TMI Blog2011 (10) TMI 485X X X X Extracts X X X X X X X X Extracts X X X X ..... usion that Assessee had rightly claimed the deduction but he did not take into consideration as to what was the effect of claiming deduction once on mercantile basis of accounting and again u/s 43B in the computation. The true effect of double deduction, in the same year, of excise duty paid by assessee, was an important issue, on which AO should have applied his mind and then come to a conclusion. Non-application of mind on such a vital aspect cannot be considered as formation of opinion on the basis of details available before him. Therefore, re-assessment proceedings for AY s 2002-03 and 2003-04, were not initiated on account of change of opinion - Decided against the assessee. Since the assessee was following mercantile system of accounting. It had debited the excise duty on manufacture of goods and correspondingly included excise duty element in the closing stock to neutralize the effect of debit in the P/L A/c. The deduction had been claimed on the basis of actual payment u/s 43B. However, the assessee had made necessary adjustments in the respective years. It is clear that in ultimate analysis of various assessment years taken together, no double deduction had been claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on a point which had been examined by his predecessor at the time of scrutiny assessment proceedings and the same constitutes a case of change of opinion, which is not a permissible ground for initiating reassessment proceedings as per the decision of the Apex Court in the case of CIT v. Foramer France reported in 264 ITR 566. 2.(a) That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) erred in confirming the disallowance made by the Assessing officer on the claim for excised duty payable/paid on closing stock of finished goods lying at factory at stock points aggregating to Rs. 9,94,27,363/- (Rs. 8,40,45,799/- Rs. 1,53,81,564/-respectively), which was claimed in view of the provisions of section 43B and the settled principle laid down by the Apex Court in the case of Berger Paints Ltd and the Tribunal's decision in appellant's own case in assessment year 1996-97. (b) That the Ld. CIT (Appeals) erred in law by disregarding the decision of the Tribunal in the appellants own case for the assessment year 2004-05. which was binding on him, thereby acting against the principle laid down by the Apex Court in Union of India v. Kamalakshmi Finance Limited - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to taxability of the excise duty paid/payable on closing stock before the Assessing Officer and upheld the proceedings under section 147. 6. Shri R.N. Bajoria, ld. senior counsel for the assessee, submitted that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and, therefore, re-assessment proceedings initiated after expiry of four years from the end of relevant assessment year were without jurisdiction in view of proviso to section 147. Shri Bajoria referred to page 1 of the paper book, wherein notice issued under section 148 of the Act dated 19.03.2007 is contained. The reasons recorded by Assessing Officer are re-produced hereunder :- "In the instant case, scrutiny assessment was completed u/s 143(3). At the lime of assessment, following income subject to tax escaped assessment in terms of section 147 of the IT Act on the following account: The assessee had classified closing stock of finished goods under two heads (i) stock dispatched from factory (depot stock) and (ii) stock lying in factory (factory stock). Central excise duty on both stock of finished goods, was included in valuation of stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 43B, now offered to tax Rs.22,157,699 Shri Bajoria further referred to page 6 of the paper book, wherein computation of income and tax payable thereon for assessment year 2002-03 is contained and pointed out that as per disclosure made in the computation of income for assessment year 2001-02, the assessee had made adjustment in assessment year 2002-03 as under :- ( i ) Excise duty on duty paid stock as on 31.03.2001 and claimed as a deduction in AY 2001-02 on payment basis in view of section 43B, now offered for tax Rs. 84,045,799 ( ii ) Excise duty pertaining to goods manufactured during the financial year ending on 31.03.01, but not dispatched from the factory as 31.03.01 claimed in AY 2001-02 on payment basis under section. 43B, now offered for tax Rs. 15,381,564/- With reference to above narration given in the computation, Shri Bajoria submitted that all the material facts in regard to assessee's claim of excise duty in terms of section 43B were duly disclosed in the computation. He, therefore, submitted that in view of proviso to section 148, proceedings initiated under section 147 were without jurisdiction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y neutralizing the impacts on profits. In the second case the principle of the liability is determined by the Hon'ble Supreme Court in the case of Ujagar Paints v. Union of, India reported in 38 ELT 535 (SC) that such liability to pay excise duty arises upon manufacture of goods although the obligation to discharge such liability arises only upon clearance of goods from the factory gate. Due to the accrual system of accounting and amendment in