TVS Electronics Limited, CHENNAI V. DCIT, CHENNAI

CO 32/CHNY/2016

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4245 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 25-02-2016
• Court: TRIBUNAL
• Assessee Lawyers: SHIVA SRINIVAS
• Keywords: Reopening of assessment; Audit objection; Additional evidence; Difference of opinion; Change of opinion
• Section: 201; 80HH; 207; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . ! ' , # '$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER . /ITA NO. 49/MDS/2016 / ASSESSMENT YEAR : 2006-07 & CO NO. 32/MDS/2016 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-3(I), CHENNAI 34. ( /APPELLANT) V. M/S. TVS ELECTRONICS LIMITED, JAYALAKSHMI ESTATES, NO.29, HADDOWS ROAD, CHENNAI 600 006. PAN AAACI0886K RESPONDENT/CROSS-OBJECTOR) / APPELLANT BY : SHRI SHIVA SRINIVAS, JCIT / RESPONDENT BY : SHRI VIKRAM VIJAYARAGHAVAN, ADVOCAT E / DATE OF HEARING : 22.08.2016 !' / DATE OF PRONOUNCEMENT : 22.08.2016 % / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEAL BY THE REVENUE AND THE CROSS OBJECTIO N BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE - - ITA 49 & CO 32/16 2 COMMISSIONER OF INCOME-TAX(APPEALS) DATED 30.10.201 5 FOR THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : 2.1 THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE ON WRITE DOWN OF OBSOLETE INVENTORY OF 8,63,75,000/-. 2.2. THE LEARNED CIT(A) ERRED BY HOLDING THAT THE OBSOLETE INVENTORY IS ALLOWABLE EXPENDITURE AS ELECTRONIC GOODS ARE MANUFACTURED AS PER THE SPECIFICATION AND DESIGN GIVEN BY THE CONTRACTING COMPANY AND AS PER THE AGREEMENT AGAINST THE FACT THAT THE INVENTORY OF ITEM MANUFACTURED ITEM SHOULD HAVE BEEN HANDED OVER TO THE CONTRACTING COMPANY AND HENCE CANNOT FORM PART OF THE STOCK OF THE ASSESSEE AND HENCE EXPENSES ON WRIE DOWN OF OBSOLETE INVENTORY IS NOT ALLOWABLE EXPENDITURE IN THE HANDS OF THE ASSESSEE. 2.3 THE CIT(A) OUGHT TO HAVE GIVEN OPPORTUNITY TO THE ASSESSING OFFICER WHILE DECIDING THE ISSUE BASE D ON THE ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE IN THE FORM OF AGREEMENT, ETC. 2.4 THE CIT(A) OUGHT TO HAVE APPRECIATED THE RATIO OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. CHAINRUP SAMPTRAM (24 ITR 481) WHEREIN IT WAS HELD THAT THE VALUE OF INVENTORY CANNOT BE NIL AND HAS T O BE VALUED AT COST OR MARKET PRICE WHICHEVER IS LESS. 3. THE ASSESSEE, IN ITS CROSS-OBJECTION, IS CHALLEN GING THE REOPENING OF ASSESSMENT. - - ITA 49 & CO 32/16 3 4. THERE IS A DELAY OF 4 DAYS IN FILING THE APPEAL BY THE DEPARTMENT, BEFORE THE TRIBUNAL. THE REVENUE HAS F ILED A CONDONATION PETITION EXPLAINING THE REASONS FOR THE DELAY. AFTER GOING THROUGH THE CONDONATION PETITION, WE ARE OF T HE OPINION THAT THERE IS GOOD AND SUFFICIENT REASON FOR FILING THE APPEAL BELATEDLY BEFORE THIS TRIBUNAL. ACCORDINGLY, THE DELAY IS CO NDONED IN FILING THE APPEAL BY THE DEPARTMENT AND THE APPEAL IS ADMI TTED FOR ADJUDICATION. 