2016 (4) TMI 44 - HC - Income Tax

Reopening of assessment - Held that - The petitioning assessee had to provide for the entire amount due of ₹ 19,20,000/- that accrued to the retired partner irrespective of the amount actually paid upon Accounting Standard-15 coming into effect; but the concerned partner would show only the amount received of ₹ 4,80,000/-. While the figures appear to be mismatched, that is because of the different accounting systems followed by the two assessees. When the two systems of accounting are different, it is not the payment made by one which is being received by the other, but the provision made by one which is being received for a particular period by the other; which may not always match. Since it does not appear that there was either any failure on the part of the petitioning assessee to disclose any material on the basis of which the reassessment would be necessary or there is any discovery of new material by the assessing officer from elsewhere which could prompt the same, the notice dated March 31, 2014 issued by the assessing officer and all steps taken pursuant thereto for reassessment of the petitioning assessee s accounts for the assessment year 2007-08 stand set aside.

Summary

Issues:

1. Validity of notice under Section 148 of the Income Tax Act, 1961 for reassessment under Section 147 for the assessment year 2007-08.

Analysis:

The petitioners, a firm of chartered accountants, challenged a notice issued under Section 148 of the Income Tax Act, 1961 for reassessment for the assessment year 2007-08. The previous attempt at reassessment regarding provident fund contributions was restrained by the Court. The current reassessment pertained to pension to an erstwhile partner. The petitioners argued that all relevant information was disclosed in the accounts for the year, and the assessing officer should have determined deductions and taxable income based on the disclosed facts. The department contended that even under the accrual basis of accounting, the deduction for the entire accrued amount could not be made if only a portion was paid during the year.

The petitioners maintained that the assessing officer's opinion for reassessment was a mere change of opinion without any new material. The assessing officer relied on the cash basis accounts of the erstwhile partner, showing a lower payment than the accrued amount in the petitioners' accounts. The Court noted the distinction between accrual and cash basis accounting, where provisions made by one entity may not match actual payments received by another. Since there was no failure to disclose material or discovery of new material prompting reassessment, the Court set aside the notice and all steps taken for reassessment for the assessment year 2007-08.

In conclusion, the Court allowed the petition, finding that the reassessment notice and subsequent actions were unwarranted due to the absence of new material or failure to disclose relevant information by the petitioning assessee.