section 145A of the Income tax Act, the assessee is bound to account for the liability of finished goods of goods lying in stock pending dispatch by debiting the amount of duty in the profit and loss account. However, while ascertaining the value of closing stock of finished goods, pending dispatch, the same amount of excise duty is also included in the value of closing stock, i.e. in other words credited to the profit loss account. Thus this will again neutralise its impact in the profit and loss account. It is well established that a liability to be allowed in a year in which it anses and section 43B of the Act creates an exception to the general rule i.e. debitum in praesenti, solvendum defuturuo in the sense that the liability in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed in the immediately preceding years. Such duty amounted to Rs. 1,86,31,680 and 871,28,885/-respectively. The assessee had relied its claim following the principle laid down by the Special Bench of the Hon'ble Delhi Tribunal in the case of Indian Communication Network P. Ltd. v. IAC reported in 206 ITR 96 (AT). In a similar issue before the Special Bench, where the assessee had all along included the value of customs duty, excise duty pertaining to goods unsold as a part of its closing stock of raw material and finished goods and claimed such duty upon actual payment as per the provisions of section 43B, it was held that such duty element should be allowed as a deduction under the express provisions of section 43B. The issue now stands settled by the Hon'ble Supreme Court in the case of Berger Paints India Limited v. CIT WB-IV, SLP no 19351 to 19353 of 2002 (copy enclosed)" 7.2 He further referred to the copy of letter dated 05.03.2004 filed by the assessee during the proceedings under section 143(3) contained at pages 15 16 of the paper book and pointed out that again note on excise duty of closing stock claimed as deduction under section 43B was filed before the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to the decision of the Hon'ble Bombay High Court in the case of Cartini India Limited v. Addl. CIT [2009] 314 ITR 275/179 Taxman 157, wherein it has been held that where the material on record has already been considered and adjudicated upon, it would not be open to the Assessing Officer to disagree with the view already taken on the material on record. In such a case, reopening of assessment based on material already considered and adjudicated, would amount to reviewing assessment order by re-appreciating material on record which is not contemplated under section 147. 8. The third limb of argument of Shri Bajoria, ld. senior counsel appearing on behalf of the assessee is that apparently entire reassessment proceedings have been initiated on the basis of assessment order passed under section 143(3) for assessment year 2004-05. He submitted that the assessment order for assessment year 2004-05 is dated 22.12.2006 contained at pages 20-23 of the paper book and the notice under section 148 has been issued on 19.03.2007. He submitted that Tribunal has decided the issue for assessment year 2004-05 by upholding the decision of ld. CIT (Appeals) deleting the addition made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in branches/stock points included in the value of closing stock) With reference to the aforementioned entries, ld. counsel submitted that these entries neutralized the impact of excise duty in the profit loss a/c. and, thus, the assessee did not get any deduction of the excise duty element. Assessee's written submissions on merits regarding treatment of excise duty in case of factory stock are re-produced hereunder :- Accounting Treatment of Excise Duty in Case of Factory Stock In the second case ((i.e. (b)) the principle of the liability is determined by the Hon'ble Supreme Court in the case of Ujagar Prints v. Union of India reported in 38 ELT 535 (SC) that such liability to pay excise duty arises upon manufacture of goods although the obligation to discharge such liability arises only upon clearance of goods from the factory gate. Due to the accrual system of accounting and amendment in section 145A of the Income tax Act, the assessee is bound to account for the liability of finished goods in stock pending dispatch by debiting the amount of duty in the profit and loss account. While ascertaining the value of closing stock of finished goods, pending dispatch, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfers to various branches/godowns (stock lying at stock point) are actually paid upon dispatch. Hence there is no question of non-allowability under section 43B, since the duty is actually paid before the end of the financial year. The duty amount for such goods lying at various stock points/godowns for each of the assessment years have been claimed separately in the computation of income. Since the duty is already paid there is no separate disclosure in the tax audit report regarding its payment. Further as per the Central Excise Act, no dispatch is possible without payment of duty and hence the duty is already paid on depot stock. Further the duty element of stock of goods manufactured but not sold and lying in closing stock at factory is accounted with the duty payable on such goods upon actual dispatch. For example the duty on such category