2017 (3) TMI 1261 - HC - Income Tax

Reopening of assessment - wrong deduction claimed by Assessee under Section 35(2AB) - Held that - from the orders passed by Commissioner of Income Tax (Appeals) and Tribunal, it is evident that entire facts relating to aforesaid deduction were disclosed by Assessee in the return filed by him and deduction was allowed initially when the order of assessment was passed on 22.12.2006. Thereafter a notice was issued under Section 154 of Act, 1961 to assess three amounts including relating to deduction under Section 35(2AB). Assessee filed letter dated 28.07.2007 explaining reasons for which additions could not be made and said that deduction under Section 35(2AB) was correctly claimed. Matter, thereafter, went in appeal. In these facts and circumstances Tribunal has found that there was a complete disclosure of all relevant facts by Assessee with regard to the amount claimed as deduction under Section 35(2AB) and that being so, question of escape assessment giving rise to re-assessment under Section 147/148 of Act, 1961 does not arise as it amounts to change of opinion. - Decided in favour of assessee Adoption of correct method of accounting - Held that - Section 145 (1) permits two process of accounting and it is not the case of appellant that double entry system of account is not a recognized mercantile system of accounting provided under Section 145(1) and in absence of anything shown otherwise, we find nothing wrong in the method of accounting adopted by Assessee and, therefore, this question is also answered against Revenue.

Summary

Issues involved:
1. Timeliness of filing the appeal without condonation of delay.
2. Validity of the reopening of assessment under Section 147.
3. Recognition of the Double Entry System of Accounting under Section 145(1).

Issue 1: Timeliness of filing the appeal without condonation of delay
The appeal was challenged for being filed after the expiration of the limitation period without seeking condonation of delay. The Tribunal's order was served to the Assessee's office, but the appeal was filed after a considerable delay. Discrepancies were found in the affidavits filed by the Officers of the appellant, raising concerns about the authenticity of the service of the judgment. The Court directed the officer who had sworn the affidavit to appear before it. Despite the casual approach of the appellant, the Court decided to treat the appeal as filed within the time limit and proceeded to hear the case on its merits.

Issue 2: Validity of the reopening of assessment under Section 147
The appeal contested the reopening of assessment under Section 147, questioning the validity of the notice served to the Assessee. It was argued that the Assessee had fully disclosed all relevant facts regarding the deduction claimed under Section 35(2AB) during the initial assessment. The Tribunal concluded that there was no basis for reassessment as it amounted to a change of opinion, given the Assessee's complete disclosure. The Court, after examining the facts, upheld the Tribunal's decision against the Revenue, ruling in favor of the Assessee on this issue.

Issue 3: Recognition of the Double Entry System of Accounting under Section 145(1)
The appeal raised a query regarding the recognition of the Double Entry System of Accounting under Section 145(1) of the Income Tax Act. The Court noted that Section 145(1) allows for two processes of accounting, and the appellant did not dispute the recognition of the double entry system as a valid method. As there was no evidence to suggest otherwise, the Court found no fault in the accounting method adopted by the Assessee. Consequently, the Court ruled against the Revenue on this issue as well.

In conclusion, the High Court dismissed the appeal, finding it lacking in merits based on the detailed analysis of the issues raised. The Court upheld the Tribunal's decisions on the timeliness of filing, the validity of the reassessment under Section 147, and the recognition of the Double Entry System of Accounting under Section 145(1) in favor of the Assessee.