Dr. Saphal Shetty, Bangalore V. ACIT, Pondicherry

ITA 1318/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96484 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 05-10-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 29-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN IRS
• Assessee Lawyers: S VENKATESAN F
• Keywords: Reopening of assessment; Unexplained investment; Gift; Validity of assessment; Assessment record; Reason to believe; Reassessment proceedings
• Section: 143(3); 147; 69; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , ! ' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ ITA NOS.1318 & 1319/MDS/2015. ! # $# / ASSESSMENT YEAR : 2003-04 & 2004-2005. DR. SAPHAL SHETTY, NO.670, 10 TH CROSS, WEST OF CHORD ROAD, MAHALAKSHMIPURAM POST, BANGALORE 560 086. PAN : ALIPS 4414R ( %& /APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, PUDUCHERRY. ( '(%& /RESPONDENT) %& ) * /APPELLANT BY : SHRI. S. VENKATESAN, F.C.A '(%&)* /RESPONDENT BY : SHRI. P.RADHAKRISHNAN, IRS, J CIT )+ /DATE OF HEARING : 05.10.2015 ,-$ )+ /DATE OF PRONOUNCEMENT : 04.12.2015 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE COMMON ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), PUDU CHERRY IN ITA NO.31 & 49/CIT(A)-PDY/13-14, DATED 16.03.2015 FOR T HE ASSESSMENT YEAR 2003-04 U/S. 143 R.W.S 147 AND FOR ASSESSMENT YEAR 2004-05 2 ITA NOS.13 18 & 1319/MDS /2015 U/SEC OF THE 143(3) OF THE INCOME TAX ACT, 1961 (I N SHORT THE ACT). SINCE THE ISSUES INVOLVED IN THESE APPEALS ARE COMM ON IN NATURE, THESE APPEALS ARE CLUBBED, HEARD TO TOGETHER, AND DISPOSED OF BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE. 02. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS AN INDIVIDUAL AND DOCTOR BY PROFESSION IS IN THE BUSINESS OF DENT AL MATERIALS AND EQUIPMENTS. FOR THE ASSESSMENT YEAR 2003-2004 RETU RN OF INCOME WAS FILED ON 28.11.2003 WITH TOTAL INCOME OF F1,44,88,9 26/- AND THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT. THERE WAS SUR VEY U/S.133A OF THE ACT ON 17.02.2006 AND REVENUE AUTHORITIES FOUND THE VALUE OF CLOSING STOCK SUPPRESSED TO THE EXTENT OF F88,24,684/-. IN CONTINUATION OF PROCEEDINGS, NOTICE U/S.148 WAS ISSUED ON 21.08.200 6 BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2003-04 AND 2004-20 05. THE ASSESSEE FILED A LETTER IN COMPLIANCE TO NOTICE ON 18.09.200 6 TO CONSIDER THE RETURN FILED ON 28.11.2003 TO BE TREATED AS RETURN FILED IN RESPONSE TO NOTICE. THE ASSESSEE IS CARRYING ON DENTAL EQUIPMENTS MATER IAL BUSINESS FROM EARLIER YEARS AND MADE PURCHASES FROM VARIOUS SOUR CES WITHIN COUNTRY AND IMPORTED EQUIPMENTS FROM JAPAN, KOREA, ITALY, GERMANY ETC. THE ASSESSEE IS LIABLE FOR TAX AUDIT U/S.44AB AND TAX AUDIT REPORT WAS FILED WITH ORIGINAL RETURN. IN THE SURVEY OPERATIONS REVE NUE FOUND THAT ASSESSEE IS MAINTAINING INVENTORY OF STOCK TRANSACT IONS ON COMPUTER TALLY 3 ITA NOS.13 18 & 1319/MDS /2015 SYSTEMS F3,49,15,795/- ON COMPARISON WITH THE TRAD ING ACCOUNT FOR THE ASSESSMENT YEAR 2003-2004 WERE CLOSING STOCK IS VAL UED AT F2,60,91,111/- HENCE THERE WAS A DIFFERENCE OF F 88 ,24,684/-. IN THE ASSESSMENT PROCEEDINGS, THE LD. AUTHORISED REPRESE NTATIVE SUBMITTED INFORMATION CALLED FOR AND ALSO EXPLAINED THE DIFFE RENCE BETWEEN STOCK AS PER THE COMPUTER TALLY SYSTEM AND MANUAL STOCK REGI STER IS DUE TO NON RECONCILIATION OR OMISSION OF ENTRIES FOR REPLACEME NT OF DAMAGED GOODS, OLD DAMAGED UNUSED STOCK, VALIDITY EXPIRED STOCK AN D SAMPLES ITEMS. AND THE TALLY ACCOUNTING SOFTWARE TAKES INTO CONSIDERAT ION FINANCIAL VALUE OF THE PRODUCTS AND NOT QUANTITATIVE UNITS OF PURCHASE RETURN OR GOODS WHICH ARE REPLACED. THE DIFFERENCE IN VALUE OF STO CK OCCURRED BECAUSE OF OMISSION TO PASS FINANCIAL ENTRIES WHENEVER STOCKS ARE MOVED OUT ON THE ABOVE CONTINGENCES IN THE NATURE OF DAMAGED OR OBSOLETE WARRANTY REPLACEMENTS, UNSOLD ITEMS AND FREE SAMPLES GIFTS. 