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Consultating Engineering Services (India) Pvt. Ltd Vs. Deputy Commissioner Of Income Tax, & Anr.
October, 13th 2015
        THE HIGH COURT OF DELHI AT NEW DELHI
%                                      Judgment delivered on: 21.09.2015

+       W.P.(C) 2029/2014 & CM 4235/2014


CONSULTATING ENGINEERING SERVICES (INDIA) PVT.
LTD.                                  ...Petitioner

                             versus

DEPUTY COMMISSIONER OF INCOME TAX, & ANR.
                                      ... Respondents
Advocates who appeared in this case:
For the Petitioner           : Mr Salil Kapoor with Mr Sanat Kapoor, Mr Sumit
                               Lalchandani

For the Respondents          : Mr Rohit Madan with Mr Akash Vajpai

CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SANJEEV SACHDEVA

                             JUDGMENT

BADAR DURREZ AHMED, J (ORAL)

1.      This writ petition is directed against the notice under section 148 of the
Income Tax Act, 1961 ( hereinafter referred to as "the said Act") issued on
21.03.2013 in respect of the Assessment Year 2007-08. It is also directed
against the order dated 21.03.2014 passed by the Assessing Officer disposing
the objections raised by the petitioner.

2.      The assessment in respect of the petitioner's income was completed
under section 143(3) on 15.12.2010. The assessing officer had made certain




W.P.(C) No. 2029/2014                                                  Page 1 of 5
additions on account of section 40(a)(ia) ( Rs.1,55,94,534/-), under section 14A
(Rs.1,55,603/-) and on account of extra depreciation claimed on computer
peripherals (Rs. 6,87,043/-).




3.      The impugned notice under section 148 was, as mentioned above, issued
on 21.03.2013, beyond four years from the end of the relevant Assessment
Year. Consequently, the first proviso to section 147 of the said Act would
come into play. The said proviso stipulates that no action shall be taken under
section 147 after the expiry of four years from the end of the relevant
assessment year, unless any income chargeable to tax has escaped assessment
for such assessment year by reason of the failure on the part of the assessee to,
inter alia, "disclose fully and truly all material facts necessary for his
assessment" for that assessment year. It is in this context that the reasons given
for reopening of the assessment have to be seen.

4.      The purported reasons were as under:

             "Reasons for reopening the assessment u/s 148 of the I-T Acting the
             case of M/s Consulting Engineering Services India (P) Ltd PAN
             AAACC 5110G for the A.Y. 2007-08



                 Return of income in this case for A.Y. 2007-08 was filed on 17.02.2009
             declaring total income at Rs. 12,26,51,602/-. The return was processed u/s
             143(1) of the Income-tax Act at the returned income. Subsequently the case
             was selected for scrutiny and the order u/s 143(3) was passed on 15.12.2010
             at an income of Rs. 12,64,78,500/- after the AO made additions of Rs.
             1,55,94,534/- on account of disallowance u/s 40(a)(ia), Rs. 1,55,603/- u/s
             14A and Rs. 6,87,043/- on account of disallowance of extra depreciation
             claimed on computer peripherals.

             2. On perusal of records, it is noticed that the assessee co. has claimed
             interest expenses of Rs. 25,07,124/- on terms loans in the P&L a/c. Further,
             the assessee co. has shown capital work in progress (CWIP) at Rs.
             2,83,56,670/- for the period under consideration. However, the interest
             capitalized against the same has been shown at NIL. From the above, it is




W.P.(C) No. 2029/2014                                                            Page 2 of 5
             clear that the assessee should have been capitalized. The assessee however,
             claimed the same as revenue expenses instead thereby making a wrong
             claim. It is pertinent here to mention that similar claim of the assessee
             regarding the interest expenses has been disallowed by the AO amounting to
             Rs. 24,73,568/- for AY 2009-10.

                 Hence it is clear that the assessee failed to disclose the true particulars of
             its income on this issue and the same was not dwelled upon by the AO
             during the original assessment proceedings and no findings were given on
             this issue by the AO.

