AI Drafter 
TaxTMI 
TaxTMI 
2011 (4) TMI 1384
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....(A) has erred in law in upholding the reassessment proceedings made by the AO u/s 148 of the Income Tax Act, 1961. 2. That the assessee craves to add, alter and/or delete any grounds of appeal at later stage, if necessary." 3. The assessee is a Government of India undertaking. As per computation of income its return of income was filed at Nil on 28.11.03 and subsequently the said return was revised on 17.3.05 showing loss of Rs. 96,06,000/-. Original assessment order came to be passed on 16.1.06 at a nil income, wherein two additions were made to the returned loss namely a sum of Rs. 2,93,000/- and 23,53,00,000/- on account of prior period expenses and penal interest respectively. Thereby assessing the income of the assessee at a sum of Rs. 22,60,87,000/- by reducing the aforementioned loss of Rs. 96,06,000/-. The said income was adjusted against the brought forward unabsorbed depreciation to that extent and income was assessed at nil. 4. Notice u/s 148 was issued on 11.10.07. In response to notice vide letter dated 16.11.07 the assessee submitted that return originally filed should be taken as return filed in response to notice u/s 148. The sole reason for initiatio....
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.... head and reassessment proceedings are not permitted merely on the basis of change of opinion. For the sake of convenience the relevant portion of the reply of the assessee filed on25.9.08 (copy of which is placed at pages 132 to 134 of the paper book) are reproduced below: - 03. "During the course of assessment proceedings, initiated vide notice u/s 143(2) dated 24.10.03, the details as asked for by the then AO were filed during the course of assessment proceedings. In fact, during the proceedings a questionnaire along with notice u/s 142(1) dated 7th December, 2005 was issued to the assessee and as per Point 16 of the said questionnaire [issued along with notice u/s 142(1)] the assessee was asked to give details regarding Prior Period Expenses, if any claimed during the year. The said query was duly replied vide letter dated 4th January, 2006 and Page 10 of Paper Book filed during the course of assessment proceedings give details thereof. After considering the above reply and also the details furnished by the assessee, the then AO has specifically disallowed an amount of Rs. 2.93 lakhs booked under the head "Prior period Expenses" relating to missing and unconnected wago....
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....(Figures in Lakhs of Rupees) PARTICULARS INCOME AMOUNT PARTICULARS EXPENSES AMOUNT Sales 626.18 Purchases 18.25 Liabilities Written back 7.31 Freight 9.64 (Cr.) Recovery from contractors Towards demurrages/handling Charges 0.28 Rent 190.28 (Cr.) Adjustment in respect of linking Of missing & unconnected Wagons 1.51 Taxes 108.74 (Cr.) Income from claims 501.03 Repair & Maintenance 10.77 Miscellaneous Income 96.07 Handling charges 101.30 Interest on Sugar Operations 1078.15 Salary, Wages & Allowances 76.10 (Cr.) Purchase 36.35 (Dr.) Electricity charges 0.40 Railway siding charges 53.10 Adjustment in respect Of linking of missing & unconnected wagons 2.93 Demurrages 3.76 (Cr.) Miscellaneous Expenses 7.24 Port Clearance charges 41.42 Sale (Margin on Sugar) 3.01 Interest on Food Operations 1078.15 2274.18 928.05 NET INCOME 1346.13 9.....
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....has been made by the AO picking up the debits in various sub-head under the head 'Adjustment relating to Previous Years'. On going through the details, it revels that the appellant booked Rs. 1346.13 lacs (Net) as 'Income' towards Adjustments relating to Previous years. Further, it has been rightly pointed out that there is a contra-entry amounting to Rs. 1078.15 lacs appearing on both side 'income' as well as 'expenses' under the account head 'Expenses and Income relating to previous year'. The nature and method of accounting followed by the Appellant is uniform for both 'income' and 'expense'. The AO has unilaterally, instead of considering both income and expense booked under the said head, made addition relating to expense booked under the said head. If the appellant is following the mercantile system of accounting, it is for both income and expense. In any case, the appellant has shown income (net) under the head 'Adjustments relating to Previous Years'. Moreover in the preceding year i.e. A.Y. 2002-03 the AO disallowed an expense claimed under a sub-head "Adjustment relating to Missing and Unconnected Wagons" booked under the head "Prior Period Adjustments" as the....
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.... by Hon'ble Courts on the issue (judgment cited by the appellant) the addition made by the AO for an amount of Rs. 13,49,99,000/- towards Expenses related to Previous Year is directed to deleted." 11. The assessee in its cross objection has assailed the order of CIT(A) on the ground that ld. CIT(A) has erred in upholding the validity of reassessment proceedings and department it its appeal has assailed the order of CIT(A) for deleting the addition on merits. 12. After narrating the facts, relying upon the reassessment order passed by the AO, it was submitted by ld. DR that even according to mercantile system of accounting, prior period expenses could not be allowed to the assessee and, therefore, ld. CIT(A) has wrongly granted the relief to the assessee. It was submitted that ld. CIT(A) has committed a wrong in holding that prior period expenses were required to be allowed even according to mercantile system of accounting on the basis of regular method adopted by the assessee. Thus, it was submitted that he should not have deleted the addition on merits and, therefore, the department appeal is required to be allowed. 13. On the other hand, addressing the ground of cross ob....
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....he AO or his successor to reopen the assessment of the assessee. Thus, it was pleaded by ld. AR that ld. CIT(A) has erred in holding this issue against the assessee. He submitted that Cross Objection filed by the assessee should be allowed. 14. On merits he submitted that assessee has filed explanation with regard to each and every item of income and expenditure credited & debited under the head "details of income/expenses relating to previous years" in schedule V of the audited annual accounts and it was shown that these income or expenditure were credited and debited in the accounts on the basis of their crystallization. He referred to the details earlier mentioned in the order and contended that after analyzing those details ld. CIT(A) has rightly concluded that no addition was called for. 15. In the rejoinder it was submitted by ld. DR that in the original assessment order the issue which was touched by the AO was only with respect to a sum of Rs. 2,93,000/- which was added to the income of the assessee. However, the AO did not look into the other prior period expenses, hence the addition made in the reassessment order was not on the basis of "change of opinion" as has be....
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....certain items of income or expenditure are not crystallized during the year to which they are relate. As a matter of practice when they are crystallized they are considered as income or expenditure whatever the case may be. It is also evident from the earlier assessments that such practice is adopted by the assessee in all the earlier years where the additions were even made subject matter of appeal. During the year under consideration, it is not the case of the AO that the contention of the assessee that these were crystallized during the year was not correct. In absence of any such material to controvert such contention of the assessee, it cannot be said that the addition can be simply made for the reason that according to mercantile system of accounting, as the expenses does not relate to the year under consideration, they cannot be allowed. If the same view is adopted then probably the income relating to earlier years also cannot be considered as income of the current financial year which, in the present case for the year under consideration, is much more than the prior period expenses. Therefore, no case has been made out by the revenue to contest the deletion made by the CIT(....