ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, SALEM V. CHINRAJ SHANTHI, RASIPURAM

ITA 2037/CHNY/2025

AI Insights

The case revolves around the reassessment of income tax for the assessment year 2012-13 concerning Chinraj Shanthi, where the Assistant Commissioner of Income Tax, Salem, reopened the assessment citing undervaluation of stock. Initially, the assessment was completed under section 143(3) of the Income Tax Act, 1961, but was later reopened under section 147 following an audit objection. The primary legal contention was whether the reopening of the assessment after four years was valid, given that it was based on the same material as the original assessment without any new evidence. The CIT(A) quashed the reassessment, a decision which was upheld by the Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 825003 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 23-07-2025
• Other Referred Cases: CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C.N. BIPIN
• Assessee Lawyers: T.S. LAKSHMI VENKATARAMAN
• Keywords: Condonation of delay; Set aside; Difference of opinion; Change of opinion; Reassessment proceedings; Cost of acquisition; Reopening of assessment; Search and seizure; Audit objection; Assessment record; Reason to believe; Tangible material; Borrowed satisfaction
• Section: 148; 143(3); 142(1)

Judgement Text

"आयकर अपीलीय अिधकरण, ‘‘सी’’ Ɋायपीठ, चेɄई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI ŵी ऐम. बालगनेश, लेखा सद˟ एवं ŵी एस.एस. िवʷनेũ रिव, Ɋाियक सद˟ क े समƗ Before Shri M. Balaganesh, Accountant Member & Shri S.S. Viswanethra Ravi, Judicial Member आयकर अपील सं./I.T.A. No.2037/Chny/2025 िनधाŊरण वषŊ/Assessment Year: 2012-13 & C.O. No. 81/Chny/2025 [In I.T.A. No. 2037/Chny/2025] The Assistant Commissioner of Income Tax, Central Circle (I/c), Salem. Vs. Chinraj Shanthi, 4, Rajaji Street, Rasipuram, Rasipuram 637 408. [PAN: ATMPS0404K] (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent/Cross Objector) अपीलाथŎ की ओर से / Appellant by : Shri C.N. Bipin, CIT ŮȑथŎ की ओर से/Respondent by : Shri T.S. Lakshmi Venkataraman, FCA (Virtual) सुनवाई की तारीख/ Date of hearing : 13.10.2025 घोषणा की तारीख /Date of Pronouncement : 31.12.2025 आदेश /O R D E R PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order dated 30.04.2025 passed by the ld. Commissioner of Income Tax (Appeals) 20, Chennai for the assessment year 2012-13. 2. We find that this appeal is filed with a delay of 23 days. The assessee filed an affidavit for condonation of delay stating the reasons. Upon hearing both the parties and on examination of the said affidavit, we Printed from counselvise.com I.T.A. No.2037/Chny/25 & CO No. 81/Chny/25 2 find the reasons stated by the assessee are bonafide, which really prevented in filing the appeal in time. Thus, the delay is condoned and admitted the appeal for adjudication. 3. The Appellant-Revenue raised 4 grounds of appeal amongst which, the only issue emanates for our consideration as to whether the ld. CIT(A) is justified in quashing the assessment passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 [“Act” in short] in the facts and circumstances of the case. 4. It is noted that the income tax return filed by the assessee was selected for scrutiny and the assessment was completed under section 143(3) of the Act dated 14.11.2014 at an assessed income of ₹.18,32,450/- against returned income of ₹.17,24,730/-, inter alia making various additions. Later, on verification, the Assessing Officer noted that the value of stock was undervalued and on his satisfaction that the income to an extent of ₹.3,29,91,690/- chargeable to tax has escaped assessment, reopened the assessment under section 147 of the Act by issuing notice under section 148 of the Act dated 31.03.2019 and served on the assessee on 01.04.2019. As there was no response, notice under section 142(1) of the Act was issued on 03.09.2019 to file the return of income and other relevant details to complete the assessment. The Printed from counselvise.com I.T.A. No.2037/Chny/25 & CO No. 81/Chny/25 3 assessee filed the return of income on 11.12.2019 admitting the same income of ₹.17,24,730/-. Subsequently, notice under section 143(2) of the Act was issued on 28.12.2019. After considering the submissions of the assessee, the Assessing Officer completed the assessment under section 143(3) r.w.s. 147 of the Act by making various additions. On appeal, before the ld. CIT(A), the assessee challenged the legal issue of reopening of assessment after 4 years from the end of the assessment year is bad under