             In view of the above, I have reasons to believe that taxable income to the
             tune Rs. 25,07,124/- has escaped assessment and I am satisfied that it is a fit
             case for issue of notice u/s 148 of the Income-tax Act.

             3. Further, on perusal of notes to a/c in case of the assessee co., it has been
             reported by the auditors at sr. No. 9 that the assessee has booked the
             professional fees less than the Job in progress brought forward from the last
             year on their ultimate completion by Rs. 3,21,21,550/-. Further it is notice
             that the assessee follows two methods for revenue recognition for the jobs
             in progress:-

             (a) In cases where the agreements were executed before revised AS-7, the
             revenue is recognized on completed contract method.

             (b) In cases where the agreements were executed after revised AS-7, the
             revenue is recognized on percentage of completion method.

             However, as per the part B of Audit Report u/s 44AB of the I-T Act, it has
             been mentioned that the valuation of the jobs in progress w.r.t. (a) above is
             limited to the realizable free for the respective jobs whereas for the jobs in
             progress w.r.t. (b) above the valuation is subject to agreed realized fee to the
             extent of value of percentage of completion of each such

             4. Hence it is clear that the assessee failed to disclose the true particulars of
             its income on this issue and the same was not dwelled upon by the AO
             during the original assessment proceedings and no findings were given on
             this issue by the AO.

             In view of the above, I have reasons to believe that taxable income on the
             abovementioned issues to the tune of Rs. 3,46,28,674/- has escaped
             assessment and I am satisfied that it is a fit case for issue of notice u/s 148
             of the Income-tax Act."




W.P.(C) No. 2029/2014                                                                 Page 3 of 5
To complete the narration of facts, we may point out that the petitioner had
filed objections on 22.08.2013 and they were disposed of by the impugned
order dated 21.03.2014.

5.      From the purported reasons it appears that the assessing officer in the
first instance had raised an issue as to whether the interest payments were to be
on the revenue account or the capital account. The petitioner had claimed it as
a revenue expense and that had been allowed in the original assessment
proceedings.       The extent of the claim was Rs. 25,07,124/-. As can be seen
from paragraph 2 of the reasons, the assessing officer has done nothing but to
re-examine the records which were already available and has arrived at a
different conclusion in stating that the interest expenses ought to have been
capitalised. This, by itself, to our mind does not amount to any failure on the
part of the assessee to disclose fully and truly all material facts necessary for
his assessment. It has not been indicated as to what particulars were not
disclosed by the assessee. All the relevant accounts and records were available
for consideration and the assessing officer had considered the entire material
and he gave a detailed assessment order running into five pages. It cannot be
inferred from these facts that the petitioner had not made a full and true
disclosure of the material particulars necessary for assessment.




6.      With regard to the second point raised in the purported reasons, we find
that the assessing officer has not even indicated the extent of the alleged
escapement of income. Furthermore, the assessing officer has once again
stated that on "perusal" of the notes to the accounts of the assessee and
particularly the note at serial number 9 of the auditor's report, it is seen that the
assessee has booked the professional fees less than the job in progress brought




W.P.(C) No. 2029/2014                                                    Page 4 of 5
forward from the last year on the ultimate completion by an amount of Rs.
3,21,21,550/-. Nothing further has been indicated apart from this fact which
was there on record even in the original assessment. Therefore, once again we
are of the view that the allegations of the assessing officer in the purported
reasons that the assessee had failed to disclose full and true particulars of his
income, is without any basis. Consequently, in view of the provisions of the
first proviso of section 147 of the said Act, the revenue cannot be permitted to
reopen the assessment as the necessary pre-condition for doing so in a case
which is beyond four years from the end of the relevant assessment year has
not been fulfilled.

7.       The writ petition is allowed. The impugned notice under section 148 of
the said Act dated 21.03.2013 as also the order dated 21.03.2014 are set aside.
There shall be no orders as to costs.



                                          BADAR DURREZ AHMED, J



                                           SANJEEV SACHDEVA, J

SEPTEMBER 21,2015
kb




W.P.(C) No. 2029/2014                                                 Page 5 of 5

 
 
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