Commissioner of Income Tax vs Skyline Builders

C.N. Ramachandran Nair, J.—The question raised in the appeal filed by the revenue is whether the Tribunal was justified in confirming the order of the first appellate authority cancelling income escaping assessment made u/s 147 of the Income Tax Act as impermissible. The Assessee, a builder, claimed various items of expenditure amounting to above Rs. 6 lakhs, which were not strictly relatable to the expenses incurred during the relevant previous year. However, in the return filed, there was no specific mention about the year to which these expenses were attributable and therefore the assessing officer believing the expenditure as those relatable to the relevant previous year allowed the claim. However, later it was noticed that various items of expenditure were for prior periods and not liability of the previous year and therefore the assessment was revised u/s 147 disallowing the claim.

When the Assessee filed appeal challenging reopening as well as Assessees claim of deduction on merit, the first appellate authority allowed the claim on both grounds. It is pertinent to note that the first appellate authority held that expenditure involved was disputed and the same got settled and crystallised for the previous year relevant to the assessment year in question.

The department filed second appeal before the Tribunal challenging the orders of the first appellate authority. Even though the findings of the first appellate authority on merits were also challenged in the appeal before the Tribunal, the Tribunal considered only the jurisdictional aspect, that is justification for reopening u/s 147. It is the finding of the Tribunal that statement of accounts contained material facts and therefore, reopening of assessment was not permissible beyond four years. Accordingly they upheld the order of the first appellate authority cancelling reassessment. Since appeal was allowed on this ground, the Tribunal did not go into the question whether the Assessee was entitled to deduction of the entire items of expenditure as liability crystallised in the relevant previous year. Senior standing Counsel appearing for the department challenged the findings of the Tribunal by referring to the decision of the Supreme Court in M/s. Phool Chand Bajrang Lal and another Vs. Income Tax Officer and another, . Even though facts in this case are not identical to the facts of the case decided by the Supreme Court, we are inclined to take the view that finding of the first appellate authority as well as Tribunal is not tenable on the question of jurisdiction because the Assessee had nowhere stated in the statement of accounts. Balance Sheet, or Profit and Loss Account, that the expenditure claimed relates to prior periods. On the other hand, the only disclosure made is only the Note to the Accounts produced detailing the claim of prior period expenses. We do not find this as a true and full disclosure in accounts which form Annexures to the return. The assessing officer obviously could not have taken note of the disclosure alleged to have been made by the Assessee by way of note to the accounts. We are therefore of the view that the accounts do not disclose that the expenditure debited are not relatable to the previous year and the note cannot be termed as true and full disclosure of material facts. Further the Explanation to the Section makes it clear that what is discernible or what the Officer could have found out through due diligence cannot be said to be true and full disclosure of the information required for assessment.

We therefore allow the appeal by reversing the order of the Tribunal and that of the first appellate authority on this issue. However, since the Tribunal has not considered departments appeal on merits, pertaining to challenge against the order of the Commissioner (Appeals) on merits, we remand the case back to the Tribunal for deciding the issue as to whether liability got crystallised only in the previous year entitling the Assessee for deduction for the assessment year in question. The Tribunal is directed to decide the case afresh on the issue above stated after hearing both sides.