2012 (10) TMI 368 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on reopening assessments, revenue expenditure, and commission payment.

Assistant Commissioner of Income Tax., Circle-2(1), Versus M/s Bhayana Builders (P) Ltd.,

The Tribunal dismissed all three appeals filed by the Revenue, upholding the CIT(A)'s decisions on the invalidity of reopening the assessments under ... Reopening of assessment u/s 147 - whether wooden shuttering and centering were capital in nature - Held that:- During the course of original assessment proceedings, issue had been examined by the AO in para 4 of the assessment order after raising queries and amount was allowed as revenue expenditure. - the AO, following his orders of earlier years has consistently been treating the expenditure on wooden centering and scaffolding as revenue in nature on consumption basis and capitalizing the expenditure of steel shuttering & centering while allowing depreciation thereon - thus AO reopened the assessment in relation to wooden shuttering and centering expenses merely on the basis of change of opinion and no ‘tangible material ’ was brought on record before initiating act ion u/s 147 - in favour of assessee. Wooden shuttering and centering - Revenue v/s capital - Held that:- As in the preceding years starting from AY 1998-89 until assessment year 2003-04, the claim of the assessee has been accepted treating the amount incurred on wooden shuttering and centering, revenue in nature, thus following the principles of consistency, the CIT(A) allowed the claim for deduction of expenditure on wooden shuttering and centering on consumption basis as revenue expenditure - in favour of assessee. Issues Involved:1. Validity of reopening the case under Section 147 of the Income Tax Act.2. Classification of wooden shuttering and centering expenses as revenue or capital expenditure.3. Disallowance of commission paid to M/s Brainstreet Marketing (P) Ltd.Detailed Analysis:1. Validity of Reopening the Case Under Section 147 of the Income Tax Act:The core issue in the appeals for AY 2005-06 and AY 2006-07 was whether the reopening of the assessment under Section 147 was valid. The Tribunal found that the original assessments were completed under Section 143(3) after detailed scrutiny and the assessee had disclosed all primary facts regarding wooden shuttering and centering expenses. The AO's subsequent reopening of the assessments was based on the same set of facts, indicating a mere change of opinion without any new tangible material. The Tribunal emphasized that for reopening beyond four years, there must be a failure to disclose fully and truly all material facts by the assessee. Since no such failure was evident, the reopening was deemed invalid. The Tribunal upheld the CIT(A)'s decision to annul the reassessment orders for both AY 2005-06 and AY 2006-07.2. Classification of Wooden Shuttering and Centering Expenses as Revenue or Capital Expenditure:For AY 2005-06, AY 2006-07, and AY 2007-08, the issue was whether the expenses on wooden shuttering and centering should be treated as revenue or capital expenditure. The Tribunal noted that the department had consistently treated these expenses as revenue expenditure on a consumption basis in previous years. The CIT(A) followed this principle of consistency and allowed the expenses as revenue expenditure. The Tribunal agreed with the CIT(A), citing the principle of consistency and the decision of the Hon'ble Punjab & Haryana High Court in CIT Vs. Random Constructors Pvt. Ltd., which held wooden shuttering material as allowable revenue expenses even if used in subsequent financial years. Thus, the Tribunal dismissed the Revenue's appeals on this ground for all three assessment years.3. Disallowance of Commission Paid to M/s Brainstreet Marketing (P) Ltd.:For AY 2007-08, the AO disallowed the commission paid to M/s Brainstreet Marketing (P) Ltd. based on findings in the case of the said company that the commission was bogus. However, the CIT(A) found that the commission was genuine, supported by evidence of services rendered by the company to the assessee and proper deduction of TDS. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not provided any new material to contradict the CIT(A)'s findings. Consequently, the Tribunal dismissed the Revenue's appeal on this ground.Conclusion:The Tribunal dismissed all three appeals filed by the Revenue, upholding the CIT(A)'s decisions on the invalidity of reopening the assessments under Section 147, the treatment of wooden shuttering and centering expenses as revenue expenditure, and the genuineness of the commission paid to M/s Brainstreet Marketing (P) Ltd.