TMI Blog2016 (4) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... Act vide orders dated 09-03-2008 has duly applied his mind to the issues as detailed above and is now re-opening the assessment merely on the basis of information received from revenue audit team while there is no independent application of mind by the AO before re-opening the assessment which is 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 assessment proceedings u/s 143(2) of the Act read with Section 143(3) of the Act. Reopening u/s 147 of the Act in the instant case cannot be held to be valid as per the provisions of the Act and the same is liable to be quashed. The CIT(A) has passed a well reasoned detailed order in which we find no infirmity and we uphold the same. Thus addition made by the A.O. vide re-assessment orders dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary. 3. The brief facts of the case are that the assessee company has filed its return of income declaring total income of ₹ 55,19,179/- on 05-12-2006 and the assessment was completed u/s 143(3) read with Section 143(2) of the Income Tax Act, 1961 (Hereinafter called the Act ) vide assessment orders dated 09-07-2008 passed by the learned assessing officer (Hereinafter called the AO ) u/s 143(3) determining the total income of the assessee company at ₹ 63,19,825/-. Subsequently it was noticed by the AO that the income chargeable to tax has been under assessed on account of Modvat being not included in closing stock 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 of Cenvat Credit (Modvat) was given on the opening stock and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id in lump sum before due date of each installment. 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 discounted amount immediately in lumpsum. Hence, it can be called as waiver of part of amount of loan and not the revenue expenditure and hence provisions of Section 41 of the Act are not applicable. The assessee company s explanation was considered by the AO but not found to be acceptable as the assessee company has claimed Modvat on purchase of raw material and has valued its closing stock as net of Modvat. The amount of Modvat credit on closing stock is ₹ 72,07,660/ which is not added to closing 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was attached with return of income filed by the assessee company with the Revenue and hence the assessee company has disclosed fully truly all material facts necessary for the assessment. The assessee company submitted that the revenue audit team has raised objection on three issues out of which in respect of leave encashment, they have accepted the reply of the A.O. and in the case of other two objections, they have 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 not considered the MODVAT included in the closing stock. As per Annexure D of Tax Audit Report, the MODVAT included in closing stock u/s. 145A was ₹ 72,07,660/- which should have been added while computing the profit and gains of business. (ii) Rebate on Sales Tax Deferral: I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout 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 assessment. In support, the assessee company relied on the following judgments:- (i) CIT v. Kelvinator of India Ltd. , 320 ITR 561(SC) (ii) ICICI Home Finance Co. Ltd. v. ACIT [2012] 210 Taxman 67(Bom.HC.) (iii) Vijay Rameshbhai Gupta v. ACIT [2013] 32 taxmann.com 41( Guj. HC), (iv) Rural Electrification Corpn. Ltd. v. CIT (LTU and other writ Petition bearing No. 7943/2011 2013-TIOL-366-HC-DELIT dated 23-4-2013(Del. HC) (v) Bhor Industries Ltd. v. ACIT and Others, 267 ITR 161 ( Bom. HC.) (vi) Grind 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of income to the extent of ₹ 82,80,557/- (Rs. 72,07,660/- + Rs.l0, 72,897). The escapement of income is by the reason of failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment for A Y 2006-07. I, therefore, have a reason to believe that 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 chargeable to tax has escaped assessment, the AO can reopen the completed assessment by issuing notice u/s 148 of the Act. Thus, for reopening the completed assessment, the A.O. should form a belief that income chargeable to tax has escaped assessment. Such belief should be formed on the basis of material information available to the A.O. The material/information should be such that on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn 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 and sale of goods and inventory for the purposes of determining the income chargeable under the head profits and gains of business or profession shall be in accordance with the method of accounting regularly employed by the assessee company and further adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee company to bring the goods to the place of its location and condition as on the date of valuation and for this purpose, any tax, duty, cess or fee 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 assessment . Similarly wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lower amount of opening stock in the next year and tax impact will be neutral and 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 the government. All the details were given in the return of income filed with the Revenue and during the course of assessment proceedings u/s 143(2) of the Act read with Section 143(3) of the Act and the assessment was framed u/s 143(3) of the Act based on the record filed before the A.O. No information has come to the A.O. for taking a different view. The ld. Counsel contended that the assessments have been reopened based on the revenue audit team objection s. He drew our attention to page 12 to 14 of the paper book whereby all the reasons recorded have been mentioned. The ld. Counsel also relied upon the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived from the revenue audit team. Thus, as per section 147/148 of the Act change of opinion is not permitted as the AO while framing the original assessment u/s 143(3) of the Act vide orders dated 09-03-2008 has duly applied his mind to the issues as detailed above and is now re-opening the assessment merely on the basis of information received from revenue audit team while there is no independent application of mind by the AO before re-opening the assessment which is 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 assessment proceedings u/s 143(2) of the Act read with Section 143(3) of the Act. In our considered view, reopening u/s 147 of the Act in the instant case cannot be held to be valid as per the provisions of the Act and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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