLVEMENT OF A THIRD PARTY I.E. RAILWAYS. THE CORPORATION HAS FOL LOWED THE SAME PRACTICE IN ALL THE EARLIER YEARS AND THERE WAS NO DISALLOWA NCE. THE ACCOUNTING ENTRIES ARE POSSIBLE ONLY ON RECONCILIATION AND ALL ENTRIES BOOKED UNDER THIS HEAD RELATES TO THE RECONCILIATION CARRIED/LIN KAGE ESTABLISHED OUT DURING THE YEAR, RELATING TO THE TRANSACTIONS FOR T HE PREVIOUS YEAR. DURING THE COURSE OF ASSESSMENT, THE AO WITHOUT APPRECIATI NG THE FACTS OF THE CASE, DISALLOWED THE LOSS CRYSTALLIZED DURING THEY YEAR THROUGH RECONCILIATION OF ACCOUNT. FURTHER THERE HAS NO CHANGE IN THE NATURE OF BUSINE SS OR METHOD/SYSTEM BEING FOLLOWED BY THE APPELLANT IN TH E YEAR UNDER APPEAL OR IN THE PRECEDING YEARS. THE SAME H AS BEEN DULY ACCEPTED IN ALL THESE YEARS. THE AO HAS NOT P OINTED OUT ANY SPECIFIC INSTANCE AS TO WHY THE SAME IS NOT ALLOWABLE AS AN EXPENSES U/S 37 OF THE I.T. ACT. AS SUBMITTED, THE APPELLANT IS A NO PROFIT/NO LOSS ORGANIZATION, AND ANY SHORTFALL IN OPERATIONS OF TH E APPELLANT IS MET BY SUBSIDY FROM GOVT. OF INDIA. THE APPELLA NT HAS CLAIMED ADJUSTMENT RELATING TO PREVIOUS YEARS AS A PART OF SUBSIDY FROM GOVT. OF INDIA, AND THIS SUBSIDY FORM PART OF INCOME OF THE APPELLANT. IF A DEBIT (EXPENSE) IS D ISALLOWABLE BY THE AO THEN THE CORRESPONDING SUBSIDY FORMING PA RT OF INCOME NEEDS TO BE REDUCED FROM INCOME. IN VIEW OF THE ABOVE, AND ALSO EXAMINATION OF THE D ETAILS OF THE EXPENSES BOOKED UNDER THE HEAD PRIOR PERIOD EX PENSES AND RELYING ON THE PRINCIPLES LAID DOWN BY HONBLE COURTS ON THE ISSUE (JUDGMENT CITED BY THE APPELLANT) THE ADD ITION MADE BY THE AO FOR AN AMOUNT OF RS. 13,49,99,000/- ITA NO. 546 & CO 71/D/11 11 TOWARDS EXPENSES RELATED TO PREVIOUS YEAR IS DIRECT ED TO DELETED. 11. THE ASSESSEE IN ITS CROSS OBJECTION HAS ASSAILE D THE ORDER OF CIT(A) ON THE GROUND THAT LD. CIT(A) HAS ERRED IN UPHOLDIN G THE VALIDITY OF REASSESSMENT PROCEEDINGS AND DEPARTMENT IT ITS APPE AL HAS ASSAILED THE ORDER OF CIT(A) FOR DELETING THE ADDITION ON MERITS . 12. AFTER NARRATING THE FACTS, RELYING UPON THE REA SSESSMENT ORDER PASSED BY THE AO, IT WAS SUBMITTED BY LD. DR THAT EVEN ACC ORDING TO MERCANTILE SYSTEM OF ACCOUNTING, PRIOR PERIOD EXPENSES COULD N OT BE ALLOWED TO THE ASSESSEE AND, THEREFORE, LD. CIT(A) HAS WRONGLY GRA NTED THE RELIEF TO THE ASSESSEE. IT WAS SUBMITTED THAT LD. CIT(A) HAS COM MITTED A WRONG IN HOLDING THAT PRIOR PERIOD EXPENSES WERE REQUIRED TO BE ALLOWED EVEN ACCORDING TO MERCANTILE SYSTEM OF ACCOUNTING ON THE BASIS OF REGULAR METHOD ADOPTED BY THE ASSESSEE. THUS, IT WAS SUBMI TTED THAT HE SHOULD NOT HAVE DELETED THE ADDITION ON MERITS AND, THEREF ORE, THE DEPARTMENT APPEAL IS REQUIRED TO BE ALLOWED. 