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2016 (3) TMI 418 - ITAT MUMBAI

2016 (3) TMI 418 - ITAT MUMBAI - TMI - Reopening of assessment - assessment based on the information received from the revenue audit team - change of opnion - Held that:- We have observed that detail of deviation from the method of valuation prescribed u/s 145A of the Act are duly given in Annexure D to tax audit report u/s 44AB of the Act which was submitted before the AO and also in the computation of income filed along with the return of income with the Revenue, hence, the assessee company .....

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ed information which is vital and necessary for framing the assessment. It cannot by any stretch of imagination be said that the A.O. has not gone through the tax audit report while framing assessment u/s 143(3) of the Act and in fact the A.O.is duty bound to go through the same before framing the assessment .

The said information was also duly declared and disclosed in the computation of income filed with the Revenue Authorities. The Revenue is seeking reopening of the assessment ba .....

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not permissible and more-so when the AO has passed scrutiny assessment u/s 143(3) of the Act in original assessment and four years have elapsed from the end of the assessment year when the assessment was reopened vide notice u/s 148 of the Act dated 28-03-2012 and the reasons were recorded on 26-03-2012 , and there is no failure on the part of the assessee company to truly and fully disclose all material information in the return of income filed with the revenue and during the course of original .....

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ioner of Income Tax (Appeals)- 13, Mumbai (Hereinafter called the CIT(A) ), for the assessment year 2006-07. 2. The ground raised by the Revenue in the memo of appeal filed with the Tribunal reads as under:- (i) The Learned CIT(A) has erred on facts and in law in holding that reopening u/s 147 was made on the basis of material on record which was duly considered by the AO while completing the original Assessment order. (ii) The Learned CIT(A) has erred on facts and in law in extending the scope .....

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by the Assessing Officer in reason recorded for reopening the Assessment. 2. The Ld. CIT(A)'s order is contrary in law and on facts and deserves to be set aside. 3. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the AO restored. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary. 3. The brief facts of the case are that the assessee company has filed its return of income declaring total income of ₹ .....

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tock u/s 145A of the Act of ₹ 72,07,660/- and rebate on non-payment of sales tax deferred installments of ₹ 10,72,897/-. Notice u/s 148 of the Act dated 28.03.2012 was issued to the assessee company. In reply, the assessee company submitted that without prejudice, the assessee company is following the method of accounting of purchase and sales on net basis whereby the amount of sales and purchase are shown net of excise, sales tax etc. . In the tax audit report, every year the effect .....

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ith the Revenue. Similarly, in the assessment year 2007-08 and onwards, no such effect was accounted in the opening stock and closing stock. Since the effect of Modvat in the closing stock was taken into account in the assessment year 2005-06, the same was shown in the opening stock of the assessment year 2006-07 and no such effect of Modvat was accounted in the closing stock of the assessment year 2006-07. In support, the assessee company relied on the judgments in the case of CIT v. Indo-Nippo .....

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nment by various States who had Sales Tax Deferral Scheme about the difficulties faced by the units enjoying Sales Tax Deferral Scheme. The CBDT issued a Circular in 1987 wherein it was stated that the States should formulate a scheme like Maharashtra State which provided that the Sales Tax Payable by the eligible unit would be deemed to have been paid on due date and simultaneously the same amount would have been deemed to be disbursed by the Government as loan to the eligible unit. Hence, it w .....

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tallment. The assessee company availed the benefit of this scheme and paid NPV by reducing ₹ 10,72,897/-. The assessee company did not offer this amount for taxation as the benefit has accrued to the assessee company on extinguishment of a capital liability, which is not taxable. The assessee company submitted that the assessee company had taken the benefit of the scheme and paid the discounted value of loan which was payable in number of installments over the years by paying the discounte .....

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stock of the assessee company. Therefore, as per provisions of Section 145A of the Act, the same needs to be added to the closing stock of the assessee company as its income. The provisions of section 145A of the Act is clear and unambiguous and it provides that the closing stock should be valued at inclusive of Cenvat. Therefore, the value of closing stock is increased by ₹ 72,07,660/- and addition was made to the income of the assessee company vide assessment order dated 23.01.2013 pass .....

