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TMI Blog2019 (12) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... e had indeed escaped assessment. It is only when the AO is able to establish valid initiation of reassessment proceedings with reference to the recorded reasons and in the reassessment u/s 147; such income is also assessed; only then the AO will be able to be expand the scope of reassessment proceedings by assessing any other escaped income which comes to his notice in the course of reassessment. If on the other hand, the AO is not able to justify the reopening of a concluded assessment with reference to reasons recorded u/s148(2) or where on examination of assessee s submissions AO agrees that on the basis of reasons recorded it cannot be held that income had escaped assessment within the meaning of Sec. 147 then in such an event the very reopening of a concluded assessment stands vitiated and therefore the AO cannot expand the scope of reassessment by including some more issues or reasons which did not find mention in the reasons recorded u/s148(2). For that we rely on the judgment of the Hon`ble Bombay High Court in the case of CIT Vs Jet Airways India Ltd [ 2010 (4) TMI 431 - HIGH COURT OF BOMBAY] In view of the facts narrated above and the binding precedents applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare capital 1417266.54 Nil Secured Loans 301981.00 Nil Current Liabilities 678031.33 Nil Total of balance sheet 2397278.87 Nil Gross turnover 6174765.00 Nil Depreciation 78226.00 Nil It is observed that the assessee, being a contractor ought to have followed the accounting standard-7, which was not adopted in order to deduce the real profit of the accounting year. Barring the project completion method where revenue is recognized on completion of the project only, the assessee have adopted percentage completion of the method but without offering so much of the profit earned during the gear as bears to the whole profit conceivable from the project the same proportion as the expenses incurred bears to the total cost of the project. Moreover, it is found from the P&L account that a sum of ₹ 10,96,677/- had been envisaged as expenditure to have been incurred as 'Hydra Rent (Orissa). This expenditure together with that of ₹ 9,71,401/-towards the head shown as 'subcontractor payment', forms a part of the inadmissible category of expenditure u/s.40(a)(ia) of the IT Act. From the accounts and the documents accompanied therewith it is understoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. First of all we shall examine and analyse the reasons recorded by the assessing officer as follows: We note that the reasons recorded contain the following basis for reopening: (a) Reason-1:The assessee has not adopted AS-7 hence real profit not deduced. (b) Raason-2: The assessee has applied percentage completion method (c) Reason-3: The profit offered by the assessee is not much. (d) Reason-4: TDS was not deducted on sum of ₹ 10,96,677/- being rent of Hydra Machinery. (e) Reason-5: TDS certificate issued by Bhusan Steel Strips Ltd. shows turnover of ₹ 53,26,614/- and assessee has shown debtor of ₹ 11,73,000/- and therefore total turnover by adding both this comes to ₹ 64,99,616/- while the turnover disclosed by the assessee was ₹ 61,74,765/-. Based on these 5 reasons the assessing officer came to be conclusion that there is escapement of income. 9. About reason 1 and 2 of reopening, we note that none of the reasons have any basis or material link to come to the conclusion of escapement of income. The AO himself in the reasons has adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had not deducted the TDS on rent. Thus the reasons recorded had no material having live link to the escapement of income. The ld Counsel submits that till 13.07.2006 the definition of rent is as follows: (i) "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee;' The scope of the definition of Rent was enhanced by the Taxation Laws (Amendment) Act, 2006, w.e.f.13.07.2006 as follows: "[(i) "rent" means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any - (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d)machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, Whether or not any or all of the above are owned by the payee;] Therefore till 12.07.2006 there was no requirem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such proceedings. The reasons as recorded itself alone without taking any assistance to any other documents or affidavits etc must be able to make out a case for valid reopening and if not then the entire reopening would fail. For that we rely on the judgment of the Hon`ble Bombay High Court in the case of Hindustan lever Ltd. v. R.B. Wadkar, ACIT (2004) 268 ITR 332:137 479 (Bom.), wherein it was held that reopening notice has to be justified on the basis of reasons recorded at the time of issuing the impugned notice. The impugned notice must stand or fail on the reasons recorded. These reasons recorded cannot be supplemented by further reasons or by filing an affidavit and/or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the court, on the strength of affidavit or oral submissions advanced. The reasons are a manifestation of the mind of the Assessing Officer and must justified on the basis of inferences or interpretation. The reasons as recorded prime facie do not seem to indicate reasonable belief that income chargeable to tax has escaped assessment. It is needless to menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though the reasons for such issue/income were not included in the recorded reasons. The explanation (3) however pre-supposes that the issue with reference to which the reason was recorded, was found to be legally & judicially tenable and with reference thereto the AO is able to prove that income had indeed escaped assessment. It is only when the AO is able to establish valid initiation of reassessment proceedings with reference to the recorded reasons and in the reassessment u/s 147; such income is also assessed; only then the AO will be able to be expand the scope of reassessment proceedings by assessing any other escaped income which comes to his notice in the course of reassessment. If on the other hand, the AO is not able to justify the reopening of a concluded assessment with reference to reasons recorded u/s148(2) or where on examination of assessee's submissions AO agrees that on the basis of reasons recorded it cannot be held that income had escaped assessment within the meaning of Sec. 147 then in such an event the very reopening of a concluded assessment stands vitiated and therefore the AO cannot expand the scope of reassessment by including some more issues or reas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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