03. THE ENTRIES IN THE COMPUTER ACCOUNTING TALLY PA CKAGE ARE PASSED FOR ALL PURCHASES AND SALES INVOICES. THE VALUE OF GOODS DAMAGED, WARRANTY REPLACEMENT, DISCARDED ARE NOT ENTERED OR REDUCED FROM INVENTORY OF STOCKS. THE ASSESSEE HAS DISCLOSED TH E TRANSACTIONS, IN TAX AUDIT REPORT WITH QUANTITATIVE TALLY OF ALL MAJOR G OODS. THE LD. ASSESSING OFFICER WITHOUT CONSIDERING THE ACTUAL FACTS AND TH E NATURE OF GOODS RELIED ONLY ON COMPUTER TALLY SOFTWARE IMPOUNDED IN SURVEY OPERATIONS. 4 ITA NOS.13 18 & 1319/MDS /2015 FURTHER MADE A CATEGORICAL FINDING BY ADDING THE DI FFERENCE BETWEEN THE CLOSING STOCK AS PER COMPUTER TALLY AND STOCK REPOR TED IN MANUAL REGISTER F88,24,684/- AS UNEXPLAINED INVESTMENTS U/SEC 69 OF THE ACT. THE LD. ASSESSING OFFICER ALSO ESTIMATED GROSS PROFIT @24.7 3% ON PRESUMPTION OF EARNING PROFIT ON STOCK DIFFERENCE AT 21,50,575/ - AND COMPLETED ASSESSMENT U/S.143(3) R.W.S 147 OF THE ACT VIDE ORD ER DATED 28.12.2007 AND ASSESSED INCOME AT F2,52,65,358/-. SIMILARLY F OR THE ASSESSMENT YEAR 2004-2005, THE LD. ASSESSING OFFICER MADE AN A DDITION OF F42,74,654/- AS RECTIFIED BY ORDER DATED 13.03.2008 AND ALSO SALES PROMOTION EXPENSES OF F9,00,000/-. AGGRIEVED BY THE ORDERS OF THE ASSESSING OFFICER ASSESSEE FILED AN APPEAL BEFORE T HE COMMISSIONER OF INCOME TAX (APPEALS). 04. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISE D REPRESENTATIVE FILED INFORMATION ABOUT THE PRODUCT DEALT BY THE DO CTOR WHICH ARE IMPORTED AND CLARIFIED THAT THE PURCHASES AND SALES ARE VOUCHED AND PHYSICAL INVENTORY OF STOCK WAS CONSIDERED AT THE E ND OF THE FINANCIAL YEAR EXCLUDING OBSOLETE, DISCARDED GOODS WHICH ARE VALUED AT COST OR NET RESALEABLE VALUE WHICH IS LOWER AS PER ICAI ACCOUN TING STANDARDS. FURTHER THE LD AUTHORISED REPRESENTATIVE EMPHASIZED THAT FINANCIAL ENTRIES ARE REQUIRED TO BE PASSED IN THE BOOKS OF A CCOUNTS FOR OUTGOING OF STOCKS ON ACCOUNT OF WARRANTY CLAIMS, OBLIGATION S, DAMAGED GOODS, 5 ITA NOS.13 18 & 1319/MDS /2015 OBSOLETE GOODS. DUE TO INNUMERABLE ITEMS, IT WAS P RACTICABLY NOT POSSIBLE TO MAINTAIN DAY TO DAY STOCK ACCOUNT BUT F OR THE VALUABLE PRODUCTS STOCK TALLY AS PER THE TAX AUDIT REPORT W AS FILED WITH STATEMENT OF RECONCILIATION IN THE ASSESSMENT PROCEEDINGS. F URTHER, THERE WAS IS DISPUTE ABOUT THE SUPPRESSION OF SALES OR ANY ASSET ACQUIRED OUT OF SUCH INCOME. THE ASSESSING OFFICER HAS MADE SIMILAR A DDITION FOR THE ASSESSMENT YEAR 2004-2005. THE ASSESSEE ALSO RAISE D GROUNDS ON VALIDITY OF REOPENING OF ASSESSMENT AND FILED A L ETTER WITH ASSESSING OFFICER ON 18.09.2006 REQUESTING FOR THE REASONS FO R THE ISSUANCE OF NOTICE U/S.148 OF THE ACT AND RELIED UPON APEX COUR T DECISION GKN DRIVE SHAFTS (INDIA) LTD VS. ITO 259 ITR 19. BUT NO REASONS WERE PROVIDED FOR INITIATION OF PROCEEDINGS U/S.147/148 OF THE AC T BY THE LD.ASSESSING OFFICER DURING THE PENDENCY OF ASSESSMENT PROCEEDI NGS. THE LD. AUTHORISED REPRESENTATIVE ARGUED THAT THERE IS NO S UPPRESSION OF STOCKS AS EXPLAINED ABOVE AND FURTHER ASSESSING OFFICER HA S REJECTED EXPLANATORY STATEMENTS WITHOUT APPLICATION OF MIND. THE ASSESSING OFFICER ON SUSPICION AND SURMISES HAS ADDED THE DIF FERENCE OF STOCK AS UNEXPLAINED INVESTMENT U/S.69 OF THE ACT. SIMILARL Y, FOR THE ASSESSMENT YEAR 2004-05, THE LD.AO ADDED F42,74,654/- OF THE A CT AND SALES PROMOTION EXPENSES. 4.1 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) O N THE GROUND OF VALIDITY OF ASSESSMENT PROVIDED COPY OF R EASONS FOR REOPENING 6 ITA NOS.13 18 & 1319/MDS /2015 OF ASSESSMENT RECORDED BY THE ASSESSING OFFICER DA TED 10.08.2006 AND ALSO CALLED FOR THE EXPLANATIONS, OBJECTIONS FROM T HE ASSESSEE. IN COMPLIANCE TO DIRECTIONS ASSESSEE FILED WRITTEN SUB MISSIONS DATED 2.7.2014 WITH SUPPORTING LEGAL DECISIONS ON VALIDIT Y OF REOPENING OF ASSESSMENT. THE LD.CIT(A) AFTER PERUSING REASONS OF THE ASSESSING OFFICER WRITTEN SUBMISSIONS AND ALSO VERIFIED THE STATEMENTS RECORDED DURING THE ASSESSMENT PROCEEDINGS HAS CONCLUDED THA T THE REOPENING IS LEGAL IN THE EYES OF LAW AND REJECTED THE GROUND OF REOPENING WITH OBSERVATIONS AT PAGE 4 PARA.3.1.2 OF THE ORDER AS UNDER:- 3.1.2 I FIND FROM THE REASONS RECORDED THAT THE A O HAD ENOUGH REASONS TO BELIEVE THAT THE INCOME HAD ESCAP ED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE I.T. ACT. THE AO WAS FULLY SATISFIED THAT THERE WAS ESCA PEMENT OF INCOME BEFORE THE ISSUE OF NOTICE U/S.148 OF THE I. T. ACT. THE AO HAD FULLY APPLIED HIS MIND ON THE ISSUES OF ESCAPEMENT OF INCOME. THEREFORE THE GRIEVANCE OF TH E AR OF THE APPELLANT IS MISPLACED. I FIND FROM THE RECORDS THAT APPELLANT WAS FULLY AWARE OF THE ESCAP EMENT OF INCOME DURING THE COURSE OF REASSESSMENT PROCEEDING S. I FIND FROM THE RECORDS THAT THE ASSESSING OFFICER VI DE LETTER DATED 21.11.2006 HAD REQUESTED THE APPELLANT TO TAK E COPIES OF THE IMPOUNDED MATERIALS AND FURNISH THE WRITTEN SUBMISSIONS THEREAFTER. THEREAFTER, THE APPELLANT F ILED WRITTEN SUBMISSIONS VIDE LETTER DATED 27.11.2006 FO R A.Y. 2004-05 AND VIDE LETTER DATED 5.12.2007 FOR A.Y. 20 03-04 TO THE AO AFTER TAKING THE COPIES OF THE IMPOUNDED MAT ERIAL. SUBSEQUENTLY, A STATEMENT WAS ALSO RECORDED FROM M.RAKSHITH SETTY POA FOR DR.SAPHAL SETTY ON 12.12.2006 QUESTIONING THE DISCREPANCY IN THE ST OCK SHOWN AS PER STOCK SUMMARY TAKEN FROM TALLY ACCOUNT DATA 7 ITA NOS.13 18 & 1319/MDS /2015 AND STOCK DECLARED BY THE APPELLANT IN THE RETURN O F INCOME AND ALSO IN RESPECT OF PERSONAL EXPENSES. FROM THE ABOVE EVENTS IT IS CRYSTAL CLEAR THAT THE. APPELLANT WAS FULLY AWARE OF THE REASONS RECORDED FOR REOPENING OF THE ASSESS MENT. HAD IT NOT BEEN SO, THE APPELLANT WOULD NOT HAVE PARTICIPATED FULLY IN THE PROCESS OF REASSESSMENT A ND ALSO WOULD NOT HAVE REFERRED TO THE ISSUES RELATING TO S UPPRESSION OF CLOSING STOCK AND CLAIM OF PERSONAL EXPENSES. TH EREFORE, IT IS NOT CORRECT THAT THE APPELLANT WAS NOT PROVID ED WITH THE REASONS FOR REOPENING OF ASSESSMENT BEFORE THE COMP LETION OF REASSESSMENT PROCEEDINGS. AS I STATED EARLIER TH E REASONS FOR REOPENING OF ASSESSMENT WAS ALREADY PR OVIDED BY THE UNDERSIGNED ON 10.6.2014 TO THE AR OF THE AP PELLANT. THE POWERS OF THE CIT(APPEALS) ARE COTERMINOUS WITH THE POWERS OF THE AO IN THE MATTERS OF ASSESSMENT. FOR A MOMENT IF IT IS ASSUMED THAT THE REASONS FOR REOPEN ING OF ASSESSMENT WAS NOT PROVIDED BY THE AO IN WRITING TO THE APPELLANT, THE FURNISHING OF THE REASON FOR REOPENI NG TO THE APPELLANT BY THE UNDER SIGNED ON 10.6.2014 SHOULD B E TREATED AS SUFFICIENT COMPLIANCE OF THE REQUIREMENT OF FURNISHING REASONS TO THE APPELLANT. MOREOVER, THE HON'BLE HIGH COURT OF MADRAS IN THE CASE OF CIT V. C.PALANI APPAN REPORTED IN[2011] 241 CTR [MAD] 207 HELD THAT THE PROCEEDINGS WOULD NOT BECOME VOID IN THE EYE OF LAW , SIMPLY BECAUSE AO HAD NOT SUPPLIED THE REASONS FOR REOPENING OF ASSESSMEN T TO THE APPELLANT. IN VIEW OF THE FACTS AND CIRCUMSTANCES O F THE CASE, I AM OF THE CONSIDERED VIEW THAT THE AO IS LE GALLY CORRECT IN REOPENING THE ASSESSMENT. THE GROUNDS OF APPEAL RELATING TO THE ISSUE OF REOPENING ARE REJECTED . 5. THE SECOND GROUND RAISED BY THE ASSESSEE ON DIF FERENCE OF STOCK F88,24,084/-. THE LD.CIT(A) CONSIDERED THE MATERIA L FILED AND DEALT WITH THE EXPLANATIONS FILED BY SHRI.RAKSHIT SHETTY AT PA GE NO.6 OF THE ORDER AS UNDER:- 8 ITA NOS.13 18 & 1319/MDS /2015 IN THEIR REPLY DATED 27.11.2006, IT IS STATED THAT THE ASSESSEE HAS MAINTAINED :- . MANUAL STOCK BOOK FOR SOME OF THE MAJOR PRODUCTS DEALT AND STOCK FIGURE GENERATED BY THE S OFTWARE CANNOT BE CONSIDERED AS STOCK REGISTER AND PART OF BOOKS OF ACCOUNT FOR THE FOLLOWING REASONS:- A) ALL THE SALES QUANTITIES WERE NOT ROUTED THROUGH THIS REGISTER. B) GOODS SENT FOR PROMOTION ARE ALSO NOT RECORDED. C) THE QUANTITY OF DAMAGED STOCK AND WARRANT REPLAC EMENTS ARE NOT RECORDED IN THE TALLY STOCK REGISTER. D) THERE ARE MANY CLERICAL ERRORS LIKE, WRONG POSTI NG OF QUANTITY ETC E) PRACTICALLY, IT NOT VIABLE AND DIFFICULT TO FEED ALL THE SALES DATA INTO THE COMPUTER. IT IS FURTHER STATED THAT TAKING INTO ACCOUNT THE R ETAIL TRADING OF DENTAL EQUIPMENTS AND VOLUME OF TRANSACTIONS, TALLY ING OF QUANTITY IS A LABORIOUS JOB AND CONSUMES LOT OF TIM E AND THE ASSESSEE IS UNABLE TO PROVIDE QUANTITATIVE DETAILS AT THIS POINT OF TIME. IT IS STATED THAT THE QUANTITATIVE DETAILS O F MAJOR ITEMS ARE ALREADY FILED ALONGWITH THE TAX AUDIT REPORT. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT TH E ASSESSEE HAS FURNISHED CORRECT STOCK DETAILS IN THE RETURN OF IN COME BASED ON PHYSICAL VERIFICATION AT THE YEAR END AND ALSO EXPLANATIONS FOR NOT PASSING FINANCIAL ENTRIES IN THE BOOKS OF ACCOUNTS. THE LD . COMMISSIONER OF INCOME TAX (APPEALS) ALSO RELIED UPON STATEMENT OF SHRI. GANESAN, THE MANAGER AT PONDICHERRY CLARIFYING THE TRANSACTIO N BETWEEN THE HEAD OFFICE AND BRANCHES OF THE BUSINESS ON INVOICE VALU E OF STOCKS AS RECORDED IN TALLY PACKAGE. THE STOCK OF INVENTORY O F HIGHER VALUE TALLIED EXACTLY WITH STOCK AS PER TALLY PACKAGE AND ASSESSE E PROVIDED COMPLETE INFORMATION ABOUT THE PHYSICAL INVENTORY OF STOCKS AND ALSO EXPLAINED REASON FOR NOT PASSING ENTRIES IN THE TALLY PACKAGE DUE TO OBSOLETE AND 9 ITA NOS.13 18 & 1319/MDS /2015 OLD STOCK WHICH REMAINED WITH THE ASSESSEE OVER THE YEARS. THE ASSESSEE FILED A COPY OF THE FINANCIAL STATEMENTS TO SUPPORT THE QUANTITY OF STOCKS. BUT THE ASSESSING OFFICER ALLEGED THE SALE OF STOCK IN THE FINANCIAL YEAR 2002-2003. THE ASSESSEE HAS INCURRED F9,00,000/-TO WARDS SHARE OF DEALERS EXPENSES, RECORDED IN THE BOOKS OF ACCOUNTS AND FILED STATEMENT, CONFIRMATION OF CHEQUES AND ALSO CERTIFICATE OF CLA IM OF EXPENDITURE BY GROUP M/S. CONFIDENT DENTAL EQUIPMENT LTD. WHO HAS HOSTED THE EVENT. HAVING EXAMINED THE MATERIAL FACTS, LEGAL DECISIONS , DOCUMENTS AND EVIDENCE, THE LD.CIT(A) UPHELD THE ACTION OF THE A SSESSING OFFICER BY CONFIRMING THE ADDITION OF STOCKS FOR THE ASSESSME NT YEAR 2003-04 AND 2004-2005 AND SALES PROMOTION EXPENSES AS PERSONAL IN NATURE FOR THE ASSESSMENT YEAR 2004-05 AND PARTLY ALLOWED THE APPE AL BY DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION OF ESTIMAT ED GROSS PROFIT F21,50,575/- FOR THE ASSESSMENT YEAR 2003-04. AGGR IEVED BY THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE AS SESSEE ASSAILED AN APPEAL WITH THE TRIBUNAL. 6. BEFORE THE TRIBUNAL, THE LD.AR HAS SUBMITTED DET AILS OF THE NOTICE AND ALSO FINANCIAL STATEMENTS OF THE ASSESSEE ALONG WITH COPY OF THE ASSESSMENT ORDERS PERTAINING TO THE EARLIER YEARS A ND VEHEMENTLY ARGUED THAT THE ISSUE OF NOTICE U/S.148 IS BAD IN LAW AS T HERE IS NO SUPPRESSION OR ESCAPEMENT OF INCOME BY THE ASSESSEE AND FURTHER EXPLAINED THAT NO 10 ITA NOS.1 318 & 1319/MDS /2015 REASONS WERE PROVIDED TO THE ASSESSEE FOR INITIATIO N OF PROCEEDINGS U/SEC. 147/148 OF THE ACT TILL COMPLETION OF ASSESSMENT. BUT THE LD. CIT(A) HAS HELD THE REASSESSMENT PROCEEDINGS AS VALID. THE ASSESSEE RELIED ON FOLLOWING DECISIONS CHALLENGING VALIDITY OF ASSESS MENT BAD IN LAW AND VOID AB-INITIO AND LIABLE TO THE QUASHED. 1. ITO VS. SHRI. K.G. VIJAYAKUMAR IN ITA NO.19/BA NG/2014, DATED 09.01.2015. 2. M/S. SYNOPSYS INTERNATIONAL LTD VS. DCIT, IN I TA NO.549/ BANG/2011, DATED 10.12.2012 3. TATA INTERNATIONAL LTD. VS. DICT, IN ITA NOS.3359 T O 3361/ MUM/2009, DATED 29.06.2012. 