The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) found that the reopening of the assessment and the disallowance of work-in-progress were unjustified due to a change of opinion by the Assessing Officer (AO).
Gayatri Creatives, the appellant – assessee, engaged in contracting and land development filed its return of income for the Assessment Year (AY) 2010-11 on March 24, 2011, reporting Rs.42,98,920. The assessment under Section 143(3) was completed on March 28, 2013, with the total income assessed at Rs.43,26,030. The assessee showed work-in-progress of Rs.7,85,89,164 in the Balance Sheet as of March 31, 2010, and Rs.6,49,00,000 in the Profit & Loss Account for the Financial Year(FY) 2009-10.
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The discrepancy revealed a correct work-in-progress figure of Rs.6,71,41,216/- instead of Rs.6,49,00,000/-. Consequently, the AO reopened the assessment under Section 147, issuing a notice under Section 148 on March 15, 2017, which was duly served.
In response to the notice under Section 148, the assessee requested reasons for reopening and treated the original return as the response. The objections were dismissed, and on October 27, 2017, the AO added Rs.22,41,216/- for understated work-in-progress.
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The assessee aggrieved by the assessment order appealed before the Commissioner of Income Tax (Appeals)[CIT(A)], who dismissed the appeal. A delay of 26 days in filing the appeal was explained by an affidavit, citing that firm operations had largely ceased since April 1, 2019, and partners were unavailable. The delay was condoned.
The assessee argued that the AO should have recognized the original assessment included all income details and that reopening beyond four years was not allowed. They claimed the reopening was a mere change of opinion and that the work-in-progress figures were correctly reported and considered during the original assessment.
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The tribunal heard both parties and reviewed all relevant material on record. It noted that the assessee, in a letter dated November 7, 2017, had stated during reassessment that it followed the work-in-progress method of accounting, paying taxes based on work completed each year. The AO had accepted this method during the original assessment but changed this view during the reopening, disregarding the accounting method.
The additional ground raised by the assessee was that reopening the assessment was based on a mere change of opinion and was unjustified, as the accounting method had already been considered. The tribunal found this ground justifiable and allowed it.
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The two-member bench comprising Suchitra Kamble (Judicial Member) and Makarand Vasant Mahadeokar(Accountant Member) found that the CIT(A) had ignored the assessee’s objections to the reopening under Section 148, deemed the disallowance unjustified, and allowed the appeal.
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