REASSESSMENT ON CHANGE OF OPINION IS NOT PERMISSIBLE

[Mr. M. GOVINDARAJAN]

In 'Satnam Overseas Limited and another V. Additional Commissioner of Income Tax' - (2009 -TMI - 201655 - Delhi High Court) the petitioner company is engaged in the business of manufacturing of rice and also trades in pulses, rice etc.,   It is also engaged in the export of rice, pulses etc.,   The petitioner had filed returns for the assessment year 1997-98, 1998 - 99, 1999-2000 and 2000 - 2001.   The case was selected for scrutiny and queries were raised from time to time by the Assessing Officer during the course of assessment proceedings which were duly replied to by the petitioner to the satisfaction of the Assessing Officer.   On getting the necessary details, clarification and information, the assessment with respect to these assessment years were completed.

Thereafter the Income Tax Department issued show cause notices under Sec. 147/148 of the Act dated 25.03.2004, 30.03.2005 and 08.03.2004.  On inquiry the department gave the reasons for reassessment.

For the year 1997-98: 

• As per the schedule M annexed to notes to accounts, the assessee has given the quantity and values of the stock.   The average rate of the closing stock of the rice works out at Rs.2,022/- per quintal and when this rate is applied to work out the value of sales, the same comes to Rs.2,34,75,73,866/- whereas the value of sales declared by the assessee  is Rs.1,66,66,83,978/-.   Therefore, there is a suppression of sales value of Rs.68,08,89,888/-;
• The closing stock of pulses, the average value works out at Rs.2498/- per quintal.   Applying this rate on the quantity of sale of pulses during the year, the value of sale of 46794.261 quintal works out to Rs.11,68,92,064 as against Rs.3,21,42,360 declared by the assessee.   Therefore here also the assessee has suppressed sale by a sum of Rs.8,47,49,704;

For the year 1998-99: 

• The petitioner had consumed 541565 quintals (value of Rs.76.73 crores) of paddy for the production of rice during the year under consideration.    Therefore the average rate of paddy consumed works out to Rs.1416 per quintal.   In the closing stock the assessee had shown rice and paddy together at value of Rs.103.27 crores.   The closing stock of paddy was shown at 76053 quintals meaning thereby that the value of closing stock of 76053 quintals of paddy at 1416 per quintal works out to Rs.1076 crores.   Therefore closing stock of rice worked out Rs.92.51 crores.   The quantity of rice in the closing stock was shown at 225481.   Therefore, the per quintal value of rice in the closing stock worked out Rs.4102.
• The assessee has shown sale of 1287925 quintals of rice value of Rs.260.16 crores meaning thereby that the average selling rate of rice was Rs.2,019 per quintal.   Therefore, there is a large difference between the average selling rate 920190 and average closing rate Rs.4102.
• The assessee had sold 151610 quintals of rice at a value of Rs.293.75 crores which means that the average selling rate of rice per quintal is Rs.1,937 only;
• The average selling rate of rice per quintal works out to Rs.1937 whereas the closing stock of rice for the assessment year 1998-99 i.e., opening stock for the assessment year 1999-00 was valued at Rs.4102 per quintal.  As the value of closing stock of rice per quintal has been shown at Rs.4,102 and the average sale value per quintal at Rs.2019 the assessee has sold 1287924 quintals of rice during the year if the assessee has sold the rice at of closing stock the sale value realized during the year have been understated by Rs.268.27 crores. 

For the year 1999 - 2000: 

• The assessee was inadvertently allowed depreciation at 100% of the rates applicable in respect of such assets also which were required by the assessee and put to use for business purposes for less than 180 days.   As per the Income Tax Rules, the depreciation of such assets is allowed at 50% of the corresponding rates applicable.   This resulted in excess depreciation being allowed to the assessee and consequential effect of income chargeable to tax escaping assessment;
• The assessee was inadvertently allowed deduction on account of deposits made in respect of contribution towards the PF and ESI schemes, which were deposited beyond the due date stipulated for the purpose in the respective statutes.   The same will be deemed to be income of the assessee in view of Sec. 36(1)(va) read with Section 24(2)(x).   The record also reveals that the assessment has been allowed excess claim in respect of deposits of employees contribution to PF and ESI which should have been added back to the income of the assessee;

For the year 2000-01: 

• The assessee was inadvertently allowed claim of deposits made in respect of employees' contribution towards the PF and ESI schemes, which were deposited beyond the due date stipulated for the purpose in the respective statutes.  As per the Income Tax Act the same will be deemed to be income of the assessee company in view of Sec. 36(1)(va)or Section 24(2)(x).

For the above said reasons for each assessment year the respective Authorities have reasons to believe that the income has escaped assessment and the assessee has not disclosed full and true particulars of the income they have initiated reassessment proceedings.

