TMI Blog2013 (9) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee are accepted as such. The assessment proceedings have, therefore, been simplified in such a situation if later on the AO has "reason to believe" that any income chargeable to tax has escaped assessment then he can re-compute the income by reopening the assessment. If the notice is within four years then under this new provision the power is much wider and can be exercised even if the assessee had disclosed fully and truly all material facts. However, in a case where four years, as prescribed, have expired then failure on the part of the assessee to disclose true facts is to be established by the Revenue - opinion has to be formed only by the AO, therefore, a re-assessment must be based upon the belief of the AO and not of the Commissioner. In the present case, there was a sufficient material in the knowledge of the AO and that material was based upon the accounts of the assessee already on record through which the AO had reason to believe that the impugned purchases expenditure had escaped the assessment. Facts of the case has also revealed that there was no opinion formed at the first round of assessment, therefore, there is no question of change of opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act, dated 29.12.2008 are that the assessee company is in the business of manufacturing of Electrical and Electronic panels. It was noted by the AO that the assessee had credited an amount of Rs.16,48,348/- under "purchases advance" and according to the AO, it was "provisional purchases" since it was not a business expenditure as per Section 37 hence according to the AO the assessee had disclosed low profit. The observations in this regard by the AO were as follows: "Subsequently, it was noticed that from the Balance sheet attached with return of income that the assessee is maintaining its books of accounts in mercantile accounting system. It was seen that the assessee has credited the amount of Rs.16,48,348/- under purchases advance, it means that the assessee has debited purchases account. (Provisional purchases) and the goods may not received by the assessee. As per the provision of Section 37 business expenditure is to be debited in profit and loss accounts and is treated as allowable expenditure. Hence, by showing purchases accounts as provision purchases advance. The assessee has shown low profit by showing the same profit is under." 2.1 The AO has recorded the reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnaire issued by the ITO Ward 4(3), Ahmedabad dated 25.11.2005, wherein the balance sheet was referred and the details of the inventories were required to be furnished by the assessee. The assessee had complied with those requirements of the AO, so the details of the provisions as per the balance sheet were furnished. Once all those details were furnished then it could be presumed that the AO has duly applied his mind on all those inventories and details which were part and parcel of the balance sheet. Learned AR has also drawn our attention on a notice dated 25.03.2008 issued u/s. 148 of the IT Act by ITO Ward 4(3), Ahmedabad and argued that the same was issued without the sanction of the Commissioner. Such a notice was bad in law. The assessee has also objected the validity of the said notice on the ground that the PAN was incorrectly mentioned. 6. Learned AR has also drawn our attention on the reasons for reopening which were dated 17th of March, 2008, wherein the reasons mentioned were as follows:- "In this case, it is observed from the Balance sheet attached with return of income that the assessee is maintaining its books of accounts in mercantile system. It was seen that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heffs (India) Ltd.; 259 ITR 19 (SC). Learned D.R. has also mentioned the case law of Kelvinator of India, 302 ITR 561 (SC) and argued that there was a sufficient material in the possession of the AO so as to arrive at the conclusion that there was an escapement of income. In the original order, the AO had not mentioned that the claim of such "Provisional Expenditure" was allowed. There was no application of mind, hence, there was no question of change of opinion. Rather, the assessee has not furnished the complete detail at that time when the questionnaire was issued; therefore, the said amount had escaped the assessment. He has pleaded that the reopening was as per law. 8. We have heard both the sides at length. We have perused the orders of the authorities below in the light of the compilation filed from both the sides. In a situation when a notice u/s. 148 was admittedly issued within four years from the end of the relevant assessment year then in our opinion the scope of jurisdiction u/s. 148 is very wide. The Section 147 of IT Act prescribes that "If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has not agitated that the impugned recording of reasons were not as per law. Therefore, we hereby conclude that the re-opening was validly made by the AO. We have examined the case laws cited by learned AR. The ratio laid down in those cases is rather supporting our view. In the case of Hindustan Lever Ltd. (supra), the Hon'ble Court has opined that the reasons recorded must be based on evidence. The AO must be able to justify that the re-opening was based upon certain material available on record. We have noted in the present appeal that the AO had disclosed in the reason the said material on the basis of which he has established that there was a vital link between the reasons and the evidence. We, therefore, hold that this is not an arbitrary reopening. Even the decision of Vishwanath Engineers (supra) duly supports our view primarily on the ground that the AO has disclosed the reason of re-assessment within a reasonable time and on receipt of those reasons the assessee was given time to raise the objection and after due consideration of those objections the AO had thereupon proceeded to re-assess the impugned escaped income. The result of the above discussion is that the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t considered in the closing stock hence the "Purchase Expenses" were inflated. Finally, the amount of Rs.16,48,348/- was taxed in the hands of the assessee. 10. When the matter reached before learned CIT(A), the action of the AO was confirmed as follows:- "I have considered the facts and circumstances of the ld. AR. carefully. There is no dispute about the fact that the appellant debited the purchase account for the relevant period by an amount of Rs.16,48,346/- towards provisional purchases. Further, the goods against such purchases were not received by the appellant before close of the financial year, therefore, they did not form part of the closing stock for the relevant period. The Ld. AR's argument that the expenses crystallized during the previous year could be claimed on the basis of mercantile system of accounting is bereft of reasoning in the sense that purchases could not be equated with services. The expenses for services are considered to be crystalised during the previous year once an assessee has utilized them in the previous year. This principle is not applicable in the case of purchases. The purchases debited to purchase account should be reflected either in sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the year-end and these goods are included in closing stock of 31st March, 2003 as Goods in Transit, a copy of the list of purchases and their corresponding GRNs with relative purchase bills is attached." 13. We, therefore, deem fit that this discrepancy should be removed and the correct facts should be brought on record. Hence, the assessee is hereby directed to place the evidence of actual dates of delivery of goods. The AO can demand for evidence such as transport bills etc. As far as the provisional booking of an expense is concerned the same is not admissible unless and until crystallized during the year. In that condition, the AO has to first ascertain that there should not be double deduction of such expenditure. We are also of the view that the AO has to examine the dates when the sales have been actually executed in respect of these purchases. Thus, in the result, this ground is hereby restored back to the AO for fresh adjudication hence to be treated as allowed for statistical purpose. 14. The next ground is Ground No.3, reproduced below: "On the facts and in the circumstances of the case and in law, the learned AO has erred in not allowing deduction u/s 80I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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