Calcutta High Court
S R Batliboi & Co. Llp & Anr vs Asst. Commissioner Of Income Tax on 21 March, 2016
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
OD-11
WP No. 228 of 2016
IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
ORIGINAL SIDE
S R BATLIBOI & CO. LLP & ANR.
Versus
ASST. COMMISSIONER OF INCOME TAX,
CIRCLE 54 KOLKATA & ORS.
BEFORE:
The Hon'ble JUSTICE SANJIB BANERJEE
Date : 21st March, 2016.
Appearance:
Mr. J. P. Khaitan, Sr. Adv.
Mr. Prithu Dudheria, Adv.
The Court : The petitioners question the propriety of a notice dated March 31, 2014 issued under Section 148 of the Income Tax Act, 1961 for initiating proceedings for reassessment under Section 147 of the Act in respect of the assessment year 2007-08.
In response to the notice under Section 148 of the Act, the petitioning assessee, a well-known firm of chartered accountants, protested on May 19, 2 2014. The assessee also referred to a previous attempt at reassessment being arrested by an interim order of this Court.
The previous order of reassessment pertained to provident fund and the perceived failure of the assessee to deposit the employees' contribution to the appropriate authorities within time. Upon such attempt at reassessment being challenged by way of WP No.205 of 2013, this Court restrained any final order being communicated on the reassessment without the leave of Court. The matter is pending after filing of affidavits.
As far as the present attempt at reassessment is concerned, it pertains to the pension to an erstwhile partner of the petitioner firm. The petitioners claim that since the petitioners referred to the accounts being prepared on accrual basis in the notes appended to the accounts, in the tax audit report and elsewhere, following the introduction of Accounting Standard-15 pertaining to employees' benefits, the petitioning assessee was obliged to provide for the total amount that was to be paid to the relevant erstwhile partner, notwithstanding the actual payment not being made in the assessment year 2007-08. The petitioners refer to the accounts for the relevant year and, in particular, to Form No.3CD appended to the accounts for the relevant year. Under Clause 18 in Form No.3CD, the petitioning assessee disclosed the particulars of payments made to the persons specified under Section 40A(2)(b) of the Act. The list of all relevant persons was also disclosed. It was clearly mentioned therein that P. M. Narielvala (since deceased) was an erstwhile partner of the petitioner firm and a 3 sum of Rs.19,20,000/- was shown to have accrued to the said erstwhile partner on account of pension.
The petitioners say that since all material relevant for the purpose was disclosed in the accounts pertaining to the corresponding financial year, the assessing officer ought to have applied his mind to the facts as disclosed and arrived at what deductions were permissible and what income was subject to tax. The petitioners assert that the present attempt at reassessment can only be regarded as a change of opinion which is not founded on any additional material either discovered by the assessing officer or disclosed by the petitioning assessee.
On behalf of the department, it is submitted that even if the petitioning assessee followed the mercantile system of accounting on accrual basis, the deduction of the sum of Rs.19,20,000/- could not have been made from the profit and loss accounts of the company for the relevant year when, during such year, only a sum of Rs.4,80,000/- had actually been paid to the erstwhile partner and the balance amount had not been paid but was only notionally provided for.
It is evident from the balance-sheet, profit and loss accounts and the notes appended to the accounts for the corresponding financial year that the fullest disclosures were made by the petitioning assessee, including as to the system of accounting and the amount due on account of pension to the concerned erstwhile partner.
The petitioners have also referred to Section 40A(2) of the Act to indicate the obligation of an assessee in such circumstances.4
The only material on which the assessing officer has founded his opinion that the income had escaped assessment was that the accounts of the erstwhile partner, prepared on cash basis, revealed the payment of only Rs.4,80,000/- in the relevant assessment year and not the amount of Rs.19,20,000/- as reflected in the accounts of the petitioning assessee.
However, that is the precise distinction between the system of accounting on accrual basis and that on cash basis. The petitioning assessee had to provide for the entire amount due of Rs.19,20,000/- that accrued to the retired partner irrespective of the amount actually paid upon Accounting Standard-15 coming into effect; but the concerned partner would show only the amount received of Rs.4,80,000/-. While the figures appear to be mismatched, that is because of the different accounting systems followed by the two assessees. When the two systems of accounting are different, it is not the payment made by one which is being received by the other, but the provision made by one which is being received for a particular period by the other; which may not always match.
Since it does not appear that there was either any failure on the part of the petitioning assessee to disclose any material on the basis of which the reassessment would be necessary or there is any discovery of new material by the assessing officer from elsewhere which could prompt the same, the notice dated March 31, 2014 issued by the assessing officer and all steps taken pursuant thereto for reassessment of the petitioning assessee's accounts for the assessment year 2007-08 stand set aside.
WP No.228 of 2016 is allowed as above, but without any order as to costs. 5 Urgent certified website copies of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(SANJIB BANERJEE, J.) kc.