of closing stock for AY 2001-02 amounts to Rs. 1,53,81,564/-. This amount is specified in Annexure 1 1A of the Tax Audit Report. Since it is already certified by the tax auditor that the amount of Rs. 1,53,69,596/- has actually been paid over the period April 2001 till the date of filing of return (upon dispatches) such amount is ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme Court in the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481 has held that closing stock, shown to the credit side of trading account, has the effect of cancelling the purchases to that extent debited to such trading account. Therefore, it cannot be said that deduction on account of purchases, to the extent included in the closing stock, stands allowed. Applying the same principle, it cannot be said that the custom duty paid and debited to profit and loss account stands allowed to the extent included in the closing stock. 40. This view of ours is also fortified by the decision of Tribunal in the case of Sona Steering System Ltd. (supra) whereon similar facts such claim was allowed. In that case, the assessee was debiting the purchases in trading account inclusive of custom duty and showing the closing stock inclusive of such duty. Such method of accounting was in consonance with the method now prescribed in section 145A. The assessee had claimed deduction under section 43-B equal to the amount of custom duty included in the closing stock but such claim was disallowed by Assessing Officer on the ground that such claim stood allowed by debiting the purchases in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount claimed as deduction under section 43B in subsequent year as its income, therefore, in finale no double deduction had been claimed by assessee. In sum and substance, ld. Senior Counsel submitted that on merits, the issue is concluded by the decision of Tribunal in assessee's own case for Assessment Year 2004-05. 9. Learned CIT(DR) submitted that assessee should not have debited excise duty in the Profit Loss A/c. on accrual basis because the deduction is governed by the provisions of section 43B. He referred to pages 16 17 of ld. CIT (Appeal)'s order, which is as under :- "Now if we first analyze the provisions of section 145A, we find that this section requires that whatever may be the accounting method regularly followed by the assessee, the excise duty paid or incurred by the assessee in respect of closing stock of finished goods should be included in the valuation of such goods. In respect of the goods lying in the godown/warehouses the excise duty has been actually paid by the assessee. As per section 145A the amount of this excise duty should be included in the value of such goods. The A/R of the assessee has claimed that when this paid excise duty is incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the due date of filing the return therefore, there will not be disallowance u/s. 43B. However, no further deduction for this amount can be allowed over and above what has been allowed in the P L A/c." Learned Departmental Representative further referred to page 3 of the assessment order, which reads as under :- "The explanation of the assessee is not accepted because as soon as the excise duty on the closing stock is debited in the P L A/c., the assessee is liable to pay the excise duty and if payment is not made, as on the closing date of the accounts, the amounts remained payable and the expenditure in respect of the amount debited in the P L A/c. is allowable if the amount remaining payable as on 31.03.2001 was paid before the due date of filing the return under section. 139 of the I.T. Act". 9.1 Learned Departmental Representative further referred to page 13 of the order of ld. CIT (Appeals), wherein he has observed as under :- "I have carefully considered the above arguments of the A/R and the various documents submitted in the paper book. It is noted that in the computation of income and also in the explanatory note submitted to the A.O. about valuation of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 142(1), there was no mention of double deduction and, therefore, Assessing Officer did not apply his mind to this specific issue. Ld. DR further submitted that in the assessment year 2002-03 the alleged note of excise duty on closing stock filed along with letter dated 08.02.2005 was not before the Assessing Officer. He submitted that there is no initial of Assessing Officer and order sheet also does not refer to the letter dated 08.02.2005. In this regard, he referred to the copy of order sheet for assessment year 2002-03 contained at pages 5-9 of the paper book to demonstrate that there is no noting of the said letter dated 08.02.2005 and proceedings were adjourned to 17.02.2005 after partly being discussed. However, ld. CIT, DR fairly submitted that the letter is on assessment record. In the assessment year 2003-04, however, he did not dispute the existence of note on excise duty. 9.3 Learned Departmental Representative relied on the decision of ITAT, Ahmedabad, Special Bench in the case of Gujarat Credit Corpn. Ltd. v. Asstt. CIT [2008] 113 ITD 133. In this case, loss on sale of securities held as investments was claimed and allowed in assessment as business loss instead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly availed off by the assessee and, therefore, there could not be any other possible view, which could be taken by the Assessing Officer on the given set of facts. The ld. D.R. relied on the decision of Hon'ble Punjab Haryana High Court in the case of CIT v. Hindustan Tools Forgings (P.) Ltd. [2008] 306 ITR 209/[2009] 179 Taxman 11. In this case reopening was upheld merely on the ground that the assessee had been allowed excessive relief and, therefore, in view of clause (c) of Explanation 1 to section 147 of the Act, the reassessment proceeding under section 147(b) was justified. In this case, the assessee filed return for assessment year 1978-79. Subsequently, it filed a revised return claiming deduction on account of additional liability of sales tax out of the profit. The assessment was completed. Subsequently, the Assessing Officer reopened the assessment and issued notice under section 148 of the Income Tax Act. He observed that the assessee had collected sales tax and Central excise on the sale price of the Vanaspati including the amount of excise duty chargeable of vanaspati, but had not paid to the State Government and, therefore, it was liable to be included in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question from the figure of closing stock would not be tantamount to 'tinkering' with the closing stock but allowing to the assessee the effective deduction to which it was entitled under section 43B. Also, in the subsequent assessment year, the assessee's opening stock would stand reduced by a corresponding figure since it could not avail of a 'double deduction'. Hence, the deduction of the impugned amount was allowed to the assessee, and the opening stock for the assessment year 1985-86 was directed to be reduced by the same figure". 11. We have considered the submissions of both the parties and have perused the material available on record. In all the three assessment years, the assessment has been completed under section 143(3). The reasons for initiation of proceedings under section 147 are identical in all the three assessment years. The only difference is that the proceedings under section 147 for assessment year 2001-02 have been initiated after four years from the end of relevant assessment year and in other two assessment years, proceedings have been initiated within four years from the relevant assessment year. There is no dispute on this aspect. Therefore, the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods lying in the factor as on 31st March, 2001 has not been debited in the profit and loss account. In fact, as per the accounting practice followed by the company, the deduction of such excise duty is a availed only in the year in which the stock is sold. It may kindly be noted that the assessee has offered to tax the entire sum of Rs. 84,045,799/- being the claim on account of excise duty paid in respect of closing stock as on 31st March, 2001 in the computation of total income for the assessment year 2002-03. A copy of the computation of income for the assessment year 2002-03 is enclosed for your kind perusal (Annexure 'D'). 11.1 Annexure-D referred to in above clarification clearly explained the mode of payment of excise duty and claim of deduction under section 43B. Again on 05.03.2004, detailed note of excise duty on closing stock of finished goods was filed before DCIT, Circle-1. Further, as far as assessment year 2001-02 is concerned, there is no dispute that this detailed note was submitted before the Assessing officer. In the reasons recorded, as noted above, the Assessing Officer has not pointed out as to which particular fact was not disclosed by assessee, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, proceedings were initiated. 14. In these two assessment years, the main aspect to be examined is whether the proceedings under section 147 have been initiated on account of change of opinion or not. It is well settled law that merely on the basis of change of opinion, the Assessing Officer cannot initiate 147 proceedings. The Hon'ble Supreme Court in the case of Kelvinator India Ltd. (supra) has observed as under :- Head Note " ..Therefore, 1-4-1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe: failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion which cannot be per se reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfillment of certain pre-conditions and if the concept of 'change of opinion' is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. He did not take into consideration as to what was the effect of claiming deduction once on mercantile basis of accounting and again under section 43B in the computation. The true effect of double deduction, in the same year, of excise duty paid by assessee, was an important issue, on which Assessing Officer should have applied his mind and then come to a conclusion. Non-application of mind on such a vital aspect cannot be considered as formation of opinion on the basis of details available before him. We are conscious of the fact that it is not the duty of assessee to guide the Assessing Officer in arriving at a particular conclusion but at the same time, if on account of failure on the part of Assessing Officer to consider a vital issue, emanating from the details furnished by assessee, there is prima facie escapement of income then it cannot