13. ON THE OTHER HAND, ADDRESSING THE GROUND OF CRO SS OBJECTION, IT WAS SUBMITTED BY LD. AR THAT LD. CIT(A) HAS WRONGLY HEL D THAT INITIATION OF REASSESSMENT PROCEEDINGS WAS VALID. HE SUBMITTED T HAT FOR HOLDING SO LD. CIT(A) HAS MAINLY RELIED UPON THE DECISION IN THE C ASE OF CONSOLIDATED PHOTO & FINVEST LTD. VS. ACIT (SUPRA). HE SUBMITTE D THAT THE SAID DECISION ITA NO. 546 & CO 71/D/11 12 WAS CONSIDERED BY HONBLE DELHI HIGH COURT IN THE C ASE OF CIT VS. EICHER LTD. 294 ITR 310. REFERENCE IN THAT DECISION WAS M ADE TO THE SUBSEQUENT DECISION OF DELHI HIGH COURT IN THE CASE OF K.L.M. ROYAL TOUCH AIRLINES VS. ADIT 159 TAXMAN 191 IN WHICH IT WAS NOTED THAT THER E WAS CONFLICT BETWEEN THE DECISION OF FULL BENCH AND THE DIVISION BENCH O F DELHI HIGH COURT AND IT WAS CONCLUDED THAT SINCE THE VIEW EXPRESSED BY DIVI SION BENCH CANNOT BE RECONCILED WITH THE VIEW OF FULL BENCH, IT MUST BE HELD THAT DIVISION BENCH DID NOT LAY DOWN THE CORRECT LAW AND THUS, IT WAS EXPRE SSED THAT IN VIEW OF THE FULL BENCH DECISION IN THE CASE OF CIT VS. KELVINAT OR OF INDIA LTD. 256 ITR 1 THE VIEW TAKEN IN THE CASE OF CONSOLIDATED PHOTO & FINVEST LTD. VS. ACIT (SUPRA) CANNOT BE RELIED UPON. IN THAT CASE IT WAS HELD THAT IN A CASE WHERE ENTIRE MATERIAL WAS PLACED BY THE ASSESSEE BEFORE T HE AO AT THE TIME OF ORIGINAL ASSESSMENT AND AO HAS APPLIED HIS MIND ON THAT MATERIAL AND HAS ACCEPTED THE VIEW CANVASSED BY THE ASSESSEE, THEN M ERELY BECAUSE HE DID NOT EXPRESS THIS IN THE ASSESSMENT ORDER, THAT BY I TSELF WOULD NOT GIVE HIM A GROUND TO CONCLUDE THAT INCOME HAS ESCAPED ASSESSME NT AND, THEREFORE, THE ASSESSMENT NEEDED TO BE REOPENED. ON THE OTHER HAND, IF THE AO DID NOT APPLY HIS MIND AND COMMITTED A LAPSE, THERE IS NO REASON WHY THE ASSESSEE SHOULD BE MADE TO SUFFER THE CONSEQUENCE O F LAPSE. A FINDING THAT ASSESSEE HAD PLACED ALL THE MATERIAL BEFORE TH E AO AND WHERE THERE WAS A DOUBT EVEN THAT WAS CLARIFIED BY THE ASSESSEE , THE AO WHILE PASSING THE ORIGINAL ASSESSMENT ORDER, CHOOSE NOT TO GIVE A NY FINDING IN THIS REGARD, THAT CANNOT GIVE HIM OR HIS SUCCESSOR-IN-OFFICE A R EASON TO REOPEN THE ASSESSMENT OF THE ASSESSEE OR TO CONTEND THAT BECAU SE THE FACTS WERE NOT ITA NO. 546 & CO 71/D/11 13 CONSIDERED IN THE ASSESSMENT ORDER, FULL AND TRUE D ISCLOSURE WAS NOT MADE. SINCE THE FACTS WERE BEFORE THE AO AT THE TIME OF F RAMING THE ORIGINAL ASSESSMENT, AND LATER A DIFFERENT VIEW WAS TAKEN BY HIM OR HIS SUCCESSOR ON THE SAME FACTS, IT CLEARLY AMOUNTS TO CHANGE OF OPI NION WHICH CANNOT FORM THE BASIS FOR PERMITTING THE AO OR HIS SUCCESSOR TO REOPEN THE ASSESSMENT OF THE ASSESSEE. THUS, IT WAS PLEADED BY LD. AR TH AT LD. CIT(A) HAS ERRED IN HOLDING THIS ISSUE AGAINST THE ASSESSEE. HE SUBMIT TED THAT CROSS OBJECTION FILED BY THE ASSESSEE SHOULD BE ALLOWED. 14. ON MERITS HE SUBMITTED THAT ASSESSEE HAS FILED EXPLANATION WITH REGARD TO EACH AND EVERY ITEM OF INCOME AND EXPENDI TURE CREDITED & DEBITED UNDER THE HEAD DETAILS OF INCOME/EXPENSES RELATING TO PREVIOUS YEARS IN SCHEDULE V OF THE AUDITED ANNUAL ACCOUNTS AND IT WA S SHOWN THAT THESE INCOME OR EXPENDITURE WERE CREDITED AND DEBITED IN THE ACCOUNTS ON THE BASIS OF THEIR CRYSTALLIZATION. HE REFERRED TO THE DETAILS EARLIER MENTIONED IN THE ORDER