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Deputy Commissioner of Income Tax Versus Gujarat State Fertilizer And Chemicals Ltd.

2015 (9) TMI 748 - GUJARAT HIGH COURT

Validity of reopening of assessment - ITAT quashing the reassessment on the ground that the A.O has reopened the assessment on the same material which were in the records during the course of the original assessment proceedings - addition on account of Prior period expenses andunutilized CENVAT credit - Held that:- On the basis of the reply of the Assessee filed before A.O it is thus seen that the AO was aware of the method of accounting followed by the Assessee for valuation of closing stock an .....

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d on considering the aforesaid facts, we are of the view that the impugned notice for reassessing the assessment year 200809 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. - Decided in favour of assessee - Tax Appeal No. 167 of 2015 - Dated:- 31-3-2015 - M. R. Shah And S. H. Vora, JJ. For the .....

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evenue has preferred present Tax Appeal with the following proposed substantial question of law: "Whether, on the facts and in the circumstances of the case, the ITAT was right in quashing the reassessment on the ground that the A.O has reopened the assessment on the same material which were in the records during the course of the original assessment proceedings, without appreciating the fact and law that the assessee's case is fully covered under Section 147 of the Act, since as per th .....

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was taken under scrutiny. The AO issued the notice under Section 143(3) of the Income Tax Act (hereinafter referred to as the "Act") and asked the assessee to produce / furnish the desired details as mentioned in the notice dated 13.01.2010. That the assessee replied to the same and furnished the necessary details as asked vide reply / communication dated 28.3.2010. That thereafter, the assessment under Section 143 (3) of the Act was completed on 30.3.2010 determining the income at &# .....

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turn filed by the company on 09.09.2008 for the year under consideration in pursuant to notice under Section 148 of the IT Act. That thereafter, notice under Sections 142(1), 143(2) r/w Section 147 of the Act along with detailed questionnaire was issued on 09.09.2011. That in respect to the said notice, the authorized representative of the assessee company attended and submitted the details as called for. That thereafter, the assessee filed objection regarding validity of notice under Section 14 .....

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erefore, the assessee was not entitled to prior period expenditure during the year under consideration. That the AO also made the addition of ₹ 1,44,63,411/- to the assessed income on account of increase unutilized CENVAT Credit considering the same to be the income of the assessee. 2.2. That feeling aggrieved and dissatisfied with the assessment order passed under Section 143(3) of the Act for AY 200809, the assessee preferred appeal before the learned CIT(A) against the disallowance of & .....

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he order passed by the learned CIT(A), the Revenue preferred appeal before the learned Tribunal being ITA No.631/AHD/2013 challenging the order passed by the learned CIT(A) in so far as allowing deduction of ₹ 1,44,63,411/- on account of unutilized CENVAT Credit at the end of year. The assessee also preferred appeal before the learned Tribunal being ITA No.480/AHD/2013 in so far as order passed by the learned CIT(A) upholding the reassessment / order passed by the AO under Section 147 of t .....

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has preferred present Tax Appeal to consider the aforesaid proposed substantial question of law. 3.0. Shri K.M. Parikh, learned advocate for the revenue has vehemently submitted that the learned Tribunal has materially erred in holding reassessment for AY 2008-09 invalid. It is submitted by Shri K.M. Parikh, learned advocate for the revenue that the learned Tribunal has materially erred in holding that AO during the scrutiny assessment had formed an opinion on the issue with respect to assessee .....

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ct that AO during scrutiny assessment had noway discussed in the assessment order that he accepts / not accepts the assessee valuation of closing stock. It is submitted that therefore, simply by taking support from the assessee's submission to the AO, it cannot be said that AO had formed an opinion. It is therefore, submitted that the learned Tribunal has materially erred in holding the reassessment invalid and consequently not considering the appeal preferred by the revenue on merits. He ha .....

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the facts and circumstances of the case, the learned Tribunal has rightly held the reassessment invalid and has rightly quashed and set aside the reassessment for AY 2008-09. 4.1. It is submitted by Shri Shah, learned advocate for the assessee that AO reopened the assessment for AY 2008-09 on the ground that expenses of ₹ 99,44,276/- was not related to previous year 2007-08 relevant to year 2008-09 for the purpose of computing income chargeable under the head of "profits and gains fro .....

