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2023 (11) TMI 924 - AT - Income TaxValidity of initiation of reassessment proceedings - notice issued after expiry of four years - notice issued if four years, but not more than six years - case was selected for scrutiny through CASS and assessment order u/s 143(3) was passed - provision made by the assessee for the year under consideration for slow/non-moving inventory - HELD THAT:- In response to notice u/s 148 the assessee filed objections to the reopening of the assessment which were disposed of by the assessing officer against which the assessee filed which was dismissed by the Hon’ble High Court [2016 (12) TMI 1294 - MADHYA PRADESH HIGH COURT] and declined to admit the writ petition on the issue of validity of reopening of the assessment as there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and consequently declined to admit writ petition filed by the assessee stating stating notice has been served within six years from the end of the relevant assessment year and the tax effect is in crores of rupees and therefore, the Assessing Officer was justified in initiating proceedings and in rejecting the objections raised by the petitioner. Therefore, the objection of the assessee against validity of reopening on the ground that there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment has been considered by the Hon’ble jurisdictional High Court and decided against the assessee. Hence, we are of the considered opinion that this issue is covered by the judgment of Hon’ble High Court in assessee’s own case whereby the objection raised by the assessee against reopening of the assessment has been rejected. Decided against assessee. Addition on account of slow and non-moving inventory - assessee has changed the method during the year which has resulted in reduction of profit before tax - inventory written off by the assessee on the basis of net realization value worked out by following consumption pattern of the stock from 0 to 50 weeks, 51 to 100 weeks, 101 to above weeks taking percentage of provisions up to 50 weeks 0%, 51 to 100, 50% and 101 to above, 100% provision - HELD THAT:- It is pertinent to note that there is no change of accounting policy of the assessee for the year under consideration so as the valuation of the closing stock is concerned as the assessee is following consistent policy of valuation of the closing stock at cost or net realization value whichever is less in accordance with accounting standard accepted u/s 145A. The only change for the year under consideration is shifting the basis of net realization value from the age of the stock to consumption pattern. In any cases the reduction in the value of the closing shall have consequential effect of reduction in the opening stock of the subsequent year and therefore, this exercise is revenue neutral when the assessee has been paying the tax at the maximum marginal rate. There is increase of more than three times in the total income reported by the assessee in the subsequent assessment year and the AO has passed scrutiny assessment u/s 143(3) on 28.02.2014 whereby the total income of the assessee was assessed at Rs. 70,77,31,246/-. There is no adjustment made on account of this enhanced value of closing stock for the year under consideration to the opening stock of the subsequent year i.e. A.Y. 2010-11. Thus, this addition made by the AO for the year under consideration has resulted double taxation of the said income. Therefore, when the assessee is paying tax at the same rate as in the year under consideration and rather declared more than three times of income to tax in the subsequent year then this issue is revenue neutral and is entirely academic in nature. Accordingly in the facts and circumstances of the case when the assessee has explained the reasons for change in the basis of making the provision from age of non-moving inventory to consumption pattern which is more realistic so far as the realization value is concerned and this change has no revenue effect as the reduction in the closing stock of inventory shall have consequential effect of reduction the opening stock of the subsequent year then the addition made by the AO is not justified. As relying on Excel Industries Ltd. [2013 (10) TMI 324 - SUPREME COURT] the addition made by the AO is deleted. Appeal of assessee is partly allowed.
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