The Asstt. Commissioner of Income Tax, Circle-1(1)(2), Baroda V. M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd., Baroda

ITA 1229/AHD/2017

AI Insights

The case involves the Assistant Commissioner of Income Tax (Asst. CIT) appealing against M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd. concerning the reopening of an assessment for the Assessment Year 2008-09. The reassessment was initially based on the claim of additional depreciation on spare parts of machinery, which the Assessing Officer later deemed not allowable. The CIT(A) found the reopening to be invalid as it was beyond the four-year period and lacked new tangible material, leading to the Revenue's appeal to the Tribunal. The Tribunal dismissed the Revenue's appeal, supporting the CIT(A)'s decision and emphasizing the absence of any failure by the assessee to disclose material facts.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114340 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 04-09-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 17-05-2017
• Other Referred Cases: CIT Vs. PVS Beedies Pvt. Ltd., CIT Vs. Kelvinator of India Ltd., Sandesh Ltd. Vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Depreciation; Rectification of order; Search and seizure; Audit objection; Additional depreciation; Tangible material; Difference of opinion; Tax effect; Reason to believe; Change of opinion
• Section: 148; 263; 154; 2; 139; 143(3); 115JB; 205; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: Smt. Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The Asst. CIT, Circle-1(1)(2), Baroda (Appellant) Vs M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd., 28-35,GIDC Estate, Nandesari, Baroda PAN: AAACF3358B (Respondent) Revenue Represented: Ms. Neeju Gupta, Sr.D.R. Assessee Represented: Ms. Amrin Pathan, A.R. Date of hearing : 05-09-2023 Date of pronouncement : 20-10-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Revenue as against the appellate order dated 02.02.2017 passed by the Commissioner of Income Tax (Appeals)-1, Vadodara arising out of the reassessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2008-09. ITA No. 1229/Ahd/2017 Assessment Year 2008-09 I.T.A No. 1229/Ahd/2017 A.Y. 2008-09 Page No Asst.CIT Vs. M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd. 2 2. Originally this Revenue appeal was dismissed on the ground of Low Tax Effect and then recalled by order dated 29.03.2023 in M.A. No. 132/Ahd/2019 on the ground that though the tax effect is less than Rs. 50 lacs because of the audit objection involved in this case which is exclusion clause 8(c) of the CBDT Circular No. 3/2018. 2.1. The solitary ground raised by the Revenue in this appeal is whether the Ld. CIT(A) is erred in holding the reopening of the assessment is bad in law, without appreciating the fact that the Revenue has reopened the case based on some materials/information available, which is within the meaning of clause (ca) of explanation 2 of section 147 of the Act and also as held by the Apex Court’s judgment in the case of CIT Vs. PVS Beedies Pvt. Ltd. reported in 237 ITR 13 (SC). 3. The brief facts of the case, the assessee filed its Return of Income for the Assessment Year 2008-09 on 26.09.2008 declaring total loss at Rs. 67,90,429/-. Regular assessment u/s. 143(3) of the Act was completed on 27.09.2010 determining the total loss at Rs. 61,61,237/- and Minimum Alternate Tax was charged u/s. 115JB of the Act on the book profit of Rs. 1,80,382/-. Subsequently, the assessment was reopened by issuing notice u/s. 148 dated 27.02.2015 by recording the reasons that the assessee’s claim of additional depreciation on Spare Parts of machinery which are not eligible to be allowed and thereby the income chargeable to tax in respect of Rs. 7,74,069/- has escaped assessment for the Assessment Year 2008-09 within the meaning of clause (c) of Explanation 2 of section 147 of the Act. I.T.A No. 1229/Ahd/2017 A.Y. 2008-09 Page No Asst.CIT Vs. M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd. 3 3.1. The assessee filed its detailed objection stating that the reopening of assessment is beyond 4 years period and there is no failure on the part of the assessee in disclosing the claim of additional depreciation in the Return of Income. Therefore the reopening of assessment is nothing but change of opinion, the same is not permissible u/s. 147 of the Act. The assessee relied upon various case laws in support of its submissions. However the above submissions were rejected by the Assessing Officer and proceeded with the reassessment by making an addition of Rs. 7,74,069/- being claim of additional depreciation on spare parts which is not allowable to the assessee. Thus the Assessing Officer determined the total loss at Rs. 60,16,360/-. 4. Aggrieved against the same, the assessee filed an appeal before Ld. CIT(A). The assessee submitted both on the validity of reopening of assessment and merits of the case. The Ld. CIT(A) considered the validity of reopening of assessment and held that the reopening is bad in law and thereby allowed the assessee appeal observing as follows: “....5. I have considered the facts of the case, the submission of the appellant and the AO's observations. In this case, the original return of income had been selected for scrutiny assessment u/s.143(3) of the Act. Subsequently, the assessment has been reopened after a period of more than four years from the end of the assessment year. Under such circumstances, the onus was on the AO to demonstrate in his reasons recorded for reopening of the assessment that the income had escaped assessment on account of failure on the part of