By TIOL News Service

CHENNAI, APR 02, 2019: THE ISSUE IS - Whether the assessee having not filed any objection before the AO against initiation of reassessment proceedings, was not entitled to question the jurisdiction of AO under Article 226 of Constitution. YES IS THE VERDICT.

Facts of the case:

The assessee company filed its return for the relevant year and the same was accepted. Later on, it was seen from the P&L A/c that net profit during the year was Rs.1162.84 million whereas net profit adopted in the income computation statement was only Rs.116,27,98,958/-. The difference of Rs.50,000/- was thus income escaped assessment. On scrutiny of records, it was revealed that as per Form 3CD audit report, capital expenditure debited to P&L a/c was Rs.14,16,73,150/- being development and testing charges. As per P&L a/c, total development and testing charges debited was Rs.22,53,57,511/-. The assessee did not add back the same in the Income Computation statement. Since capital expenditure was not allowable expenditure, the same should be disallowed as per AO, and hence reopening notice came to be issued. The assessee did not raise any objection against the reasons and thereupon the AO passed the order of re-assessment adding back the said Development & Testing Charges of Rs.22,53,57,511/- holding it to be a Capital Expenditure which was claimed as Revenue Expenditure by the Assessee in the Profit and Loss Account.

Challenging such reopening, instead of filing regular Appeals before the CIT(A), the assessee filed the petitions under Article 226 which, however, came to be dismissed by the Single Judge, holding that the assessee having not filed any objection before the AO against initiation of reassessment proceedings, he was not entitled to question the jurisdiction of AO.

High Court held:

++ the Single Judge was absolutely right in holding that the Assessee, having not raised an objection before the AO to the re-opening of the assessment u/s 147/148, should be deemed to have acquiesced to the same. Having not raised any such objection before AO that the expenditure claimed as Revenue Expenditure was already considered and allowed as Revenue Expenditure and therefore, for treating the same now as Capital Expenditure is a change of opinion, is not a tenable contention and therefore, it cannot be a ground to be raised in writ jurisdiction. Further, when a specific and adequate alternative remedy is available to the Assessee for taking such a plea to find as to whether the expenditure claimed by the Assessee is to be treated as Revenue Expenditure or Capital Expenditure, if the High Court was to entertain such controversy on merits, the entire litigation in this respect can be just brought on the Board of the High Court instead of availing the regular Appellate Forum provided under the Act. Therefore, the re-opening was initiated on valid and reasonable grounds.

(See 2019-TIOL-711-HC-MAD-IT)