2016 (1) TMI 948 - HC - Income Tax

Reopening of assessment - receivable from GCMMFL for which a provision was made by the assessee which according to the Assessing Officer was not shown as income of the assessee in the Profit and Loss account - Held that - Provision of ₹ 76 crores was made for milk purchases and sales account for milk pool price receivable from GCMMFL. It was clarified that same has been credited to respective primary cooperative societies. It was further clarified that to this extent trading, profit and loss account and balance sheet show provisional figures. This note, in fact, clarified that said sum of ₹ 76 crores was a provisional figure for milk purchases and sales account receivable from GCMMFL. In fact, it clarifies that such sum has been reflected in the trading, profit and loss account and balance sheet on the basis of provisional figures. The Assessing Officer s assertion therefore, that the said sum was not reflected under the profit and loss account is not correct. This ground for reopening therefore, must fail. - Decided in favour of assessee. Interest under section 80P(2)(d) was not allowable - Held that - The entire issue of the petitioner s claim of deduction of interest of ₹ 2.29 crores under section 80P(2)(d) of the Act was examined by the Assessing Officer threadbare during the original assessment proceedings. It was in response to the queries raised by the Assessing Officer that the petitioner made a detailed representation and pointed out that the petitioner had earned interest income of ₹ 2.29 crores which was earned out of investment of amount received on sale of milk, milk products from GCMMFL. It was pointed out that since the interest was received from the cooperative society and earned out of investment made from its own fund, the assessee was entitled to full deduction under section 80P(2)(d) of the Act. It was further clarified that such interest was earned on short term deposits with the cooperative banks or from Cooperative societies. It was stated that no expenditure in the form of interest was incurred for earning such interest. The assessee also submitted that the expenditure of interest has no nexus with the income of the interest earned during the year. The assessee relied on decisions in its own case for earlier years pointing out that on this very ground, the assessee has succeeded before the appellate Tribunal.However, having accepted the detail explanation of the assessee on the question of deduction of interest, the Assessing Officer cannot be allowed to reopen the issue on a mere rethinking - Decided in favour of assessee. Prior period expenditure not allowable - Held that - Reviewing compilation of this petition which forms part of the trading, profit and loss account, the assessee had deducted a sum of ₹ 14.69 lacs from the expense side and further showed a sum of ₹ 7.14 lacs towards the income of prior period. Thus a total sum of ₹ 21.34 lacs was reflected in the income side. Though somewhat curiously and rather awkwardly, the assessee reduced the expenditure by ₹ 14.69 lacs and thereby indirectly increasing the income. The Assessing Officer was therefore, wrong in recording that said sum of ₹ 14.68 lacs represented prior period expenditure of the assessee. There was no material to support this assertion and consequently his conclusion that such expenditure though not allowable was claimed benefit of and income to that extent escaped assessment. This ground therefore, lacks validity. - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment regarding Rs. 76 crores receivable from GCMMFL.
2. Deduction of Rs. 2.29 crores under section 80P(2)(d) of the Income Tax Act.
3. Prior period expenditure of Rs. 14.68 lakhs.

Issue-wise Detailed Analysis:

1. Reopening of Assessment Regarding Rs. 76 Crores Receivable from GCMMFL:

The petitioner, a cooperative society of milk producers, challenged a notice dated 26.3.2015 issued by the Assessing Officer seeking to reopen the assessment for the assessment year 2010-2011. The notice was based on the assertion that a sum of Rs. 76 crores receivable from GCMMFL was not shown as income in the Profit and Loss account. The court observed that the assessee had indicated a sum of Rs. 736.68 crores by way of milk sales in the Profit and Loss account and had shown Rs. 111.4 crores towards milk purchases. The auditor's note clarified that the Rs. 76 crores was a provisional figure for milk purchases and sales account receivable from GCMMFL and was reflected in the trading, profit and loss account and balance sheet. Therefore, the court concluded that the Assessing Officer's assertion that the sum was not reflected in the Profit and Loss account was incorrect. This ground for reopening failed.

2. Deduction of Rs. 2.29 Crores Under Section 80P(2)(d) of the Income Tax Act:

The Assessing Officer's second ground for reopening pertained to the claim of deduction of Rs. 2.29 crores for interest under section 80P(2)(d) of the Act. During the original assessment proceedings, the Assessing Officer had raised queries regarding the detailed interest accounts and justification for the deduction claimed. The petitioner responded, providing detailed explanations and clarifying that the interest income was earned from investments made from its own funds and not from borrowed funds. The court noted that the entire issue was examined thoroughly during the original assessment proceedings, and the Assessing Officer had accepted the explanation provided by the petitioner. The court held that reopening the issue on the basis of a mere change of opinion was not permissible, even within the period of four years from the end of the relevant assessment year. This ground for reopening was also rejected.

3. Prior Period Expenditure of Rs. 14.68 Lakhs:

The third ground for reopening was based on the assertion that a sum of Rs. 14.68 lakhs, which was prior period expenditure, was erroneously claimed by the assessee. The petitioner contended that the amount represented income, not expenditure, and was shown as a negative balance on the expenses side, indicating it was income. The court found that the assessee had deducted Rs. 14.69 lakhs from the expense side and further showed Rs. 7.14 lakhs towards the income of the prior period, reflecting a total sum of Rs. 21.34 lakhs in the income side. The court concluded that the Assessing Officer's assertion that the amount represented prior period expenditure was incorrect and unsupported by material evidence. This ground for reopening was also invalid.

Conclusion:

The court quashed the impugned notice dated 26.3.2015, allowing the petition and disposing of it accordingly. The reopening of the assessment was deemed unjustified on all three grounds presented by the Assessing Officer.