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at at the end of the previous year, the unutilized CENVAT credit with the assessee was ₹ 1,44,63,411/- only and therefore, increased in the unutilized CENVAT credit was required to be included in the valuation of closing stock of raw materials. It is submitted that both the aforesaid issues were as such dealt with and considered by the AO during the original scrutiny assessment. It is submitted that in the notice under Section 142(1) dated 31.1.2010 the assessee was specifically asked to s .....

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red details/ particularly and only thereafter the AO framed the scrutiny assessment allowing the expenses as claimed as well as accepting the mercantile system account forwarded by the assessee. It is submitted that therefore, the learned Tribunal has rightly held that reassessment was solely by change of opinion of the AO and therefore, the same is rightly held to be invalid. Making above submissions, it is requested to dismiss the present appeal. 6.0. Heard the learned advocates for the respec .....

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being the net of prior period expenses as per detail in the table below. Particulars Rs. Prior period income 2,97,99,699/- Prior period expense 99,44,276/- Net prior period expense charged to P/L A/c. 1,98,55,423/- The expenses of ₹ 99,44,276/- was not related to previous year 2007-08 relevant to AY 2008-09 for the purpose of computing chargeable under the head "Profits and gains of business or profession", the entire prior period expenses of ₹ 99,44,276/- was disallowable .....

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. Thus, the increase in unutilized CENVAT credit was required to be included in value of closing stock of raw materials. In view of the above issues, I have reason to believe that income has escaped assessment as per the provisions of Section 147 of the IT Act." 8.0. However, it is required to be noted that while submitting the return of income the assessee claimed the deduction at ₹ 99,44,276/- as prior period expenses and also shown the closing stock of finished goods after includin .....

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ount of excise component and explanation as to why the same should not be added. That the assessee was also called upon to justify as to why the prior period expenses should not be disallowed and add to total income. From the reply / communication dated 28.1.2010 the assessee furnished the necessary explanation / particulars and with respect to aforesaid queries the assessee state as under: "15(22). We have shown closing stock of finished goods after including excise duty component. The det .....

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nvite your kind attention to Schedule 19 of the 46th Annual Report 2007-08 in which under the head "Prior Period Adjustment" there is net income of ₹ 198.55 lacs. While computing the income we have disallowed ₹ 81 lacs of depreciation and added in income, thus the company has credited to its Profit and Loss Account the sums of ₹ 279.56 lakhs (net) and offered for tax. The Company contends that though the credit / debit transaction is pertaining to earlier period the s .....

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ory of raw materials and completed the assessment and did not disallowed the prior period expenditure of ₹ 99,44,276/- as well as did not make any addition of unutilized CENVAT Credit of ₹ 1,44,63,411/- in the income of the assessee. Now, on the very issue which came to be considered by the AO, the assessment has been reopened. Considering the facts and circumstances, the learned Tribunal has rightly held the reassessment invalid by observing that reassessment is solely on the change .....

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circumstances, the proviso the Section 147 of the Act is clearly not applicable. Therefore, it is not necessary for the Revenue to prima facie establish that there has been a failure on the part of the Assessee to disclose fully and truly all materials facts necessary for assessment while issuing a notice for reopening a completed assessment. However, it is a settled law that even in case of reopening of assessment within a period of four years from the end of relevant assessment years, the AO h .....

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ent case, the reasons for reopening indicate that the reopening has been initiated on account of 2 grounds namely the non inclusion of CENVAT duty while valuing the closing stock and on account of prior period expenses. From the copy of the reply dated 28th January 2010 in response to the notice u/s. 142(1) of the Act submitted before the A.O during the course of original proceedings, it is seen that the Assessee had replied as under: 15(22). We have shown closing stock of finished goods after i .....

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g stock of finished goods. 8. With respect to prior period expenses, the Assessee submission was as under: 20.37). Prior period expenses. We invite your kind attention to Schedule 19 of the 46th Annual Report 2007-08 in which under the head "Prior Period Adjustment" there is net income of ₹ 198.55 lacs. While computing the income we have disallowed ₹ 81 lacs of depreciation and added in income, thus the company has credited to its Profit and Loss Account the sums of ₹ .....

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basis of the reply of the Assessee filed before A.O it is thus seen that the AO 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 .....

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