DCIT, Tirunelveli V. Industrial Mineral Company, Tirunelveli

ITA 1459/CHNY/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5066 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 05-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO IRS
• Assessee Lawyers: N DEVANATHAN
• Keywords: Reopening of assessment; Search and seizure; Tangible material; Difference of opinion; Revised return; Reason to believe; Change of opinion; Reassessment proceedings

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , , [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ] ./ I.T.A. NO.1459/CHNY/2017 & C.O.NO.10/CHNY/2018 ( IN ITA NO.1459/CHNY/2017) ! / ASSESSMENT YEAR : 2010-2011. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE I, TIRUNELVELI. VS. INDUSTRIAL MINERAL COMPANY 17C, KEERAIKARANTHATTU, ITTAMOZHI ROAD, MAHADEVANKULAM, TISAYANVILAI. TIRUNELVELI 627 657. [PAN AAAFI 9714R ] ( / APPELLANT) ( /RESPONDENT/ CROSS OBJECTOR) DEPARTMENT BY : SHRI. M.SRINIVASA RAO, IRS, CIT. ASSESSEE BY : SHRI. N. DEVANATHAN, ADV. ' # $ % /DATE OF HEARING : 25-04-2019 &'! $ % /DATE OF PRONOUNCEMENT : 17-05-2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AND THE CR OSS OBJECTION (CO) FILED BY THE ASSESSEE-COMPANY DIRECT ED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)-3, ITA NO. 1459/17 & CO 10/2018 :- 2 -: CHENNAI (HEREINAFTER CALLED AS CIT(A)) DATED 20.0 3.2017 FOR THE ASSESSMENT YEAR (AY) 2010-2011 2. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE RESPONDENT-ASSESSEE NAMELY M/S. INDUSTRIAL MINE RAL COMPANY IS A PARTNERSHIP FIRM CONSTITUTED UNDER THE PARTNERSHIP ACT. IT IS ENGAGED IN THE BUSINESS OF EXPORT OF INDUSTRIAL GA RNET EXTRACTED FROM SEA SHORE AND IT ENJOYS 100% EOU STATUS. THE RETUR N OF INCOME FOR THE AY 2010-11 WAS FILED ON 26.09.2010 DISCLOSING TOTAL INCOME OF RS.34,06,460/- AFTER CLAIMING EXEMPTION U/S.10B OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) TO THE EXTENT OF E20,24,84,791/-. SUBSEQUENTLY THE RETURN OF INCOME WAS REVISED ON 0 5.04.2011 ADMITTING TOTAL INCOME OF RS.10,58,91,252/- WITHDR AWING THE CLAIM U/S.10B OF THE ACT. AGAINST THE SAID RETURN OF IN COME, THE ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT ACCEPTING THE RETURNED INCOME VIDE ORDER DATED 25.04.2011. SUBSEQUENTLY THE ASSES SMENT WAS REOPENED BY ISSUING NOTICE U/S.148 OF THE ACT ON 0 2.03.2015 ON THE GROUND THAT ASSESSING OFFICER HAD ALLOWED THE DED UCTION ON ACCOUNT OF REVALUATION OF CLOSING STOCK FROM E11,86,34, 813/- TO E1,86,34,813/- WITHOUT DUE VERIFICATION. AFTER REC EIPT OF NOTICE U/S.148 OF THE ACT, THE RESPONDENT ASSESSEE FILED RETURN OF INCOME IN ITA NO. 1459/17 & CO 10/2018 :- 3 -: RESPONSE TO NOTICE ISSUED U/S.148 OF THE ACT ON 20 .04.2015 THE SAME AS ORIGINAL RETURN OF INCOME. AGAINST THE SAID RET URN OF INCOME, ASSESSMENT WAS COMPLETED BY THE ASSISTANT