Reassessment validity depends on limitation, qualifying escaped-income information, and a surviving factual foundation for the underlying addition.

Reassessment is invalid when initiated beyond statutory limitation, without qualifying information of escaped income, or after its sole underlying addition is finally deleted. For reassessment beyond three years, an alleged book-profit adjustment for foreseeable loss that is not represented by an asset does not meet the required escapement condition. Expected construction-contract losses recognised consistently under the percentage completion method and Accounting Standard-7 reflect real business income, are deductible, and are not provisions for unascertained liabilities in book-profit computation. An ad hoc contingency-expense disallowance is unsustainable where actual project costs are recorded in the books and no evidence establishes bogus expenditure or cash generation.

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Issues: (i) Whether the reassessment for assessment year 2015-16 was time-barred; (ii) Whether reassessment for assessment year 2016-17 could be initiated for an alleged omission to add foreseeable loss to book profit; (iii) Whether foreseeable losses recognised under Accounting Standard-7 were allowable and could be added to book profit; (iv) Whether an ad hoc disallowance of contingency expenses was sustainable; (v) Whether reassessment for assessment year 2019-20 survived after deletion of the addition forming its basis.

Issue (i): Whether the reassessment for assessment year 2015-16 was time-barred.

Analysis: The reassessment notice was issued on 25.07.2022. The applicable limitation, read with the Supreme Court ruling governing notices transitioned under the substituted reassessment regime, did not preserve reassessment action for assessment year 2015-16 after 31.03.2022. The Revenue had also conceded in that ruling that notices issued on or after 01.04.2021 for that assessment year were required to be dropped.

Conclusion: The reassessment notices and consequential reassessment orders for assessment year 2015-16 were barred by limitation and quashed, in favour of the assessee.

Issue (ii): Whether reassessment for assessment year 2016-17 could be initiated for an alleged omission to add foreseeable loss to book profit.

Analysis: The stated information concerned the alleged non-addition of foreseeable loss while computing book profit. For reassessment beyond three years, the alleged escapement had to be represented in the form of an asset. A proposed book-profit adjustment for foreseeable loss was not represented by an asset. Further, the premise that the foreseeable loss was liable to be added to book profit was legally unsustainable.

Conclusion: The reassessment initiation and consequential reassessment for assessment year 2016-17 were invalid, in favour of the assessee.

Issue (iii): Whether foreseeable losses recognised under Accounting Standard-7 were allowable and could be added to book profit.

Analysis: Under the percentage completion method consistently followed for construction contracts, expected contract losses were recognised in accordance with Accounting Standard-7 and the accounting principle of prudence. The quantified loss represented actual excess project cost over revenue recognised and was not a contingent or unascertained liability. In the absence of a contrary statutory prescription, such accounting treatment reflected real business income and the loss was deductible in computing business profits. It consequently did not fall within the adjustment for provisions for unascertained liabilities under the book-profit provisions.

Conclusion: Foreseeable losses recognised in accordance with Accounting Standard-7 were allowable, and could not be added to book profit; the disallowances and book-profit addition were deleted, in favour of the assessee.

Issue (iv): Whether an ad hoc disallowance of contingency expenses was sustainable.

Analysis: The Cost to Complete reports were internal project-monitoring records. Although they reflected contingency figures under different internal heads, the total project costs matched the regular books, where the actual expenditure was recorded under respective heads. No evidentiary basis supported an inference of bogus expenditure or cash generation. Once the expenditure was fully recorded in the books, an estimated disallowance was impermissible.

Conclusion: The ad hoc disallowance of contingency expenses was deleted, in favour of the assessee.

Issue (v): Whether reassessment for assessment year 2019-20 survived after deletion of the addition forming its basis.

Analysis: Reassessment was initiated solely on the alleged inadmissibility of management consultancy fees. That addition was deleted in first appeal and the deletion attained finality because it was not challenged further. With the sole foundation of the reassessment removed, the subsequent reassessment action and the additional disallowance made therein could not survive.

Conclusion: The reassessment proceedings and reassessment order for assessment year 2019-20 were vitiated, in favour of the assessee.

Final Conclusion: The impugned reassessment actions were invalid where barred by limitation, unsupported by qualifying escapement information, or founded on an addition that no longer survived; the challenged business-loss, book-profit and contingency-expense adjustments were also unsustainable.

Ratio Decidendi: A reassessment cannot survive beyond statutory limitation, without qualifying information of escaped income, or once its sole factual foundation fails; expected construction-contract losses recognised under a consistently applied percentage completion method and Accounting Standard-7 are deductible and are not provisions for unascertained liabilities for book-profit computation.

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