2019 (3) TMI 1126 - HC - Income Tax

Reopening of assessment u/s 147 - original assessment u/s 143(3) - notice issued beyond the period of four years from the end of relevant assessment year - no failure on the part of the assessee to disclose truly and fully all material facts - three grounds of notice, prior period expenses, non recognition of income & warranty provision - HELD THAT - On both grounds contained in the reasons recorded by the Assessing Officer namely the prior period expenses as well as the provision for warranty became subject matter of the scrutiny during the original assessment. Thus, on both grounds no failure on the part of the assessee to disclose truly and fully all material facts as well as scrutinized grounds, the impugned notice based on these grounds cannot be sustained. Revenue Recognition - Difference between the bill amount and the income reflected in the accounts of the assessee - we may notice that in the books of accounts, the assessee had made full disclosure with respect to the same which also provided the ground for such treatment given by the assessee to the receipts. There was no failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. Reference to first explanation to Section 147 of the Act in this respect, would not aid the revenue. In the order of assessment, however, there was no addition made on this ground. Clearly, therefore, the Assessing Officer through scrutiny assessment agreed that the assessee on the accounting treatment given by the assessee to such billed amount and on that ground also, the Assessing Officer now cannot press the ground in service to sustain the impugned notice of reassessment. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reassessment notice issued beyond the period of four years.
2. Disallowance of prior period expenditure.
3. Taxability of amounts due to customers on construction not offered for taxation.
4. Allowability of warranty provision.

Issue-wise Detailed Analysis:

1. Validity of the Reassessment Notice Issued Beyond the Period of Four Years:
The petitioner challenged the notice of reassessment dated 23.3.2018 issued by the Assessing Officer for the assessment year 2011-12, arguing it was issued beyond the period of four years from the end of the relevant assessment year. The petitioner contended there was no failure on their part to disclose truly and fully all material facts necessary for the assessment. The court noted that the impugned notice was indeed issued beyond the four-year period, making the question of the assessee's failure to disclose all material facts relevant. The court emphasized that if a claim had already been examined during the original assessment, any attempt to reopen the assessment without new or additional material would be considered a change of opinion.

2. Disallowance of Prior Period Expenditure:
The Assessing Officer disallowed a sum of ?11.34 lacs being prior period expenses, arguing it should not be allowed in the year under consideration. During the original assessment, the Assessing Officer had already scrutinized the details of miscellaneous expenses, which included prior period expenses. The court found that this ground had already been examined during the original assessment, and thus, reopening the assessment on this ground was not justified.

3. Taxability of Amounts Due to Customers on Construction Not Offered for Taxation:
The Assessing Officer argued that an amount of ?41.88 crores, being the difference between bills raised and sales booked, had accrued to the assessee and should have been offered for tax. The court noted that the assessee had made full disclosure in their books of accounts regarding this difference and the method of revenue recognition based on the percentage of completion method, as per Accounting Standard 7. The court found no failure on the part of the assessee to disclose material facts. Additionally, the court observed that in the preceding assessment year 2010-11, the Assessing Officer had reopened the assessment on similar grounds but made no additions in the reassessment order. Therefore, reopening the assessment on this ground was not sustainable.

4. Allowability of Warranty Provision:
The Assessing Officer questioned the allowability of a ?4.08 crore warranty provision, arguing it was not reconciled and lacked a scientific basis. During the original assessment, the Assessing Officer had already scrutinized the warranty provision and the assessee had provided detailed explanations and references to judicial precedents, including the Supreme Court's decision in Rotork Controls India (P) Ltd. v. CIT, which allowed such provisions. The court found that this ground had also been examined during the original assessment, and thus, reopening the assessment on this basis was not justified.

Conclusion:
The court concluded that the reassessment notice was invalid as it was issued beyond the permissible period without any new material facts. The grounds for reopening the assessment had already been scrutinized during the original assessment. Therefore, the impugned notice was quashed, and the petition was allowed and disposed of.