2014 (2) TMI 1220 - HC - Income Tax

Reopening of assessment - disallowance of development expenses - Held that - In the present case, apparent it is that all the facts relating to the debited expenses of ₹ 87,35,400 on account of development expenses were stated in the P&L a/c wherein, a sum of ₹ 35,00,000 was taken to the balance-sheet as provision for project development. All the facts were definitely available before the AO at the time of framing of the original assessment order. A look at the reasons recorded by the AO for the purpose of reopening makes it clear that the observations were made as if the successor AO was sitting in appeal over the original assessment order dt. 19th Dec, 2008; and it was sought to be suggested as to what was meant by a known liability and as to whether the provision made on the basis of the quotations would qualify for liability or not. If was suggested that this amount, being not an expenditure, should have been added to the total income. It was further suggested that ₹ 33,48,915 was debited to the registration and stamp charges and sale of plot though registration charges are generally borne by the purchaser and not by the seller. Hence, according to the AO, these expenses were wrongly claimed by the assessee. Evidently, all the observations by the successor AO were only of the expression of another opinion on the same set of facts. In the given circumstances, the Tribunal cannot be faulted in finding that the reassessment was based only on change of opinion and hence, unsustainable. - Decided in favour of assessee.

Summary

Issues:
1. Validity of reassessment proceedings based on change of opinion.

Analysis:
The appeal under s. 260A of the IT Act, 1961 challenges the order passed by the Income-tax Appellate Tribunal quashing the reassessment order for the assessment year 2006-07. The original assessment accepted the income as declared by the assessee. However, the successor AO initiated reassessment proceedings under s. 147, contending that certain expenses were wrongly claimed. The AO disallowed a provision for development expenses and registration charges claimed by the assessee, leading to the reassessment order being challenged by the appellant.

The Commissioner of Income-tax (Appeals) upheld the AO's decision, but the Tribunal found the reassessment proceedings unsustainable. The Tribunal held that the AO had all necessary facts available during the original assessment and taking a different view later amounted to a change of opinion, citing the decision in CIT v. Kelvinator of India Ltd. The Tribunal quashed the reassessment order, deeming it void ab initio.

The appellant contended that the provision for expenses was not allowable under the mercantile system of accounting as it was not incurred. However, the court found no substantial question of law involved and dismissed the appeal. The court differentiated the cases cited by the appellant, emphasizing that the reassessment was solely based on a change of opinion and not on new facts or circumstances.

In conclusion, the court held that the reassessment proceedings were unjustified as they were solely based on a change of opinion without any new material facts. Therefore, the appeal was dismissed as no substantial question of law was found to be involved in the case.