The assessee approached the High Court.   Before the High Court the following arguments were put forth: 

• The assessment proceedings for the concerned years were duly completed under Sec. 143(3) of the Act after detailed scrutiny by the Assessing Officer and which included raising of queries and giving satisfactory replies thereto by the assessee company for the different assessment years;
• A reference to the aforesaid reasons given for seeking reassessment clearly only amounts to a change of opinion on the facts which were already existing, in the knowledge of and duty considered by the Assessing Officer and seeking reassessment is impermissible in law because on a mere change of opinion proceedings under Sec. 147/148 cannot be initiated;
• The exercise which is now undertaken by the Assessing Officer in alleging that the assessee has suppressed the sales is an exercise which could well have been carried out by the Assessing Officer in the assessment proceedings during the relevant assessment years because they pertain to issues which are sought to be raised on the basis of record available before the Assessing Officer and there was no concealment of any facts by the assessee;
• Since the reassessment proceedings which are sought to be initiated are after the period of four years and the reasons of re-opening of the assessment are merely a matter of lip service state that the assessee had not disclosed full and true particulars, however, a reference to the reasons show that it is not explained as to how the true and full particulars are not disclosed inasmuch the reasons pertain to the same record and not to any new material which has come to the notice of the Assessing Officer;
• The reasons given for seeking reopening of the assessment taking an average sale price for the entire year is on the face of it absurd because the sale price of rice/pulses is not constant during the year and therefore the basis adopted by the Assessing officer to take average price of the closing stock and multiply this average price to the sale quantity for arriving at a figure of alleges sales is a perverse and an absurd exercise having no rational basis;
• Assuming that this rationale and logic of the Assessing Officer was valid, it was a method which could have been adopted surely even during the regular assessment proceedings for the relevant years in which orders under Sec. 143(3) were passed and which was not done, and therefore, there cannot be a reassessment merely because the Assessing Officer failed to do what he ought to have done from obvious facts and material which were available before him;
• It is now well settled that even if there is delay in payment of contribution towards the PF and ESI schemes, if the same are deposited along with returns for the relevant assessment year, then there is no default on the part of the assessee for claiming the deductions for payment made under the PF and ESI schemes;
• The tax audit report is the basic document which was before the Assessing Officer and which contained all the necessary details and such details having been duly furnished in the tax audit report surely were duly verified by the Assessing Officer, more so because deductions under Sec. 80HHC and 80-IA were duly considered for their applicability by the Assessing Officer in the relevant assessment years.

The Revenue contended that merely because the entire material was filed before the Assessing Officer, it was not possible for the Assessing Officer to have looked at all the documents and there is no presumption that he has looked into all the documents, consequently when the Assessing Officer on the basis of the record filed realizes his mistake, it is open to him to seek reassessment under Sec. 147/148 of the Act.  The reasons recorded are valid reasons which show reason to believe.

The High Court held that the only reason which has been given seeking reopening of the assessment for the years 1997-98 and 1998-99 is that suppression of sales has taken place on account of the fact that when average price of the closing stock is multiplied with the quantity of sales in the year then the value of sales would be at a higher figure than as declared by the assessee.   Clearly there is no new material which is alleged to have come to the notice of the Assessing Officer.  The expression 'perusal of the case record reveals' clearly shows that it is on the basis of the same assessment record as was filed by the assessee during the relevant assessment years and also scrutinized by the Assessing Officer before passing the orders under Sec. 143(3) is the basis of seeking reopening of the assessment.  It is nothing but a change of opinion and a new approach to the existing facts and material which the Assessing Officer could well have done during the regular assessment proceedings of the relevant assessment years. 

The High Court further held that it cannot stand to a reason that the price of sale of paddy/rice/pulses remained constant throughout the year so that on the basis of an average price of the closing stock the sale price for the entire year comprising of 12 months, 48 weeks and 365 days can be ascertained in that the same would have remained fixed throughout the period.  Even assuming this logic is correct, it was surely an exercise which the Assessing Officer could have done on the same very materials were available to him in the relevant assessment years and merely because the Assessing Officer feels that he has failed to do what he ought to have done cannot be valid ground for seeking initiation of reassessment.

In the issue of claiming depreciation on tarpaulin the correspondence specifically entered into in the relevant assessment year specifically mentions a note with respect to the claim of depreciation on tarpaulin.   The said note clearly gives the reason that life of these tarpaulin covers are subject to elements such as dust, rain and sun and consequently 100% depreciation is claimed because they get torn on account of frequent use.  In respect of payment of PF and ESI schemes it is quite clear that the very aspect of deduction underSection 80 HHC and Sec. 80-IA were considered by the Assessing Officer in the relevant Assessment years.   Therefore no new material has come on record.    The reasons for reopening of the assessments were recorded subsequent to the issue of show cause notice.

Therefore the writ petition is allowed by the High Court and the impugned order was quashed.