the appellant to disclose fully and truly all material facts for the purpose of making assessment. In this regard, it is seen that the materials on the basis of which the AO had reopened the assessment were already on record. This fact has also been mentioned in Para-3.3 of the assessment order in which the AO has clearly mentioned that action u/s.147 was initiated on the basis of materials available on record and the AO subsequently came to know that claim of additional depreciation on Spare Parts of Rs.7,74,069/- are not allowable to the assessee. Thus, there being no failure on the part of the appellant to I.T.A No. 1229/Ahd/2017 A.Y. 2008-09 Page No Asst.CIT Vs. M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd. 4 fully and truly disclose all material fact, the reopening of the assessment beyond four years from the end of assessment year cannot be held to be valid on the basis of the judicial pronouncement relied upon by the appellant in its submission as reproduced above. Hence, the reopening of the assessment is held to be bad in law. Since the reopening of the assessment has itself been held bad in law, hence the merit of the addition made in the reassessment order is not required to be adjudicated. Hence this ground of appeal is not adjudicated.” 5. Aggrieved against the same, the Revenue is in appeal before us. Ld. Sr. D.R. Ms. Neeju Gupta appearing for the Revenue supported the order passed by the Assessing Officer and held that this being the Revenue Audit objection case, following Supreme Court Judgment in the case of CIT Vs. PVS Beedies Pvt. Ltd. reported in 237 ITR 13 (SC) reopening of assessment in valid in law. The Ld. CIT(A) ought not to have held that the reopening of assessment is bad in law. More particularly, the assessee has claimed excessive deduction (additional depreciation) in the Return of Income as per clause (ca) of explanation 2 to section 147 of the Act. 6. Per contra, the Ld. Counsel Ms. Amrin Pathan appearing for the assessee drawn our attention to the 1 st proviso to section 147 of the Act, which provides that where an assessment u/s. 143(3) is done in the relevant assessment year, no action shall be taken under this section after expiry of 4 years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a Return u/s. 139 and failed to disclose fully and truly all material facts necessary for that assessment year. Here, in the present case, there is no failure on the part of the assessee in making claim of additional depreciation I.T.A No. 1229/Ahd/2017 A.Y. 2008-09 Page No Asst.CIT Vs. M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd. 5 in the Return of Income and the claim of additional depreciation is well within the provisions of the Act. Thus there is no failure on the part of the assessee in not disclosing the income chargeable to tax to the authorities. Therefore the reopening of assessment is bad in law and relied upon various case laws which were submitted before the Lower Authorities. Further the Ld. Counsel also submitted before us Gujarat High Court judgment in the case of Sandesh Ltd. Vs.DCIT reported in [2018] 93 taxmann.com 205 wherein Hon’ble High court has considered the Supreme Court Judgment in the case of CIT Vs. PVS Beedies Pvt. Ltd. and held that the reopening is bad in law. Thus the Ld. Counsel submitted that the finding arrived by Ld. CIT(A) does not require any interference and the same is liable to be dismissed. 7. We have given our thoughtful consideration and perused the materials available on record. For better appreciation of the facts in legal prospective, the chronology of dates and events for the assessment year 2008-09 are as follows: Dates Events 26.09.2008 Assessee filed its Return of Income u/s. 139(1) of the Act. 27.09.2010 Regular assessment completed u/s. 143(3) of the Act 31.03.2013 Completion of 4 years from the end of the Assessment Year 27.02.2015 Notice u/s. 148 issued by the A.O. (end of sixth year) 27.11.2015 Reassessment u/s. 148 passed by the A.O. 7.1. In the original Return of Income, the assessee claimed additional depreciation on the spare parts of the Plant and Machinery. Regular assessment u/s. 143(3) was completed I.T.A No. 1229/Ahd/2017 A.Y. 2008-09 Page No Asst.CIT Vs. M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd. 6 determining the loss at Rs. 61,61,237/- after detailed discussions with the assessee. It is thereafter the assessment was reopened beyond 4 years period by issuing a notice dated 27.02.2015 that income of Rs. 7,74,069/- has escaped from assessment, on the claim of additional depreciation. Thus there is no failure on the part of the assessee in truly and fully disclosing the income filed by the assessee. However the Assessing Officer proceeded to reopen the assessment based on the same materials, which is available before him after the period of 4 years. Therefore in our considered opinion, when there is no failure on the part of the assessee in fully and truly disclosing all materials fact before the Assessing Officer, he has no jurisdiction to reopen the assessment beyond the period of 4 years as per 1 st proviso to section 147 of the Income Tax Act. Further in the reasons recorded by the Ld. A.O. it is found that the assessee filed a loss return of Rs. 67,90,429/- and regular assessment was completed u/s. 143(3) determining the loss at Rs. 61,61,237/-. It is thereafter the assessment reopened on the ground that additional depreciation claimed on spare parts of Plant and Machinery. 