Dy. CIT, Circle-10, Pune V. Sandvik Mining & Construction Tools India Ltd., Pune

ITA 1468/PUN/2013

• Counselvise Citation: 146824514 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-12-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 12-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment
• Section: 43B; 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.1468/PN/2013 (ASSESSMENT YEAR: 2004-05) THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-10, PUNE . APPELLANT VS. SANDVIK MINING & CONSTRUCTION TOOLS INDIA LTD., MUMBAI PUNE ROAD, DAPODI, PUNE 411012 PAN: AAHCS9249R . RESPONDENT ASSESSEE BY : MR. DHANESH BAFNA DEPARTMENT BY : MR. RAJESH DAMOR DATE OF HEARING : 16-12-2014 DATE OF PRONOUNCEMENT : 28-01-2015 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL IS DIRECTED AGAINST AN ORDER O F THE COMMISSIONER OF INCOME TAX(APPEALS)-V, PUNE, DATED 16.04.2013 WH ICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 22. 12.2011 PERTAINING TO THE ASSESSMENT YEAR 2004-05. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ S AS UNDER:- 1. WHETHER THE ON THE FACTS AND CIRCUMSTANCES OF T HE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE R EOPENING OF ASSESSMENT IN THIS CASE WAS NOT VALID WHEN THE ASSE SSEE HAS NOT MADE FULL AND TRUE DISCLOSURE OF ALL MATERIAL F ACTS NECESSARY FOR ITS ASSESSMENT. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESS EE COMPANY HAS MADE FULL AND TRUE DISCLOSURE OF MATERIAL FACTS NECESSARY FOR ITA NO.1468/PN/2013 ASSESSMENT WHEN IN THE AUDIT REPORT THE AUDITORS HA D CLEARLY MENTIONED THAT LEAVE ENCASHMENT OF RS.18,54,843/- A ND EXCISE DUTY PAYMENT OF RS.16,35,306/- INCURRED DURING F.Y. 2003-04 ARE REMAINED TO BE PAID BEFORE DUE DATE OF FILING OF RE TURN AND INSPITE OF THAT THE ASSESSEE HAS CLAIMED THE SAME AS DEDUCT ION FOR THE A.Y. 2004-05. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE INFORMATION WHICH WAS SUBMITTED BEFORE THE ASSE SSMENT IN A GENERAL MANNER CAN BE TERMED AS 'FULL' AND 'TRUE' D ISCLOSURE. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN ALLOWING LEAVE ENCASHMENT AND EXC ISE DUTY STATING THAT THE SAID EXPENSES WERE NOT ROUTED THRO UGH P&L ACCOUNT, WHEN IN FACT THE SAID EXPENSES ARE CLEARLY DISALLOWABLE U/S 43B OF THE IT ACT AND THE AUDITOR HAS CERTIFIED IN THE AUDIT REPORT THAT THESE EXPENSES WERE ROUTED THROUGH PROF IT & LOSS ACCOUNT. 3. THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956 AND, INTER-ALIA, IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF MINING AND CONSTRUCTION TOOLS. FO R THE ASSESSMENT YEAR 2004-05, IT FILED A RETURN OF INCOME ON 30.10.2004 DECLARING A LOSS OF RS.4,46,16,530/-. THE RETURN OF INCOME SO FILED WA S SUBJECT TO SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT, DATED 0 6.12.2006, WHEREIN THE ASSESSING OFFICER DETERMINED THE TOTAL LOSS AT RS.4 ,15,46,800/-. SUBSEQUENTLY, THE