2012 (8) TMI 976 - HC - Income Tax

Summary

Issues Involved: Validity of reopening assessment for prior period expenses and jurisdiction of Assessing Officer in reassessment proceedings.

Validity of Reopening Assessment for Prior Period Expenses:
The assessment for the year 2004-05 was reopened by the Assessing Officer due to debits made by the assessee, including prior period expenses of &8377; 593.09 lakhs. The CIT (Appeals) upheld the reopening but deleted all three disallowances on merits. The Tribunal found the reopening invalid regarding prior period expenses, citing it as a change of opinion. However, it upheld the reopening for other items. The Revenue argued that once an assessment is reopened, the Assessing Officer can assess all income that escaped, not limited to the reason for reopening. The High Court agreed, stating that the Tribunal erred in not examining the Revenue's appeal on the merits of prior period expenses, even if the reopening was invalid on that ground. The Tribunal was directed to consider the Revenue's appeal on the issue of prior period expenses.

Jurisdiction of Assessing Officer in Reassessment Proceedings:
The Supreme Court's judgment in V. Jagmohan Rao v. CIT emphasized that once an assessment is reopened, the Assessing Officer can assess all income that escaped, not restricted to the reason for reopening. The Court held that reassessment proceedings start afresh, allowing the Officer to levy tax on the entire income that evaded assessment during the year. This authority was deemed binding, and the High Court ruled in favor of the Revenue, directing the Tribunal to consider and decide the appeal on the merits of prior period expenses.