COMMISSI ONER OF INCOME TAX, CIRCLE I, TIRUNELVELI (HEREINAFTER REFERRED A S AO') VIDE ORDER DATED 30.03.2016 PASSED U/S.143(3) R.W.S. 147 OF T HE ACT AT A TOTAL INCOME OF E20,58,91,252/- BY MAKING AN ADDITION OF E10,00,00,000/- TOWARDS UNDERVALUATION OF THE CLOSING STOCK REJECT ING THE PLEA OF THE ASSESSEE THAT THE RE-ASSESSMENT PROCEEDINGS ARE NOT VALID UNDER LAW AS PROMPTED BY THE CHANGE OF OPINION BY THE ASSESS ING OFFICER ON THE SAME SET OF FACTS, THE LD. ASSESSING OFFICER HAD A LLOWED THE SAME CLAIM AFTER EXAMINING THE CLAIM IN THE ORIGINAL AS SESSMENT PROCEEDINGS AND THE FURTHER PLEA THAT THE FALL IN THE VALUE OF CLOSING STOCK TO THE EXTENT OF E10,00,00,000/- IS ONLY ON A CCOUNT OF VALUATION OF THE CLOSING STOCK BY ADOPTING THE PRINCIPLE OF V ALUATION I.E. COST OR MARKET VALUE WHICHEVER IS LESS. 3. BEING AGGRIEVED BY THE ABOVE ASSESSMENT ORDER, AS SESSEE FILED AN APPEAL BEFORE LD. COMMISSIONER OF INCOME T AX (APPEALS) CONTENDING THAT VERY REOPENING OF THE ASSESSMENT I S BAD IN LAW, IN AS MUCH AS, REOPENING IS PROMPTED BY CHANGE OF OPINIO N ON THE SAME SET OF FACTS, THE ASSESSING OFFICER HAD EXAMINED THE CLAIM IN THE ORIGINAL ASSESSMENT PROCEEDINGS AND ALLOWED. THE LD . COMMISSIONER OF ITA NO. 1459/17 & CO 10/2018 :- 4 -: INCOME TAX (APPEALS) TAKING NOTE OF THE OBSERVATION OF THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER ON THE R EVALUATION OF THE CLOSING STOCK, HELD THAT IT IS CHANGE OF OPINION A ND THEREFORE THE REOPENING IS NOT VALID IN LAW. 4. BEING AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), REVENUE IS IN APPEAL BEFORE US CHA LLENGING THE CORRECTNESS OF THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND ASSESSEE IS IN CROSS OBJECTION. 5. NOW WE SHALL TAKE THE REVENUES APPEAL IN ITA NO.1459/CHNY/2017. 6. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO.1459/CHNY/2017. 1. THE ORDER OF CIT (APPEAIS) IS OPPOSED TO LAW ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 2.1 THE CIT (A) ON THE QUESTION OF VALIDITY OF REOP ENING HAS ERRED IN HOLDING THAT THE REOPENING 0F ASSESSMENT IS NOT VALID ON THE GROUND THAT ASSESSMENT COMPLETED U/S143(3) CANNOT BE REOPENED BASED ON THE CHANGE OF OPINION 2.2 THE CIT (A) OUGHT TO HAVE SEEN THAT THE A.O HAS REOPENED THE ASSESSMENT BEFORE THE EXPIRY OF FOUR Y EARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR BASED ON TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT TH ERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT AND THUS OUGHT TO HAVE SUSTAINED THE REOPENING OF ASSESSMENT. ITA NO. 1459/17 & CO 10/2018 :- 5 -: 2.3 THE CIT(A) OUGHT TO HAVE FOLLOWED THE JUDGEMENT OF THE HIGH COURT OF CALCUTTA IN THE CASE OF IT V. EUR EKA STOCK & SHARE BROKING SERVICES LTD., [2016] 74 TAXMANN. C M 114 (CALCUTTA) WHEREIN, IT HAS BEEN HELD THAT W HEN THERE IS A TANGIBLE MATERIAL TO COME TO THE CONCLUS ION THAT THE INCOME HAS ESCAPED ASSESSMENT, THERE IS NO QUESTION OF CHANGE OF OPINION. 