Vijay Pal Rao, J.M:— This appeal by the revenue is directed against the order dated 21.10.2010 of the Commissioner of Income Tax (Appeals) for the Assessment Year 2002–03.
2. The assessee is engaged in the business of construction and filed its return of income showing the total income at Rs. 1,44,100/-. The assessment was completed u/s 143(3) at a total income Rs. nil. The assessee accounts income on project completion method. While completing the assessment for the Assessment Year 2001–02, the Assessing Officer noticed that the assessee has received deposits of Rs. 8.09 crores on the two projects whereas it had shown work in progress of Rs. 3.65 crores only. Thus, the Assessing Officer noted that no construction had taken place in that year and most of the receipts had been obtained during the year. The Assessing Officer concluded that the two projects were completed in the FY 2000–01 relevant to the Assessment Year 2001–02 and the assessee was in a position to ascertain the profits. Accordingly, the Assessing Officer recast the P&L account crediting total agreement value/sale consideration received of Rs. 8,13,57,001/- and debiting the entire expenditure incurred of Rs. 7,74,72,173/- resulting into net profit from the projects at Rs. 38,84,828/-. Since the Assessing Officer had assessed Rs. 22,89,760/- as income from these projects in the Assessment Year 1998–99 on estimate basis @ 8% of advance received till then along with the interest received of Rs. 12,29,553/- as income from other sources; therefore, the Assessing Officer adjusted these two sums and arrived at the income assessable for the Assessment Year 2001–02 at Rs. 3,65,515/-. After considering the income of the current year at Rs. nil while completing the assessment u/s 143(3), the Assessing Officer reopened the assessment on the ground to disallow the expenditure aggregating to Rs. 95,14,932/- which the assessee claimed in the current year based on the method of accounting employed. In the reassessment order passed u/s 143(3) r.w.s 147, the Assessing Officer disallowed the said sum of expenditure and assessed the total income at Rs. 96,59,031/-.
2.1 On appeal, the Commissioner of Income Tax (Appeals) noted that in the earlier year, the Assessing Officer himself has recast the P&L account of the assessee and considered all the income as well as expenditure including the expenditure in question and arrived the assessed income of the assessee; therefore, the disallowance of the expenditure in the reassessment is not justified. Accordingly, the Commissioner of Income Tax (Appeals) has deleted the addition.
3. We have heard the ld DR as well as the ld AR and considered the relevant material on record. As we have noted from the facts of the case that in the earlier Assessment Year 2001–02, the Assessing Officer recast the P&L account of the assessee and assessed the income with respect to the completion of projects after allowing the expenditure incurred by the assessee resulting into net profit at Rs. 38,84,828/-. Thus, it is manifest from the facts of the case as recorded by the Commissioner of Income Tax (Appeals) that the expenditure which proposed to be disallowed by the Assessing Officer in the reassessment proceedings was already allowed by the Assessing Officer in the earlier Assessment Year and thereafter completed the assessment.
3.1 Even in the original assessment order, the Assessing Officer has not accepted the accounting method of the assessee and since in the earlier year the assessment was made on the basis of completion project method of the assessee; therefore, the Assessing Officer treated the income for the current year at Rs. nil. The Commissioner of Income Tax (Appeals) has considered and decided the issue in para 3 & 4 as under:
3 In the meanwhile the appellant had already filed return income for the current assessment year on 31-10-2002 declaring total income at Rs. 1,44,100. In view of the fact that two propjets had been completed in the earlier year and entire income from the projects had been brought to tax in that year, the Assessing Officer treated the income of the current year at Rs. Nil and completed the assessment accordingly. However, the Assessing Officer reopened the assessment to disallow expenses aggregating to Rs. 95,14,932 which the appellant had claimed in the current year based on the method of accounting employed. The appellant explained that since entire income and expenses in relation to the projects had already been considered in the Assessment Year 2001–02 there was no scope of assessing any further income in the current year. The Assessing Officer not agree and added back the aforesaid sum of Rs. 95,14,932 to the net profit as per P&L A/c of the current year and completed the reassessment at total income of Rs. 96,59,031. Being aggrieved, the appellant reiterates the contentions made before the AO and pleads that the reassessment order should be annulled.
4. I have considered the issue. I fail to understand the justification for the reassessment. The Assessing Officer completed the original assessment at Rs. Nil against returned income of Rs. 144,100 on the ground that entire income had become assessable in the asst year and had accordingly been taxed. All the expenses including the ones impugned herein were also considered and allowed by the Assessing Officer while recasting the P&L A/c of that year. If any item was inadmissible, the same should have been disallowed then. Nothing remains to be taxed in the current year. I, therefore, annul the reassessment.”
3.1 Since the expenditure in question has already been considered and allowed by the Assessing Officer in the earlier year; therefore, there is no question of disallowance of the same in the year under consideration when the method of accounting of the assessee was not accepted by the Assessing Officer and recast the P&L account for the assessment of the income.
3.2 In view of the above discussion and in view of the facts and circumstances of the case, we do not find any error or illegality in the impugned order of the Commissioner of Income Tax (Appeals).
4. In the result, the appeal of the revenue is dismissed.