M/s Volvoline cummins Ltd., New Delhi V. DCIT, New Delhi

CO 90/DEL/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 9055 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 29-10-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 06-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA
• Keywords: Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

ITA NO. 902/DEL/2013 & CO NO. 90/DEL/2013 ASSTT. YEAR: 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `H NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.902/DEL/2013 ASSESSMENT YEAR : 2006-07 DY.COMMISSIONER OF INCOME TAX, VS M/S VOLVOLI NE CUMMINS LTD., CIRCLE 17(1), 50/8, 1 ST FLOOR, TOLSTOY LANE, NEW DELHI. JANPATH, NEW DELHI-110001 (PAN: AAACW0287A) C.O.NO.90/DEL/2013 (IN I.T.A.NO.902/DEL/2013) ASSESSMENT YEAR : 2006-07 M/S VOLVOLINE CUMMINS LTD., VS DY.COMMISSIONE R OF INCOME TAX, NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI AJAY VOHRA, UPV AN GUPTA, SANJAY WADHWA RESPONDENT BY : SHRI SAMEER SHARMA, SR. DR O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME TAX(A)-19, NEW DELHI DATED 1 9.11.2012 IN APPEAL NO. 261/2011-12 FOR AY 2006-07. THE ASSESSE E HAS ALSO FILED CROSS OBJECTION CHALLENGING THE SAME ORDER OF COMMISSIONE R OF INCOME TAX(A) WHEREBY THE INITIATION OF REASSESSMENT PROCEEDINGS U/S 147 AND 148 HAS BEEN UPHELD. ITA NO. 902/DEL/2013 & CO NO. 90/DEL/2013 ASSTT. YEAR: 2006-07 2 2. FIRST OF ALL, WE FIND IT APPROPRIATE TO TAKE UP C.O. OF THE ASSESSEE BEING RELATED TO THE LEGAL ISSUE WHICH READS AS UNDER:- '1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN UPHOLDING THE VALIDITY OF ORDER PASSED BY THE AO U/S 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT, 1961 (THE ACT), WITHOUT APPRECIATING THAT THE SAID ORD ER WAS BEYOND JURISDICTION, BAD IN LAW AND VOID-AB-INITIO. 1.1 THAT THE COMMISSIONER OF INCOME TAX(A) ERRED ON FACT AND IN LAW IN NOT APPRECIATING THAT SINCE THE ACTION OF THE ASSESSING OFFICER IN INITIATING REASSESSMENT PROCEEDINGS UNDER SECTION 147 WITH RESPECT OF ASSES SMENT COMPLETED U/S 143(3) OF THE ACT WAS BASED O A MERE CHANGE OF OPINION FORMED AT THE TIME OF ORIGINAL ASSESSMENT, THE RE-ASSESSMENT ORDER PASSED IN PURSU ANCE THERETO, WAS ILLEGAL AND BAD IN LAW AND WAS CONSEQU ENTLY LIABLE FOR BEING QUASHED. 1.2 THAT THE COMMISSIONER OF INCOME TAX(A) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT FAI LED TO ESTABLISH DISCLOSURE OF FULL AND TRUE FACTS WITH RE SPECT TO PROVISION FOR EXPENSES AND THAT IN THE ABSENCE OF A NY QUERY BEING RAISED BY THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS, NO OPINION WAS FORMED AT TH AT TIME, TO BE REGARDED AS CHANGE OF OPINION. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY FROM THE AFORESAID GROUNDS OF CROSS OBJECTION AT OR BEFORE THE TIME OF HEARING. 