AND CONTENDED THAT AFTER ANALYZING THOSE DETAILS LD. CIT(A) HAS RIGHTLY CONCLUDED THAT NO ADDITION WAS CALLED FOR. 15. IN THE REJOINDER IT WAS SUBMITTED BY LD. DR THA T IN THE ORIGINAL ASSESSMENT ORDER THE ISSUE WHICH WAS TOUCHED BY THE AO WAS ONLY WITH RESPECT TO A SUM OF RS. 2,93,000/- WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE. HOWEVER, THE AO DID NOT LOOK INTO THE OT HER PRIOR PERIOD EXPENSES, HENCE THE ADDITION MADE IN THE REASSESSME NT ORDER WAS NOT ON THE BASIS OF CHANGE OF OPINION AS HAS BEEN ARGUED BY LD. AR. THUS, HE ITA NO. 546 & CO 71/D/11 14 SUBMITTED THAT ASSESSEE HAS NO CASE EITHER FOR INVA LIDITY OF INITIATION OF REASSESSMENT PROCEEDING OR ON THE MERITS OF THE ADD ITION. THUS, HE SUBMITTED THAT DEPARTMENTAL APPEAL SHOULD BE ACCEPT ED AND CROSS OBJECTION OF THE ASSESSEE SHOULD BE DISMISSED. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. IT HAS ALREADY BEEN POI NTED OUT IN THIS ORDER THAT DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDING S THE AO HAD REQUIRED THE ASSESSEE TO FURNISH EXPLANATION WITH REGARD TO ALLOWABILITY OR OTHERWISE ALL THE EXPENSES RELATING TO THE PREVIOUS YEARS. T HE ASSESSEE HAD SPECIFICALLY REPLIED THE SAID QUERY AND A FULL DETA IL OF FIGURES WERE GIVEN AND MENTION WAS MADE WITH REGARD TO DETAILS AVAILABLE A T PAGES 70 TO 71 OF THE ANNUAL REPORT APPENDED WITH THE RETURN OF INCOME. IT MAY BE MENTIONED HERE THAT SCHEDULE V HAS ALREADY BEEN REPRODUCED IN THE ABOVE PART OF THIS ORDER WHICH IS APPEARING AT PAGE 70 & 71 OF THE ANN UAL REPORT AND IN THE SAID DETAIL ALL ENTRIES HAVE BEEN DESCRIBED AND THE INCOME HAS BEEN COMPUTED IN THE SAID SCHEDULE AT 2,274.18 LAKHS AND EXPENSES HAVE BEEN WORKED OUT AT RS. 928.05 LAKHS LEAVING NET INCOME O F RS. 1,346.13 LAKHS. THUS, WHAT HAS BEEN CLAIMED BY THE ASSESSEE WITH RE GARD TO EARLIER YEARS ADJUSTMENT IS A NET INCOME OF RS. 1,346.13 LAKH AND THUS, INCOME HAS BEEN ADDED BY THE AO IN RESPECT OF PREVIOUS YEARS. IT C ANNOT BE SAID THAT AO HAD REQUIRED THE ASSESSEE TO EXPLAIN THE DETAILS OF ONLY 2,93,000/- AND NO ENQUIRY WHATSOEVER WAS MADE BY THE AO WITH REGARD T O OTHER EXPENSES INCURRED BY THE ASSESSEE RELATING TO EARLIER YEARS. THUS, THERE IS NO FORCE IN ITA NO. 546 & CO 71/D/11 15 THE CONTENTION OF LD. DR THAT DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS THIS ISSUE WAS NOT RAISED BY THE AO AND NO REPLY WAS GIVEN BY THE ASSESSEE IN THAT REGARD. ENTIRE DETAIL IS SUBJ ECT MATTER OF PRINTED ANNUAL REPORT OF THE ASSESSEE WHICH IS A GOVERNMENT OF IND IA UNDERTAKING AND THE ACCOUNTS ARE DULY AUDITED. IT CANNOT ALSO BE SAID THAT THE VERACITY OF THESE ENTRIES WAS SUBJECT MATTER OF DOUBT BY THE AO EITHE R DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS OR DURING THE COURS E OF REASSESSMENT PROCEEDINGS. THESE HAVE BEEN ONLY DISALLOWED ON TH E BASIS THAT THESE CANNOT BE ALLOWED AS PER MERCANTILE SYSTEM OF ACCOU NTING. HERE, IT HAS BEEN THE CASE OF THE ASSESSEE THAT IT IS A HUGE ORG