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TMI Blog2013 (9) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has debited a sum of Rs 1,20,765/- in the P & L account on account of prior period expenses after netting income of Rs 30,34,463/- and expenditure of Rs. 31,55,228/- - The Assessing Officers has placed reliance on the notes to the accounts that were available at the time of the scrutiny assessment. But the notes also states that the prior period expenses had crystallized/ settled in the year. The reasons to believe recorded do not show as to on what basis the Assessing Officer has formed a reasonable belief that the said expenditure had not crystallized during the year relevant to the assessment year. The words "reason to believe" indicate that the belief must be that of a reasonable person based on reasonable grounds emerging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 15.03.2012. 2. The assessment year in issue is 2002-03. 3. The petitioner is an Indian company engaged in the construction business. On 30.10.2002, the petitioner filed its return of income under Section 139(1) of the Act. The petitioner declared an income of Rs.2,26,07,425/-. The petitioner during the said financial year credited certain prior period incomes and debited certain prior period expenses to its profit and loss account. The petitioner disclosed this fact in the Notes to the Accounts in its financial statement for the year 2001-02, which were filed alongwith the return of income. The return of the assessment was accepted by the Assessing Officer and assessment order dated 28.02.2005 was passed under Section 143(3) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that there was no failure on the part of the petitioner to disclose fully and truly all the material facts and that all primary and material facts were placed before the Assessing Officer during the course of the assessment proceedings for the subject assessment year and the relevant material was duly disclosed in Schedule 10 of the Notes to the Accounts of the financials for the relevant year and no new material had come to the knowledge of the Assessing Officer and that he had acted on the basis of mere suspicion. 8. By the impugned order dated 15.03.2012, the respondent dealt with the objection raised by the petitioner qua initiation and rejected the same. With regard to the issue of change of opinion and the fact that true and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Subcontract costs 2,911,573 - Interest Paid 243,655 - Royalty - - Income - - Material Cost (1,986,566) - Project Related Income (1,047,897) - Net 120,765 1,661,890 The Petitioner claims to have further made a disclosure in the notes to computation of income as under: "11. Prior period expenses (Net) Rs. 120,765 (after adjusting prior period income of Rs. 3,034,463) have been claimed in the present assessment year as liability in respect thereof was crystallized/settled during the year" 11. The law in respect of reopening of the assessment under Section 143(3) of the Act is no l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o is not applicable where reasons to believe for issue of notice are recorded and notice is issued within four years from the end of assessment year.) 12. It would be the proximity of the reasons with the belief of escapement of income which would be the determinative factor for reopening of the assessment. The remoteness of the reasons would obviate the possibility of a belief and would bring the case in the realm of mere suspicion which cannot be a ground for reopening of assessment. 13. The prior period expenses are eligible for deduction during the current year provided the liability was determined and crystallized during the relevant year. 14. The reason to believe recorded by the Assessing officer "that the assessee has debited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icion, gossip or rumour. The reason to believe recorded do not refer to any material that came to the knowledge of the Assessing Officer whereby it can be inferred that the Assessing Officer could have formed a reasonable belief that the expenditure referred to had not crystallized during the relevant year. The reasons to believe recorded that income has escaped assessment are not based on any direct or circumstantial evidence and are in the realm of mere suspicion. The requirement of law is "reason to believe" and not "reason to suspect". In the present case Since the reasons to believe recorded indicate that the Assessing Officer has acted on mere surmise, without any rationale basis, the action of reopening of the Assessment is thus clea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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