3. WE HAVE HEARD RIVAL ARGUMENTS OF BOTH THE PA RTIES AND CAREFULLY PERUSED THE RECORD. APROPOS THE C.O., LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE VALIDITY OF ORDER PASSED BY THE AO U/ S 143(3) READ WITH ITA NO. 902/DEL/2013 & CO NO. 90/DEL/2013 ASSTT. YEAR: 2006-07 3 SECTION 147 OF THE INCOME TAX ACT, 1961 (THE ACT) , WITHOUT APPRECIATING THAT THE SAID ORDER WAS BEYOND JURISDICTION, BAD IN LAW AND VOID-AB-INITIO. THE COUNSEL ALSO CONTENDED THAT THE ACTION OF THE A SSESSING OFFICER INITIATING REASSESSMENT PROCEEDINGS U/S 147 OF THE ACT WITH RE SPECT TO THE ORIGINAL ASSESSMENT COMPLETED U/S 143(3) OF THE ACT WAS BASE D ON MERE CHANGE OF OPINION FORMED AT THE TIME OF ORIGINAL ASSESSMENT A ND REASSESSMENT ORDER PASSED IN PURSUANCE OF PROCEEDINGS U/S 147/148 OF T HE ACT AND WAS ILLEGAL AND BAD IN LAW. THE COUNSEL VEHEMENTLY CONTENDED T HAT THE REASSESSMENT PROCEEDINGS DESERVE TO BE QUASHED BECAUSE THE COMMI SSIONER OF INCOME TAX(A) GROSSLY ERRED IN HOLDING THAT THE APPELLANT ASSESSEE FAILED TO ESTABLISH DISCLOSURE OF FULL AND TRUE FACT WITH RESPECT TO PR OVISION FOR EXPENSES AND IN THE ABSENCE OF ANY QUERY IN THE ASSESSMENT PROCEEDI NGS AND FACTUALLY NO OPINION WAS FORMED BY THE ASSESSING OFFICER AT THAT TIME, AND, THEREFORE, INITIATION OF REASSESSMENT PROCEEDINGS CANNOT BE RE GARDED AS CHANGE OF OPINION. 4. LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF COMMI SSIONER OF INCOME TAX VS KELVINATOR OF INDIA LTD. (2010) 320 ITR 561 (SC) AND RECENT JUDGMENT OF FULL BENCH OF HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN ITA NO. 902/DEL/2013 & CO NO. 90/DEL/2013 ASSTT. YEAR: 2006-07 4 THE CASE OF C.I.T. VS USHA INTERNATIONAL LTD. (2012 ) 348 ITR 485 (DEL)(FB) . 5. THE LD. COUNSEL OF THE ASSESSEE ALSO SUBMITTED THAT WITHOUT BEING PREJUDICED WITH THE ABOVE LEGAL CONTENTIONS OF THE ASSESSEE ON MERITS ALSO IF PROVISIONS ARE MADE ON SCIENTIFIC AND REASONABLE BA SIS, THEN THEY DESERVE TO BE ALLOWED. THE COUNSEL OF THE ASSESSEE POINTED OU T THAT NO CONTINGENT LIABILITY HAS BEEN DEBITED TO THE PROFIT AND LOSS A CCOUNT AND NO LIABILITY OF CONTINGENT NATURE HAS BEEN SHOWN IN THE BOOKS OF AC COUNTS AND ALL PROVISIONS ARE BASED ON THE ACTUAL FIGURES OF SALES DURING THE YEAR UNDER CONSIDERATION. THE COUNSEL SUBMITTED THAT NO ADVER SE TANGIBLE MATERIAL HAS BEEN FOUND BY THE TAX AUDITORS. OUR ATTENTION HAS BEEN DRAWN TOWARDS THIS FACT ALSO THAT THE ASSESSEE IS FOLLOWING CONSISTENT METHOD OF ACCOUNTING AND THERE IS NO DISALLOWANCE IN EARLIER OR SUBSEQUENT Y EAR TO THE YEAR PERTAINING TO THE PRESENT APPEAL. THE COUNSEL PLACED RELIANCE ON VARIOUS CITATIONS INCLUDING DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA LTD. VS C.I.T. 314 ITR 62(SC), BHARA T EARTHMOVERS VS C.I.T. 245 ITR 428(SC) AND METAL BOX COMPANY OF IND IA LTD. VS. THEIR WORKMEN 73 ITR 53(SC). 