4. ACIT VS. K.V. VENKATASWAMY REDDY, IN ITA NOS.797, 807,797 & 808/BANG/2009, DATED 21.5.2010. 5. BOMBAY HIGH COURT IN THE CASE OF CIT VS. VIDESH SAN CHAR NIGAM LTD, ITA NO.4235 OF 2010, DATED 20.07.2011. THE LD.AR REFERRED TO PAPER BOOK PAGE 21 TO 38 CON TAINING THE PROFIT AND LOSS ACCOUNT, BALANCE SHEET AND OTHER ANNEXURE S INCLUDING STOCK STATEMENT TO SHOW CREDITABILITY AND FEASIBILITY OF THE BUSINESS ALONGWITH RECONCILIATION STATEMENTS FOR DIFFERENCE IN STOCK AND FURTHER SUPPORTED STOCK TALLY OF CLOSING STOCK F2,60,91,111/- AT PAGE NO.41 PAPER BOOK. THE LD.AR DREW ATTENTION TO THE ASSESSMENT ORDER S AT PAGE NOS. 45 TO 50 OF PAPER BOOK WERE NOTICES ARE ISSUED AND ASSES SMENTS WERE COMPLETED U/S.143(3) R.W.S 147 OF THE ACT FOR THE A SSESSMENT YEARS 11 ITA NOS.1 318 & 1319/MDS /2015 2000-2001 TO 2002-2003 WITH FINDING ON THE VALUATIO N OF STOCK AT PAGE 2 PARA 2 OF ASSESSMENT ORDER AS UNDER:- REGARDING THE EXCESS STOCK, IT IS REPRESENTED THA T THE VALUE OF STOCK BECAME, OBSOLETE, WARRANTY REPLACEMENTS, F REE GIFTS, SAMPLES, BUSINESS PROMOTION, VALIDITY EXPIRED GOODS ETC., THE VALUE OF THE GOODS & QUANTITY OF GOODS WERE NOT RECORDED IN THE TALLY PACKAGE, WHICH HAS TO BE DONE NORMALLY TO REDUCE THE STOCK VALUE. MOREOVER, THE ENTIRE ST OCK HAS BEEN ADDED TO THE TOTAL INCOME IN THE ASSESSMENT OR DER FOR A.Y. 2004-05. AS SUCH, THE EXCESS STOCK FOR THIS A .Y CANNOT BE CONSIDERED IN THIS YEAR. THE LD.AR RELIED ON THE LETTER DATED 27.11.200 TO A DDL. CIT PUDUCHERRY PENDING IN SUBMISSION OF INFORMATION AT PARA 4 OF PAGE NO.11 OF PAPER BOOK AS UNDER:-- YOU MAY FURTHER NOTE THAT DURING THE COURSE OF SU RVEY THE ASSESSEES EMPLOYEES HAS SHOWN THE DAMAGED AND EXP IRED GOODS, THE INVENTORY OF WHICH WAS TAKEN, AND THE SU RVEY AUTHORITIES HAS FOUND; I) NO EXCESS STOCK II) NO O MISSION OF PURCHASES AND III) NO SUPPRESSION OF SALES, UNDER THE CIRCUMSTANCES ADDITIONS BASED ON THE STOCK FIGURE G ENERATED BY A COMPUTER SOFTWARE IS AGAINST LAW AND EQUITY. SINC E THE ASSESSEE HAS DECLARED FAIR AMOUNT OF PROFIT AND PAI D FAIR AMOUNT OF TAX YOU MAY CONSIDER COMPARING THE PROFIT EARNED BY THE ANY OTHER ASSESSEE CARRYING THE SIMILAR BUSINES S. THE LD. AR EMPHASIZED ON SUBMISSIONS OF ASSESSEE AS VITAL AND ALSO THE ASSESSING OFFICER HAS NOT MADE ANY COMMENTS, NOR CO NTRADICT THE STATEMENT THAT SURVEY AUTHORITIES HAVE NOT FOUND A NY EXCESS STOCKS OR OMISSIONS OR SUPPRESSION OF SALES. DIFFERENCE IS P URELY DUE TO VARIOUS PRODUCTS DEALT BY THE ASSESSEE AND CONSIDERED ENTR IES PASSED IN TALLY SOFTWARE. THE LD.AR PLEADED THAT ASSESSEE DOES BU SINESS WITH FOREIGN COMPANIES AND DUE TO COMPUTERIZATION OF ACCOUNTS, I SSUES OF STOCKS SUCH 12 ITA NOS.1 318 & 1319/MDS /2015 AS REPLACEMENT, COMPLIMENTARY, DEMO AND WARRANTY CLAIMS BEING NO MONETARY VALUE TRANSACTIONS THEREFORE ENTRIES COUL D NOT BE PASSED. THE ASSESSEE IS ALSO MAINTAINING MANUAL STOCK REGISTER FOR ALL MAJOR ITEMS FOR PREPARING FINANCIAL STATEMENTS EVERY YEAR. THE SYST EM OF INVENTORY IS BASED ON PHYSICAL STOCKS AFTER REDUCING REPLACEMENT , WARRANTIES, OBSOLETE GOODS FROM THE AVAILABLE INVENTORY AND TH E REMAINING BALANCE OF INVENTORY IS VALUED AT COST OR NET REALIZABLE VA LUE WHICHEVER IS LESS. THIS PRINCIPLES OF VALUATION IS BASED UPON ACCOUNTI NG STANDARDS OF ICAI FOR AUDIT PURPOSE AND CONSIDERED IN THE TRADING ACC OUNT AND BALANCE SHEET. THE LD. AUTHORISED REPRESENTATIVE ALSO REFE RRED TO PAGE NO.65 OF PAPER BOOK WERE REASONS FOR REOPENING OF ASSESSMENT BY THE ASSESSING OFFICER WAS PROVIDED BY LD. CIT(A) IN APPELLATE PRO CEEDINGS. IT IS OBLIGATORY ON THE PART OF ASSESSING OFFICER TO FURN ISH THE REASONS AND DISPOSEOFF THE OBJECTIONS IF ANY FILED BY SPEAKING ORDER BEFORE PROCEEDING WITH ASSESSMENT AS HELD BY HONBLE SUPREME COURT IN THE GKN DRIVE SHAFTS (INDIA) LTD VS. ITO & OTHERS 259 ITR 19(SC) AND CONTENDED THE ORDER OF ASSESSMENT IS BAD IN LAW AND REQUIRES TO B E CANCELLED. 