law. The ld. CIT(A), after recording detailed observations as per para 6.1 to 6.4 of the impugned order and by following the decision of the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC), held that the proceedings initiated on account of issue of notice under section 148 of the Act cannot be held as per law in the absence of fresh material before initiation of the proceedings under section 147 of the Act, where, the reopening of assessment is beyond 4 years from the end of the relevant assessment year. For ready reference, the relevant portion of the impugned order is reproduced herein below: 6.1. At the outset, since the appellant has raised legal issue regarding notice issued u/s 148 of the Act in ground no. 2 & 3, the same are taken up for adjudication first. These grounds are related to the issue of notice u/s 148 of the Act after the assessment was completed u/s 143(3) of the Act on 14.11.2014 in the case of the appellant for the year under consideration. It was also contended that subsequent to completion of assessment proceedings, the AO had reopened the assessment u/s 147 of the Act after four years of completion of the assessment proceedings on the basis of same Printed from counselvise.com I.T.A. No.2037/Chny/25 & CO No. 81/Chny/25 4 material available at the time of assessment proceedings without having any fresh material. It was also stated by the appellant that the reopening was done on the basis of the audit objection raised in the case of the appellant. The appellant also relied on the decision of the Hon'ble Apex Court in the case of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC). 6.2. The appellant has submitted in the written submissions filed in the appeal proceedings that the appellant had furnished the details related to the valuation of closing stock at the time of original assessment proceedings. It was also submitted by the appellant that the above action of the appellant clearly demonstrates that the AO had applied his mind in respect of valuation of stock as on 31.03.2012 and completed the assessment by order dated 14.11.2014. Further, it was also submitted that the reassessment proceedings initiated by issue of notice u/s 148 of the Act dated 31.03.2019 is only due to change of opinion of the AO, which is not permissible in view of the judicial pronouncements cited by the appellant. Furthermore, it was also stated that the relevant documents find place in the assessment records of the appellant for the year under consideration and the same may be verified from the AO. 6.3. To verify the claim of the appellant that the relevant details with respect to the valuation of closing stock as on 31.03.2012 had already been furnished before the AO, the AO was requested to forward the relevant assessment records for the year under consideration. In response, the AO had forwarded the assessment records of the appellant for the AY 2012-13. The said assessment record was examined to find out whether the appellant had furnished the relevant details for the valuation of closing stock as on 31.03.2012 to the AO at the time of original assessment proceedings u/s 143(3) of the Act. On examination of the assessment records, it was found that as per the order sheet noting dated 10.04.2014, the AO had issued a questionnaire and posted the case for hearing on 16.05.2014. However, the said notice/questionnaire is not available in the assessment records. In response, the appellant had sought for an adjournment on 25.04.2014 and at the request of the appellant, the case was posted for hearing on 05.06.2014. Thereafter, the appellant had filed the details vide a letter dated 15.05.2014 at the time of hearing conducted on 09.07.2014. This was duly recorded by the AO in the order sheet that the AR of the appellant had furnished the details like computation of income, P&L, Balance Sheet, Confirmation letters from creditors, bank statement, agricultural details (documents), etc. for further verification. On further examination of the contents of the said letter dated 15.05.2014, which is available in the assessment records, clearly shows that vide point no. 14 and Annexure-X, the appellant had furnished the details. of closing stock and its valuation as on 31.03.2012 for consideration of the AO. Furthermore, the said annexure X, which is also available as part of the assessment records, was examined and it was found that the appellant had furnished the quantity and the valuation of closing Printed from counselvise.com I.T.A. No.2037/Chny/25 & CO No. 81/Chny/25 5 stock as on 31.03.2012 in the said