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this case. Accordingly, an amount of ₹ 10,72,897/- is added back to the income of the assessee company by the AO vide assessment order dated 23.01.2013 passed by the AO u/s 143(3) read with Section 147 of the Act. 4. Aggrieved by the assessment orders dated 23-01-2013 passed by the A.O. u/s 143(3) read with Section 147 of the Act, the assessee company preferred an appeal before the CIT(A). 5. Before the CIT(A), the assessee company submitted that the notice dated 28.03.2012 u/s 148 of the .....

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s per proviso to Section 147 of the Act where the assessment is completed u/s 143(3) of the Act, no action shall be taken after the expiry of 4 years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment by reason of the failure on part of the assessee company to disclose fully & truly all material facts necessaryJ for the assessment. In this case all the details & effect of Modvat on opening & closing stock were given under Annexure .....

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ve not accepted the A.O. s reply. The objections raised by the revenue audit team are as under:- (i) Regarding Modvat Credit: The assessee company while computing the profit &. gains of the business had claimed deduction of ₹ 37,03,717/- u/s. 145A being MODVAT included in the opening stock of Raw Material (refer annexure "D" of Tax Audit report). During scrutiny assessment the Assessing Officer accepted the computation. Audit Scrutiny revealed that the assessee company had no .....

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he deduction. In this connection it is pointed out that rebate on Sales Tax Deferral installments is cessation of liability and liable for tax. Omission resulted in underassessment of ₹ 10,72,897/- leaving to short levy of tax of ₹ 4,62,256/-. The assessee company argued that from the revenue audit team objection it is clear that they have raised objection on the basis of details given in Annexure 'D' of Tax Audit Report regarding MODVAT credit and as per details given in the .....

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his own mind on the facts of the case. The A.O. has repeated the language of the Section that the escapement of income is by reason of failure on the part of the assessee company to disclose fully and truly all material facts necessary for the assessment. Without pinpointing the details and to how there is a failure on the part of the assessee company to disclose fully and truly all the materials when the revenue audit team has raised the audit objection on the basis of the details filed by the .....

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ment, it cannot be said that the income escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts. (iv) Without prejudice, since all the details are available on the record and the AO has passed the order by not applying his mind on the facts as mentioned very clearly in para 2 of the original asst order passed on 09-07-2008, if any other view is taken which tantamount to change of opinion which is not permitted for re-opening of the asses .....

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Well Norton Ltd. v. ACIT, 267 ITR 673 (Bom.HC) (vii) Biswanath Tea Co. Ltd. v. DCIT, 267 ITR 687(Cal.HC) (viii) Cadila Healthcare Ltd. v. ACIT, 65 DTR 385 ( Gujarat HC.) (ix) Sun Pharmaceuticals Industries Ltd., SPARC v. ACIT, 2012-TIOL-527-HC-AHM-IT , (Guj. HC) In the light of above case laws, the assessee company contended that the reopening is bad in law and the assessment order dated 23.01.2013 passed by the AO u/s 143(3) read with Section 147 of the Act may be quashed. 6. The CIT(A) after .....

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s belief on the basis of reasons recorded for reopening the assessment. The reasons recorded are as under:- 1. The scrutiny assessment for A Y 2006-07 was completed u/ s 143(3) of the Act assessing the income at ₹ 63,19,800/- as against the return of income of ₹ 55,19,179/- on 09-07-2008. 2. The assessee while computing the profit & gains of the business had claimed deduction of ₹ 37,03,717/- u/s. 145A being MODVAT included in the opening stock of Raw Material (refer annexu .....

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nstallment (being capital receipts). In this connection, it is pointed out that rebate on Sales Tax Deferral installments is cessation of liability and liable for tax. As per the provisions u/s 41, where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or liability incurred by the assessee and subsequently during any previous year the assessee has obtained whether in cash or in any manner whatsoever any amount in respect of such loss or expen .....

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hat the income chargeable to tax has escaped assessment and therefore, it is a fit case of assessing the same u/s 147 of the Act by issuing notice u/s 148 of the Act. The AO issued notice u/s 148 of the Act dated 28-03-2012 which is admittedly issued after the lapse of four years from the end of assessment year under consideration hence, the proviso to section 147 of the Act was clearly attracted. The CIT(A) held that as per provisions of the Act, if the A.O has reason to believe that income cha .....

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ssessment. Such material/information should come in possession of AO subsequent to the completion of original assessment. The CIT(A) held that it is not necessary that on the basis of such material information a fool proof case should be made out of escapement of income. The requirement of law is that on the basis of such information/material, a reasonable person could form a prima-facie belief that income chargeable to tax has escaped assessment. The CIT(A) after perusal of "reasons record .....

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all material facts necessary for its assessment for the assessment year 2006-07, however, even in the assessment order also, the AO has not explained as to how there was any failure on the part of assessee company to disclose fully and truly all material facts. Without prejudice to this, the CIT(A) held that after a perusal of "reasons recorded" shows that the reopening was made on the basis of material available on record. Thus, it was a clear case of change of opinion on the basis of .....

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20-05-2013 passed by the CIT(A), the Revenue is in appeal before the Tribunal. 8. The ld. D.R. strongly supported and relied upon the order of the A.O. and submitted that the A.O. has reopened the assessment u/s 147 /148 of the Act by issuing notice dated 28.03.2012 u/s 148 of the Act as the assessee company has not shown Modvat credit in the closing stock. Section 145A of the Act mandatorily requires notwithstanding anything to the contrary contained in section 145, the valuation of purchase a .....

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e under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment. Thus, the ld. D.R. submitted that the assessee company should have included Modvat in the opening and closing stock in the impugned assessment year. The assessee company has included the Modvat in the opening stock which should be mandatorily required to be done but the same has not been added in the closing stock leading to income being escaped from ass .....

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rmed an opinion while framing the original assessment order dated 09-07-2008 passed u/s 143(3) of the Act , hence, there is no question of change of opinion. The ld. DR contended that the A.O. has rightly reopened the assessment u/s 147/148 of the Act as the income has escaped assessment. The ld. D.R. drew our attention to Explanation 1 to section 147 of the Act that production before the A.O. on account of books or other evidence from which material evidence could with due diligence have been d .....

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material facts in the return of income filed with the Revenue as well before the A.O. during the course of original assessment proceedings u/s 143(3) of the Act read with Section 143(2) of the Act and notice dated 28-03-2012 u/s 148 of the Act was issued after the expiry of four years from the end of the assessment year and there is no failure on the part of the assessee company in fully and truly disclosing all the material facts and hence the reopening is bad in law. The ld. Counsel submitted .....

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nd no prejudice is caused to Revenue by the change in method of accounting which was bonafide and also the said changed method is thereafter consistently followed and secondly the reduction of ₹ 10,72,897/- being rebate on non-payment of sales tax deferral installments scheme whereby the assessee company has followed the scheme of Government and prepaid sales tax remission liability. It cannot be a rebate given by the government considering that net present value of the sales tax paid to t .....

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14 of the paper book whereby all the reasons recorded have been mentioned. The ld. Counsel also relied upon the decision of Hon ble Bombay High Court in the case of ICICI Home Finance Co. Ltd. (supra) and the decision of Hon ble Gujarat High Court in the case of Vijay Rameshbhai Gupta (supra) and also the decision of Hon ble Calcutta High Court in the case of Biswanath Tea Co. Ltd. (supra) and decision of Hon ble Bombay High Court in the case of Grindwell Norton Limited(supra) and submitted tha .....

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an only reopen the assessment when there is a failure on the part of the assessee company in truly and fully disclosing all the material facts necessary for the assessment. We have observed that detail of deviation from the method of valuation prescribed u/s 145A of the Act are duly given in Annexure D to tax audit report u/s 44AB of the Act which was submitted before the AO and also in the computation of income filed along with the return of income with the Revenue, hence, the assessee company .....

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ed information which is vital and necessary for framing the assessment. It cannot by any stretch of imagination be said that the A.O. has not gone through the tax audit report while framing assessment u/s 143(3) of the Act and in fact the A.O.is duty bound to go through the same before framing the assessment . The said information was also duly declared and disclosed in the computation of income filed with the Revenue Authorities. The Revenue is seeking reopening of the assessment based on the i .....

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