7.2. From the reasons recorded by the A.O., it clearly reflects that the same are based on the profit and loss account and balance sheet field by the assessee, which were very much available before the Assessing Officer at the time of passing original assessment order also. Further the reasons recorded by the Assessing Officer does not show that any new tangible material available on record and there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. In I.T.A No. 1229/Ahd/2017 A.Y. 2008-09 Page No Asst.CIT Vs. M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd. 7 the light of these facts, we examined the applicability of the Hon’ble Apex Court judgment rendered in the case of CIT Vs. Kelvinator of India Ltd. wherein categorically held that the Assessing Officer has no power to review his assessment order, but has only the power to reassess, provided there is “tangible material” on record that there is escapement of income from assessment. The relevant portion of the Supreme Court judgment in Kelvinator case reads as follows: “...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 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.” 7.3. Further the Full Bench judgment of the Delhi High Court in the case of CIT Vs. Kelvinator of India Ltd. (123 Taxmann.com 433) clearly held that the Assessing Officer does not have any I.T.A No. 1229/Ahd/2017 A.Y. 2008-09 Page No Asst.CIT Vs. M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd. 8 jurisdiction to review his own order, his jurisdiction is confined only to rectification of mistake as contained in section 154 of the Act, that too “mistake apparent on record” and not on debatable issues. Thus the only remedy left with the department is to invoke Revision proceedings u/s. 263 of the Act, to revise the assessment order by the Commissioner of Income Tax on the ground that the assessment order is erroneous and prejudicial to the interest of Revenue. Further wherever a regular assessment order is passed by Assessing Officer, it is presumed that the order was passed after application of mind, thereby Assessing Officers are not given powers to reopen the assessment on the same set of facts in the absence of tangible material. 8. The Jurisdictional High Court of Gujarat in the case of Sandesh Ltd. (cited supra) distinguished the judgment of PVS Beedies Pvt. Ltd. that reopening cannot be resorted to under the insistence of the audit party, particularly when the Assessing Officer holds a contrary belief. The relevant portion of the judgment reads as under: “.....5. The record suggests that previously assessment was framed by the Assessing Officer after full scrutiny. The impugned notice has been issued beyond the period of four years. The question of the assessee failing to disclose truly and fully all material facts necessary for assessment therefore becomes important. Nothing stated in the reasons recorded or from the materials on record suggest that the assessee failed to disclose truly and fully all material facts. In fact, the Assessing Officer has examined the materials on record during the original assessment proceedings, now to form a belief that assessee's treatment of capital gain tax was erroneous. Being a notice which was issued beyond a period of four years, this aspect therefore becomes important. As correctly pointed out by the counsel for the petitioner, there was no additional or extraneous material at the command of the Assessing Officer now to believe that income chargeable to tax has escaped assessment. Only on this ground, the notice of reopening needs to be quashed. I.T.A No. 1229/Ahd/2017 A.Y. 2008-09 Page No Asst.CIT Vs. M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd. 9 6. Additionally, we also find that the Assessing Officer was acting at the behest of the audit party. The petitioner has taken a specific stand that the impugned notice has been issued under an audit objection at the instance of the audit party. The law on the subject is sufficiently clear. As observed by Supreme Court in case of CIT v. P.VS. Beedies (P) Ltd. [1999] 103 Taxman 294/237 ITR 13, even if an issue has been brought to the notice of the Assessing Officer by the audit party, reopening may be permissible if it can be gathered that having applied his mind to such an issue, the A.O. formed an independent belief that income chargeable to tax has escaped assessment. However, as held by this Court in case of Adani Exports v. Dy CIT [1999] 240 ITR 224 and several times repeated by the Supreme Court later, reopening cannot be resorted to under the insistence of the audit party, particularly when the Assessing Officer holds a contrary belief. From this angle, we have perused the original files and do not find that the Assessing Officer independently believed that the audit note or the audit objection was otherwise valid. 7. Such being the position, on these two grounds, impugned notice is set aside. Petition is allowed and disposed of.” 9. Respectfully following the above judicial precedents, we have no hesitation in holding that when there is no failure on the part of the assessee in disclosing the income and No new tangible material on record, the reopening of assessment after 4 years period amounts to “change of opinion” only. Therefore the reopening of assessment invalid in law. Thus the finding arrived by the Ld. CIT(A) does not require any interference. Therefore the grounds raised by the Revenue is devoid of merits and the same is hereby dismissed. 10. In the result, the appeal filed by the Revenue is hereby dismissed. Order pronounced in the open court on 20 -10-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 20/10/2023 I.T.A No. 1229/Ahd/2017 A.Y. 2008-09 Page No Asst.CIT Vs. M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd. 10 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद