2018 (11) TMI 646 - HC - Income Tax

Reopening of assessment - change in method of accounting in relation to NPAs - Held that - The concurrent findings of both the CIT (Appeals) and the Tribunal is that this new method of accounting was duly notified and recorded in para 7.3 of schedule 17 of the audited accounts for the assessment year 2006-2007. This factual position is not disputed or factually challenged. AO had noticed this objection but did not dwell and specifically examine and answer the same in the re-assessment order. There was quietus on the said aspect by the Assessing Officer, who had impliedly admitted the factual position of full and true disclosure of material facts. This is not a case where inference or interpretation on the basis of the note was to be drawn. The new and amended method of accounting for NPAs was declared and notified in clear words. We therefore do not see any reason and ground to interfere with the finding on absence of failure to disclose full and true material facts. Provision for fraud cases treated as expenditure in the profit and loss account - The second reason for re-opening, which is not pressed, this claim was accepted during the course of original assessment proceedings. CIT(Appeals) had, on the said aspect, observed that a specific query was raised by the AO vide item No.16 of questionnaire dated 26.5.2008, to which reply dated 20.6.2008 was furnished by the respondent/assessee. CIT(Appeals) had accordingly held that the ground would not be a valid and good reason to reopen the concluded assessment. The Revenue has accepted the decision of the Commissioner of Income Tax(Appeals) on the second aspect and did not challenge this finding.

Summary

Issues: Appeal against quashing of re-assessment proceedings under Section 147 of Income Tax Act for assessment year 2006-07 due to change in accounting method regarding Non-Performing Assets (NPAs).

Analysis:
1. Change in Accounting Method for NPAs: The impugned order quashed the re-assessment proceedings initiated by the Assessing Officer under Section 147 read with Section 148 of the Act for the assessment year 2006-07. The Tribunal found that the assessee had made full and true disclosure of material facts regarding the change of accounting method in relation to NPAs. The new method of accounting, where payments received were accounted for first towards the principal amount and then towards the interest, was duly notified and recorded in the audited accounts for the relevant assessment year. The Assessing Officer did not specifically examine or answer this aspect in the re-assessment order, implying an admission of the factual position of full and true disclosure. The Court upheld this finding, emphasizing that the new method of accounting was declared and notified clearly, leaving no grounds for interference with the absence of failure to disclose material facts.

2. Provision for Fraud Cases: The second reason for re-opening the assessment, related to the provision for fraud cases treated as expenditure in the profit and loss account, was not pressed in the appeal. This claim had been accepted during the original assessment proceedings. The Commissioner of Income Tax (Appeals) had noted that a specific query was raised by the Assessing Officer, and a satisfactory reply was furnished by the assessee. Consequently, the Commissioner held that this ground would not be a valid reason to reopen the concluded assessment. The Revenue accepted this decision and did not challenge the finding. As a result, the Court found no merit in this aspect of the appeal.

In conclusion, the High Court dismissed the appeal in limine, with no order as to costs, as it found no valid grounds to interfere with the Tribunal's decision to quash the re-assessment proceedings based on the change in accounting method for NPAs and the acceptance of the provision for fraud cases during the original assessment.