6. REPLYING TO THE ABOVE, LD. DR SUBMITTED THAT THE ASSESSEE MADE AND WAS ALLOWED PROVISION FOR EXPENSES AMOUNTING TO RS. 1,53,57,778/-. THE DR ITA NO. 902/DEL/2013 & CO NO. 90/DEL/2013 ASSTT. YEAR: 2006-07 5 FURTHER CONTENDED THAT AS THE PROVISION TOWARDS THE ASCERTAINED LIABILITY IS NOT ALLOWABLE UNDER THE PROVISIONS OF THE ACT AND IT SH OULD HAVE BEEN DISALLOWED AND TAXED AND THE OMISSION IN THIS REGARD RESULTED IN UNDERSTATEMENT OF INCOME, THEREFORE, INITIATION OF REASSESSMENT PROCE EDINGS WAS VALID. THE DR FURTHER CONTENDED THAT IF THE AMOUNT OF PROVISION T OWARDS UNASCERTAINED LIABILITY IS NOT ALLOWABLE, THEN, INITIATION OF REA SSESSMENT PROCEEDINGS CANNOT BE ALLEGED AS CHANGE OF OPINION. 7. ON CAREFUL CONSIDERATION OF ABOVE RIVAL CONTENTI ONS AND ARGUMENTS OF BOTH THE PARTIES AND CAREFUL PERUSAL OF THE CITATIO NS AND LEGAL PROPOSITIONS RELIED BY BOTH THE PARTIES, AT THE OUTSET, WE OBSER VE THAT ADMITTEDLY, THE ASSESSEE WAS FOLLOWING CONSISTENT METHOD OF ACCOUNT ING DURING EARLIER AND SUBSEQUENT ASSESSMENT PROCEEDINGS AND THERE WAS NO DISALLOWANCE IN THE EARLIER OR SUBSEQUENT ASSESSMENT YEARS BY THE REVEN UE AUTHORITIES. FIRST OF ALL, FOR THE SAKE OF CLARITY AND TRANSPARENCY, WE F IND IT APPROPRIATE TO REPRODUCE REASONS RECORDED BY THE ASSESSING OFFICER FOR INITIATION OF REASSESSMENT PROCEEDINGS WHICH READ AS UNDER:- THE INCOME TAX ACT, 1961, PROVIDES THAT A PROVISION MADE IN THE ACCOUNTS FOR AN ACCRUED OR KN OWN LIABILITY IS AN ADMISSIBLE DEDUCTION, WHILE OTHER PROVISIONS MADE DO NOT QUALIFY FOR DEDUCTION. IT HA S BEEN JUDICIALLY HELD THAT FOR A LOSS TO BE DEDUCTIBLE, I T MUST HAVE ACTUALLY ARISEN AND INCURRED AND NOT MERELY ANTICIPATED AS CERTAIN TO OCCUR IN FUTURE. ITA NO. 902/DEL/2013 & CO NO. 90/DEL/2013 ASSTT. YEAR: 2006-07 6 THE ASSESSMENT OF M/S VALVOLINE CUMMINS LTD. FOR THE ASSESSMENT YEAR 2006-07 WAS COMPLETED AFTER SCRUTINY IN DEC 2008 DETERMINING AN INCOME OF RS.9,52.15.517/-. THE ASSESSEE MADE AND WAS ALLOWED PROVISION FOR EXPENSES AMOUNTING TO RS.1,53,57,778/ -. AS THE PROVISION TOWARDS AN UNASCERTAINED LIABILITY IS NOT ALLOWABLE UNDER THE ACT, IT SHOULD HAVE BEEN DISALL OWED AND TAXED. THE OMISSION RESULTED IN UNDERASSESSMENT OF INCOME BY RS.1,53,57,778/- WITH CONSEQUENT TAX EFFE CT OF RS.68,75,338/-. 8. THE MAIN LEGAL CONTENTION OF THE ASSESSEE IS THA T THE OPINION AND REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMEN T SHOULD BE RECORDED IN WRITING AND THERE MUST BE SOME TANGIBLE MATERIAL FO R THE FORMATION OF THE BELIEF. IN THE CASE OF COMMISSIONER OF INCOME TAX VS KELVINATOR OF INDIA LTD.(SUPRA), THE HONBLE APEX COURT CATEGORICALLY H ELD THAT FOR INITIATION OF REASSESSMENT U/S 147 OF THE ACT, THE OPINION AND RE ASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT HAS TO BE RECORDED IN WRITING AND FOR THAT REASON TO BELIEVE, THERE MUST BE SOME TANGIBLE MATE RIAL FOR THE FORMATION OF BELIEF. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS INITIATED REASSESSMENT PROCEEDINGS U/S 147 OF THE ACT BY RECORDING REASONS AS REPRODUCED HEREINABOVE WHICH CLEARLY SHOW THAT THE ASSESSING O FFICER FORMED REASON TO BELIEVE ON THE SAME MATERIAL WHICH WAS SUBMITTED BE FORE HIM DURING THE ORIGINAL ASSESSMENT PROCEEDINGS WHICH CONCLUDED U/S 143(3) OF THE ACT. WE ARE UNABLE TO SEE FROM THE REASONS RECORDED BY THE ASSESSING OFFICER ANY ITA NO. 902/DEL/2013 & CO NO. 90/DEL/2013 ASSTT. YEAR: 2006-07 7 TANGIBLE MATERIAL OR FORMATION OF BELIEF EXCEPT FAC TUAL MENTIONING OF THE DETAILS SUBMITTED BY THE ASSESSEE DURING THE ORIGIN AL ASSESSMENT PROCEEDINGS. THE CONCEPT OF CHANGE OF OPINION ON THE PART OF A SSESSING OFFICER TO REOPEN AN ASSESSMENT DOES NOT OBLITERATE AFTER SUBS TITUTION OF SECTION 147 OF THE ACT BY DIRECT TAX LAWS (AMENDMENT) ACTS 1987 AN D 1989. THE POSITION IS VERY CLEAR AFTER THE AMENDMENT THAT THE ASSESSING OFFICER HAS TO HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSE SSMENT BUT THIS DOES NOT IMPLY THAT THE ASSESSING OFFICER CAN REOPEN AN ASSE SSMENT ON MERE CHANGE OF OPINION ON THE SAME MATERIAL. FROM THE STATUTOR Y PROVISIONS OF THE ACT, THE CONCEPT OF CHANGE OF OPINION MUST BE TREATED AS AN INBUILT TEST TO CHECK THE ABUSE OF POWER BY THE REVENUE AUTHORITIES. THU S, AFTER 1 ST APRIL, 1989, THE ASSESSING OFFICER HAS POWER TO REOPEN THE ASSES SMENT PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. IT IS ALSO PERTINENT TO ME NTION THAT REASON MUST HAVE A LINK WITH THE FORMATION OF BELIEF. AT THIS POINT, WE ALSO RESPECTFULLY TAKE COGNIZANCE OF THE DECISION OF FULL BENCH OF HO NBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF COMMISSIONER OF INCOM E TAX VS USHA INTERNATIONAL LTD. WHEREIN IT HAS BEEN HELD THAT TH E ASSESSMENTS CANNOT BE VALIDLY REOPENED U/S 147 OF THE ACT EVEN WITHIN FOU R YEARS IF AN ASSESSEE HAD FURNISHED FULL AND TRUE PARTICULARS AT THE TIME OF ORIGINAL ASSESSMENT WITH ITA NO. 902/DEL/2013 & CO NO. 90/DEL/2013 ASSTT. YEAR: 2006-07 8 REFERENCE TO THE INCOME ALLEGED TO HAVE ESCAPED ASS ESSMENT, IF THE ORIGINAL ASSESSMENT WAS MADE U/S 143(3) OF THE ACT. IN THIS DECISION THEIR LORDSHIPS FURTHER HELD THAT SO LONG AS THE ASSESSEE HAS FURNI SHED FULL AND TRUE PARTICULARS AT THE TIME OF ORIGINAL ASSESSMENT AND SO LONG AS THE ASSESSMENT ORDER IS FRAMED U/S 143(3) OF THE ACT, IT MATTERS L ITTLE THAT THE ASSESSING OFFICER DID NOT ASK ANY QUESTION OR QUERY WITH RESP ECT TO ONE ENTRY OR NOTE BUT HAD RAISED QUERIES AND QUESTIONS ON THE OTHER A SPECTS. IN THIS DECISION, THE HONBLE FULL BENCH HAS HELD THAT SECTION 114(E) OF THE EVIDENCE ACT, 1981 CAN BE APPLIED TO AN ASSESSMENT ORDER FRAMED U /S 143(3) OF THE ACT PROVIDED THERE HAS BEEN A FULL AND TRUE DISCLOSURE OF ALL MATERIAL AND PRIMARY FACTS AT THE TIME OF ORIGINAL ASSESSMENT. FURTHER IN SUCH A CASE, IF THE ASSESSMENT IS REOPENED, IN RESPECT OF A MATTER COVE RED BY THE DISCLOSURE, IT WOULD AMOUNT TO CHANGE OF OPINION. 9. IN THE CASE IN HAND, WE HAVE NO HESITATION TO HO LD THAT THERE WAS NO TANGIBLE MATERIAL BEFORE THE ASSESSING OFFICER TO F ORM A REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT. ADMITTEDLY , ALL BOOKS OF ACCOUNT, THREE CD REPORTS AND SCHEDULE ANNEXED TO THE FINAL ACCOUNTS WERE SUBMITTED BEFORE THE ASSESSING OFFICER. AS PER BALANCE SHEET (PB PAGE NO. 15), SCHEDULE NO. 13 PERTAINING TO PURCHASE (PB PAGE NO. 23), SCHEDULE TO THE ACCOUNTS EXPLAINING DETAILS OF SAVING ACCOUNTS (PB PAGE NO. 25) AND DETAILS ITA NO. 902/DEL/2013 & CO NO. 90/DEL/2013 ASSTT. YEAR: 2006-07 9 OF PROVISIONS MADE DURING THE YEAR (PB PAGE NO. 71) AND DETAILS OF TDS DEDUCTIBLE AND NOT DEDUCTED AT ALL (PB PAGE NO. 131 ), WE CLEARLY OBSERVE THAT THE ASSESSEE COMPANY HAS MADE CERTAIN PROVISIO NS WHICH REFLECT IN SCHEDULE NO. 13 OF THE ACCOUNTS AND NOTE NO. 2 ATTA CHED TO PROVISIONS OF EXPENSES SHOW THAT THE PROVISION OF RS.1,53,57,778/ - HAS BEEN MADE DURING THE YEAR. FROM THE DETAILS AVAILABLE ON PAGE NO. 7 1 OF THE PAPER BOOK PERTAINING TO THE PROVISIONS MADE DURING THE YEAR, WE OBSERVE THAT THE ASSESSEE HAS MADE CERTAIN PROVISIONS UNDER THE SALE S PROMOTION SCHEMES AND PROVISION MADE FOR ORC COMMISSION HAS BEEN MADE AS PER AGREEMENT ENTERED WITH OVERWRITING COMMISSION AGENTS WHICH HA S ALREADY BEEN ADDED IN THE ORIGINAL RETURN AND ASSESSMENT. 10. IN VIEW OF ABOVE, WE ARE INCLINED TO HOLD THAT THE ACTION OF THE ASSESSING OFFICER IN INITIATING PROCEEDINGS U/S 147 AND 148 OF THE ACT WAS BASED ON CHANGE OF OPINION WITHOUT ANY NEW TANGIBLE MATERIAL. WE ALSO OBSERVE THAT NO REASON TO BELIEVE WAS AVAILABLE WIT H THE ASSESSING OFFICER AT THE TIME OF INITIATION OF REASSESSMENT PROCEEDINGS U/S 147 AND 148 OF THE ACT. UNDER THESE CIRCUMSTANCES, WE ARE UNABLE TO S UPPORT THE FINDINGS OF THE COMMISSIONER OF INCOME TAX(A) IN THE IMPUGNED ORDER THAT THE ASSESSEE HAS FAILED TO SHOW THAT THERE WAS TRUE AND FULL DISCLOS URE AND THERE WAS NOT A CASE OF CHANGE OF OPINION. ON THE BASIS OF DISCUSSIONS MADE HEREINABOVE, WE ITA NO. 902/DEL/2013 & CO NO. 90/DEL/2013 ASSTT. YEAR: 2006-07 10 HOLD THAT THE COMMISSIONER OF INCOME TAX(A) WAS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN REOPENING OF THE ASSESSMENT. ACCORDINGLY, CO OF THE ASSESSEE IS ALLOWED AND INIT IATION OF REASSESSMENT PROCEEDINGS AND REASSESSMENT ORDERS PASSED IN REASS ESSMENT PROCEEDINGS ARE QUASHED. 11. SINCE WE HAVE QUASHED INITIATION OF REASSESSMEN T PROCEEDINGS U/S 147 AND 148 OF THE ACT AND REASSESSMENT ORDER PASSED DU RING THE REASSESSMENT PROCEEDINGS, THEREFORE, SOLE GROUND OF THE REVENUE PERTAINING TO THE DELETION OF ADDITION MADE BY THE ASSESSING OFFICER DURING RE ASSESSMENT PROCEEDINGS DOES NOT SURVIVE FOR ADJUDICATION ON MERITS. THERE FORE, SOLE GROUND OF THE REVENUE IS ALSO DISMISSED. 12. IN THE RESULT, CROSS OBJECTION OF THE ASSESSEE IS ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.11.2013. SD/- SD/- (G.D. AGRAWAL) (CHANDRAMOHAN GARG) VICE PRESIDENT JUDICIAL MEMBER DT. 29TH NOVEMBER 2013 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER ASSTT.REGISTRAR ITA NO. 902/DEL/2013 & CO NO. 90/DEL/2013 ASSTT. YEAR: 2006-07 11