ANIZATION AND CERTAIN ITEMS OF INCOME OR EXPENDITURE ARE NOT CRYSTALLIZED DURING THE YEAR TO WHICH THEY ARE RELATE. AS A MATTER OF PRACTICE WHEN THEY ARE CRYSTALLIZED THEY ARE CONSIDERED AS INCOME OR EXPENDITURE WHATEVER THE CA SE MAY BE. IT IS ALSO EVIDENT FROM THE EARLIER ASSESSMENTS THAT SUCH PRAC TICE IS ADOPTED BY THE ASSESSEE IN ALL THE EARLIER YEARS WHERE THE ADDITIO NS WERE EVEN MADE SUBJECT MATTER OF APPEAL. DURING THE YEAR UNDER CO NSIDERATION, IT IS NOT THE CASE OF THE AO THAT THE CONTENTION OF THE ASSESSEE THAT THESE WERE CRYSTALLIZED DURING THE YEAR WAS NOT CORRECT. IN AB SENCE OF ANY SUCH MATERIAL TO CONTROVERT SUCH CONTENTION OF THE ASSESSEE, IT C ANNOT BE SAID THAT THE ADDITION CAN BE SIMPLY MADE FOR THE REASON THAT ACC ORDING TO MERCANTILE SYSTEM OF ACCOUNTING, AS THE EXPENSES DOES NOT RELA TE TO THE YEAR UNDER CONSIDERATION, THEY CANNOT BE ALLOWED. IF THE SAME VIEW IS ADOPTED THEN PROBABLY THE INCOME RELATING TO EARLIER YEARS ALSO CANNOT BE CONSIDERED AS INCOME OF THE CURRENT FINANCIAL YEAR WHICH, IN THE PRESENT CASE FOR THE YEAR ITA NO. 546 & CO 71/D/11 16 UNDER CONSIDERATION, IS MUCH MORE THAN THE PRIOR PE RIOD EXPENSES. THEREFORE, NO CASE HAS BEEN MADE OUT BY THE REVENUE TO CONTEST THE DELETION MADE BY THE CIT(A). THE ORDER OF CIT(A) DELETING THE ADDITION IS UPHELD. NOW COMING TO THE CROSS OBJECTION OF THE A SSESSEE, IT IS ALREADY EXPLAINED THAT THE AO HAD REQUIRED THE ASSESSEE TO EXPLAIN THE ALLOWABILITY OF THE EXPENSES RELATING TO EARLIER YEARS AND ASSES SEE HAD SUBMITTED THE REPLY. THE REQUISITE DETAILS WERE PLACED AT RECORD . THUS, THE CASE OF THE ASSESSEE CLEARLY FALLS UNDER THE FOUR CORNERS OF TH E DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. EICHER LTD. (SUPR A). THE SAID CASE WAS RELIED UPON BY THE ASSESSEE BEFORE THE LD. CIT(A). HOWEVER, LD. CIT(A) HAS IGNORED THE SAID DECISION AND HAS UPHELD THE VALIDI TY OF REASSESSMENT PROCEEDINGS ON THE BASIS OF DECISION OF HONBLE DEL HI HIGH COURT IN THE CASE OF CONSOLIDATED PHOTO & FINVEST LTD. VS. ACIT (SUPR A). AS ALREADY POINTED OUT THAT THE SAID DECISION WAS LATER ON CONSIDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF K.L.M. ROYAL TOUCH AIRLINES VS . ADIT (SUPRA) AND IT WAS OPINED THAT THE VIEW TAKEN IN CONSOLIDATED PHOT O WAS CONTRARY TO THE FULL BENCH DECISION IN THE CASE OF KELVINATOR OF IN DIA LTD. (SUPRA) AND HENCE COULD NOT BE RELIED UPON. SIMILAR VIEW HAS BEEN EX PRESSED IN THE DECISION OF CIT VS. EICHER LTD. THEREFORE, IN OUR CONSIDE RED OPINION, LD. CIT(A) HAS COMMITTED AN ERROR IN UPHOLDING THE VALIDITY OF REA SSESSMENT PROCEEDINGS AND HIS ORDER ON THIS ISSUE IS REVERSED AND SET ASI DE. THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE ALLOWED. ITA NO. 546 & CO 71/D/11 17 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 13.4.11 SD/- SD/- (A.K. GARODIA) (I.P. BANSAL) ACCOUNTANT MEMBE R JUDICIAL MEMBER * KAVITA DATED: 13.4.11 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT