TMI Blog2011 (3) TMI 1756X X X X Extracts X X X X X X X X Extracts X X X X ..... ority are relevant reasons to form a belief that the income of the petitioner has escaped assessment. Therefore, We find no force in the argument of the petitioner that on the basis of the reasons recorded by the AO, the re-assessment proceedings could not have been initiated. There is relevant material to form a belief that the income of the petitioner has escaped income. At this stage, it can be said that there is relevant material on the record to form a reasonable belief that the taxable income of the assessee has escaped assessment, in view of section 145-A. - Hon'ble Ferdino Inacio Rebello,Chief Justice and Hon'ble Prakash Krishna,J. For the Petitioner :- S.K. Garg For the Respondent :- Sc.,A.N. Mahajan,B.J. Agarwal,D.Awasthi,G.Krishna,R.K. Upadhyay,S. Chopra ORDER 1. These two petitions were heard together and are being disposed of by a common judgment. They arise out of proceedings initiated under section 147 of the Income Tax Act against the petitioner for the assessment years 2000-2001 and 2001-2002. 2. The petitioner is a public limited company registered under the Companies Act. It is engaged in the business of manufacturing of yar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the inclusion of Central Sales Tax (the CST), and excise duty in the value of the goods/raw material in the closing stock. The element of CST instead of being charged to the related profit and loss account, was being accounted for separately under the heard CST Receivable and in this manner the levy of CST did not form part of its cost and the profit and loss account. Similarly the excise duty was not payable by the petitioner as it is an EOU(Export Oriented Unit) unless the manufactured goods are sold in the local market. Resultantly, there is no material to form a belief that the income of the petitioner has escaped assessment. 6. In contra, Shri Ashok Kumar learned counsel for the respondent submits that the earlier notice dated 13.5.2003 was withdrawn as there was formal defect therein. The said notice by mistake did not bear the rubber stamp impression below the initials of the assessing officer. On objection being raised by the petitioner, it was thought prudent to withdraw the same and issue a fresh notice. 7. In reply to the second point, the learned counsel for the respondent submits that as per section 145-A of the Act as introduced by the Finance Act No.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has reason to believe that the income chargeable to tax has escaped assessment. Admittedly the reasons exists on the record for initiation of reassessment proceeding. The said requirement of law is fulfilled in this case. We therefore, find no substance in the above argument and the same is untenable in law. 12. So far as the second point is concerned, the facts which are not in dispute may be noted. The petitioner along with its income tax return filed copies of the audited statement of account for the relevant assessment year. Its relevant portion for present purposes as has been reproduced in paragraph 6 of the writ petition is reproduced below: 12.(a) ......... .......... (b) Details of deviation, if any, There are following deviation from the method of the method of valuation valuation prescribed under prescribed under section 145 A section 145 A, and the a) Purchase of goods exclude effect thereof on the Central Sales Tax, profit or loss. b) Sale of goods exclude tax, wherever applicable. c) Stock of raw material and stores spares exclude Central Sales Tax. d) Purchase and stock of Fuel exclude Duty Drawback, wherever applicable. The above de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded in the valuation of closing stock, which is a part of the value of closing stock. Thus the assessee is under valued the closing stock by a sum of ₹ 6167000. Had the said amount being included in the value of closing stock, there would have been corresponding additional income, which has already been paid by the assessee on the purchases. Value of stock was higher by a sum of ₹ 6167000, but by under statement of valuation there is an understatement of income which has escaped assessment. From the basis of valuation of stock as adopted by the assessee, it is evident that it has not included excise duty on finished goods, in the valuation of the same as per section 145A of the Act, although it is incurred as soon as the goods are manufactured and become ready for sale. The petitioner's contention is that its unit is export-oriented unit (EOU) which is exempt from excise duty but from the records submitted by it, it is seen that it has been selling approximately 30% of goods produced by it in India and it paid excise duty on the same. It was explained that on its goods excise duty is payable up to 7.30% to 13% in different periods. Therefore, by adopting an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner that it has not included the CST paid by it on the purchases of raw material while valuing the closing stock. 18. Section 145-A of the Act along with the Explanation reads as follows. 145A. Notwithstanding anything to the contrary contained in section 145:- (a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head Profits and gains of business or profession shall be- (I) in accordance with the method of accounting regularly employed by the assessee; and (II) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation- For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment; 19. The aforesaid section was introduced by Finance Act No. 2 of 1998 with a view to set at rest a highly debated issue as to whether the amount of tax paid should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) It cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same. 22. The said Explanation is very widely worded and leaves no room of doubt in the matter. The words actually paid or incurred used in clause (b) of section 145-A clearly casts an obligation on an assessee to include in the cost of raw material, the tax, duty, cess etc. paid thereon, for the purposes of the Act. Above interpretation of Section 145-A is further fortifyed by the plain language of the Explanation. The intention of the legislature was to provide and prescribe a clear cut and uniform method for valuation of closing stock, free from any confusion. 23. The argument of the petitioner that the petitioner would be entitled to get the reimbursement of the CST and excise duty, in some form or the other, even if it is acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods are sold or captively consumed. Excise duty is not concerned with sale. In this case a distinction between tax on sale of goods and excise tax on the production of goods has been pointed out. 28. It is apt at this stage to consider a decision of Apex Court in Commissioner of Income Tax versus British paints India Ltd. (1991) 188 ITR 44. This case has bearing on the issue involved herein. The said decision was rendered by the Apex Court before the insertion of Section 145-A in the Income Tax Act. The issue regarding valuation of closing stock was very much there. The court considered the matter in great depth and while doing so, has taken into account Section 145 (1) of the Act as also its earlier decision and the decision of other courts. It has observed the following: It is well-recognized principle of commercial accounting to enter in the profit and loss account the value of the stock in trade at the beginning and at the end of the accounting year at cost or market price, whichever is the lower. As stated by the Lord President in Whimster and Co. versus CIR (1925) 12 TC 813, 823(C.Sess.): 29. In the later part of the judgment, it has been observed that the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost including cost of raw material for the goods in process and finished goods should be included for the purposes of valuation of stock in trade. It reiterated that the closing stock should be valued either at the market price of the material or at the cost price of the raw material inclusive of all the expenditure incurred by the assessee on the said cost of the raw material. Therefore, even before the introduction of Section 145-A , it was laid down that the closing stock should be valued either at cost price or market price whichever is lower. The cost price includes all the taxes etc. paid by the assessee to bring the material at his place. The aforesaid decision has been referred in a subsequent decision in Commissioner of Income Tax, Udaipur versus Hindustan Zinc Ltd. (2007) 4 SCC 705 wherein the Supreme Court has held that an assessee has no right in writing down the value of goods in stock below the cost price by estimating its net revisable value. It has been held that if the fall in the price has the effect of merely reducing the prospective profits, there would be no justification to discard the valuation of cost. 31. It thus follows that even before the insertion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her there is relevant material or not depends upon the facts of each case. 35. In the case on hand, the assessee has not included a sum of ₹ 61,67,000/-, the CST paid on the closing stock while making its valuation. Similarly, the assessee has not included the 30% of the Excise Duty which comes to ₹ 2,13,50,000. The case of the Department is thus the assessee has claimed excess loss of income in its return which is contrary to section 145-A of the Act. At this stage, the Department has placed reliance upon Explanation 2(C) to section 147 of the Act. 36. Explanation 2 to section 147 provides deemed cases where income chargeable to tax has escaped assessment. The relevant Clause (C) for the sake of convenience is reproduced below: (c) where an assessment has been made, but- (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. 37. Sub clause (iv) to clause(c) of Explanation 2 to section 147 of the Act suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;actually' was in issue there. Here admittedly the petitioner has not added the CST actually paid by it on the purchases of raw material. This itself is sufficient to invoke section 147 of the Act, as per the above relied upon judgment of Madhya Pradesh High Court relied by the petitioner. 42. In view of above, we find no force in the argument of the petitioner that on the basis of the reasons recorded by the Assessing Officer, the re-assessment proceedings could not have been initiated. There is relevant material to form a belief that the income of the petitioner has escaped income. 43. By way of clarification, it may be added that we have only examined the relevancy of the material on record to form an opinion that the income of the assessee has escaped assessment. 44. At this stage, it can be said that there is relevant material on the record to form a reasonable belief that the taxable income of the assessee has escaped assessment, in view of section 145-A of the Act. 45. No other point was pressed. Both the writ petitions are therefore, dismissed. The petitioner is required to appear before the authority concerned along with the certified copy of this order i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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