2021 (12) TMI 637 - AT - Income Tax

Reopening of assessment u/s 147 - genuinety of claim of the assessee that income can not be taxed twice as has been done in the present case - Profit of the project offered to tax in the earlier year on the basis percentage completion method followed by the assessee - HELD THAT - As the order of Ld. CIT(A) suffers from serious infirmities as he has not considered the issue of double taxation and also the fact that return filed in response to notice under section 148 of the Act has been acknowledged by the AO in the assessment order and only the reassessment proceeding has to be done on the basis of return filed in response to notice under section 148 of the act. In our opinion, the department should not be allowed to take the advantage of any mistake committed by the assessee which may result prejudice to the assessee in double taxation of the same income. In the present case, ₹ 1,74,76,000/- has been assessed from A.Y. 2009-10 to A.Y. 2012-13 and therefore to tax the income again on the plea that assessee has wrongly returned the income on the original return of income and not giving effect to the rectification filed by the assessee is totally wrong and against the principle of natural justice. In our opinion, this income needs to be reduced from the return of income of the assessee as there is no provision in the income tax law to assess the same income twice. Even otherwise, the stand of the AO is not acceptable as in the reopened proceedings the issue which was subject matter of reopening i.e. non deduction of tax on certain expenses amounting to ₹ 38,00,500/- has not been added in the reassessment order and once the item proposed in the reasons recorded under section 148(2) did not find place in the assessment order, no other addition can be made and income returned as per return in response to notice under section 148 of ₹ 3,22,254/- has to be accepted. The case of the assessee finds support from the decision of the jurisdictional High Court in the case of CIT vs. Jet Airways (India) Ltd. 2014 (5) TMI 1215 - BOMBAY HIGH COURT - direct the AO to reduce ₹ 1,74,76,000/- from the income of the assessee. Accordingly, the appeal of the assessee is allowed.

Summary

Issues:
- Discrepancy in income declared in original return and subsequent rectified return
- Validity of assessing income twice
- Treatment of rectified return filed in response to notice under section 148
- Rejection of genuine claim by the Assessing Officer
- Application of percentage completion method for income recognition

Issue 1: Discrepancy in income declared in original return and subsequent rectified return

The appellant filed an appeal against the Commissioner of Income Tax (Appeals) regarding the assessment year 2013-14. The grounds of appeal highlighted discrepancies in the income declared in the original return and the subsequent rectified return. The original return declared a total income of ?1,77,98,254, whereas the correct income for the year was ?3,22,254. The appellant mistakenly reported the total profit from the project instead of the profit earned during the current year.

Issue 2: Validity of assessing income twice

The primary contention of the appellant was against the addition of ?1,74,76,000, representing the profit from the project offered for tax in earlier years. The appellant argued that the same income cannot be taxed twice. The appellant followed the percentage completion method and had already offered ?1,74,76,000 from assessment year 2009-10 to 2012-13. The Tribunal noted the discrepancy and emphasized that income should not be taxed twice, especially when it had already been assessed in previous years.

Issue 3: Treatment of rectified return filed in response to notice under section 148

The appellant filed a rectified return in response to a notice under section 148, declaring the correct income of ?3,22,254. However, the Assessing Officer rejected this return and assessed the income at ?1,77,98,254, as per the original return. The Tribunal observed that the rectified return should have been considered for reassessment, and the AO's rejection based on reduced income in the rectified return was deemed unacceptable.

Issue 4: Rejection of genuine claim by the Assessing Officer

The Assessing Officer rejected the genuine claim of the appellant regarding double taxation and treated the rectified return as invalid. The Tribunal criticized this approach, stating that the department should not benefit from the appellant's mistake, leading to double taxation. The Tribunal emphasized the importance of natural justice and rectifying the assessment order to avoid prejudice to the appellant.

Issue 5: Application of percentage completion method for income recognition

The Tribunal acknowledged that the appellant followed the percentage completion method for recognizing income from the project. The total profits accrued on the project were ?1,77,98,254, with ?1,74,76,000 already offered for tax in previous years. The Tribunal directed the AO to reduce ?1,74,76,000 from the appellant's income, emphasizing the inadmissibility of taxing the same income twice and citing relevant case law to support its decision.

This comprehensive analysis of the judgment highlights the key issues raised by the appellant, the Tribunal's findings, and the legal principles applied in resolving the matter.