2006 (5) TMI 151 - AT - Income Tax

Income Escaping Assessment - Validity Of notice issued u/s 148 - assessment completed u/s 143(3)/147 - whether conditions for reopening of assessment on second occasion did exist or not - Disallowance of provision for unexpired warranty. HELD THAT - Admittedly, two notices u/s 148 have been issued in this case. From the copy of order sheet of assessment records for assessment year 1989-90 it is seen that Assessing Officer issued notice u/s 148 on 24-2-1993, which was despatched on 26-2-1993. The ld. AR of assessee has filed copy of notice u/s 148 dated 24-2-1993 in support of her contention that notice was issued and served on assessee. After issue of notice u/s 148, when no return is filed by the assessee, the Assessing Officer could have issued notice u/s 142(1) requiring the assessee to file return of income. No such action was taken. Ultimately the reassessment proceedings initiated got barred by limitation on 31-3-1995. The assessee has not produced any evidence to show that return of income was filed in response to notice u/s 148 dated 24-2-1993. Thus inaction on the part of Assessing Officer to complete assessment u/s 144 in the absence of return of income would not amount to forming of an opinion, that there was no escapement of income. When assessee has not filed a return of income, it is not correct on the part of assessee to say that Assessing Officer has formed an opinion in the reassessment proceedings initiated by issue of notice u/s 148 dated 24-2-1993. The Assessing Officer can issue any number of notices u/s 148 provided the conditions stipulated in. section 147 are satisfied and the same is within the period specified u/s 149 read with section 151. However, if an assessment is pending either by way of original assessment or by way of reassessment proceedings, the Assessing Officer cannot issue notice u/s 148. But if no proceedings are pending either by way of original assessment or by way of reassessment, he can issue notice u/s 148 within the time allowed under the Act. On the date of issue of second notice no reassessment proceedings were pending. The reassessment proceeding based on notice dated 24-2-1993 got barred by limitation on 31-3-1995. For assessment year under consideration assessment could have been reopened up to a period of ten years from the end of the assessment year 1989-90 as specified in section 149(1)(a)(iii) of the Act where income escaped was more than Rs. 1,00,000 or more. In this case condition precedent is satisfied and, therefore, in our considered view, the Assessing Officer was justified in reopening of the assessment. Disallowance of provision for unexpired warranty - In the case before us the assessee could not produce any basis on which the provision for warranty was determined. The actual expenditure incurred was at Rs. 2,80,131 as against the provision of Rs. 21,08,550. Therefore, it is clear that liability to the extent of Rs. 18,28,490 did not accrue. The provision was not made on actual quantification. Therefore, issue is covered against the assessee by the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers Ltd. 2000 (8) TMI 4 - SUPREME COURT . In our considered view the authorities below were justified in disallowing the claim of assessee as contingent liability. Thus, Appeal is dismissed.

Summary

Issues:
1. Re-opening of assessment under section 148
2. Disallowance of provision for unexpired warranty

Re-opening of assessment under section 148:
The case involved cross-appeals by the revenue and the assessee for the assessment year 1989-90. The primary issue was the re-opening of assessment under section 148. The Assessing Officer re-opened the assessment based on the discovery that the assessee had suppressed sales by creating a provision towards unexpired warranty in the preceding assessment year. The reassessment was challenged on grounds of being time-barred and a case of change of opinion. The ld. CIT(A) held that the reassessment was valid under section 149(1)(iii) and that the second notice was justified. The Tribunal found that the first notice issued in 1993 did not lead to any assessment due to inaction by the Assessing Officer. The Tribunal concluded that the reassessment based on the second notice in 1995 was valid and not a case of change of opinion.

Disallowance of provision for unexpired warranty:
The second issue involved the disallowance of a provision for unexpired warranty amounting to Rs. 18,28,490. The assessee had made a provision of Rs. 21,08,550, but the actual expenditure incurred was significantly lower at Rs. 2,80,131. The Assessing Officer disallowed the excess amount treating it as contingent in nature. The Tribunal noted that the provision was not based on any scientific calculation or actuarial basis. It was highlighted that under the Income-tax Act, only actual liabilities existing at the time are deductible, not contingent liabilities. The Tribunal referenced the decision of the Hon'ble Supreme Court in Bharat Earth Movers Ltd case, emphasizing that deductions are allowed for liabilities that have definitely arisen in the accounting year and can be estimated with reasonable certainty. Since the provision for warranty was not based on actual quantification and the actual expenditure was significantly lower, the disallowance was upheld.

This detailed analysis of the judgment covers the issues of re-opening of assessment under section 148 and the disallowance of provision for unexpired warranty comprehensively, providing insights into the legal reasoning and decisions made by the Tribunal.