JUDGMENT

BADAR DURREZ AHMED, J (ORAL)

1. The petitioner has challenged the reopening of assessment in respect of the assessment year 2005-06, which was initiated by virtue of a notice under Section 148 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) on 26.03.2012. The point of challenge raised by the petitioner is that the reopening of assessment was sought to be done after a period of four years, therefore, the conditions stipulated in the proviso to Section 147 of the Act would have to be complied with. One of the conditions was that a reopening could not be done until and unless there was failure on the part of the assessee to make a full and true disclosure of all material facts which were necessary for the assessment. It was contended by the learned counsel for the petitioner that in the present case, this pre-condition was not satisfied inasmuch as (a) there is no mention or allegation that there was no full and true disclosure on the part of the assessee in the purported reasons behind the reopening of the assessment in respect of assessment year 2005-06; and (b) in fact there was a full and true disclosure on the part of the assessee and even no inference could be drawn from the purported reasons that there was no such full and true disclosure. It was also contended by the learned counsel for the petitioner that this was also a case of a mere change of opinion and, therefore, in view of the settled principles of law, the attempt at reopening the assessment which had been completed under Section 143(3) of the Act on 24.12.2008, was not supported by law.

2. The learned counsel for the petitioner drew our attention to the purported reasons which had been recorded prior to the issuance of the notice under Section

148 of the Act. The said recorded reasons read as under:-

“Reasons recorded u/s 147 of the I.T. Act, 1961

1. Section 37 of the Income Tax Act, 1961 provides that any expenditure, not being in the nature of capital expenditure, laid out wholly or exclusively for the purpose of business, is allowable as deduction in computation of the income chargeable under the head `profits and gains of business or profession'.

i. The assessment of M/s Microsoft Corporation (India) Pvt. Ltd. for the assessee year 2005-06 was completed u/s 143(3) of the Income Tax Act in December 2008 determining Rs. 57,65,41,440/- as taxable income. It is found that the assessee had claimed and was allowed a deduction of Rs. 1,49,11,728/- on campaign expenditure for the launch of new product. Since this expenditure gave an enduring benefit to the assessee, it was required to be capitalized and added back to the income of the assessee. The omission resulted in allowance of inadmissible expenditure of Rs. 1,49,11,728/- involving short levy of income tax of Rs. 79,12,032/-including interest u/s 234B.

2. Under section 43B of the Income Tax Act, any sum payable to an employee as bonus or commission for services rendered are deductible on actual payment basis. Section 145 of the Income Tax Act, 1961, provides that income under the head "profits and gain of business or profession" is computed in accordance with the method of accounting regularly employed by the assessee. Where the assessee follows mercantile system of accounting, the annual profits are worked out on due or accrual basis i.e. after providing for all expenses for which a legal liability has arisen and taking credit for all receipts that have become due regardless of their actual receipt or payment. Only such expenses are allowable as deduction from a previous year's income as are relevant to that year.

i. It is found that the assessee pre-existing liability of Rs. 3,69,83,105/- in respect of Bonus payable [Annexure VIII of the Tax Audit (3CD) report] against which the assessee had paid Rs. 6,34,63,086/- during the year. Thus, the assessee had made payment of Rs. 2,64,79,981/- relating to prior period, which was in excess of the pre-existing liability allowable under section 43B.