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TMI Blog2011 (10) TMI 485X X X X Extracts X X X X X X X X Extracts X X X X ..... 234D was also assailed. Ld. CIT (Appeals) confirmed the Assessing Officer's in regard to initiation of reassessment proceedings as well as on merits of addition. However, he deleted the interest levied under section 234D on refund given to assessee. Being aggrieved with the order of ld. CIT (Appeals), both assessee and department are in appeal before us. First we take up the assessee's appeals. ITA No. 260/Kol./2010 (Assessment Year : 2001-02) 3. Grounds No. 1 and 2 for assessment year 2001-02 read as under :- 1.(a) That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) erred in confirming the proceedings initiated by the Assessing Officer u/s 147 of the Act after four years from the end of the relevant assessment year, when the assessment of the appellant had been completed u/s 143(3) of the Act and there was no failure on the part of the appellant to disclose truly and fully all the material facts required for the assessment of the relevant assessment year. (b) That the Ld. CIT (Appeals) failed to appreciate the contention of the appellant that the reassessment proceedings had been initiated on a point which had been examined by his predecessor at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er on this aspect and after considering the same he did not make any addition on this issue. Ld. CIT (Appeals), however, did not accept the assessee's contention for the following reasons :- (i) In the computation of income and also in the explanatory note submitted to the Assessing Officer about valuation of closing stock and treatment of excise duty the assessee had only explained what accounting treatment was given to the excise duty while valuing the closing stock. (ii) The fact that the excise duty on the stock lying in godowns and depots outside the factory had actually been paid was never intimated to the Assessing Officer either in the return of income or in the submissions made during the assessment proceedings. (iii) It was not made clear to the Assessing Officer that the excise duty related to the stock lying in factory premises had already been debited in the Profit & Loss A/c. (iv) It was not clarified that the deduction for the excise duty on closing stock lying at factory and godowns was being claimed twice. Accordingly, he held that assessee did not disclose all the material facts relating to taxability of the excise duty paid/payable on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 9,94,27,363/- (Rs. 8,40,45,799/- + Rs. 1,53,81,564/-) has escaped assessment and such escapement is attributable to the assessee for double deduction on account of Excise Duty". Notice u/s. 148 may be issued subject to kind approval of Addl. CIT, Kol.-I, Kolkata." Shri Bajoria pointed out that in the reasons recorded, the Assessing Officer has not pointed out to even a single fact, which was not disclosed by the assessee. He submitted that the assessee had filed the computation of income and tax payable thereon while filing its original return contained at page 2 of the paper book. He pointed out that in the computation itself, the assessee had made following two adjustments :- (i) Excise duty on duty paid stock as on 31.03.00 claimed as a deduction in AY 2000-01 on payment basis in view of section 43B, now offered to tax Rs. 87,128,885 (ii) Excise duty pertaining to goods manufactured during the financial year ending on 31.03.00, but not dispatched from the factory as 31.03.00 claimed in AY 2000-01 on payment basis under section 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 payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 to 10 of the paper book and submitted that the assessee had duly explained the mode of inclusion of excise duty in the closing stock and the manner in which such deduction was claimed. He referred to page 13 of the paper book, wherein Annexure-'D' referred to in assessee's reply dated 12.01.2004 is contained which reads as under :- "The company had since the insertion of section 145A in the Income Tax Act, 1961 had accounted for the excise duty element in valuation of closing stock of finished goods. There are two types of closing stock of finished goods (a) goods which are dispatched to branches/godowns/warehouses and (b) lying in factory premises not dispatched. In the first instance the duty of goods dispatched is paid and included in the value of closing stock, i.e. in other words credited to the profit & loss account. Similar amount is also debited to the profit and loss account upon payment of the duty thereby 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 manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x. Since it is already certified by the tax auditor that the amount of Rs. 15,386,9569 has actually being paid over the period April 2002 till the date of filing of return such amount has rightly been claimed as a deduction. It is well established that a liability to be allowed in a year in which it arises and section 43B of the Act creates an exception to the general rule i.e. debitum in praesenti, solvendum de futuruo in the sense that the liability in respect of taxes will be allowed only if the amount has been paid before the filing of the return. There cannot be any doubt that the duty has not been paid. Moreover, in the immediately succeeding financial year ending 3lst March, 2000 the assessee had offered the excise duty paid on stock of finished goods as on 3lst March, 2000, to the tax return for the assessment year i.e. 2000-2001. This was done to avoid a double deduction, which the assessee had already claimed 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 Networ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even according to Central Board of Direct Taxes, a mere change of opinion cannot form the basis for reopening a completed assessment. He referred to the decision of Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (supra), wherein it has been held that Assessing Officer has the power to reopen the assessment provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Hon'ble Apex Court further held that Assessing Officer has no power to review, he has the power to reassess, but the reassessment has to be based on fulfilment of certain preconditions 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. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. He further 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any customer and were lying with the Branch, it constituted stock of the company and, therefore, formed part of the value of closing stock, i.e. in other words, credited to the profit & loss account. The duty element was also included in the value of closing stock dispatched but not sold. Similar amount of duty was also debited to the profit & loss account upon payment of the duty (as excise duty paid) thereby neutralizing the impacts on profits. The relevant accounting entries were - Excise Duty A/c. (Profit & Loss A/c.) Dr. 8,40,45,799/- To PLA/RG 23A Balance Cr. 8,40,45,799/- (being excise duty paid on goods dispatched from factory) Inventory- Finished goods Dr. 8,40,45,799/- To Excise Duty A/c. (Profit & Loss A/c.) Cr. 8,40,45,799/- (Being Excise Duty element of finished goods lying 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 merit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the amount has been paid before the filing of the return/prescribed date. Since the liability of excise duty arises on manufacture, the company has provided for such liability under the mercantile system and thereafter paid such duty before filing the return in order to claim deduction. Since the company had both debited and credited the element of excise duty on closing stock of finished goods (both for Depot Stock & Factory Stock) in the profit and loss account of the company, it had neutralized the impact in the profits of the company. However the said duty are allowable by virtue of the provisions of section 43B, i.e. such duty would be allowed only if the company makes the payment before the date of filing of the return. It is already stated that the duty on stock transfers 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tom stands allowed by debiting the purchases of such amount in the P&L Account under section 145A and, therefore, no separate deduction can be allowed while computing the income. We are unable to accept such stand of the revenue. There is no dispute that as per section 145A, the purchase and closing stock inventory has to be adjusted with the custom duty paid. Such treatment under section l45A, in our opinion, would not affect the claim of assessee because in such situation, claim-of deduction cannot be said to be allowed in as much as inclusion of similar amount in closing stock nullifies the effect of debiting the duty paid in the P&L account. In fact duty paid on imports forms part of cost of purchase and resultantly such element also forms part of closing stock. The Hon'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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock is utilized in manufacturing next year, the deduction would stand automatically allowed in that year. That would amount to double deduction. Hence, Assessing Officer will look into this aspect while assessing the income of next year. The Assessing Officer will ensure that the deduction allowed in this year under Section 43B is included in the income of next year when such opening stock is disposed of. This clarification would apply in respect of each deduction under section 43-B where the deduction is allowed on the principle laid down in the case of Lakhanpal National Ltd. (supra) and in the case of Berger Paints India Ltd. (supra). With reference to aforementioned observations, ld. senior counsel Shri Bajoria submitted that since assessee itself had offered the 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 & L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h goods lying at the factory. In the books of account when the assessee includes this amount in the value of closing stock it passes a corresponding debit entry in the P & L A.c This debit entry means that the amount of excise duty included in the value of the closing stock is being claimed by the assessee as a deduction. If the assessee actually pays this outstanding excise duty before the due date of filing of the return, this amount debited in the P & L A/c will be fully allowed as a deduction. Otherwise the portion of this outstanding excise duty which is not paid before the due date of filing the return will be added back u/s. 43B of the I.T. Act. Here in case of the assessee since the whole amount of outstanding excise duty of Rs. l,53,81,564/- has been paid 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt proceedings. 9.2 Learned Departmental Representative submitted that Assessing Officer had not raised any specific point regarding double deduction claimed by assessee. In this regard, he referred to the order-sheet notings dated 16.12.2003 and 25.02.2004 to demonstrate that Assessing Officer had only raised general query about excise duty. Ld. DR further submitted that ld. CIT also applied his mind before issuance of notice under section 148. In this regard, he referred to order dated 15.03.2007 of ld. CIT contained in the paper book. The proposal was sent on 27.02.2007 by DCIT, Circle-1, Kolkata to ld. CIT, who vide his order dated 15.03.2007 granted the said permission after due application of mind. Ld. DR submitted that in the notice issued under section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there was failure on the part of assessee to disclose material facts necessary for assessment and to specify size of land condition precedent for claiming special deduction under section 80IB. It was held that availability of information in annexure to return was not sufficient. Ld. DR also referred to the decision of Hon'ble Madras High Court in the case of Asstt. CIT v. Apollo Hospitals Enterprises Ltd. [2008] 300 ITR 167/171 Taxman 397 wherein notice under section 148 within four years was held to be valid on the ground that benefit of carry forward and set off of unabsorbed depreciation was wrongly allowed. In this case, the set off claimed by the assessee was held to be illegal and, therefore, AO had got