ASSESSING OFFICER ISSUED A NOTICE UNDER SECTION 148 OF THE ACT RE-OPENING THE ASSESSMENT ORIGINALLY COMPLETED UNDER SECTION 143(3) OF THE ACT, DATED 06.12.2006 ON THE GROUND THAT CERTAI N INCOME CHARGEABLE TO TAX HAD ESCAPED THE ASSESSMENT. THE NOTICE UNDER SECTI ON 148 OF THE ACT WAS ISSUED AFTER RECORDING THE FOLLOWING REASONS AS MAN DATED UNDER SECTION 147 OF THE ACT:- THE EXPENDITURE IN RESPECT OF LEAVE ENCASHMENT AND EXCISE DUTY INCURRED WAS NOT PAID BEFORE SUBMISSION OF RETURN O F INCOME AS MENTIONED U/S43B OF THE I,T. ACT, 1961. IT HAS ALS O BEEN POINTED OUT IN AUDITORS REPORT IN FORM 3CD VIDE CLAUSE 21 BY AUDIT OR. THE SAME WAS NOT DISALLOWED AS ASSESSEE STATED IT IS THE LIABILI TY OF OTHER COMPANIES WHICH ARE ACQUIRED BY THE ASSESSEE ON SLUMP SALE BA SIS. SO IT IS CLEAR AND CRYSTAL THAT ON SLUMP BASIS MEANS ALL THE ASSETS AND LIABILITIES BECOMES THE ASSETS AND LIABILITIES OF PURCHASER. F AILURE TO DO SO RESULTED IN ESCAPEMENT OF RS.34,90,149/-. ' ITA NO.1468/PN/2013 4. THE ASSESSEE OBJECTED TO THE RE-OPENING OF ASSES SMENT ON THE GROUND THAT ALL THE MATERIAL FACTS NECESSARY FOR MAKING TH E ASSESSMENT WERE DULY DISCLOSED BY THE ASSESSEE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS ORIGINALLY CARRIED OUT UNDER SECTION 143(3) OF THE ACT, AND THAT ACCORDINGLY, INITIATION OF PROCEEDINGS UNDER SECTION 147/148 OF THE ACT WAS INVALID. ON MERITS, THE ASSESSEE CONTENDED THAT THE LIABILITIES IN RESPECT OF LEAVE ENCASHMENT AND EXCISE DUTY REFERRED TO IN THE REASO NS RECORDED, WERE ACQUIRED BY ASSESSEE VIDE BUSINESS PURCHASE AGREEME NT DATED 20.02.2004 IN TERMS OF WHICH, IT HAD ACQUIRED THE MINING & CON STRUCTION DIVISION OF KENNAMETAL WIDIA INDIA LIMITED (KWIL). IN TERMS O F THE SAID BUSINESS PURCHASE AGREEMENT, ASSESSEE ACQUIRED THE MINING & CONSTRUCTION DIVISION OF KWIL FOR TOTAL CONSIDERATION OF RS.64.40 CRORES AND AS A CONSEQUENCE, ALL THE ASSETS AND LIABILITIES OF THE SAID DIVISION WER E TAKEN OVER BY THE ASSESSEE. THE ASSESSEE CONTENDED THAT THE LIABILITIES IN RESP ECT OF LEAVE ENCASHMENT AND EXCISE DUTY REFERRED TO BY ASSESSING OFFICER WE RE NOT DEBITED IN ITS PROFIT & LOSS ACCOUNT AND THEREFORE, THERE WAS NO QUESTION OF DISALLOWING THE SAME BY INVOKING PROVISIONS OF SECTION 43B OF THE ACT. 5. THE ASSESSING OFFICER DIS-AGREED WITH THE ASSESS EE ON BOTH THE COUNTS AND PROCEEDED TO SCALE DOWN THE TOTAL ASSESSED LOSS AT RS.3,80,56,651/- INSTEAD OF RS.4,15,47,800/- DETERMINED IN THE ASSES SMENT MADE UNDER SECTION 143(3) OF THE ACT. WHILE DETERMINING THE TOTAL LOS S AT RS.3,80,56,651/- IN THE IMPUGNED ASSESSMENT, THE ASSESSING OFFICER HELD THA T SINCE THE LIABILITIES AND ASSETS OF KWIL WERE TAKEN OVER BY THE ASSESSEE COMP ANY, IT WAS THE RESPONSIBILITY OF THE ASSESSEE TO PAY THE IMPUGNED SUMS BEFORE DUE DATE OF FILING OF THE RETURN AND IN THE ABSENCE OF SUCH PAY MENT, SUCH AMOUNT AMOUNTING TO RS.34,90,149/- WAS DISALLOWABLE UNDER SECTION 43B OF THE ACT. ITA NO.1468/PN/2013 AGAINST SUCH AN ASSESSMENT, ASSESSEE CARRIED THE MA TTER IN APPEAL BEFORE THE CIT(A). 