3.1 THE CIT (A) HAS FAILED TO NOTICE THAT THE STOCK REPORT IN THE RETURN OF INCOME IS DIFFERENT FROM THAT OF THE AUDIT REPORT CERTIFIED BY THE CHARTERED ACCOUNTANT WHICH CLEARLY SHOWS THAT THE ASSESSEE HAS GIVEN INCORRECT INFORMA TION REGARDING PARTICULARS OF CLOSING STOCK AND HENCE OU GHT TO HAVE SUSTAINED THE ADDITION M DE BY THE A.O. 3.2 THE CIT (A) OUGHT TO HAVE SEEN THAT THE VALUE O F THE STOCK RESERVE WAS SHARED BY ALL THE PARTNERS IN THE PROFIT SHARING RATIO, AND BASED ON THE ABOVE, THE A.O HAS CORRECTLY TAXED THE ENTIRE STOCK OF RS. 10 CRORES A S SUPPRESSED PROFITS OF FIR AND HENCE OUGHT TO HAVE SUSTAINED THE ACTION OF THE A.O 4. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE CI T (A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 7. THE REVENUE CHALLENGES THE CORRECTNESS OF THE DECIS ION QUASHING THE REASSESSMENT PROCEEDINGS ON THE GROUN D OF CHANGE OF OPINION. 8. LD. SR. DEPARTMENTAL REPRESENTATIVE SUBMITTED TH AT LD. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE UPHELD THE VALIDITY OF REASSESSMENT PROCEEDINGS, AS THERE IS A TANGIBLE MATERIAL ITA NO. 1459/17 & CO 10/2018 :- 6 -: TO ENABLE THE ASSESSING OFFICER TO FORM AN OPINION THAT INCOME ESCAPED ASSESSMENT. 9. ON THE OTHER HAND, LD. AUTHORISED REPRESENTATIVE SU BMITTED THAT THERE IS NO TANGIBLE NEW MATERIAL ENABLING TH E ASSESSING OFFICER TO FORM AN OPINION THAT INCOME ESCAPED ASSESSMENT O N THE SAME SET OF FACTS, THE REOPENING IS NOT PERMISSIBLE BASED ON THE CHANGE OF OPINION. 10. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY, ORIGINAL ASSESSMEN T PROCEEDINGS WAS COMPLETED U/S.143(3) OF THE ACT AND DURING THE ORIGINAL ASSESSMENT PROCEEDINGS, A QUERY WAS RAISED ON THE I SSUE OF REVALUATION OF STOCK. THIS IS APPARENT FROM THE OR IGINAL ASSESSMENT ORDER ITSELF, WHEREIN ASSESSING OFFICER RECORDED THE FINDINGS AS UNDER:- REGARDING THE REVALUATION OF CLOSING STOCK, THE A UTHORISED REPRESENTATIVE SUBMITTED THAT INADVERTENTLY, THE AS SESSEE OPTED THE VALUATION ON 31.03.2010 ON RELATIVE ESTIMATED M ARKET VALUE OF THE INVENTORIES WHICH IS LETTER RECTIFIED IN THE REVISED RETURN BY DETERMINING THE VALUE OF INVENTORIES ON COST OR MARKET WHICHEVER IS LOWER BY WRITING DOWN THE UNEARNED POT ION OF VALUATION TO THE STOCK RESERVE PROFIT AND LOSS ACCO UNT. THE AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT, T HIS RECTIFIED THE ISSUE AND HENCE THE VALUATION BECOMES REALISTIC AND COMPARABLE WITH THE PRECEDING YEARS AND HENCE CONSI STENTLY IN ACCOUNTING POLICY OF THE FIRM IS RESORTED. THE SUBM ISSION OF THE AUTHORISED REPRESENTATIVE IS CAREFULLY CONSIDERED I N RELEVANCE ITA NO. 1459/17 & CO 10/2018 :- 7 -: TO THE FACTS ON STOCK REPORT AND IN CIRCUMSTANCES O F THE CASE. AFTER EXAMINATION OF BOOKS AND DETAILS PRODUCED THE ASSESSMENT IS COMPLETED BY ACCEPTING THE RETURNED I NCOME AS UNDER;- ASSESSED INCOME RS. 10,58,91,252/-. FROM THE ABOVE, IT IS SELF EVIDENT THAT ASSESSING OFFICER IS CONSCIOUS OF THIS ISSUE WHICH LED TO THE QUERY. AFTER CONSIDER ING THE SUBMISSIONS OF THE APPELLANT, THE ASSESSING OFFICER HAD COME TO CONCLUSION THAT THE CLAIM IS ALLOWABLE. THUS, ASSESSING OFFICER HAD APPLIED HIS MIND TO THE ISSUE SOUGHT TO BE RAISED IN THE REASSESSMENT PROCEEDINGS AND TOOK A VIEW THAT CLAIM IS ALLOWABLE. THERE WAS NO N EW MATERIAL WHICH IS BROUGHT ON RECORD SUGGESTING THAT THE CLAIM FOR DEDUCTION OF LOSS IN REVALUATION OF STOCK IS NOT ALLOWABLE AS DEDUCTION WHILE COMPUTING UNDER THE HEAD INCOME FROM BUSINESS. THE RATIO OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. KELVI NATOR OF INDIA LTD, 320 ITR 561 IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE WHEREIN IT WAS HELD THAT EVEN MERE REASONS TO BELI EVE THE INCOME ESCAPED ASSESSMENT DO NOT EMPOWER THE LD. ASSESSIN G OFFICER TO REOPEN THE ASSESSMENT WHEN THERE IS A CHANGE OF OPI NION ON THE SAME SET OF FACTS WHICH ARE AVAILABLE IN THE ORIGINAL AS SESSMENT PROCEEDINGS. RELEVANT PARAS IN THE CASE OF KELVINATOR OF INDIA LTD (SUPRA) IS REPRODUCED HEREUNDER:- ITA NO. 1459/17 & CO 10/2018 :- 8 -: 6. ON GOING THROUGH THE CHANGES, QUOTED ABOVE, MADE TO SECTION 147 OF THE ACT, WE FIND THAT, PRIOR TO THE DIRECT T AX LAWS (AMENDMENT) ACT, 1987, REOPENING COULD BE DONE UNDE R THE ABOVE TWO CONDITIONS AND FULFILMENT OF THE SAID CONDITION S ALONE CONFERRED JURISDICTION ON THE ASSESSING OFFICER TO MAKE A BAC K ASSESSMENT, BUT IN SECTION 147 OF THE ACT (WITH EFFECT FROM 1ST APRIL, 1989), THEY ARE GIVEN A GO-BY AND ONLY ONE CONDITION HAS R EMAINED, VIZ., THAT WHERE THE ASSESSING OFFICER HAS REASON TO BELI EVE THAT INCOME HAS ESCAPED ASSESSMENT, CONFERS JURISDICTION TO REO PEN THE ASSESSMENT. THEREFORE, POST-1ST APRIL, 1989, POWER TO REOPEN IS MUCH WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS ' REASON TO BELIEVE' FA ILING WHICH, WE ARE AFRAID, SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSMENTS ON THE BASI S OF ' MERE CHANGE OF OPINION', WHICH CANNOT BE PER SE REASON T O REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BE TWEEN POWER TO REVIEW AND POWER TO REASSESS. THE ASSESSING OFFI CER HAS NO POWER TO REVIEW ; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILMENT OF CERTAIN PRECONDITI ONS AND IF THE CONCEPT OF ' CHANGE OF OPINION' IS REMOVED, AS CONT ENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF REOP ENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF ' CHANGE OF OPINION' AS AN IN-BUILT TEST TO CHEC K ABUSE OF POWER BY THE ASSESSING OFFICER. HENCE, AFTER 1ST APRIL, 1 989, THE ASSESSING OFFICER HAS POWER TO REOPEN, PROVIDED THE RE IS ' TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT THERE IS E SCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LI NK WITH THE FORMATION OF THE BELIEF. OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO SECTION 147 OF THE ACT, AS QUOTED HEREINABO VE. UNDER THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987, PARLIAMENT N OT ONLY DELETED THE WORDS ' REASON TO BELIEVE' BUT ALSO INS ERTED THE WORD ' OPINION' IN SECTION 147 OF THE ACT. HOWEVER, ON REC EIPT OF REPRESENTATIONS FROM THE COMPANIES AGAINST OMISSION OF THE WORDS ' REASON TO BELIEVE', PARLIAMENT REINTRODUCED THE S AID 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 OCTO BER 31, 1989 ([1990] 182 ITR (ST.) 1, 29), WHICH READS AS FOLLOW S : ' 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 AGAI NST 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 SE TTLED 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 AMENDI NG ACT, ITA NO. 1459/17 & CO 10/2018 :- 9 -: 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, R EMAIN THE SAME.' 7. FOR THE AFORESTATED REASONS, WE SEE NO MERIT IN THESE CIVIL APPEALS FILED BY THE DEPARTMENT ; HENCE, DISMISSED WITH NO ORDER AS TO COSTS. IN THE LIGHT OF THE ABOVE DECISION, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) QUASHING THE REASSESSMENT PROCEEDINGS. E VEN ON THE MERITS IT IS CLEAR FROM THE MATERIAL ON RECORD THAT THE ST OCK WAS VALUED ADOPTING THE PRINCIPLE COST OR MARKET PRICE, WHICHE VER IS LESS. IT IS AN ADMITTED FACT THAT MISTAKE HAD OCCURRED IN VALUING THE STOCK BY ADOPTING THE MARKET PRICE INSTEAD OF COST PRICE. TH ERE IS NO DIFFERENCE IN THE QUANTITY OF THE CLOSING STOCK REPORTED. TH ERE IS NO MATERIAL ON RECORD TO SAY THAT VALUE ADOPTED BY THE APPELLANT I S WRONG. EVEN GOING BY THE REASONS RECORDED FOR REOPENING THE ASS ESSMENT DOES NOT SUGGEST ANY MATERIAL TO SAY THAT THE VALUE OF THE S TOCK WAS SUPPRESSED. THERE IS NO MATERIAL SUGGESTING THE S UPPRESSION OF THE VALUE OF THE CLOSING STOCK. THUS METHOD OF VALUATI ON ADOPTED BY THE ASSESSEE IS IN ACCORDANCE WITH LAW. THE STATUTORY PRINCIPLE OF LAW IS THAT CLOSING STOCK SHOULD BE VALUED AT COST OR MAR KET PRICE WHICHEVER IS LESS. THEREFORE WE DO NOT FIND ANY REASON TO IN TERFERE WITH THE ITA NO. 1459/17 & CO 10/2018 :- 10 -: ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S). ACCORDINGLY, APPEAL FILED BY THE REVENUE IS DISMISSED. 11. SINCE APPEAL OF THE REVENUE IS BEING DISMISSED, CR OSS OBJECTION FILED BY THE ASSESSEE HAS BECOME INFRUCT UOUS. 12. TO SUMMARIZE THE RESULTS, APPEAL OF THE REVENUE AS WELL AS CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 17TH DAY OF MAY, 2019, AT CHE NNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER ( # / CHENNAI ) / DATED:17 TH MAY, 2019 KV $ +%,- .-!% / COPY TO: 1 . /0 / APPELLANT 3. ' 1% () / CIT(A) 5. -4 +%5 / DR 2. +6 /0 / RESPONDENT 4. ' 1% / CIT 6. 7 8# / GF