annexure. Thereafter, considering the submissions made by the appellant, the AO had completed the assessment u/s 143(3) of the Act on 14.11.2014 clearly stating that the appellant had produced the books of accounts and other details as called for and after verification of the same, the assessment was completed by making certain disallowances. However, it is also noted from the said order that there was no addition made on account of difference in valuation of closing stock as on 31.03.2012. This clearly proves that the appellant had furnished the necessary details relating to closing stock valuation in the course of assessment proceedings for the consideration of the AO and the AO had considered the same and applied his mind while passing the order u/s 143(3) of the Act on 14.11.2014 and not made any addition on this issue. 6.4. Subsequent to the completion of assessment, the Revenue Audit had raised an objection on 03.08.2016, which is also available in the assessment records, on account of the difference in valuation of closing stock and made an observation that the closing stock was undervalued by Rs.3,29,91,690/-. To take remedial action for the objection raised by the Revenue Audit, the AO had recorded reasons for reopening for the same reasons as mentioned by the Revenue Audit in the objection memo on 25.03.2019. After recording the reasons as above and obtaining the approval from the Pr.CIT, Salem on 28.03.2019, the AO had issued notice u/s 148 of the Act on 31.03.2019. Thereafter, assessment u/s 143(3) r.w.s. 147 was completed by the AO on 31.12.2019. 6.5. On the basis of the above findings from the assessment records of the appellant, I am of the opinion that the appellant had furnished the relevant details with respect to valuation of closing stock as on 31.03.2012 at the time of regular assessment proceedings u/s 143(3) of the Act and the AO had considered the same while passing the assessment order u/s 143(3) of the Act on 14.11.2014. Subsequently, using the same material furnished by the appellant to reopen the assessment proceedings on the basis of an audit objection cannot be said that the appellant had not truly and fully disclosed the particulars before the AO as per the first proviso to section 147 of the Act as it stood for the year under consideration. Further, the Hon'ble Apex Court in the case of Kelvinator of India Ltd. (supra) held that the AO can re- assess the income, however, he cannot review his own order which otherwise to be considered as change of opinion. The relevant part of the decision is reproduced as under: 4. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1-4-1989), they are given a go-by and only Printed from counselvise.com I.T.A. No.2037/Chny/25 & CO No. 81/Chny/25 6 one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post 1-4-1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words \"reason to believe\" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of \"mere change of opinion\", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review, he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of \"change of opinion\" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of \"change of opinion\" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, Assessing Officer has power to reopen, provided there is \"tangible material\" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words \"reason to believe\" but also inserted the word \"opinion\" in section 147 of the Act. However, on receipt of representations from the Companies against omission of the words \"reason to believe\", Parliament re-introduced the said expression and deleted the word \"opinion\" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549, dated 31-10-1989, which reads as follows: \"7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression 'reason to believe in section 147. A number of representations were received against the omission of the words 'reason to believe' from section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same.\" Printed from counselvise.com I.T.A. No.2037/Chny/25 & CO No. 81/Chny/25 7 By respectfully following the above decision of the Hon'ble Apex Court, I am of the opinion that the AO did not have any fresh material in his possession before initiation of the proceedings u/s 147 of the Act on 31.03.2019 as required under the first proviso to section 147 of the Act, where the reopening of assessment is beyond 4 years from the end of the relevant assessment year where the assessment was already completed u/s 143(3) of the Act. Hence, the proceedings initiated on account of issue of notice u/s 148 of the Act cannot be held as per law. Therefore, these grounds raised by the appellant are allowed. 