7 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRES ENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED T HAT THE REASONS WERE PROVIDED TO THE ASSESSEE BY THE LD.CIT(A), AS THE P OWER OF COMMISSIONER OF INCOME TAX (APPEALS) ARE CO-TERMINUS WITH OF ASS ESSING OFFICER AS PER 13 ITA NOS.1 318 & 1319/MDS /2015 PROVISIONS OF LAW HENCE RE-ASSESSMENT PROCEEDING A RE VALID AND OBJECTED TO THE SUBMISSIONS AND PLEADED FOR DISMISS AL OF GROUNDS OF THE ASSESSEE. 8. WE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTI ES AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL ON REC ORD AND JUDICIAL DECISIONS CITED. THE LD. AUTHORISED REPRESENTATIVE HAS SUBMITTED HIS ARGUMENTS WITH MATERIAL PAPERS. BEFORE PROCEEDING ON THE MERITS, WE CONFINE OURSELVES TO THE GROUNDS ON VALIDITY OF THE INITIATION OF PROCEEDINGS UNDER SECTION 147/148 OF THE ACT FOR TH E ASSESSMENT YEAR 2003-2004. AS PER SUBMISSIONS OF LD. AR IT IS AN U NDISPUTED FACT THAT THE REASONS RECORDED BY THE ASSESSING OFFICER ON 10.08. 2006 WERE NOT FURNISHED TO THE ASSESSEE TILL THE COMPLETION OF AS SESSMENT U/S.143(3) R.W.S. 147 OF THE ACT DATED 28.12.2007, EVEN THOUG H AS PER RECORD, THE ASSESSEE HAS FILED LETTER DATED 18.09.2006 WITH ASS ESSING OFFICER REQUIRING REASONS FOR ISSUE OF NOTICE U/SEC. 148 O F THE ACT. BUT AFTER MORE THAN 7 YEARS THE LD.CIT(A), IN APPELLATE PROCE EDINGS HAS PROVIDED COPY OF REASONS TO AUTHORISED REPRESENTATIVE. ON 1 0.06.2014, IT IS CLEAR THAT ASSESSEE WAS NOT PROVIDED WITH THE REASONS FOR INITIATION OF PROCEEDINGS U/SEC 147/148 OF THE ACT IN THE ASSES SMENT PROCEEDINGS AS HELD BY THE APEX COURT IN THE CASE OF GKN DRIVE SHAFTS (INDIA) LTD (SUPRA), THE ASSESSING OFFICER IS BOUND TO FURNISH REASONS REQUESTED BY 14 ITA NOS.1 318 & 1319/MDS /2015 THE ASSESSEE. IF REASONS ARE FURNISHED THE ASSESSE E CAN FILE OBJECTIONS THERETO AND THE ASSESSING OFFICER HAS TO DISPOSEOFF BY PASSING SPEAKING ORDER. IN THE PRESENT CASE SINCE NO REASONS ARE PR OVIDED TO ASSESSEE AND SEPARATE ORDER PASSED DISPOSED OFF BY SPEAKING ORDER BY COMMISSIONER OF INCOME TAX (APPEALS) APPLYING THE R ATIO OF APEX COURT DECISION THE ASSESSMENT IS BAD IN LAW AND SIMILAR I SSUE WAS DEALT BY BANGALORE BENCH IN CASE OF M/S. SYNOPSYS INTERNATIONAL LIMITED VS. DCIT IN ITA NO.549/BANG/2011, DATED 10.12.2012 , IT WAS HELD AT PARA 4.1.4 PAGE 10 OF THE ORDER AS :- IN THE DECISION CITED BY THE LEARNED AUTHORISED R EPRESENTATIVE IN CIT VS. VIDESH SANCHAR NIGAM LTD (ITA NO.4235 OF 20 10 DATED 20.07.2011), THE BOMBAY HIGH COURT HAS HELD THAT RE -ASSESSMENT PROCEEDINGS WERE INVALID FOR THE REASON THAT THE RE ASONS RECORDED FOR REOPENING OF THE ASSESSMENT WERE NOT FURNISHED DESPITE REQUESTS BY THE ASSESSEE TILL THE COMPLETION OF THE ASSESSMENT. FROM THIS DECISION IT IS CLEAR THAT THE REASONS REC ORDED FOR INITIATION OF PROCEEDINGS UNDER SECTION 147/148 OF THE ACT ARE REQUIRED TO BE FURNISHED BY THE ASSESSING OFFICER TO THE ASSESSEE WITHIN A REASONABLE PERIOD IN ORDER FOR THE ASSESSEE TO RAIS E ITS OBJECTIONS AT THE PRELIMINARY STAGE OF PROCEEDINGS. IF THE RE ASONS ARE NOT FURNISHED TO THE ASSESSEE DURING THE ASSESSMENT PRO CEEDINGS, THEN THE SUBSEQUENT FURNISHING OF THE REASONS AFTER COMPLETION OF ASSESSMENT PROCEEDINGS WOULD SERVE NO PURPOSE AND W OULD AMOUNT TO THE ASSESSEE BEING DENIED ITS RIGHT TO RA ISE OBJECTIONS TO THE VALIDITY OF PROCEEDINGS INITIATED UNDER SECT ION 147/148 OF THE ACT. IN THE LIGHT OF THE FINDINGS OF THEIR LORDSHI PS IN THIS CASE, IT IS CLEAR THAT THE COMPLETION OF ASSESSMENT/RE-ASSESSME NT WITHOUT FURNISHING THE REASONS RECORDED BY THE ASSESSING OF FICER FOR INITIATION OF PROCEEDINGS UNDER SECTION 147/148 OF THE ACT IS NOT SUSTAINABLE IN LAW AS IT IS INCUMBENT ON THE HONBL E APEX