Case Law Details
Brief Facts:
The assessee company is a public sector undertaking under the Ministry of Textiles. It is engaged in the business of export and domestic sales of handicrafts, handlooms, readymade garments, carpets, jewellery etc. The assessee had filed its return of income on 31.10.2002 declaring an income of Rs.63,25,117/-. The assessment was taken for scrutiny by issuing of a notice u/s 143(2) of the Act. The scrutiny assessment was completed vide order dated 28.02.2005 by accepting the returned income as declared by the assessee. Subsequently, a notice u/s 148 of the Act was issued and duly served upon the assessee on 31.03.2009 by recording the following reasons :-
“1. In this case scrutiny assessment was completed on 28th February, 2005 for the assessee year 2002-03 at an income of Rs 63,25,120/-. The assessee was allowed deduction u/s 80HHC amounting to Rs 2,38,91,769/- which includes “Income from other sources” amounting to Rs.1,18,06,275/-. As deduction u/s 80HHC was allowable only against business income, the Act of the assessing officer is not correct. The mistake resulted in under assessment of income by Rs.54,81,158/- (as per annexure enclosed) with the consequent short levy of tax of Rs.19,56,773/-.
2. Section 35DDA of the Income-tax Act, 1961, provides that where an assessee increases any expenditure in any previous year by way of payment of any sum to an employee at the time of his voluntary retirement, one fifth of the amount so paid shall be deducted in computing the profit and gains of the business for that previous year and the balance-shall be deducted in equal installment for each of the four immediately succeeding previous year. The assessment of M/s Handicraft & handloom Exports Corporation for the assessment year 2002-03 was completed after scrutiny in February 2005, determining an income of Rs.63,25,120/-. The assessee had debited to profit and loss account a sum of Rs.71,69,000/- on account of payment under voluntary retirement scheme which was fully allowed by the Assessing Officer whereas as per Income Tax Act, one fifth of the total expenditure of Rs.14,33,800/- was to be allowed as deduction and the remaining four fifth expenditure of Rs 57,35,2001- was to be disallowed. The mistake resulted in under assessment of income by Rs.57,35,2001- with consequent short levy of tax Rs.20,47,466/-.
3. Income Tax Act, 1961, provides that any expenditure not being expenditure of capital nature laid not wholly or exclusively for the purpose of business is allowable as deduction in computation of the income chargeable under the head ”profit & gains of business or profession” further it has been judicially held in the case of Hasinagar Industries and another V CIT 231 ITR 842 that if bad debt debited in the profit & loss account relates to any advances on capital account they are not admissible as deduction as the loss is capital loss. If the loan taken on capital account become irrecoverable, the loss incurred is capital loss.
The assessment of above assessee for the assessment year 2002-03 was completed after scrutiny in February 2005, determining an income of Rs.63,25,120/-. The advances were of capital in nature and should have been added to the income of the assessee. The omission to do so resulted under assessment of income by Rs.76,91,649/- involving short levy of tax of Rs.27,45,909/-.”
The various objections raised by the assessee for reopening the assessment, was rejected by the Assessing Officer and reassessment u/s 147 read with section 143 (3) of the Act was completed by an order dated 30.12.2009, computing the total income at Rs.1,24,24,380/-.
Assessee Contention :
The assessee submitted that without any new material coming into the possession of the Assessing Officer that indicate escapement of income, the reassessment is bad in law and also relied on the recent judgment of Hon’ble jurisdictional High Court in the case of Madhukar Khosla vs. ACIT reported in 367 ITR 165.
The assessee being aggrieved by the reassessment filed an appeal to the CIT (A). The CIT (A) quashed the reassessment for the reason that proviso to section 147 is applicable and there is no failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment.
Revenue Contention :
On account of under-assessment, reopening of assessment is justified and the CIT (A) has erred in quashing the reassessment proceedings.
Court Order
In the recent judgment of the Hon’ble jurisdictional High Court in the case of Madhukar Khosla vs. ACIT (supra), the Hon’ble Court has held that ‘if there is no “reason to believe” that the income has escaped assessment based on new “tangible material”, then the reopening of assessment amounts to impermissible review’. In the instant case, the CIT (A) has clearly mentioned that the escapement of income was not on account of failure on the part of the assessee to fully or truly disclose all material facts necessary for assessment. Further, there is nothing on record to suggest that there is a new material in possession of the Assessing Officer, indicating escapement of income, to initiate reassessment proceedings. Therefore, in the light of the above mentioned judicial pronouncement, we hold that CIT (A) is justified in quashing the reassessment proceedings and we see no reason to interfere with the same. It is ordered accordingly.
Compiled by Our Team member CA Amit Handa
Download View Full Text of the above Order