be said that the initiation of reassessment proceedings is on account of change of opinion. We, therefore, are of the opinion that in view of the findings on this issue in Assessment Order for A.Y. 2004-05, the Assessing Officer's prima facie belief regarding escapement of income cannot be questioned particularly in the light of dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax liability and secondly, derived benefit from differential rate of surcharge applicable in the A.Y.'s 2001-02 and 2002-03." From the aforementioned observations it is evident that in ultimate analysis only the difference in rates of surcharge affected the tax liability. Further, we find that this issue is squarely covered by the decision of Tribunal in assessee's own case for A.Y. 2004-05, wherein it has been held as under:- "4. At the time of hearing the ld. DR submitted that the ld. CIT(A) was wrong in deleting the disallowance by applying the ratio of the decision of the Hon'ble Apex Court in the case of M/s. Berger Paints (I) Ltd. 266 ITR 99 as the Hon'ble Apex Court has not decided the issue on merits and the assessee's appeal was allowed by holding that if the Revenue has not challenged the correctness of the law laid down by the High Court and accepted it in the case of one assessee then it is not open to the Revenue to challenge it correctness in the case of other assessee without just cause, placing reliance on the judgements of the Hon'ble Supreme Court in the case of Union of India v. Kaurnudini Narayan Dalal [2001] 249 ITR 219; CIT v. Narendra Doshi [2002] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other allied products. During the A.Yr, 1984-85 the assessee in its return disclosed a sum of 1,33,31,370/-. During this period the assessee incurred expenditure on account of customs and excise duty aggregating to Rs. 5,85,87,181/-which was duly debited to the Profit and loss account and was also fully paid during the relevant previous year. In addition thereto, the assessee also credited to the profit and loss account an amount of Rs. 98,25,833/- relatable to the customs and excise duty on the closing stock of inventory by including the said sum in the valuation of such closing stock. During the assessment proceedings the assessee claimed that under section 43B of the IT Act, 1961 it was entitled to deduction of the entire amount of Rs. 5,85,87,181/- being the duties actually paid during the relevant previous year. On similar basis the assessee claimed deduction of an amount of Rs. 1,22,54,261/- being the actual customs and excise duty including in the value of the closing stock for the A.Yr. 1986-87 and offered for tax a sum of Rs. 98,25,833/- being customs and excise duties included in the value of the opening stock. Similarly for the A.Yr. 1987-88 the assessee claimed de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Yr. 1986-87 (254 ITR 498). "Whether, on the facts and in the circumstances of the case and under Explanation 2 to section 43B coming into force with effect from April 1, 1984. the Tribunal was justified in law in directing to allow the amount of Rs. 77,81,948 under section 43B of the IT Act, being Central excise and customs duty which had been included in the value of closing stock?" For the A.Yr. 1987-88, the Tribunal allowed a similar claim and a reference came to be made to the High Court in the following terms (254 ITR 498): "Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in directing the Income-tax Officer to allow the sum of Rs 24,28,428 being Central Excise and customs duty under section 43B of the Act on the ground that the said amount has been included in the value of closing stock." 16. The Hon'ble Calcutta High Court answered the questions referred in both the references in favour of the revenue and against the assessee. Though an application was made for certificate of appeal to the Hon'ble Supreme Court u/s 261 was rejected by the Hon'ble Calcutta High Court but the assessee being aggrieved challenged the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, then it is not open to the Revenue to challenge its correctness in the case of other assesses, without just cause." 7.1 In view of the above, we find ourselves unable to agree with the arguments advanced by the Ld. DR in this respect and the order passed by the Ld. CIT(A) is hereby upheld." 16.1 Respectfully following the decision for A.Y.2004-05, ground no 2 raised by assessee is allowed. Departmental Appeals vide I.T.A Nos. 276, 277 278/Kol/2010 17. These appeals are barred by limitation by two days. After hearing both the parties the delay is condoned in view of the decision of Hon'ble Supreme Court in the case of CIT v. West Bengal Infrastructure Development Finance Corpn. Ltd [2011] 196 Taxman 321 and the appeals are decided the appeal on merits. 18. The Assessing Officer had made addition on account of claim of deduction under section 43B of the Income Tax Act for payment of excise duty in all the three assessment years. While computing the tax, Assessing Officer had charged interest under section 234D on the refund granted to the assessee. The ld. CIT (Appeals) allowed the assessee's claim observing that since provisions of section 234D have come in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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