IN THE HIGH COURT OF DELHI AT NEW DELHI
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ITA 462/2012
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ITA 463/2012
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CIT ..... Appellant
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Through: Mr. Sanjeev Sabharwal, Sr. Standing Counsel.
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versus
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FOOD CORPORATION OF INDIA ..... Respondent
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Through: Mr. Manoj with Ms. Aparna Sinha, Advocates.
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CORAM:
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HON'BLE MR. JUSTICE S. RAVINDRA BHAT
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HON'BLE MR. JUSTICE R.V.EASWAR
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O R D E R
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22.08.2012
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Issue Notice.
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Mr. Manoj, Advocate accepts notice on behalf of the respondent.
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The appeal is admitted.
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The substantial question of law sought to be urged is whether the
Tribunal fell into error in not deciding the merits of the ground taken
by the Revenue before it questioning the decision of the CIT (Appeals) to
delete the disallowance of `593.09 lakhs on account of prior period
expenses on the ground that since the reopening of the assessment in
respect of prior period expenses has been held by it to be bad in law,
the ground had become infructuous.
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The brief facts necessary for deciding the appeal are that the
assessment of the assessee for the assessment year 2004-05 was reopened
for three reasons, which were recorded by the Assessing Officer as
follows: -
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?On verification of the case records it has been observed that: -
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(I) The assessee has debited `60099.42 lacs to profit and loss account on
account of demurrages. The expenditure being a penalty was inadmissible
and should have been disallowed and added back;
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(II) The assessee has debited `2,70.58 lacs on account of purchase of
unconnected wagons which was of capital nature and should have been
disallowed subject to allowance of depreciation at the rate of 25 per
cent;
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(III) The assessee has debited prior period expenses of `593.09 lacs.
The assessee is following mercantile system of accounting. Hence, the
same should have been disallowed.
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In the assessment completed under section 143(3) of the I.T. Act, the
same has not been added back/ disallowed.?
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In the reassessment, all the aforesaid three items were disallowed
by the Assessing Officer. The assessee filed an appeal before the CIT
(Appeals) who upheld the validity of the reopening of the assessment, but
deleted all the three disallowances on merits. The Revenue preferred an
appeal before the Tribunal questioning the relief granted by the CIT
(Appeals) in respect of the three disallowances. The assessee filed
cross-objections before the Tribunal questioning the decision of the CIT
(Appeals) upholding the validity of the re-assessment. The Tribunal held
that the reopening of the assessment, in so far as it related to the
prior period expenses was not valid as it amounted to a change of
opinion. It, however, upheld the validity of the reopening of the
assessment in so far as the demurrage charges and expenditure in
connection with the purchase of unconnected wagons were concerned.
Having held so, the Tribunal held that disallowance of these two items of
expenditure was not proper and accordingly affirmed the relief allowed by
the CIT (Appeals) in respect of these two items. However, with regard to
the merits of the disallowance of the prior period expenses, the Tribunal
in para 14 of its order held that since the Assessing Officer did not
validly assumed jurisdiction to reopen the assessment on this point, the
Revenue?s ground has become infructuous and accordingly dismissed the
same.
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The Revenue urges on the strength of the judgment of the Supreme
Court in V. Jagmohan Rao and Others v. Commissioner of Income-Tax and
Excess Profits Tax, Andhra Pradesh, (1970) 75 ITR 373 that once an
assessment is reopened on a particular ground, it is open to the
Assessing Officer to rope in all items of income that have escaped
assessment and the reassessment proceedings are not confined to the
ground or the reason for which the assessment was reopened. In other
words, the jurisdiction of the Assessing Officer in reassessment
proceedings is not restricted to the points cited or listed in the notice
or reasons. The judgment rested on the wide nature and phraseology of
Section 34 of the old Act which corresponds and is identical with to the
present Section 147. In this judgment the Supreme Court held as under: -
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?This argument is not of much avail to the appellant because once
proceedings under section 34 are taken to be validly initiated with
regard to two-thirds share of the income, the jurisdiction of the Income-
tax Officer cannot be confined only to that portion of the income.
Section 34 in terms states that once the Income-tax Officer decides to
reopen the assessment he could do so within the period prescribed by
serving on the person liable to pay tax a notice containing all or any of
the requirements which may be included in a notice under section 22(2)
and may proceed to assess or reassess such income, profits or gains. It
is, therefore, manifest that once assessment is reopened by issuing a
notice under sub-section (2) of section 22 the previous under-assessment
is set aside and the whole assessment proceedings start afresh. When
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once valid proceedings are started under section 34(1)(b) the Income-tax
Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year.?
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In view of the above authority which continues to bind this Court,
this Court is of the opinion that the Tribunal fell into error in not
examining the Revenue?s appeal on merits so far as prior period expenses
are concerned. The Tribunal failed to appreciate that since the
reopening of the assessment on the other two grounds has been held by it
to be valid, the Assessing Officer was not precluded from examining the
allowability of the prior period expenses, even if the reopening cannot
be upheld on the ground of prior period expenses. Accordingly, the
appeal of the Revenue is allowed to this extent. The Tribunal is
directed to consider and decide the appeal of the Revenue on merits with
regard to the issue of prior period expenses. The question of law framed
is answered in favour of the Revenue in the manner indicated above.
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S. RAVINDRA BHAT, J
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R.V.EASWAR, J
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AUGUST 22, 2012
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$ 23
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