6.6. Since, the legal ground nos. 2 & 3 are allowed on the basis of the above findings, the other grounds raised by the appellant become academic in nature. Hence, do not require specific adjudication. 5. The ld. DR Shri C.N. Bipin, CIT submits that the ld. CIT(A) erred in holding that the Assessing officer did not have any fresh material in his possession for initiation of the proceedings under section 147 of the Act as required under First Proviso to section 147 of the Act, where the reopening is beyond the period of four years from the end of the relevant assessment year, where the assessment is completed under section 143(3) of the Act without taking cognizance of the fact that the assessee did not make true and full disclosure of material fact of stock position at the time of original assessment proceedings. He further submits that the ld. CIT(A) has not appreciated that the Explanation 1 to section 147 of the Act, as it existed then that the production of account books before the Assessing Officer or other evidence from which material evidence could, with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. The ld. DR vehemently argued that the ld. CIT(A) erroneously Printed from counselvise.com I.T.A. No.2037/Chny/25 & CO No. 81/Chny/25 8 deleted the addition made by the Assessing Officer of ₹.3,71,63,055/- being the difference in value of closing stock arrived at by adopting the average purchase cost method by the Assessing Officer and prayed to set aside the order of the ld. CIT(A) and restore that of the Assessing Officer. 6. The ld. AR Shri T.S. Lakshmi Venkataraman, F.C.A. submits that the assessee is adopting the average cost for valuation of stock right from the year 1998 when the jewellery business was started, which has been accepted by the Department, but, however, on the basis of audit objection, the Assessing Officer reopened the assessment under section 147 of the Act by issuing notice under section 148 of the Act after 4 years from the end of the relevant assessment year to adopt the average purchase cost method for arriving at the value of closing stock. He vehemently argued that in the absence of any tangible fresh material, the Assessing Officer cannot act on a “borrowed satisfaction” in the absence of independent “reasons to believe”. The ld. AR strongly relied on the judgement of the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (supra) and supported the order passed by the ld. CIT(A). 7. Heard both the parties and perused the material available on record. It is noted that the Assessing Officer completed the assessment Printed from counselvise.com I.T.A. No.2037/Chny/25 & CO No. 81/Chny/25 9 under section 143(3) of the Act dated 14.11.2014 at an assessed income of ₹.18,32,450/- against returned income of ₹.17,24,730/-. Subsequently, the Assessing Officer reopened the assessment under section 147 of the Act by issuing notice under section 148 of the Act dated 31.03.2019 and completed the assessment under section 143(3) r.w.s. 147 of the Act dated 31.12.2019. On appeal, we note that the ld. CIT(A) called for and after examining the assessment records, observed that the assessee had furnished relevant details for the valuation of closing stock as on 31.03.2012 to the Assessing Officer at the time of original assessment proceedings under section 143(3) of the Act as recorded in para 6.3 at page 5 of the impugned order. Further, on examination of the assessment records, the ld. CIT(A) found that as per the order sheet notings, the Assessing Officer issued questionnaire and the assessee filed the details vide letter dated 15.05.2014 at the time of hearing conducted on 09.07.2014. The Assessing Officer duly recorded in the order sheet that the AR of the assessee furnished the details like computation of income, P&L, Balance Sheet, Confirmation letters from creditors, bank statement, agricultural details (documents), etc. and more particularly, vide point No. 14 and Annexure-X, the assessee furnished the details of closing stock and its valuation as on 31.03.2012 for consideration of the Assessing Officer. The ld. CIT(A) examined the said annexure X, being part of the Printed from counselvise.com I.T.A. No.2037/Chny/25 & CO No. 81/Chny/25 10 assessment records and found that the assessee furnished the quantity and the valuation of closing stock as on 31.03.2012 in the said annexure and considering the submissions made by the assessee, the Assessing Officer completed the assessment under section 143(3) of the Act on 14.11.2014, which clearly shows that the assessee produced the books of accounts and other details as called for and after verification of the same, the assessment was completed by making certain disallowance/addition, it is noted that no addition was made on account of difference in valuation of closing stock as on 31.03.2012. This clearly proves that the assessee had furnished necessary details relating to closing stock valuation in the course of assessment proceedings for the consideration and applying his mind, the Assessing Officer concluded assessment order under section 143(3) of the Act on 14.11.2014 without making any addition on this issue. 8. Further, the ld. CIT(A) noted that subsequent to the completion of assessment, the Revenue Audit raised an objection on 03.08.2016, which is also available in the assessment records, on account of the difference in valuation of closing stock and made an observation that the closing stock was undervalued by ₹.3,29,91,690/- and in order to take remedial action for the objection raised by the Revenue Audit, the Assessing Printed from counselvise.com I.T.A. No.2037/Chny/25 & CO No. 81/Chny/25 11 Officer had recorded reasons for reopening for the same reasons as mentioned by the Revenue Audit in the objection memo on 25.03.2019, as reflected in para 6.4 of the impugned order. Thus, it is clear that the Assessing Officer acted upon a “borrowed satisfaction” in the absence of independent “reasons to believe”/change of opinion for reopening of the assessment. 9. The contention of the ld. DR that the ld. CIT(A) has not taken cognizance of the fact that the assessee did not make true and full disclosure of material fact of stock position at the time of original assessment proceedings, is not acceptable for the reason that as per para 6.3 at page 5 of the impugned order, the ld. CIT(A), after verification of the assessment records, observed that the assessee furnished the relevant details with respect to valuation of closing stock as on 31.03.2012 at the time of regular assessment proceedings under section 143(3) of the Act and the Assessing Officer considered the same while passing the assessment order under section 143(3) of the Act on 14.11.2014. Thus, the contention of the ld. DR is rejected. 10. Subsequently, using the same material furnished by the assessee to reopen the assessment proceedings, on the basis of an audit objection, cannot be said that the assessee had not truly and fully disclosed the Printed from counselvise.com I.T.A. No.2037/Chny/25 & CO No. 81/Chny/25 12 particulars before the Assessing Officer as per the first proviso to section 147 of the Act, as it stood for the year under consideration. Under the above facts and circumstances of the case, we note that the ld. CIT(A), by following the judgement of the Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (supra), rightly held that the proceedings initiated on account of issue of notice under section 148 of the Act cannot be held as per law in the absence of fresh material before initiation of the proceedings under section 147 of the Act, where, the reopening of assessment is beyond 4 years from the end of the relevant assessment year as the assessment was already completed under section 143(3) of the Act and it is justified. Thus, the grounds raised by the Revenue are dismissed. CO No. 81/Chny/2025 11. We find that this Cross Objection is filed with a delay of 44 days. The assessee filed a petition for condonation of delay stating the reasons. Upon hearing both the parties, we find the reasons stated by the assessee are bonafide, which really prevented in filing the CO in time. Thus, the delay is condoned and admitted the CO for adjudication. 12. In view of our decision in Revenue’s appeal in the aforementioned paras, wherein, we uphold the findings of the ld. CIT(A), the grounds Printed from counselvise.com I.T.A. No.2037/Chny/25 & CO No. 81/Chny/25 13 raised by the assessee in the CO becomes academic and accordingly dismissed as infructuous. 13. In the result, the appeal filed by the Revenue and the CO filed by the assessee are dismissed. Order pronounced on 31st December, 2025 at Chennai. Sd/- Sd/- (M. BALAGANESH) ACCOUNTANT MEMBER (S.S. VISWANETHRA RAVI) JUDICIAL MEMBER Chennai, Dated, 31.12.2025 Vm/- आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant, 2.ŮȑथŎ/ Respondent, 3. आयकर आयुƅ/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय Ůितिनिध/DR & 5. गाडŊ फाईल/GF. Printed from counselvise.com "