6. IN APPEAL, THE ASSESSEE CONTENDED THAT THE INITI ATION OF PROCEEDINGS UNDER SECTION 147/148 WERE INVALID BECAUSE IN THE O RIGINAL ASSESSMENT PROCEEDINGS, ASSESSEE HAD SUBMITTED ALL THE DETAILS PERTAINING TO THE LEAVE ENCASHMENT AND EXCISE DUTY AND THEREFORE, THERE WAS NO FAILURE ON THE PART OF ASSESSEE TO DISCLOSE ALL MATERIAL FACTS TRULY AND F ULLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS. BY REFERRING TO THE PROVIS O TO SECTION 147(1), IT WAS CONTENDED THAT SINCE THE RE-OPENING OF THE ASSESSME NT WAS BEYOND FOUR YEARS AND WHERE ALL MATERIAL FACTS HAVE BEEN DISCLOSED BY THE ASSESSEE, THE INITIATION OF PROCEEDINGS WAS INVALID. ON MERITS A LSO, IT WAS CONTENDED THAT THE LIABILITIES ON ACCOUNT OF LEAVE ENCASHMENT AND EXCI SE DUTY WERE NOT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT AND THEREFORE, TH ERE WAS NO REASON FOR ITS DISALLOWANCE. THE CIT(A) HAS UPHELD BOTH THE PLEAS OF THE ASSESSEE. THE CIT(A) OBSERVED THAT HAVING REGARD TO THE FIRST PRO VISO TO SECTION 147 OF THE ACT, IT WAS IMPERATIVE FOR THE ASSESSING OFFICER TO BRING OUT THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE ASSESSING OFFICER NOT HAVING DONE THE SAME, THE CIT(A) PROCEEDED TO HOLD THAT INITIATION OF PROCEEDINGS UN DER SECTION 147/148 WAS INVALID. IN COMING TO SUCH A CONCLUSION, THE CIT(A ) TOOK INTO CONSIDERATION THE RELIANCE PLACED BY THE ASSESSEE ON THE JUDGMENTS OF HONBLE BOMBAY HIGH COURT IN THE CASES OF GRINDWELL NORTON LTD. VS. JAG DISH PRASAD JANGID, ACIT & ORS. (2004) 267 ITR 673 (BOM), HINDUSTAN LEVER LTD. R.B. WADKAR (2004) 268 ITR 332 (BOM) AND SOUND CASTING PVT. LTD. VS. DCIT & ORS (2012) 250 CTR (BOM) 119. ITA NO.1468/PN/2013 7. ON MERITS ALSO, THE CIT(A) FOUND THAT THERE WAS NO JUSTIFICATION FOR MAKING THE IMPUGNED DISALLOWANCE IN AS-MUCH-AS THE IMPUGNED EXPENDITURES WERE NOT ROUTED THROUGH PROFIT & LOSS ACCOUNT OF TH E ASSESSEE MEANING THEREBY THAT THE SAME WERE NOT CLAIMED AS DEDUCTION WHILE COMPUTING THE RETURNED INCOME. 8. AGGRIEVED WITH AFORESAID DECISION OF CIT(A), REV ENUE IS IN APPEAL BEFORE US. 9. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATI VE HAS NOT POINTED OUT ANY INFIRMITY IN THE FINDINGS RECORDED BY THE C IT(A). IT IS QUITE EXPLICIT FROM THE REASONS RECORDED BY THE ASSESSING OFFICER, WHIC H WE HAVE REPRODUCED ABOVE, THAT THERE IS NO AVERMENT TO THE EFFECT THAT THERE IS ANY FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MA TERIAL FACTS NECESSARY FOR HIS ASSESSMENT. IT IS ALSO EVIDENT THAT IN THE PRESENT CASE, RESORT TO SECTION 147/148 OF THE ACT MADE BY THE ASSESSING OFFICER TO RE-OPEN THE ASSESSMENT IS BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR. UNDOUBTEDLY, THE NOTICE UNDER SECTION 148 OF THE AC T WAS ISSUED ON 