2014 (9) TMI 990 - AT - Income Tax

Validity of reassessment under section 147 - inclusion of increase in CENVAT credit to closing stock of raw materials - Held that - On the basis of the reply of the Assessee filed before A.O it is thus seen that the A.O was aware of the method of accounting followed by the Assessee for valuation of closing stock and after having examined the issue and on being satisfied with the material produced and the explanation of the Assessee the A.O did not make any addition on account of unutilized CENVAT credit. Similarly the submission of the Assessee with respect to prior period expenses was also accepted by the A.O without making any addition during the course of original assessment proceedings and it can thus be said that A.O had formed an opinion during the scrutiny assessment. Thus in the present case and on considering the aforesaid facts we are of the view that the impugned notice for reassessing the assessment year 2008-09 is issued merely on change of opinion and seeks to review the assessment which is already completed and the same in not permissible as per law. We thus set aside the notice of reopening the assessment dated 28.03.2011 and also all consequential orders. Since the ground of Assessee has been allowed and the re-assessment is held to be not valid.- Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment under section 147 of the Income Tax Act.
2. Deduction of unutilized CENVAT credit.
3. Disallowance of prior period expenditure.

Detailed Analysis:

1. Validity of Reassessment under Section 147 of the Income Tax Act:
The primary issue was whether the reassessment initiated under section 147 was valid. The original assessment for the Assessee, a company in the business of manufacturing fertilizers and chemicals, was framed under section 143(3) with the total income determined at Rs. 446,00,97,836/-. Subsequently, a notice under section 148 was issued within four years, leading to a reassessment under section 143(3) read with section 147, determining the income at Rs. 448,45,05,523/-. The Assessee contended that the reassessment was based on a change of opinion, as all material facts were disclosed during the original assessment. The Tribunal noted that the reasons for reopening were the non-inclusion of unutilized CENVAT credit in the closing stock and disallowance of prior period expenses. It was found that these issues were already considered during the original assessment, and there was no new tangible material. Thus, reopening the assessment was deemed to be based on a change of opinion, which is not permissible by law. The Tribunal set aside the notice of reopening and all consequential orders, thereby allowing the Assessee's appeal on this ground.

2. Deduction of Unutilized CENVAT Credit:
The Revenue's appeal included the ground that the CIT(A) erred in allowing a deduction of Rs. 1,44,63,411/- on account of unutilized CENVAT credit. The Assessee argued that it followed the mercantile system of accounting and that the unutilized CENVAT credit was not included in the Profit & Loss account. The Tribunal noted that the Assessee consistently followed the method of accounting where sales and purchases were recorded net of excise duty, and inventories were valued at the lower of cost or net realizable value. This method had been accepted by the Revenue in previous years. Since the Tribunal found the reassessment itself invalid, the grounds raised by the Revenue did not survive, and thus, the Revenue's appeal was dismissed.

3. Disallowance of Prior Period Expenditure:
The Assessee's appeal also challenged the disallowance of prior period expenditure of Rs. 18,44,276/-. The Assessee had credited the Profit & Loss account with net prior period income of Rs. 198.55 lacs, which was verified and accepted during the original assessment. The Tribunal observed that the Assessee provided detailed explanations and evidence during the original assessment, and no additions were made by the Assessing Officer at that time. Since the original assessment considered and accepted these expenses, reopening the assessment on this ground was also seen as a change of opinion. Consequently, the Tribunal held that the reassessment was invalid, and the disallowance of prior period expenditure was not justified.

Conclusion:
The Tribunal allowed the Assessee's appeal, holding that the reassessment under section 147 was invalid as it was based on a change of opinion without any new tangible material. Consequently, the grounds raised by the Revenue were dismissed, and the Assessee's Cross Objection was also dismissed. The final result was that the Assessee's appeal was allowed, and the Revenue's appeal and the Assessee's Cross Objection were dismissed.