5. FIRST, WE TAKE UP THE CROSS-OBJECTION FILED BY T HE ASSESSEE, WHICH IS GOING TO THE ROOT OF THE MATTER. THE ASSESSMENT IS RELATING TO AY 2006-07. ORIGINALLY, THE ASSESSMENT WAS DONE U/S.143(1) OF THE ACT AND THE A SSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT ON 19.12.2008. LATER, A NOTICE WAS ISSUED U/S.148 OF THE ACT ON 31.3.2011. 6. THE CONTENTION OF THE LD. AR IS THAT REASSESSME NT IS BAD IN LAW IN VIEW OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT V. KELVINATOR INDIA LTD. (320 ITR 561), AS I T IS ONLY DUE TO CHANGE OF OPINION. FURTHER, HE SUBMITTED THAT THE DURING THE ASSESSMENT PROCEEDINGS, THE DETAILS REGARDING INVE NTORY WRITTEN DOWN WERE CALLED AND THE ASSESSEE HAS FURNISHED T HE DETAILS - - ITA 49 & CO 32/16 4 AND AFTER DISCUSSION, THE PLEA OF THE ASSESSEE WAS ACCEPTED WHILE COMPLETING THE ASSESSMENT U/S.143(3) OF THE A CT. ACCORDING TO THE LD. AR, REASSESSMENT WAS ONLY ON A CCOUNT OF AUDIT OBJECTION WHICH IS ONLY ON ACCOUNT OF CHANGE OF OPINION. FOR THIS PURPOSE, HE RELIED ON THE FOLLOWING JUDGME NTS : A. IL & FS INVESTMENT MANAGERS LTD. VS. ITO & ORS. (2008) 298 ITR 32 (BOM) B. VIJAYKUMAR M.HIRAKHANWALA (HUF) VS. ITO & ORS (2 006) 287 ITR 443 (BOM) C. CIT VS. LUCAS TVS LTD. (2001) 249 ITR 306 (SC) D. PURITY TECHTEXTILES PVT.LTD. VS. ACIT (2010) 325 ITR 459 (BOM.) 7. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE R OF THE CIT(APPEALS). 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE HAVE GONE THROUGH THE JUDGM ENT CITED BY THE PARTIES. IN THOSE JUDGMENTS, THERE IS NO REFERENCE TO EXPLANATION 1 TO SEC.147 OF THE ACT. THE EXPLANATION 1 TO SEC.147 READS AS UNDER : - - ITA 49 & CO 32/16 5 MERE PRODUCTION OF ACCOUNTS BOOK OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENT COULD HAVE BEEN DISCOVERED BY THE AO DOES NOT NECESSARILY AMOUNT TO A DISCLOSURE WITHIN MEANING OF FIRST PROVISO TO SECTION 147 NECESSARY BEING SO, PRODUCTION OF BOOKS OF ACCOUNT OR EVIDENC E BY THE ASSESSEE AT THE TIME OF ASSESSMENT CANNOT TAKE AWAY THE RIGHT OF THE AO TO REOPEN THE ASSESSMENT, IF HE FINDS THAT THE INCOME HAS ESCAPED ASSESSMENT. SOMETIMES, IT IS POSSIBLE THAT THE AO MAY FAIL TO CONSIDER CERTAIN I SSUE AT THE TIME OF ASSESSMENT, LATER IF HE FINDS SUCH ISSU E, HE HAS THE RIGHT TO ISSUE NOTICE U/S.148 OF THE ACT FOR RE OPENING THE ASSESSMENT. SINCE, THE ASSESSMENT IS COMPLETED U/S.143(3) OF THE ACT, IT CANNOT BE SAID THAT WITHI N FOUR YEARS, THE ASSESSMENT CANNOT BE REOPENED BY THE AO. FOR THIS PURPOSE, THE CIT(APPEALS) RELIED ON THE FOLLOW ING JUDGMENTS : (A) IN THE CASE OF SIEMENS INFO. SYSTEMS LTD. V. A CIT, RANGE-&(2), BOMBAY REPORTED IN 343 ITR 188 AND 207 TAXMAN 132 (BOM), THE HONBLE BOMBAY HIGH COURT HELD THAT JUST BECAUSE 10A WAS ALLOWED BY THE AO WITHOUT SPECIFICALLY DEALING WITH ELIGIBILITY OF AS SESSEE TO SAID CLAIM, THE ASSESSMENT CAN BE REOPENED TO DE AL WITH THE ISSUE. - - ITA 49 & CO 32/16 6 (B) IN THE CASE OF CIT(CENTRAL CIRCLE) VS. S C FINA NCE LTD. (KARNATAKA HIGH COURT) REPORTED IN 201 TAXMAN 136, THE HONBLE HIGH COURT HELD THAT F THERE IS SOME CHARGEABLE INTEREST AND ASSESSEE HAS NOT INDICATED THAT INTEREST AT ALL IN THE RETURN OF INCOME, IT AM OUNTS TO NON DISCLOSURE OF CHARGEGABLE INTEREST. MERE FILIN G OF COPY OF P & L ACCOUNT WITH RETURN DOES NOT MAKE ANY DIFFERENCE. (C) IN THE CASE OF INDIAN HUMPIPE CO. LTD. VS. ACIT (CENT. CIRCLE), BOMBAY REPORTED IN 207 TAXMAN 136, IT IS HELD AS FOLLOWS : EXPLANATION 1 TO SEC.147 MERE PRODUCTION OF ACCOUNTS BOOK OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENT COULD HAVE BEEN DISCOVERED BY THE AO DOES NOT NECESSARILY AMOUNT TO A DISCLOSURE WITHIN MEANING OF FIRST PROVISO TO SECTION 147 NECESSARY 79 ITR 582(SC) FOLLOWED. (D) IN THE CASE OF SAMITI LTD. VS. UNION OF INDIA REPORTED IN 204 TAXMANN 373 PLVPBESS, THE HONBLE HIGH COURT DISCUSSED, TRULY AND FULLY MATERIAL FACTS TO COME TO CONCLUDE THAT THE REOPENING IS VALID. (E) IN THE CASE OF CIT VS. SUNANTA BAI REPORTED IN 344 ITR 271 (KERALA HIGH COURT), 80HH ALLOWED IN ORGINAL ASSESSMENT, NON RESTORATION OF CLAIM BY THE ASSESSEE ALLOWED IN THE PROCEEDINGS YEARS, REOPENING HELD TO BE VALID. (F) IN THE CASE OF CIT V. RATCHAND NAHER REPORTED I N 295 ITR 403 (RAJASTHAN HIGH COURT, THE HONBLE HIGH COURT DISCUSSED ADEQUACY OR SUFFICIENT OF MATERIAL ABOUT FAILURE OF ASSESSEE. - - ITA 49 & CO 32/16 7 IN VIEW OF THE ABOVE, WE DO NOT FIND ANY REASON TO INTERFERENCE WITH THE ORDER OF THE CIT(APPEALS) AND THE SAME IS CONFIRMED. 9. NOW, COMING TO THE MERITS OF THE ISSUE WITH REGA RD TO DISALLOWANCE OF WRITE DOWN OF OBSOLETE INVENTORY OF 8,63,75,000/-, THE GRIEVANCE OF THE LD. DR IS THAT WHILE DECIDING THE ISSUE, THE CIT(APPEALS) ADMITTED FRESH EVIDENCE, WHICH WAS NOT PRODUCED BEFORE THE AO. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. ADMITTEDLY, WE FIND THAT IN TH E APPELLATE PROCEEDINGS, THE CIT(APPEALS) HAS GONE THROUGH THE AMC CONTRACT ON THE BASIS WHICH THE RELIEF WAS GIVEN TO THE ASSESSEE AND THE ASSESSEE WAS SUBMITTED ONLY THE FOLLOWING DOCUMENTS BEFORE THE AO: A) CONTRACTUAL AGREEMENTS WITH THE CUSTOMERS B) NOTE ON INVENTORY WRITE DOWN TOGETHER WITH DETAI LS OF INVENTORIES C) MINUTES OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS HENCE, THE AO IS DEPRIVED OF GOING THROUGH THE AMC. THEREFORE, IN OUR OPINION, IT IS APPROPRIATE TO REM IT THE ISSUE - - ITA 49 & CO 32/16 8 TO THE FILE OF THE CIT(APPEALS) TO CALL FOR THE REM AND REPORT FROM THE A.O. ACCORDINGLY, WE REMIT THIS ISSUE TO THE FILE OF THE CIT(APPEALS) TO CALL FOR THE REMAND REPORT FROM THE AO AND THEN DECIDE THE ISSUE ON MERITS. AT THIS STAGE , WE REFRAIN FROM GOING INTO OTHER GROUNDS RAISED BY THE REVENUE. 11. IN THE RESULT, THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED AND THE APPEAL OF THE REVENUE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON MONDAY, THE 22 ND OF AUGUST, 2016 AT CHENNAI. SD/- SD/- ( #$ % ) ( & ' ( # ) )$*+,+-./0+1234+-51+*667+182 9 :; /JUDICIAL MEMBER :;<=>>6/-?+-?@A0BA1 &9 /CHENNAI, C: /DATED, THE 22 ND AUGUST, 2016. MPO* :D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H2 /CIT(A) 4. H /CIT 5. FIJ K /DR 6. JLM /GF.