COURT IN THE CASE OF GKN DRIVER SHAFTS (INDIA) LTD. VS. ITO (SUPRA). THE SUBSEQUENT FURNISHING OF REASONS I.E. AFTER COMPLET ION OF ASSESSMENT WOULD NOT MAKE GOOD THE DEFECT/INVALIDIT Y WITH WHICH THE INITIATION OF PROCEEDINGS UNDER SECTION 147/148 OF THE ACT IS TAINTED. SIMILAR VIEW HAS BEEN HELD BY CO-ORDIANTE BENCHES OF THE ITAT IN THE CASE OF (I) ACIT VS. K.V. VENKATASWAMY REDDY OF THE ITAT, BANGALORE IN ITA NOS.797, 807, 798 & 808/BANG /2009 DATED 21.5.2010 AND (II) TATA INTERNATIONAL LTD. VS. DCIT BY THE ITAT, MUMBAI IN ITA NOS.3359 TO 3361/MUM/2009, DATED 29.0 6.2012 . 15 ITA NOS.1 318 & 1319/MDS /2015 WE FIND IT IS APPARENT FROM THE FACTS AND CIRCUMSTA NCES, THE ORDER OF ASSESSMENT PASSED U/S.143(3) R.W.S 147 DATED 28.12. 2007 FOR THE ASSESSMENT YEAR 2003-2004 WAS COMPLETED WITHOUT PRO VIDING REASONS FOR INITIATION OF PROCEEDINGS U/S.147/148 OF THE ACT EI THER WITHIN REASONABLE TIME OR BEFORE COMPLETION OF ASSESSMENT AND RELY ON BOMBAY HIGH COURT DECISION IN THE CASE OF CIT VS. M/S. TREND ELECTRONICS, INCOME TAX APPEAL NO.1867 OF 2013 DATED 16 TH SEPTEMBER, 2015 , THE LORDSHIP HAS HELD AT PARA 8 OF PAGE 5 AS UNDER:- WE FIND THAT THE IMPUGNED ORDER MERELY APPLIES TH E DECISION OF THE APEX COURT IN GNK DRIVESHAFTS (INDIA) LTD. (SUP RA). FURTHER, IT ALSO FOLLOWS THE DECISION OF THE COURT IN VIDESH SA NCHAR NIGAM LTD.(SUPRA) IN HOLDING THAT AN ORDER PASSED IN REAS SESSMENT PROCEEDINGS ARE BAD IN LAW IN THE ABSENCE OF REASON S RECORDED FOR ISSUING A REOPENING NOTICE UNDER SECTION 148 OF THE ACT BEING FURNISHED TO THE ASSESSEE WHEN SOUGHT FOR. IT IS A XIOMATIC THAT POWER TO REOPEN A COMPLETED ASSESSMENT UNDER THE AC T IS AN EXCEPTIONAL POWER AND WHENEVER REVENUE SEEKS TO EXE RCISE SUCH POWER, THEY MUST STRICTLY COMPLY WITH THE PREREQUIS ITE CONDITIONS VIZ., REOPENING OF REASONS TO INDICATE THAT THE ASS ESSING OFFICER HAD REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WHICH WOULD WARRANT THE REOPENING OF AN ASSESSMENT. THESE RECORDED REASONS AS LAID DOWN BY THE APEX CO URT MUST BE FURNISHED TO THE ASSESSEE WHEN SOUGHT FOR AS TO ENA BLE THE ASSESSEE TO OBJECT TO THE SAME BEFORE THE ASSESSING OFFICER. THUS, IN THE ABSENCE OF REASONS BEING FURNISHED, WHEN SOU GHT FOR WOULD MAKE AN ORDER PASSED ON REASSESSMENT BAD IN LAW. TH E RECORDING OF REASONS (WHICH HAS BEEN DONE IN THIS CASE) AND F URNISHING OF THE SAME HAS TO BE STRICTLY COMPLIED WITH AS IT IS A JURISDICTIONAL ISSUE. THIS REQUIREMENT IS VERY SALUTARY AS IT NOT ONLY ENSURES REOPENING NOTICES ARE NOT LIGHTLY ISSUED. BESIDES IN CASE THE SAME HAVE BEEN ISSUED ON SOME MISUNDERSTANDING / MISCONC EPTION, THE ASSESSEE IS GIVEN AN OPPORTUNITY TO POINT OUT THAT THE REASONS TO BELIEVE AS RECORDED IN THE REASONS DO NOT WARRANT R EOPENING BEFORE THE REASSESSMENT PROCEEDINGS ARE COMMENCED. THE ASSESSING OFFICER DISPOSES OF THESE OBJECTIONS AND IF SATISFIED WITH THE OBJECTIONS, THEN THE IMPUGNED REOPENING NOTICE UNDER SECTION 148 OF THE ACT IS DROPPED /WITHDRAWN OTHERWISE IT I S PROCEEDED WITH FURTHER. IN ISSUES SUCH AS THIS, I.E. WHERE J URISDICTIONAL ISSUE 16 ITA NOS.1 318 & 1319/MDS /2015 IS INVOLVED THE SAME MUST BE STRICTLY COMPLIED WITH THE AUTHORITY CONCERNED AND NO QUESTION OF KNOWLEDGE BEING ATTRIB UTED ON THE BASIS OF IMPLICATION CAN ARISE. WE ALSO DO NOT APP RECIATE THE STAND OF THE REVENUE, THAT THE RESPONDENT-ASSESSEE HAD ASKED FOR REASONS RECORDED ONLY ONCE AND THEREFORE SEEKING TO JUSTIFY NO- FURNISHING OF REASONS. WE EXCEPT THE SATE TO ACT M ORE RESPONSIBLY. CONSIDERING THE JUDICIAL PRECEDENTS AND FACTS THE ASSESSMENT IS TREATED AS BAD IN LAW AND WE ACCORDINGLY QUASH THE ASSESSME NT AND ALLOW THE APPEAL IN FAVOUR OF THE ASSESSEE. 