2011 (4) TMI 1384 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated u/s 148 of the Income Tax Act, 1961.
2. Deletion of addition of Rs. 1349.99 lakh on account of prior period expenses.

Summary:

1. Validity of Reassessment Proceedings Initiated u/s 148:
The assessee, a Government of India undertaking, filed its return of income at Nil, which was later revised showing a loss. The original assessment was completed at Nil income after making certain additions. Notice u/s 148 was issued to reassess the income, primarily due to the claim of prior period expenses of Rs. 1349.99 lakhs. The assessee objected, stating that all necessary details were provided during the original assessment, and the reassessment was merely a change of opinion, which is not permissible. The CIT(A) upheld the reassessment proceedings based on the decision in Consolidated Photo & Finvest Ltd. Vs. ACIT. However, the Tribunal found that the reassessment was based on the same material already on record and thus amounted to a change of opinion. The Tribunal relied on the decision in CIT Vs. Eicher Ltd., which held that reassessment on the same facts constitutes a change of opinion and is not permissible. Consequently, the Tribunal reversed the CIT(A)'s decision and allowed the cross-objection filed by the assessee.

2. Deletion of Addition of Rs. 1349.99 Lakh on Account of Prior Period Expenses:
The AO added Rs. 1349.99 lakh on account of prior period expenses, arguing that these expenses could not be allowed under the mercantile system of accounting. The CIT(A) deleted the addition, noting that the assessee consistently followed a practice of accounting for income and expenses based on their crystallization. The CIT(A) observed that the AO had unilaterally added the expenses without considering the corresponding income. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee's practice was consistent and accepted in previous years. The Tribunal noted that the AO did not dispute the crystallization of these expenses during the year under consideration. Therefore, the Tribunal found no merit in the revenue's appeal and upheld the deletion of the addition.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the cross-objection filed by the assessee, holding that the reassessment proceedings were invalid and the addition of Rs. 1349.99 lakh on account of prior period expenses was rightly deleted.