Bombay High Court
Kirloskar Ferrous Industries Ltd vs Deputy Commissioner Of Income Tax, ... on 25 January, 2024
Author: K. R. Shriram
Bench: K. R. Shriram, Neela Gokhale
Digitally signed
by MEERA
2024:BHC-AS:4304-DB
MEERA MAHESH
JADHAV
MAHESH Date: 1/5 201-wp-3474-14.doc
JADHAV 2024.01.30
12:53:23
+0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 3474 OF 2014
Kirloskar Ferrous Industries Ltd. )
13, Kirloskar Oil Engines Compound, )
Laxmanrao Kirloskar Road, Khadki, )
Pune - 411003 ) ....Petitioner
V/s.
1. Deputy Commissioner of Income )
Tax Circle 9, Pune )
Pratyakshakar Bhavan, Dr. Ambedkar )
Marg, Near Akurdi Railway Station, )
Pradhikaran, Pune 411044 )
2. Union of India, through the )
Secretary, Ministry of Finance, )
North Block, New Delhi 110 001 ) ....Respondents
----
Mr. Mihir Naniwadekar i/b Mr. Ruturaj H. Gujar for Petitioner.
Mr. Ajeet Manwani a/w Ms Samiksha Kanani for Respondents-Revenue.
----
CORAM : K. R. SHRIRAM &
Dr. NEELA GOKHALE, JJ.
DATED : 25th JANUARY 2024
ORAL JUDGMENT (PER K. R. SHRIRAM J.):
1 Petitioner is engaged in the business of manufacture and trading of
gray iron castings etc. For AY-2008-09, petitioner filed its return of income
on 29th September 2008. The return was accompanied by petitioner's
computation of income, tax audit report alongwith annextures, etc.
Petitioner had debited prior period expenses in its profit and loss account
amounting to Rs.1,25,06,591/-
2 The assessment order under Section 143(3) of the Income Tax Act
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1961 (the Act) came to be passed on 20 th December 2010. Subsequently,
petitioner received a notice dated 28 th March 2013 under Section 148 of
the Act, proposing to reopen petitioner's assessment because there was
reason to believe escapement of income. At petitioner's requests, the
reasons to believe was made available and it reads as under:
"It has been come to my notice that, on going through the Tax Audit
Report (TAR) submitted with return of income, as per para NO.22(b)
of the said report, assessee company stated that sum of
Rs.1,25,06,591/- has been debited in P & L account as prior period
expenses. Since the assessee is following mercantile system of
accounting and prior period expenses claimed in P & L account as not
allowable.
Therefore, I am of the opinion that, income chargeable to tax to the
extent of Rs.1,25,06,591/- has escaped assessment within meaning of
section 147 of the Income Tax Act, 1961."
3 Petitioner filed its objections vide letter dated 23 rd November 2013
alleging that reopening is based entirely on information contained in the
return itself and not on any fresh tangible material and, therefore, it was
change of opinion. It was also submitted that when petitioner's case was
selected for scrutiny, the notice alongwith questionnaire was issued to
petitioner on 27th August 2010 and in the questionnaire, petitioner was
asked to submit copies of return of income, computation of income and also
details of prior period income and expenses. In response, petitioner
supplied those details during the assessment proceedings, which has been
acknowledged by the Assessing Officer (AO) in the assessment order.
According to petitioner, as the fact of prior period expenses had clearly
come on record during the course of assessment, it would be a mere change
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of opinion by the AO and hence, the reopening would be invalid.
Petitioner's objections were rejected by an order dated 27 th February 2014
on the ground that petitioner's contentions are not acceptable since in
petitioner's own case for AY-2010-2011, the AO had made additions of prior
period expenses of Rs.7,97,780/- and passed the assessment order under
Section 143(3) of the Act on 21 st March 2013. Hence, the fresh tangible
material has come on record to reopen.
4 Mr. Naniwadekar submitted, at the outset, that the reliance of the
officer to reject petitioner's objections on the basis of assessment order for
AY-2010-2011 should not be accepted, in as much as, the said assessment
order for AY-2010-2011 came to be challenged by petitioner before the
Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) allowed the
prior period expenses and the AO was directed to delete the addition made.
Paragraph 4 to 4.2 of the order of the CIT(A) passed on 18 th February 2015
for AY-2010-2011 reads as under:
"4. In ground of appeal no.2 raised the appellant has contested the
disallowance of prior period expenses of Rs.7,97,780/-. The Assessing
Officer has discussed this issue in para 5 of the assessment order. The
Assessing Officer held that since the assessee was following mercantile
system of accounts the claim of prior period expenditure debited to
the profit and loss account was not allowable in the year under
consideration and was added back to the total income.
4.1 ..................
4.2 In view of the above facts following the ratio of aforesaid
decisions of the Hon'ble Bombay High Court and jurisdictional ITAT
Bench in appellant's own case the Assessing Officer is directed to
delete the addition made on account of prior period expenses and the
ground of appeal no.2 raised by the appellant is allowed."
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5 Mr. Naniwadekar submitted that the said order of CIT(A) was carried
in appeal by the Revenue to the Income Tax Appellate Tribunal (ITAT). But
this finding of the CIT(A) has not been challenged. Mr. Manwani agrees.
6 Mr. Manwani submitted that when petitioner is following the
mercantile system of accounting, prior period expenses claimed in profit
and loss account is not allowable and that issue has been taken by the AO
for a later year and that would be a fresh tangible material.
7 We would agree with Mr. Naniwadekar that if the basis for reopening
to disallow prior period of expenses was the assessment order for AY-2010-
2011, that assessment order for AY-2010-2011 having been set aside by
CIT(A) in his order dated 18th February 2015 and Revenue having accepted
the order, it cannot be said that there was any tangible material to reopen
the assessment for AY 2008-2009. Moreover, in ITXA No.622 of 2010 that
was decided by this court on 4th July 2011 (copy of the order at Exhibit C-4
of the petition), one of the question of law raised was whether the ITAT was
justified in deleting the disallowance of Rs. 40,47,074/- on account of prior
period expenses which did not pertain to the year under consideration
when the assessee was following mercantile system of accounting. The
court was pleased to hold that the expenditure would be allowable. In the
affidavit in reply, none of the averments in the petition has been specifically
denied, save and except, it states that the notice has been issued after
obtaining prior permission of the concerned authority.
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8 In view of the above, we are satisfied that the reopening cannot be
sustained. Therefore, Rule issued on 16th July 2014 is made absolute in
terms of prayer clause (a), which reads as under:
"(a) That this Hon'ble Court may be pleased to call for the papers and
proceedings and records and to declare the impugned reassessment
proceedings in the petitioner's case for AY-2008-09, based on the
notice u/s 148 u/s 147-148 of the Income Tax Act dated 28.3.2013
(Exhibit F) and the impugned order dated 27.2.2014 (Exhibit L), to be
wholly without jurisdiction, illegal and liable to be quashed and set
aside."
(Dr. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)
Meera Jadhav
