Price Waterhouse & Co. Vs DCIT (ITAT Kolkata)
Conclusion: Since the addition on basis for which AO reopened assessment had already been disclosed by assessee in the return of income filed by him u/s 139(1), AO having not carried out the scrutiny assessment within the prescribed statutory limit, could not be given another innings for no fault of assessee and therefore, the ‘reason to believe’ which was the jurisdictional precondition to reopen the assessment as required by the law had not been met in the reasons recorded and reopening was void-ab-initio.
Held: AO reopened assessment making the disallowance of Rs. 1,06,95,600/-,debited under the head ‘legal expenses’ and an addition of Rs. 31,12,50,000/- reflected in the Balance sheet under the head “capital reserve”. On appeal, CIT(A) upheld the validity of initiation of proceeding under section 147 and also upheld the addition of Rs. 31,12,50,000/- received by assessee as non-refundable grant under section 28(iv). However, he deleted the disallowance (subject to directions to AO to verify TDS) of Rs. 1,06,95,600/-. It was held that the issues/items for which AO had reopened the assessment had already been disclosed by assessee in the return of income filed by him u/s 139(1). AO having not carried out the scrutiny assessment within the prescribed statutory limit, could not be given another innings for no fault of assessee and therefore, the ‘reason to believe’ which was the jurisdictional precondition to reopen the assessment as required by the law had not been met in the reasons recorded in the instant case and therefore the action of AO to reopen the assessment was null in the eyes of law and hence the initiation of reassessment proceedings was quashed for being ab-initio void.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeal filed by the assessee, pertaining to Assessment Year 2009-10, is directed against the order passed by ld. Commissioner of Income Tax (Appeals)-6, Kolkata dated 17.07.2018 which in turn arises out of an assessment order passed by Assessing Officer u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) dated 26.02.2015.
2. The grounds of appeal raised by the assessee are as follows:
“Based on the facts and circumstances of the case, the Assessee respectfully craves leave to prefer an appeal on the following grounds:
1(a) On the facts and in the circumstances of the case, Ld. Commissioner of Income-tax (Appeals) [‘Ld. CIT(Appeals)’] erred in confirming the action of the Ld. Assessing Officer [‘Ld. AO’] in reopening the assessment under section 148 of the Act and hence the impugned reassessment is bad in law, void-ab-initio and liable to be quashed.
1(b) On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) failed to appreciate that the Ld. A.O failed to record valid reasons in the eyes of law which were modified and altered by him while disposing the objection of the Assessee, and hence the impugned reassessment proceeding is bad in law and deserves to be quashed.
1(c) On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) failed to appreciate that the reasons recorded were merely in the nature of ‘reason to suspect’ and not ‘reason to believe’ as the reassessment so framed is contrary to the reasons recorded for alleged escapement of income.
1(d) On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in holding that the impugned reassessment order passed by the Ld. AO is correct in law, without taking cognizance of the fact that the impugned reassessment order was passed with variation, modification, altercation of the recorded reasons which is impermissible under the law.
2. On the facts and in the circumstances of the case, the Ld. CIT (Appeals) erred in confirming the addition of Rs. 31,12,50,000 treating the non-refundable grant received by the Assessee from PricewaterhouseCoopers Services BV, Netherlands (‘Services BV’) as revenue receipt taxable under section 28(iv) of the Income-tax Act, 1961.
3. On the facts and in law and in the circumstances of the case, upon giving effect to the grounds hereinabove, the Ld. AO be directed to consequentially compute interest under section 234B, 234D and 244A of the Income-tax Act, 1961 as per the relevant provisions of the Act.
The Assessee submits that the above grounds are independent and without prejudice to one another.
The Assessee desires leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of objections, at any time before or during the hearing of the Appeal.”
3. The facts of the case which can be stated quite shortly are as follows: The assessee filed its return of income on 30.09.2009. The Return of Income of the assessee was processed U/s. 143(1) of the I.T. Act, 1961, on 10.03.2011 at the total income of Rs. Nil. Subsequently the case was reopened U/s.148 of the I.T. Act, 1961 on 14.06.2013. The reason so recorded by AO are as follows:
“On a perusal of return of income for A.Y. 2009-10, it revealed that assessee has declared gross receipt of profession at Rs.10,60,834/- in the profit and loss accounts. Though the gross receipt of assessee is more than Rs.10,00,000/- assessee has reported in the return of income that he is not liable for audit under section 44AB of the Income tax Act. That means the amount of Rs.10,60,834/- shown as professional receipt is not assessable under the head business or profession, it is assessable as income from other sources.
Against this receipt of Rs.10,60,834/- the assessee has claimed a sum of Rs.1,06,96,210/-being other provisions (column no. 39 of the profit and loss accounts of the return of income), debited in the profit and loss accounts. As such the assessee has determined total loss from business or profession at Rs.96,35,376/- for the current year. However, the provisions are contingent in nature and hence not allowable as it is not allowable as it is not crystallized liability. Moreover, provisions have been claimed against income which is assessable as income from other sources. The assessee’s claim is not allowable against income from business or profession and also against income from other sources.
In the balance sheet the assessee has shown under the head “Reserve and Surplus” a capital reserve of Rs.31,12,50,000/-. From verification of return for A.Y. 2008-09 it revealed that no such reserve has been transferred from earlier year. So it is crystal clear that the said capital reserve is undisclosed income of assessee introduced as capital. The above amount is income of the assessee from undisclosed source.”
The assessee vide letter dated 24.07.2013 intimated that he filed Revised Return on 24.07.2013 to be the Return filed U/s. 148 of the I.T. Act, 1961. The reason so recorded u/s.147 was sent to the assessee and objection, if any, for the reason so recorded and reopened u/s.147, was also sent to the assessee vide letter dated 14.02.2014.
4. In compliance to the notice u/s.147 and the reason so recorded for re-opened u/s.147 of the Act, the assessee had filed objection against the proceedings u/s.147 of Income Tax Act, 1961. Which is reproduced below:
“1) Income for INR 10,60,834/-
In this connection it is submitted as under:-
a) It is submitted that the allegation made by your kindself that the receipt of INR 10,60,834/- is assessable under the head ‘income from other sources’ cannot be factually or legally sustained. A copy of the audited accounts of the Firm is enclosed in Annexure-1, wherefrom your kindself will note that the above amount of INR 10,60,834/-is arrived at as under –
