2018 (2) TMI 2116 - AT - Income Tax

Validity of Reassessment Proceedings - Addition on account of prior period expenses and claim of receivables - HELD THAT - There was no tangible material outside the record which was the basis of reassessment proceedings. Admittedly there is no reason to believe that income has escaped assessment, as assessee has not claimed the amount that has been the addition in the reassessment proceedings. The observations of Ld. AO in the original assessment proceedings are very much pertinent at this juncture. AO therein has given categorical finding regarding the expenditure not been considered for the purposes of deduction in the P L account. The decisions relied upon by Ld. DR in the written submissions filed mostly relate to situations where there was tangible material available outside the record based on which Honble Supreme Court and various High Courts have held reassessment proceedings to be valid. There was no tangible material in the possession of Ld. AO to initiate the reassessment proceedings and the additions made by Ld. AO was based on the materials already on record which has failed to stand the test of law as the same has been deleted by Ld. CIT (A) by observing categorically that they were never considered for the purposes of deduction in the original assessment proceedings itself. - Decided in favour of assessee.

Summary

Issues involved:
The judgment involves issues related to the deletion of additions made by the Assessing Officer (AO) on account of Prior Period Expenses, receivables, and advertisement expenses. Additionally, it addresses the legality and validity of reassessment proceedings initiated u/s 147/143(3) of the Act.

Reassessment Proceedings:
The original assessment was completed u/s 143(3) at a certain amount, following which a notice u/s 148 was issued. The reassessment proceedings led to various additions, including inadmissible expenses, non-deduction of TDS, prior period expenses, disallowance on receivables, and capital expenditure, resulting in a revised taxable income.

Challenges and Observations:
The legality and validity of the reassessment proceedings were challenged by the assessee, arguing that there was full and true disclosure during the original assessment. The CIT (A) upheld the reopening of assessment and subsequently deleted the additions based on various observations and submissions.

Legal Grounds and Decisions:
The assessee contended that the reassessment proceedings were not based on new material and failed to establish that income had escaped assessment. The Tribunal found that there was no tangible material outside the record to justify the additions made during reassessment, leading to the cancellation of the notice issued u/s 147 and the consequent dismissal of the reassessment proceedings.

Final Decision:
As a result of canceling the reassessment order, the additions made therein were also deleted. The appeal filed by the revenue was dismissed, while the Cross Objection raised by the assessee was allowed, ultimately leading to the judgment in favor of the assessee.

This judgment highlights the importance of proper disclosure of material facts during assessment proceedings and the necessity for tangible evidence to support reassessment actions, ensuring the protection of the assessee's rights in tax matters.