jurisdiction to reassess such set off illegally 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 exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrual basis and there is. no reason why the same deduction cannot be made available subject to the rider that the entire amount has been paid in the year itself, and that is the condition which section 43B lays down. In the instant case, the assessee had paid customs duty and excise duty and charged the same to the trading/profit and loss account. A part of the amounts also found place in the closing stock. By the aforesaid mode, the deduction to the assessee wider section 43B was given only in part, whereas the intention of the Legislature was to allow it in full if actually paid and if otherwise found allowable. It was nobody's case that payments on account of customs duty and excise duty were not allowable deductions. The removal of the amount 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 12.01.2004, this issue was further clarified at page 9 of the paper book, which reads as under :- Excise Duty included in closing stock of finished goods During the assessment year 2001-02 the assessee had claimed the excise duty paid on stock of finished goods as on 31st March, 2001 amounting to Rs. 84,045,799/-under the provisions of section 43B of the Income Tax Act, 1961 (hereinafter referred to as the "Act") since the same was paid before the date of filing of the return. As per the consistent accounting practice of the company, the excise duty is accounted for in profit and loss account only at the time of sale of its products. Accordingly, excise duty paid on finished goods 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs with four years from the end of relevant assessment year. Ld. CIT (Appeals) upheld the proceedings under section 147 on the ground that Assessing Officer had allegedly recorded the reasons that assessee had claimed double deduction in respect of excise duty on closing stock and, therefore, the proceedings under section 147 of the Act had been initiated to disallow such claim of assessee. After giving the same reasons as noted above for assessment year 2001-02, ld. CIT (Appeals) further pointed out that as per Clause(c)(i) of Explanation 2, there was under assessment, therefore, in view of sub-clause (i) of Explanation 2 under section 147 the escapement of income is deemed to be there 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular opinion on that issue. But if it is not so, then merely on the basis of sufficient information being available before him, it cannot be concluded that he formed a particular opinion on an issue which has not even been touched upon by him in his order. It all depends on the facts of each case. In the present case, we find that all the details as required by Assessing Officer during the course of assessment proceedings were furnished before him and detailed note was also filed in this regard. After examining all those aspects, Assessing Officer arrived at a conclusion that Assessee had rightly claimed the deduction but he did not consider the true import of methodology adopted by 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 avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been claimed on the basis of actual payment under section 43B. However, the assessee had made necessary adjustments in the respective years. From the details noted above and from the submissions of ld. counsel, it is clear that in ultimate analysis of various assessment years taken together, no double deduction had been claimed by the assessee. Further, it is pertinent to note that Assessing Officer has also, inter alia, observed as under:- "To offset the double deduction, the assessee suo moto offered the Excise Duty deduction claimed u/s 43B of the IT Act, in the Assessment Year 2001-02 in the next Assessment Year's computation. By adopting this practice, the assessee firstly deferred 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. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not preferred appeal that does not operate as a bar for the revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher Court when divergent views are expressed by the Tribunals or the High Courts. But while doing so none of the earlier decisions of the Hon'ble Apex Court were reversed though were referred and taken note of therein. 7. Now coming to the arguments taken by the Ld. DR that the Hon'ble Apex Court the case of Berger Paints (I) Ltd. has not decided the issue on merits, we find that in that case the assessee was a company engaged in the manufacture and sale paints, varnishes 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 cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss account, on the ground that the crediting of the profit and loss account by the value of the closing stock, which included the aforesaid duties, did not have the effect of wiping out the debit to the profit and loss account?" The High Court answered the question referred to in favour of the revenue and against the assessee. For the A.Yr. 1986-87 the Tribunal upheld the claim of the assessee and allowed a deduction amounting to Rs. 77,81,948 claimed under section 43B of the Act being Central excise and customs duty, which had been included in the value of the closing stock. At the instance of the Revenue, the following question of law was referred to the High Court for the A.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 follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt then proceeded to consider the impact of section 141A and granted appropriate relief thereunder. It is not possible for us to accept the contention of the Revenue that the judgement of the Gujarat High Court in Lakhanpal National Ltd.'s case [1986] 162 ITR 240 is distinguishable on the ground put forward." It is clear from the above that the Hon'ble Apex Court allowed the appeal of the assessee on merits of the case. Merely because the Hon'ble Apex Court also held as under it cannot be said that the Court did not decide the issue on merits : "If the Revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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