9. FOR THE ASSESSMENT YEAR 2004-05, THE FIRST GROU ND RAISED BY THE ASSESSEE ON ADDITION OF SUPPRESSION OF STOCKS. WE FIND THAT THE ASSESSEE IS MAINTAINING BOOKS OF ACCOUNTS AND QUANTITATIVE D ETAILS OF STOCKS FOR PREPARING FINANCIAL STATEMENTS. THE LD. ASSESSING OFFICER AND LD. COMMISSIONER OF INCOME TAX (APPEALS) CONCLUDED THAT THERE IS A SUPPRESSION OF STOCK, IT IS DIFFICULT TO CONSIDER F INDINGS OF LOWER AUTHORITIES AS ON THE DATE OF SURVEY THERE WAS NO EXCESS STOCK FOUND NOR SUPPRESSION OF SALES NOTICED BUT DIFFERENCE WAS ONL Y DUE TO NON PASSING OF FINANCIAL ENTRIES ALLEGED BY THE ASSESSEE. THE ASSESSING OFFICER ISSUED NOTICE U/S148 OF THE ACT AND REOPENED THE ASSESSMEN T FOR THE ASSESSMENT YEARS 200-2001 TO 2002-03 AND NO ADDITIO N ON ACCOUNT OF SUPPRESSION OF STOCKS WAS MADE AND ACCEPTED THE RE TURNED INCOME. SINCE THE SURVEY TOOK PLACE IN TWO YEAR FROM THE EN D OF THE PREVIOUS YEAR NO DECLARATION WAS RECORDED AND THE INCOME TAX AUTHORITIES IN 17 ITA NOS.1 318 & 1319/MDS /2015 SURVEY HAS NOT FOUND ANY EXCESS STOCK WHICH IS NOT DISPUTED BY THE REVENUE. BASICALLY STOCKS PILLED OVER FROM EARLIER YEARS DUE TO NON MOVING, OUT OF DATE, DAMAGED, UNUSED GOODS. THE IN COME TAX DEPARTMENT VERIFIED THE TRANSACTION BASED ON THE IN VOICE VALUE, DATE WITH THE FINANCIAL STATEMENTS OF RESPECTIVE ASSESSMENT Y EARS. ON PERUSAL OF THE ASSESSMENT ORDERS, AT PAGE NOS.45 TO 49, NO ADD ITION WAS MADE BY THE ASSESSING OFFICER. IT IS PERTINENT TO NOTE THAT THE DIFFERENCE IN STOCKS ARISED DUE TO OBSOLETE STOCKS, CARRIED FORWARD FROM EARLIER YEARS AND ALSO OMISSION OF ENTRIES FOR WARRANT REPLACEMENTS, FREE GIFTS AND SAMPLES, BUSINESS PROMOTIONS, IN THE COMPUTER TALLY PACKAGE BUT THE ASSESSEE AT THE END OF THE FINANCIAL YEAR REDUCED THE VALUE OF SUCH STOCK TO GET ACCURATE QUANTITATIVE TALLY. THE ASSESSEES ACCOUNT S FOR ALL THE ASSESSMENT YEARS ARE AUDITED AND CERTIFIED BY THE C HARTERED ACCOUNTANT AND ACCOUNTS ARE ACCEPTED. NOW, THE DEPARTMENT CAN NOT SAY ACCOUNTS FOUND IN THE COMPUTER IS TRUE AND CORRECT RATHER TH AN AUDITED BOOKS OF ACCOUNTS. IN THE ABSENCE OF PHYSICALLY AND EXCESS OR SHORTAGE OF STOCKS FOUND BY THE SURVEY AUTHORITIES. WE ON THE FACTS A ND CIRCUMSTANCES OF THE CASE CONSIDERING THE EXPLANATIONS AND THE MATER IAL AND SUBMISSIONS OF THE LD. AUTHORISED REPRESENTATIVE DIRECT THE ASS ESSING OFFICER TO DELETE THE ADDITION OF STOCK DIFFERENCE FOR THE ASSESSMENT YEAR 2004-05 AND ALLOW THE GROUNDS OF THE ASSESSEE. 18 ITA NOS.1 318 & 1319/MDS /2015 10. THE LAST GROUND RAISED BY THE ASSESSEE WITH REG ARD TO SALES PROMOTION EXPENSES FOR ASSESSMENT YEAR 2004-05. ON VERIFYING THE INFORMATION AND ALSO PERUSING THE ORDERS OF THE LOW ER AUTHORITIES ALONGWITH STATEMENTS RECORDED AND EXPLANATIONS OF T HE LD.AR, THERE IS NO CLARITY ABOUT THE NATURE OF EXPENDITURE INCURRED NO R ANY SUPPORTIVE EVIDENCES FILED BEFORE THE ASSESSING OFFICER OR IN APPELLATE PROCEEDINGS. PRIME FACIE THE CHARACTER OF THE EXPENDITURE INCURR ED FOR PERSONAL USE, AS ASSESSEE COULD NOT ESTABLISH OR SUBSTANTIATE GENUIN ES OF TRANSACTION UTILIZED WHOLLY AND EXCLUSIVELY INCURRED FOR BUSINE SS PURPOSES. THE FIRST APPELLATE AUTHORITY HAS EXAMINED THE EVIDENCE AVAIL ABLE ON RECORD VIS A VIS THE EXPLANATIONS MADE BY THE ASSESSEE. WE DO NO T SEE ANY REASON TO INTERFERE WITH THE ORDER OF LD. COMMISSIONER OF INC OME TAX (APPEALS) NON THIS GROUND AND DISMISS THE GROUND OF THE ASSESSEE. 11. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN ITA NO.1318/MDS/2015 IS ALLOWED AND ITA NO. 1319/MDS/2015 IS PARTLY ALLO WED. ORDER PRONOUNCED ON FRIDAY, THE 4TH DAY OF DECEMB ER, 2015. SD/- SD/- ( ) ( . ) (CHANDRA POOJARI) (G. PAVAN KUMAR) /ACCOUNTANT MEMBER ! /JUDICIAL MEMBER /CHENNAI, . /DATED, THE 4TH DECEMBER, 2015. KV 19 ITA NOS.1 318 & 1319/MDS /2015 / ) '!+01 21$+ /COPY TO: 1. %& /APPELLANT 2. '(%& /RESPONDENT 3. 3+ ( )/ CIT(A) 4. 3+ /CIT 5. 145 '!+! /DR 6. 56# 7 /GF.