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2016 (10) TMI 1341 - AT - Income TaxReopening of assessment u/s 147 - Eligibility of reasons to believe - non-disclosure of additional income which was offered to tax by the assessee company during the survey proceedings - HELD THAT - It is an admitted fact that the impugned income has already been included by the assessee in the return filed originally. The only difficulty with the AO was that from perusal of the return he was not able to make out whether the impugned income has been included in the return or not. Even if we appreciate the difficulty faced by the Assessing Officer, then also, the same was clarified by the assessee by way of his reply submitted during the course of re-assessment proceedings. The facts and evidences were brought on record showing that the impugned income has been included in the return filed by the assessee. Thereafter, no doubt was left and, therefore, no further query was asked by the Assessing Officer in this regard. It was so confirmed by the AO when he made no addition in this regard in the assessment order Re-assessment order passed by the Assessing Officer is not valid in the eyes of law. Assessing Officer was bound to drop the re-assessment proceedings - AO was of course at liberty to record fresh reasons and initiate re-assessment proceedings in case any another escaped income was found by him, as permitted under the law. But once the Assessing Officer was of the view that the escaped income as alleged in the reasons recorded by him was not the income actually escaped, but already included in its taxable income and offered to tax by the assessee, it was not legally permissible for him to continue with the reassessment proceedings. There must be existence of some tangible material indicating escapement of income - AO is permitted to resort to provisions of reopening contained in sections 147 to 151 of the Act. Because, once an assessment is reopened on valid basis, entire pandara s box is open before the AO. Therefore the AO may then bring to tax not only income escaped from tax which was mentioned in the Reasons recorded, but also any other escaped income that may come to his notice during the course of reassessment proceedings. Reopening of an assessment attacks and pierces the concept of finality of litigation. Therefore, an invalid reopening done in the casual manner and without following parameters of law may cause undue hardship to the taxpayers. Nature of expenses - Disallowance of professional fees paid by the assessee for issuing fresh shares - Expenditure revenue or capital in nature - HELD THAT - CIT(A) has not carefully analysed the alternate submission of the Ld. Senior Counsel wherein it was submitted that the entire amount of fee paid did not belong to consultancy rendered for valuation / issuance of shares. It was reiterated before us that the assessee company regularly seeks information on various matters and expenses incurred for other routine matters would fall in the revenue field and, therefore, wrongly disallowed. We find force in the argument of the Ld. Senior Counsel and, therefore, we send this issue back to the file of the Assessing Officer for verifying these facts. The assessee shall submit requisite details to show for what purposes consultancy fees was paid by the assessee. Addition on account of provision for leave encashment while computing book profit u/s 115JB - HELD THAT - It is not the case of the lower authorities that Profit Loss Account of the assessee company has not been prepared in accordance with provisions of Parts II III of Schedule VI of the Companies Act, 1956. Under these circumstances, the Assessing Officer is not permitted to make any adjustment in view of well settled position of law as has been clarified in the case of Apollo Tyres Ltd 2002 (5) TMI 5 - SUPREME COURT . As noted that reliance by the lower authorities upon the provisions of section 43B is misplaced here. Thus, the lower authorities have misunderstood and misapplied the provisions of law on the facts of the case before us. In our view, provision for leave encashment debited by the assessee in its P L Account cannot be added while computing book profits u/s 115JB in the given facts of the case and, therefore, the same is directed to be deleted. - AO is directed to re-compute the income u/s 115JB after excluding the aforesaid amount. This ground is allowed.
Issues Involved:
1. Reopening of assessment under section 147. 2. Addition of ?1,16,50,971 as deemed income under sections 69B/69C. 3. Disallowance of ?9,00,000 for professional fees. 4. Disallowance of ?7,65,120 towards rent under section 40A(2)(b). 5. Addition of ?7,83,672 for professional fees in AY 2007-08. 6. Addition of ?38,33,170 towards provision for leave encashment under section 115JB. Issue-wise Detailed Analysis: 1. Reopening of Assessment under Section 147: The assessee challenged the reopening of assessment by the DCIT under section 147, arguing that the procedure laid down by the Supreme Court in GKN Driveshafts (India) Pvt Ltd vs. ITO was not followed. The reassessment was initiated based on a survey where an undisclosed income of ?50,00,000 was admitted by the Managing Director. However, the assessee contended that this income was already included in the original return. The tribunal found that the Assessing Officer (AO) did not dispose of the objections raised by the assessee before framing the assessment order, violating the principles laid down by the Bombay High Court in CIT vs. Jet Airways and the Supreme Court in GKN Driveshafts. Consequently, the reassessment order was quashed as the AO was bound to drop the proceedings once it was established that the alleged escaped income was already included in the return. 2. Addition of ?1,16,50,971 as Deemed Income under Sections 69B/69C: Since the reassessment order was quashed on jurisdictional grounds, the tribunal did not delve into the merits of the addition of ?1,16,50,971 as deemed income under sections 69B/69C. 3. Disallowance of ?9,00,000 for Professional Fees: Similarly, the tribunal did not address the disallowance of ?9,00,000 for professional fees due to the quashing of the reassessment order. 4. Disallowance of ?7,65,120 towards Rent under Section 40A(2)(b): This issue was also not examined on merits due to the quashing of the reassessment order. 5. Addition of ?7,83,672 for Professional Fees in AY 2007-08: The assessee contested the disallowance of ?7,83,672 paid for professional consultancy, arguing that the entire amount was not related to the issuance of shares. The tribunal found merit in the assessee's argument and remanded the issue back to the AO for verification. The AO was directed to allow the consultancy fees related to routine legal matters and other non-share issuance activities as revenue expenses. 6. Addition of ?38,33,170 towards Provision for Leave Encashment under Section 115JB: The AO added the provision for leave encashment while computing book profit under section 115JB, considering it an unascertained liability. The assessee argued that the provision was based on actuarial valuation as per Accounting Standard-15 and should not be added back. The tribunal agreed with the assessee, citing the Supreme Court's decision in Bharat Earth Movers and the Tribunal's ruling in ACIT vs. Piramal Holdings Ltd. It held that the provision for leave encashment, if calculated on a scientific basis, is an ascertained liability and should not be added while computing book profits under section 115JB. The AO was directed to exclude this amount while recomputing the income. Conclusion: The appeal for AY 2006-07 was allowed, resulting in the quashing of the reassessment order. For AY 2007-08, the appeal was partly allowed, with the issue of professional fees remanded for verification and the addition for leave encashment provision deleted.
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