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Dy. Commissioner of Income tax -7 (3) , Mumbai Versus M/s Aristocrat Luggage Ltd.

2016 (4) TMI 510 - ITAT MUMBAI

Reopening of assessment - deviation from the method of valuation prescribed u/s 145A are duly given in Annexure “D” to tax audit report u/s 44AB - Held that:- The tax audit report u/s 44AB of the Act is an important piece of evidence and is a statutory document u/s 44AB of the Act, which is filed before the A.O. along with the return of income from where the A.O. seeks all the prescribed information which is vital and necessary for framing the assessment. It cannot by any stretch of imagination .....

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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 .....

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n 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 dated 23-01-2013 passed u/s 143(3) read with Section 147 of the Act cannot be sustained and the order dated 20-5-2013 of the CIT(A) is upheld and the order dated 23-01-2013 passed u/s 143(3) of the Act read with Section .....

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ACCOUNTANT MEMBER For The Revenue : Ms. Vinita J. Menon For The Assessee : Shri Bairagara ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the Revenue, being ITA No. 5422/Mum/2013, is directed against the order dated 20-05-2013 passed by the learned Commissioner 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( .....

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this is a case where no opinion was formed by the Assessing Officer and therefore reopening was outside the scope of change of opinion. (iv) The Learned CIT(A) has erred on facts and in law in not properly appreciating the factual and legal matrix as clearly brought out 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 g .....

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fficer (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 as .....

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he effect was given in the computation of income while filing the return of income with the Revenue. However, w.e.f. the assessment year 2006-07 the assessee company had decided not to give the said effect in the computation of total income in the return of income filed with 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 assessmen .....

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s Tax Deferral scheme, it was submitted that the Paithan and Waluj Unit of the company were entitled to a Sales Tax Deferral scheme of the Government of Maharashtra and after the introduction of section 43B in the Act , lot of representation were made to the Central Government 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 .....

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nto existence. The sales tax deferral amounts were payable in installments spread over a period of time and subsequently, the Maharashtra State offered to accept the NPV. (i.e. Net Present Value) of the deferral installments if paid 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 ex .....

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s 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 company as its income. The provisions of section 145A of the Act is clear a .....

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(1) r.w.s. 43B of the Act is squarely applicable to the assessee company case. Further, this stand has been confirmed by the Mumbai Tribunal in the case of Schenctady Specialities Asia (P.) Ltd. v. ACIT, 29 SOT 1 (Mum)[2009], the facts of which are squarely applicable to 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. Aggri .....

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sment year which expired on 31/03/2011 and the original assessment having being framed u/s 143(3) of the Act and therefore, the notice issued after expiry of 4 years from the end of the relevant assessment year was bad in law. The assessee company further submitted that as 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 t .....

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erial 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 .....

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ns of business. (ii) Rebate on Sales Tax Deferral: In its return of income the assessee company had claimed reduction of ₹ 10,72,897/- being rebate on non-payment of Sales tax deferral Installment (being capital receipts). On scrutiny the assessing officer allowed the 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 .....

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return filed u/s 139 of the Act and the same were examined by the A.O. while passing the original assessment order dated 09.07.2008 passed u/s 143(3) of the Act. The assessee company submitted that the A.O. has repeated the revenue audit team objections without applying 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 ne .....

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erely on the basis of audit objection; (ii) Re-opening is done after expiry of 4 years from the end of the asst. year when the scrutiny assessment is passed u/s. 143(3); and (iii) Since all the details are available on the record, which were supplied at the time of assessment, 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 recor .....

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a 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, .....

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addition was made in the computation of income whereby assessed income was ₹ 63,19,825/- as against returned income of ₹ 55,19,179/-. Thereafter, the AO formed the belief u/s 147 of the Act that income chargeable to tax had escaped assessment. The AO formed his 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 ₹ 63,19,80 .....

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closing stock u/s. 145A was ₹ 72,07,660/- which should have been added while computing the profit and gains of business. 3. In its return of income the assessee company had claimed reduction of ₹ 10,72,897/- being rebate on non-payment of Sales tax deferral installment (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 deductio .....

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ent 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 whic .....

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s 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 of which a reasonable person could form a prima facie belief that income chargeable to tax had escaped assessment. 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 .....

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on/material received after the completion of original assessment order dated 09-07-2008. Though in the "reasons recorded" the AO has mentioned that the escapement of income is by the reasons of failure on the part of assessee company to disclose fully and truly 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 fu .....

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essee company to disclose fully and truly all material facts necessary for the assessment and since the reopening was made on the basis of change of opinion, the reopening of assessment was bad in law and therefore, deserves to be quashed. 7.Aggrieved by the orders dated 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 .....

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ee 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 .....

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e and income has escapade assessment and the AO has rightly invoked Section 147/148 of the Act . The A.O., has not discussed these issue in the original assessment order passed u/s 143(3) of the Act, dated 9th July 2008 and hence it could not be said that the A.O. has formed 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 .....

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ted 23-01-2013 passed by the AO u/s 143(3) read with Section 147 of the Act. 9. The ld. Counsel for the assessee company, on the other hand relied upon the orders dated 20-05-2013 of the CIT(A) and submitted that the assessee company has truly and fully disclosed all the 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 .....

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required u/s 145A of the Act whereby it was submitted that the said change in method of accounting was bonafide and being revenue neutral as the lower amount of the closing stock will become 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 .....

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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 decision of Hon ble Bombay High Court in the case of ICICI Home Finance Co. Ltd. (supra) and the decision of Hon ble .....

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assessment was framed u/s 143(3) of the Act by the Revenue vide orders dated 9th July, 2008. The Revenue is seeking re-opening of the assessment u/s 147 of the Act after four years from the end of the assessment year and proviso to section 147 is applicable thereby it can 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 metho .....

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ncome filed with the Revenue Authorities. The tax audit report u/s 44AB of the Act is an important piece of evidence and is a statutory document u/s 44AB of the Act, which is filed before the A.O. along with the return of income from where the A.O. seeks all the prescribed 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 .....

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