2019 (11) TMI 199 - AT - Income Tax

Reopening of assessment u/s 147 - Disallowance of prior period expenses - whether re-opening u/s147/148 of the Act in maintainable where tax liability as per book profits computed under s.115JB ? - HELD THAT - We find that the issue is no longer res integra in view of the judgment rendered by Jurisdictional High Court. The Hon ble Gujarat High Court in India Gelatine and Chemicals Ltd. 2015 (2) TMI 808 - GUJARAT HIGH COURT has observed that in the absence of any addition to the tax liability of the assessee computed u/s115JB of the Act (which exceeds the tax liability under normal provisions), the jurisdiction of the AO is ousted even if the proposed disallowance of expenditure by the AO under normal provisions is sustained. We are not in a position to take any indulgence at the plea of the Department for maintainability of re-assessment notice and re-assessment order having regard to legislative fiat by way of Explanation 2 to Section 147 of the Act referred to and relied upon. Needless to say, Article 141 of the Constitution embodies the rule of precedent. All the subordinate courts are bound by judgment of the High Courts. Thus, governed by the decision of the Hon ble Gujarat High Court as noted above, we find merit in the plea raised by the assessee by way of its additional grounds of appeal. The re-assessment notice is accordingly quashed and re-assessment order is declared null and void. Appeal filed by the assessee allowed.

Issues:
Challenging disallowance of prior period expenses in reassessment order.
Admission of additional ground challenging validity of reopening notice and reassessment proceedings.
Validity of reopening notice and reassessment proceedings under Section 147.
Interpretation of legislative intent for reopening assessments.
Applicability of Explanation 2 below Section 147.
Precedent set by the Hon'ble Gujarat High Court in similar cases.
Quashing of reassessment notice and declaration of re-assessment order as null and void.

Challenging Disallowance of Prior Period Expenses:
The appeal was filed by the assessee against the disallowance of prior period expenses of ?8,36,34,000 in the reassessment order framed under Section 147 of the Income Tax Act for AY 2008-09. The assessee also moved an application for the admission of an additional ground challenging the validity of the reopening notice and reassessment proceedings. The Tribunal granted leave to admit the additional ground as it questioned the validity of the proceedings itself, going to the root of the matter.

Validity of Reopening Notice and Reassessment Proceedings:
The additional ground raised by the assessee challenged the validity of the reassessment notice and proceedings under Section 147, questioning the jurisdictional aspect. The learned counsel for the assessee argued that the reassessment notice was without authority of law and the reassessment order was invalid, citing relevant case law. The argument centered on the absence of any additional tax liability, leading to the contention that there was no escapement of income justifying the reassessment.

Interpretation of Legislative Intent for Reopening Assessments:
The Revenue, represented by the learned DR, argued in favor of the actions taken by the AO under Section 147/148, emphasizing that reopening of assessments is not dependent on the ultimate tax liability but on the escapement of chargeable income from taxation. The contention was that the assessee had claimed prior period expenses not eligible under the Act, resulting in an understatement of assessed income, falling within the scope of Explanation 2 below Section 147.

Applicability of Explanation 2 below Section 147:
The Tribunal deliberated on whether reopening under Section 147/148 was maintainable when the tax liability computed under book profits exceeded the total income determined under normal provisions. Citing the judgments of the Hon'ble Gujarat High Court in relevant cases, the Tribunal found that if there was no addition to the tax liability under Section 115JB of the Act, the jurisdiction of the AO to reassess was ousted, as per the legislative intent and precedent set by the High Court.

Precedent Set by the Hon'ble Gujarat High Court:
The Tribunal referred to the decisions of the Hon'ble Gujarat High Court in India Gelatine and Chemicals Ltd. and Motto Tiles (P.) Ltd., which established that in cases where the tax liability under book profits exceeded the liability under normal provisions, the reassessment notice could not be sustained. The Tribunal upheld the precedent and quashed the reassessment notice and declared the re-assessment order as null and void.

Quashing of Reassessment Notice and Declaration of Reassessment Order:
Based on the unequivocal observations and precedent set by the Jurisdictional High Court, the Tribunal found merit in the plea raised by the assessee through the additional grounds of appeal. Consequently, the reassessment notice was quashed, and the re-assessment order was declared null and void. The appeal filed by the assessee was allowed on legal grounds, without delving into the merits of the disallowance of prior period expenses.

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