25.03.2011, WHICH IS BEYOND THE EXPIRY OF FOUR YEAR S FROM THE END OF ASSESSMENT YEAR UNDER CONSIDERATION I.E. 2004-05. IT IS ALSO UNDISPUTED THAT FOR ASSESSMENT YEAR 2004-05, THE RETURN OF INCOME F ILED BY THE ASSESSEE WAS SUBJECT TO SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT, DATED 06.12.2006. IN THIS VIEW OF THE MATTER, THE FIRST PROVISO TO SECTION 147 OF THE ACT COMES INTO OPERATION. THE RE-OPENING OF ASSESS MENT UNDER SUCH CIRCUMSTANCES CAN BE JUSTIFIED ONLY WHERE THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. IN THE PRESEN T CASE, THE FINDING OF THE CIT(A) IS THAT THERE WAS NO SUCH FAILURE ON THE PAR T OF THE ASSESSEE. ITA NO.1468/PN/2013 FURTHERMORE, THE CIT(A) HAS ALSO OBSERVED THAT IN T HE REASONS RECORDED THERE IS NO AVERMENT MADE BY THE ASSESSING OFFICER THAT T HERE IS A FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIA L FACTS NECESSARY FOR HIS ASSESSMENT. THE AFORESAID FACTUAL POSITION HAS NOT BEEN CONTROVERTED BY THE REVENUE BEFORE US AND RATHER THE SAME IS CLEARLY BO RNE OUT OF THE RECORD. 10. IN THE ABOVE BACKGROUND, WE, THEREFORE, FIND NO ERROR ON THE PART OF CIT(A) IN HOLDING THAT THE RE-OPENING OF ASSESSMENT BY ISSUANCE OF NOTICE UNDER SECTION 147/148 OF THE ACT IN THE PRESENT CAS E IS INVALID HAVING REGARD TO THE JUDGMENTS OF THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF GRINDWELL NORTON LTD. VS. JAGDISH PRASAD JANGID, ACIT & ORS. (SUPRA) AS WELL AS IN THE CASE OF SOUND CASTING PVT. LTD. VS. DCIT & ORS (SUP RA). 11. ACCORDINGLY, THE ACTION OF CIT(A) IS AFFIRMED A ND REVENUE FAILS ON ITS GROUNDS OF APPEAL NOS.1 TO 4. 12. EVEN ON MERITS, WE FIND THAT THERE IS NO INFIRM ITY IN THE FINDINGS OF CIT(A). UNDENIABLY, THE EXPENDITURE ON ACCOUNT OF LEAVE ENCASHMENT AMOUNTING TO RS.18,54,843/- AND EXCISE DUTY OF RS.1 6,35,306/-, WHICH ARE SOUGHT TO BE DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THE SAME REMAIN UN-PAID BY INVOKING THE PROVISIONS OF SECTIO N 43B, HAVE NOT BEEN ROUTED THROUGH THE PROFIT & LOSS ACCOUNT OF THE ASS ESSEE COMPANY. FACTUALLY SPEAKING, THE AFORESAID LIABILITIES WERE TAKEN OVER BY THE ASSESSEE AS A PART OF ACQUISITION OF MINING & CONSTRUCTION DIVISION OF KW IL THROUGH A BUSINESS PURCHASE AGREEMENT DATED 20.02.2004. IN THE ABSENC E OF ASSESSEE HAVING CLAIMED DEDUCTION FOR SUCH EXPENDITURE, THERE IS NO JUSTIFICATION FOR INVOKING THE PROVISIONS OF SECTION 43B OF THE ACT IN DISALLO WING SUCH EXPENDITURE. THE ITA NO.1468/PN/2013 CIT(A), IN OUR VIEW, MADE NO MISTAKE ON THIS ASPECT ALSO. THE ORDER OF CIT(A) IS HEREBY AFFIRMED. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED ON 28 TH JANUARY, 2015. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 28 TH JANUARY, 2015. GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE DEPARTMENT; 2) THE ASSESSEE; 3) THE CIT(A)-V, PUNE; 4) THE CIT-V, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE