ZEBA HOME P. LTD, MUMBAI V. DCIT 7(3), MUMBAI

ITA 2153/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88040 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 12-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 30-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Keywords: Unexplained expenditure; Additional evidence; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 69C; 143(3); 142(1); 147; 148; 10

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JM AND SHRI D. KARUNAKAR A RAO, AM ./ I.T.A. NO.2153 /MUM/2012 ( / ASSESSMENT YEAR : 2005-06 ZEBA HOME PRIVATE LTD., SENAPATI BAPAT MARG, MATHURADAS MILLS COMPOUND, LOWER PAREL (WEST), MUMBAI -400 013. / VS. D CIT 7(3), AAYAKAR BHAVAN, M.K. MARG, MUMBAI 400 020. ./ PAN : AAAC20811F ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI SATISH R. MODY RESPONDENT BY SHRI KISHAN VYAS / DATE OF HEARING : 8-12-2014 / DATE OF PRONOUNCEMENT : 14-01-2015 [ !' / O R D E R PER VIJAY PAL RAO, J.M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 31-01-2012 OF LD. CIT(A)- 13, MUMBAI PERTAINING TO A.Y. 2005-06. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSIN G OFFICER IN REOPENING THE ASSESSMENT UNDER SECTION 147 OF THE A CT WITHOUT APPRECIATING THAT THE REOPENING WAS ON THE BASIS OF CHANGE OF OPINION, AS THE ASSESSMENT WAS EARLIER COMPLETED UN DER SECTION 143(3) OF THE ACT WHEREIN ALL THE DETAILS WERE SUBM ITTED TO THE ASSESSING OFFICER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE ITA 2153/M/12 2 CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 88,3 7,265/- UNDER SECTION 690 OF THE ACT AS UNEXPLAINED EXPENDITURE T OWARDS EXCESS CLOSING STOCK FOUND WITHOUT APPRECIATING THE FACTS OF THE CASE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT(A) ERRED IN NOT ADMITTING THE ADDITIONAL EVIDENCE AS S OUGHT TO BE BROUGHT ON RECORD BY THE APPELLANT DURING THE COURSE OF THE APPELLATE PROCEEDINGS JUSTIFYING THE VALUE OF THE CLOSING STO CK FAILING TO APPRECIATE THE FACT THE ISSUE REGARDING THE VALUATI ON OF THE SAID STOCK WAS FIRST TIME RAISED BY THE CIT(A) DURING TH E COURSE OF THE APPELLATE PROCEEDINGS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) FAILED TO APPRECIATE THAT OUT OF STOCK WORTH RS. 88,37,265/-, THE QUANTITY OF WHICH WAS NOT INCLUDED IN THE CLOSING S TOCK QUANTITATIVE TALLY OF FINISH GOODS, THE APPELLANT H AD RECEIVED STOCK WORTH RS. 54,95,785/- OVER A PERIOD OF 10 YEA RS AS MASTER SAMPLES, SAMPLE CUTS AND FREE SAMPLE FROM THE JOB W ORKERS AND VENDORS AS SUCH THE APPELLANT HAD NOT INCURRED ANY EXPENDITURE FOR PROCURING THE SAME AND FURTHER REGARDING THE WORK I N PROGRESS OF RS. 33,41,480/- THE APPELLANT HAD SHOWN THE SAID STOCK IN THE QUANTITATIVE TALLY OF THE RAW MATERIAL ONLY AS PER PRACTICE AND ONLY THE LABOUR CHARGES WAS INCLUDED IN THE VALUE OF CLOSING STOCK AND THE PAYMENT INCURRED FOR SAID LABOUR CHARGES WERE ALREA DY DEBITED BY THE APPELLANT IN THE PROFIT AND LOSS ACCOUNT. 5. WITHOUT PREJUDICE TO THE ABOVE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERR ED IN THE CONFIRMING THE ADDITION OF RS. 88,37,265/- UNDER SECTION 69C O F THE ACT FAILING TO APPRECIATE THE FACT THAT THE SAID VALUE OF RS. 88,3 7,265/- WAS ALREADY INCLUDED BY THE APPELLANT IN THE CLOSING STOCK OF H ANDTUFTED CARPET OF RS. 95,00,744/- AND AS SUCH THE GROSS PROFIT OF THE APPELLANT WAS ALREADY INCREASED BY THE SAID AMOUNT AND MAKING ADD ITION ONCE AGAIN OF THE SAID AMOUNT OF RS. 88,37,265/- WOULD AMOUNT TO DOUBLE ADDITION. 3. GROUND NO. 1 IS REGARDING VALIDITY OF REOPENING. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXP ORTING OF CARPET AND DHURRIES, TEXTILES AND MADEUPS. THE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961WAS COMPLETED ON 28-11-2007 WHEREBY THE A. O. ASSESSED THE TOTAL LOSS OF RS. 1,38,80,080/-. SUBSEQUENTLY, THE A.O. R EOPENED THE ASSESSMENT BY ITA 2153/M/12 3 ISSUING NOTICE U/S 148 OF THE ACT ON 8-3-2010 ON TH E GROUND THAT THE CLOSING STOCK OF FINISHED GOODS SHOWN BY THE ASSESSEE AT RS . 4,04,33,156/- SHOULD HAVE BEEN RS. 85,48,57,840/-. THE REASSESSMENT WAS COMPLETED VIDE AN ORDER DATED 16-12-2010 THEREBY THE A.O. MADE AN ADDITION ON ACCOUNT OF VALUATION OF STOCK OF RS. 80,05,44,604/-. THE ASSESSE CHALLEN GED THE ACTION OF THE A.O. BEFORE THE LD. CIT(A) INCLUDING THE VALIDITY OF REO PENING OF THE ASSESSMENT BUT COULD NOT SUCCEED. 4. BEFORE US, THE LD. A.R. HAS REFERRED TO THE REAS ONS RECORDED BY THE A.O. FOR REOPENING OF THE ASSESSMENT AND SUBMITTED THAT NO NEW MATERIAL OR INFORMATION CAME TO THE KNOWLEDGE OF THE A.O. TO FO RM THE OPINION THAT THE INCOME ASSESSABLE TO TAX HAS ESCAPED ASSESSMENT. TH E A.O. HAS RECONSIDERED THE RECORDS WITH HIM AND REOPENED THE ASSESSMENT WH ICH IS NOT PERMISSIBLE. THE LD. A.R. HAS REFERRED TO NOTICE U/S 142(1) OF T HE ACT AND SUBMITTED THAT THE A.O. RAISED A QUERY AT SL NO. 4 AND 10 OF QUEST IONNAIRE ANNEXED TO NOTICE U/S 142(1) OF THE ACT AND ASKED THE ASSESSEE TO FUR NISH THE COPY OF OPENING AND CLOSING INVENTORIES OF RAW MATERIAL AND FINISHE D GOODS INDICATING THE QUANTITY AND RATE OF THESE ITEMS OF INVENTORY. THE A.O. ALSO ASKED THE ASSESSEE TO SUBMIT THE SUPPORTING BILLS AND THE RAT E WHICH HAS BEEN ADOPTED FOR VALUATION. AS PER Q. NO. 10, THE A.O. ASKED THE ASSESSEE TO GIVE THE DETAILS OF SALES AND PURCHASES OF EXPORT AS WELL AS LOCAL S ALES SEPARATELY. THE LD. A.R. HAS SUBMITTED THAT THE ASSESSEE FURNISHED THE RELEV ANT DETAILS AND ONLY AFTER CONSIDERING THE DETAILS SO FURNISHED BY THE ASSESSE E, THE A.O. DID NOT MAKE ANY ADDITION ON ACCOUNT OF VALUATION OF CLOSING STO CK. THUS THE REOPENING IS BASED ON CHANGE OF OPINION ON THE SAME MATERIAL. H E HAS RELIED UPON THE FOLLOWING JUDGMENTS:- 1. BHARAT SANCHAR NIGAM LTD. VS. DCIT, 355 ITR 188 2. J.B. AGARWAL VS. ITO, 257 CTR 112 3. CIT VS AMIABH BACHCHAN, [2012] 349 ITR 76 ITA 2153/M/12 4 4. ON THE OTHER HAND, THE LD. D.R. HAS SUBMITTED TH AT THERE IS AN APPARENT DISCREPANCY IN THE DETAILS OF CLOSING INVENTORY FIL ED BY THE ASSESSEE WHICH SHOWS THAT THE DETAILS WERE NOT CONSIDERED BY THE A .O. DURING THE ASSESSMENT PROCEEDINGS AND SUBSEQUENTLY THE FACTUAL WRONG CLAI M WAS ALLOWED. THE A.O. FAILED TO APPLY HIS MIND ON THE CRUCIAL FACTS AND, THEREFORE, WHEN THE REOPENING IS WITHIN 4 YEARS FROM THE END OF THE ASS ESSMENT YEAR, THERE IS NO BAR ON THE JURISDICTION OF THE A.O. FOR REOPENING O F ASSESSMENT ON THE REASON OF FACTUAL ERROR CAME TO THE KNOWLEDGE OF THE A.O. HE HAS RELIED UPON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD. VS. ADDL. CIT, 350 ITR 651. 5. IN THE REJOINDER, THE LD. A.R. SUBMITTED THAT IT WAS ONLY A TYPING MISTAKE IN THE QUANTITY OF PRODUCTION BUT THE ACCURATE QUAN TITY AND VALUE TAKEN TO THE P&L ACCOUNT. HE HAS REFERRED TO THE IMPUGNED ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE LD. CIT(A) ACCEPTED THE TYPING E RROR. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE A.O. HAS RECORDED THE REAS ONS FOR REOPENING THE ASSESSMENT AS UNDER:- THE ASSESSMENT IN THIS CASE FORAY 2005-06 WAS COMP LETED ON 28-11- 2007 U/S 143(3) DETERMINING LOSS AT RS. 1,38,80,080 /- AS AGAINST THE RETURNED LOSS OF RS. 1,44,09,293/-. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AN D EXPORTING OF CARPET AND DHURRIES, TEXTILE AND MADEUPS. ON SCRUT INY OF DOCUMENTS ON RECORDS IT IS SEEN THAT THE ASSESSEE HAS SHOWN I NCREASE IN STOCK OF RS. 59,70,657/- IN THE CREDIT SIDE OF THE P&L A/C A S UNDER:- OPENING STOCK OF FINISHED GOODS RS.3,44,62,499/- CLOSING STOCK OF FINISHED GOODS RS.4,04,33,156/- RS.59.70.657/- ============ HOWEVER, DERAILED ANALYSIS OF ANNEXURES OF QUANTITI ES OF OPENING BALANCE PRODUCTION SALES AND CLOSING BALANCE OF FIN ISHED GOODS AND VALUATION THEREOF REVEALS THAT THE VALUE OF CLOSING STOCK OF FINISHED GOODS SHOULD HAVE BEEN RS. 85,48,57,8401- AS AGAINS T RS.4,04,33, ITA 2153/M/12 5 156/- SHOWN BY THE ASSESSEE. THIS HAS RESULTED IN U NDER ASSESSMENT OF INCOME OF RS.80,05,44,6041- AS AGAINST IRREGULAR CA RRY FORWARD OF LOSSES OF RS. 1,38,80,080/-. I HAVE REASON TO BELIEVE THAT THE INCOME CHARGEABLE TOT TAX HAS ESCAPED ASSESSMENT THE A. Y.2005-06 IN THE CASE OF THE ASSE SSEE. THEREFORE, PROCEEDINGS U/ S. 147 OF THE IT ACT ARE INITIATED IN THE CASE OF THE ASSESSSEE FOR THE SAID ASSESSMENT YEAR. THE PR OCEEDINGS U/S. 147 ARE INITIATED BEFORE THE EXPIRY OF FOUR YEARS FROM THE SAID ASSESSMENT YEAR. A NOTICE U/S 148 OF THE I ACT, 1961 IS ISSUE D TO THE ASSESSEE. 7. THE ASSESSEE HAS SHOWN THE CLOSING STOCK OF FINI SHED GOODS IN THE P&L ACCOUNT AT RS. 4,04,33,156/- WHEREAS FROM THE ANALY SIS OF THE QUANTITY OF OPENING STOCK PRODUCTION, SALES AND CLOSING BALANCE OF FINISHED GOODS, THE A.O. FOUND THAT THE CLOSING STOCK OF FINISHED GOODS SHOULD HAVE BEEN RS. 85,48,57,840/- INSTEAD OF RS. 4,04,33,156/-. IN REP LY TO THE NOTICE U/S 148 OF THE ACT, THE ASSESSEE ADMITTED THE DISCREPANCY OF T HE QUANTITY OF PRODUCT OF FINISHED GOODS ON THE GROUND OF TYPING ERROR. THE RELEVANT PART OF THE REPLY BY THE ASSESSEE IS REPRODUCED BY THE A.O. AT PAGE 2 IS AS UNDER:- WHAT WAS SHOWN UNDER SCHEDULE L AS INCREASE IN STOC K VALUE OF RS. 59,70,657/- WAS CORRECT UNDER PROFIT AND LOSS ACCOU NT FOR THE YEAR ENDED 31-3-2-05. ON DETAIL ANALYSIS OF OPENING STOCK, PRODUCTION, SA LES AND CLOSING BALANCE OF CLOSING STOCK AND VALUATION THEREOF WE W OULD LIKE TO COMMENT AS FOLLOWS:- - UNDER PURCHASE/PRODUCTION OF FINISHED GOODS TABLE F OR AN ITEM HAND TUFTED CARPET IT WAS TYPING ERROR BY MENTIONING QUA NTITY (SQFT) AS 11517504 INSTEAD OF 1517504 FOR WHICH THE CORRECT V ALUE WAS RS. 99369870/- INSTEAD OF RS. 829260288/-. THE GRAND T OTAL WITH THE CORRECT VALUE WORKS OUT TO RS. 171004438/-. OBVIOU SLY, WHEN THE COMPANY TURN OVER WAS RS. 165033782/- THAN THE PROD UCTION VALUE FOR THE SINGLE ITEM FOR HAND TUFTED CARPET CANNOT B E RS. 829260288/-. - ACCORDINGLY, UNDER CLAUSE 28(B) THE YIELD FOR FINIS HED GOODS IN TERMS OF QUANTITY WAS NOT 11537609.27 FOR WHICH THE CORRE CT QUANTITY WAS 1537609. HERE ALSO IT WAS TYPING ERROR. THEREFORE, FOR PART B FOR WHICH PRODUCT I.E. HAND TUFTED CARPET THE QUANTITY MANUFACTURE DURING THE YEAR UNDER QUESTION WAS A517504 FOR WHIC H IT WAS WRONGLY TYPE AS 11517504 AND THE SALES QUANTITY FOR THE YEAR WAS ITA 2153/M/12 6 1827247.26. THUS THE CORRECT REFLECTION OF STOCK V ALUES WAS AS FOLLOWS:- - OPENING STOCK 34462500 - ADD- PRODUCTION 171004438 - LESS SALES 165033782 CLOSING STOCK 404,33,156 I WAS MAINLY DUE TO THE TYPING ERROR THERE WAS A WR ONG MENTION OF QUANTITIES AND ITS VALUES. THUS, IT IS CLEAR THAT THERE WAS A FACTUAL ERROR IN THE QUANTITY GIVEN IN THE DETAILS OF THE PRODUCTION OF FINISHED GOODS. THERE WAS A HUGE DISCREPANCY IN THE QUANTITY OF FINISHED GOODS SHOWN IN THE DETAILS FILED BY THE ASSESSEE AND QUANTITY TAKEN TO THE P&L ACCOUNT. ACCORDINGLY, IT IS A CLEAR CASE OF COMPLETE FAILURE ON THE PART OF THE A.O. TO APPLY HIS MIND D URING THE ASSESSMENT PROCEEDINGS. FURTHER, THE CLOSING STOCK OF HAND TUF TED CARPET SHOWN IN THE P&L ACCOUNT IS RS. 6,63,479/- AS AGAINST RS. 95,00, 744/- SHOWN IN THE BALANCE SHEET. THE A.O. HAS NOT CONDUCTED ANY ENQUI RY OR EXAMINATION ON THIS DISCREPANCY OF THE STOCK OF HAND TUFTED CARPET SHOWN IN THE P&L ACCOUNT AND BALANCE SHEET. THEREFORE, THERE WAS ENOUGH TANG IBLE MATERIAL AND REASON TO BELIEVE THAT INCOME ASSESSABLE TO TAX HAS ESCAPE D ASSESSMENT. THE EXPLANATION OF THE ASSESSEE ON TYPING ERROR WAS NOT AVAILABLE DURING THE ASSESSMENT PROCEEDINGS AND THEREFORE THE DISCREPANC Y AS POINTED OUT BY THE A.O. IN THE REASONS RECORDED COULD BE EXAMINED ONLY DURING THE REASSESSMENT PROCEEDINGS. FURTHER, THERE IS AN ADMITTED DISCREP ANCY AND DIFFERENCE IN THE VALUE OF CLOSING STOCK OF HAND TUFTED CARPET SHOWN IN THE P&L ACCOUNT AND BALANCE SHEET WHICH WAS COMPLETELY IGNORED BY THE A .O. IN THE ORIGINAL ASSESSMENT PROCEEDING. IN THE CASE OF EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD. (SUPRA), THE HONBLE HIGH COURT OF BOMBA Y AFTER CONSIDERING THE JUDGMENT IN THE CASE OF CIT VS. KELVINATOR INDIA LT D., [2010] 320 ITR 561 (SC) ITA 2153/M/12 7 AS WELL AS IN THE CASE OF ACIT VS. RAJESH JHAVERI S TOCK BROKERS (P.) LTD. [2007] 291 ITR 500 (SC) HELD IN PARA 8 TO 10 AS UNDER: - 8. TO HOLD THAT THE ASSESSING OFFICER MUST BE DEEMED TO HAVE ACCEPTED WHAT HE HAS PLAINLY OVERLOOKED OR IGNORED IN THE ASSESSMENT ORD ER WOULD BE TO STRETCH THE INTERPRETATION OF SECTION 147 TO A POINT WHERE THE PROVISION WOULD CEASE TO HAVE MEANING AND CONTENT. SUCH AN EXERCISE OF EXCISION B Y JUDICIAL INTERPRETATION IS IMPERMISSIBLE. WHEN AN ASSESSMENT IS SOUGHT TO BE R EOPENED WITHIN A PERIOD OF FOUR YEARS OF THE END OF THE RELEVANT ASSESSMENT YEAR, T HE TEST TO BE APPLIED IS WHETHER THERE IS TANGIBLE MATERIAL TO DO SO. WHAT IS TANGIBLE IS SOMETHING WHICH IS NOT ILLUSORY, HYPOTHETICAL OR A MATTER OF CONJECTURE. SOMETHING W HICH IS TANGIBLE NEED NOT BE SOMETHING WHICH IS NEW. AN ASSESSING OFFICER WHO HA S PLAINLY IGNORED RELEVANT MATERIAL IN ARRIVING AT AN ASSESSMENT ACTS CONTRARY TO LAW. IF THERE IS AN ESCAPEMENT OF INCOME IN CONSEQUENCE, THE JURISDICTIONAL REQUIREME NT OF SECTION 147 WOULD BE FULFILLED ON THE FORMATION OF A REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. THE REOPENING OF THE ASSESSMENT WITHIN A PERIOD OF FOUR YEARS IS IN THESE CIRCUMSTANCES WITHIN JURISDICTION. 9. WE HAVE CONSIDERED IT APPROPRIATE TO EMPHASISE THI S ASPECT BECAUSE MUCH OF THE SUBMISSION ON BEHALF OF THE PETITIONER IN THESE PRO CEEDINGS HAS FOCUSED ON THE MERITS OF THE ASSESSMENT. AT THIS STAGE, THE TEST TO BE APPLI ED IS WHETHER THERE WAS REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT AND WHET HER THE ASSESSING OFFICER HAS TANGIBLE MATERIAL BEFORE HIM FOR THE FORMATION OF T HAT BELIEF. A REASON TO BELIEVE IS WHAT IS RELEVANT NOT AN ESTABLISHED FACT OF THE ESCAPEME NT OF INCOME. 10. THE SALIENT ASPECT OF THE CASE THAT MERITS EMPHASI S IS THAT THE ORDER OF ASSESSMENT THAT WAS PASSED BY THE ASSESSING OFFICER UNDER SECT ION 143(3) IS COMPLETELY SILENT IN RESPECT OF EACH ONE OF THE FIVE POINTS ON THE BASIS OF WHICH THE ASSESSMENT IS SOUGHT TO BE REOPENED. THERE IS MERIT IN THE CONTENTION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE THAT NO QUERY HAD BEEN RAISED DURING THE CO URSE OF THE ASSESSMENT AND THE ASSESSMENT ORDER WOULD EX-FACIE DISCLOSE THAT THE A SSESSING OFFICER HAS NOT APPLIED HIS MIND AT ALL TO ANY OF THE POINTS ON THE BASIS OF WH ICH THE ASSESSMENT IS NOW SOUGHT TO BE REOPENED. THAT THERE EXISTS TANGIBLE MATERIAL FOR T HE ASSESSING OFFICER TO REOPEN THE ASSESSMENT IN THE PRESENT CASE IS EVIDENT FROM THE RECORD. FOR INSTANCE, AS WE HAVE NOTED EARLIER, IN RESPECT OF ONE OF THE GROUNDS, GR OUND (II), THE REASONS WHICH HAVE BEEN DISCLOSED TO THE ASSESSEE WOULD INDICATE THAT RELIA NCE HAS BEEN PLACED ON PARAGRAPH 6.1 OF THE NOTES FORMING PART OF THE ACCOUNTS IN SCHEDU LE 17. PARAGRAPH 6.1 POSITS THAT AN AMOUNT OF RS.27.96 CRORES IS THE ESTIMATED AMOUNT O F RECOVERY EXPECTED OUT OF THE CLAIMS PAID OR PAYABLE BY THE ASSESSEE WHICH HAD BE EN RECOGNIZED ON AN INDIVIDUAL ASSESSMENT/ESTIMATE BASIS ON THE BASIS OF THE ACCOU NTING PRACTICE FOLLOWED BY THE ASSESSEE. DURING THE YEAR IN QUESTION, THERE WAS A CHANGE IN ACCOUNTING POLICY AS A RESULT OF WHICH THE PROVISION FOR ESTIMATED RECOVER Y IN RESPECT OF CLAIMS PAID AND OUTSTANDING FOR RECOVERY FOR A PERIOD OF THREE YEAR S OR MORE AS ON THE BALANCE-SHEET DATE HAS BEEN ESTIMATED AT RS.100/- FOR EACH CLAIM IN SU BSTITUTION OF THE INDIVIDUAL ASSESSMENT/ESTIMATE MADE EARLIER. THE ASSESSEE HAS STATED THAT THE CHANGE IN POLICY HAS THE EFFECT OF THE EXISTING PROVISION FOR ESTIMATED RECOVERY BEING WRITTEN OFF BY ABOUT ITA 2153/M/12 8 RS.20 CRORES TO THE REVENUE ACCOUNT AND REDUCING TH E PROFIT OF THE ACCOUNTING YEAR CONSEQUENTLY. EVIDENTLY THE ASSESSING OFFICER HAD N OT CONSIDERED PARAGRAPH 6.1 OF THE NOTES FORMING PART OF THE ACCOUNTS. AT THIS STAGE, IT WOULD BE NECESSARY FOR THE COURT TO RECORD THAT WE HAVE NOT BEEN CALLED UPON TO DECIDE AS TO WHETHER ANY ADDITION TO THE INCOME WOULD HAVE TO BE MADE ON THAT GROUND SINCE T HAT IS A MATTER WHICH HAS TO BE DECIDED AFTER THE ASSESSMENT IS REOPENED. ALL THAT IS RELEVANT AT THIS STAGE IS WHETHER THERE IS REASON TO BELIEVE ON THE PART OF THE ASSES SING OFFICER THAT INCOME HAD ESCAPED ASSESSMENT. THE ANSWER IS IN THE AFFIRMATIVE. IT WO ULD NOT BE APPROPRIATE FOR THIS COURT TO PREEMPT AN ENQUIRY WHATSOEVER BY THE ASSESSING O FFICER, ONCE A TANGIBLE BASIS HAS BEEN DISCLOSED FOR REOPENING THE ASSESSMENT. SIMILA RLY, IN RESPECT OF THE REVISION OF PAY SCALES, THE ASSESSING OFFICER HAS SOUGHT TO REOPEN THE ASSESSMENT ON THE GROUND THAT THE LIABILITY HAD NOT CRYSTALLIZED BEFORE THE BALANCE-S HEET DATE. HERE AGAIN, IT IS APPARENT THAT THERE HAS BEEN NO APPLICATION OF MIND TO THE R ELEVANT FACTS BY THE ASSESSING OFFICER DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. AS REGARDS THE FIRST GROUND, ON THE BASIS OF WHICH THE ASSESSMENT IS SOUGHT TO BE REOPE NED, IT HAS BEEN SOUGHT TO BE URGED THAT UNDER SECTION 44 READ WITH RULE 5(A), IT WOULD NOT BE OPEN TO THE ASSESSING OFFICER TO MAKE AN INCOME ADDITION. MOREOVER, IT HAS BEEN U RGED THAT IN THE PAST, THE SAME PRACTICE HAD BEEN ACCEPTED BY THE REVENUE. THESE AR E MATTERS WHICH ON MERITS WILL BE CONSIDERED BY THE ASSESSING OFFICER AND IT WOULD BE INAPPROPRIATE FOR THIS COURT TO EXPRESS ANY OPINION ON THE MERITS OF ISSUE. MOREOVE R, ONCE THE COURT HAS COME TO THE CONCLUSION THAT EVEN A SINGLE GROUND ON THE BASIS O F WHICH THE ASSESSMENT IS SOUGHT TO BE REOPENED IS VALID AND WITHIN JURISDICTION, THE N OTICE FOR REOPENING OF THE ASSESSMENT WOULD HAVE TO BE UPHELD. CONSEQUENTLY, WE CLARIFY T HAT THOUGH SUBMISSIONS HAVE BEEN URGED ON THE MERITS OF EACH OF THE GROUNDS, WE KEEP ALL RIGHTS AND CONTENTIONS OF THE PARTIES OPEN TO BE URGED BEFORE THE ASSESSING OFFIC ER, ONCE THE ASSESSMENT IS REOPENED IN EXERCISE OF THE POWER CONFERRED BY SECTION 147. THE ASSESSING OFFICER HAS ACTED WITHIN JURISDICTION IN REOPENING THE ASSESSMENT. THEREFORE, AT THE STAGE OF REOPENING, THE TEST TO B E APPLIED IS WHETHER THERE WAS A REASON TO BELIEVE THAT INCOME ASSESSABLE TO T AX HAS ESCAPED ASSESSMENT AND THE REASON IS BASED ON SOME TANGIBLE MATERIAL BEFORE THE A.O. AS WE HAVE ALREADY DISCUSSED IN THE FORGOING PARAS THAT THERE WAS ENOUGH TANGIBLE MATERIAL BEFORE THE A.O. TO FORM THE BELIE F THAT THE INCOME ASSESSABLE TO TAX HAS ESCAPED ASSESSMENT THEREFORE THE DECISIO NS RELIED UPON BY THE LD. A.R. ARE NOT APPLICABLE ON THE FACT OF THIS CASE. EVEN OTHERWISE, IT WAS NOT A CASE OF REOPENING BASED ON CHANGE OF OPINION OR THE RE MAY BE POSSIBILITY OF TWO VIEWS. WHEN THE TANGIBLE MATERIAL CAME TO THE K NOWLEDGE OF THE A.O. COULD LEAD TO ONLY BELIEF THAT THE INCOME ASSESSABL E TO TAX HAS ESCAPED ASSESSMENT THEN THE CONDITION REQUIRED U/S 147 OF T HE ACT FOR REOPENING OF ITA 2153/M/12 9 ASSESSMENT ARE SATISFIED. ACCORDINGLY, WE HOLD THA T THE REOPENING IS VALID AND AS PER LAW. 8. GROUND NO. 2 IS REGARDING ADDITION U/S 69-C OF T HE ACT ON ACCOUNT OF UNEXPLAINED EXCESS CLOSING STOCK. THE A.O. FOUND DI SCREPANCY IN THE CLOSING STOCK SHOWN IN THE P&L ACCOUNT AND THE DETAILS OF T HE STOCK GIVEN IN THE ACCOUNT AS WELL AS FURNISHED BY THE ASSESSEE. ACCO RDINGLY, THE A.O. MADE AN ADDITION OF RS. 80,05,44,604/-. THE LD. CIT(A) REST RICTED THE ADDITION TO RS. 88,37,625/- BY ACCEPTING THE EXPLANATION OF THE ASS ESSEE REGARDING TYPING ERROR OF THE QUANTITY OF PRODUCTION FIGURE OF 1,15, 17,504 SQ. FT. INSTEAD OF CORRECT QUANTITY OF 15,17,704 SQ.FT. AND FURTHER TH E ERROR IN THE SALE QUANTITY OF 1,18,27,528 SQ. FT. INSTEAD OF CORRECT FIGURE OF 18,27,528 SQ. FT. 9. BEFORE US, THE LD. A.R. SUBMITTED THAT THE LD. C IT(A) SUSTAINED THE ADDITION ON ACCOUNT OF DIFFERENCE IN CLOSING STOCK OF HAND TUFTED CARPETS SHOWN IN THE P&L ACCOUNT AND BALANCE SHEET. THE LD . A.R. EXPLAINED THAT IN ORDER TO BOLSTER THE BALANCE SHEET, THIS YEAR THE A SSESSEE INCLUDED IN THE CLOSING STOCK VALUE OF FREE CARPETS AND SAMPLES WHI CH WERE RECEIVED BY THE ASSESEE FROM JOB WORKERS WHO MADE CARPETS AS PER TH E DESIGN PROVIDED BY THE ASSESSEE AND AT SOMETIMES DESIGNS DEVELOPED BY THEM SELVES. HE HAS POINTED OUT THAT THIS FACT WAS EXPLAINED BY THE ASSESSEE BE FORE THE LD. CIT(A) VIDE ITS LETTER DATED 19-1-2012 WHEREIN THE ASSSSEE HAS GIVE N THE REASON THAT HAVING THE UNSATISFACTORY PERFORMANCE OF THE ASSESSEE AND IN ORDER TO BOLSTER THE BALANCE SHEET, THE ASSESSEE INCLUDED IN THE CLOSING STOCK VALUATIONS, FREE CARPETS AND SAMPLES RECEIVED FROM JOB WORKERS. THE ACTUAL QUANTITY OF CLOSING STOCK, PRODUCED AND PAID FOR BY THE ASSESSEE IS ONL Y RS. 6,34,479/- AND NOT RS. 95,00,744/- SHOWN IN THE BALANCE SHEET WHICH IN CLUDES THE VALUE OF THE FREE CARPETS AND SAMPLES RECEIVED FROM JOB WORKERS. THUS THE LD. A.R. HAS SUBMITTED THAT THE CORRECT VALUE OF HAND TUFTED STO CK IS SHOWN IN THE P&L ACCOUNT. THE ASSESSEE PRODUCED ADDITIONAL EVIDENCE BEFORE THE LD. CIT(A) TO ITA 2153/M/12 10 ESTABLISH THIS FACT THAT THE VALUATION SHOWN IN THE BALANCE SHEET WAS ONLY DUE TO INCLUSION OF FREE CARPETS AND SAMPLES RECEIVED F ROM JOB WORKERS. HOWEVER THE LD. CIT(A) DID NOT ADMIT THE ADDITIONAL EVIDENC E. HE HAS ARGUED THAT SINCE THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE ON TH IS STOCK OF SAMPLE CARPET, THEREFORE, IT CANNOT BE INCLUDED IN THE CLOSING STO CK AND INCOME OF THE ASSESSEE. HE REFERRED TO THE DETAILS OF THE SAMPLE PIECES OF CARPETS AND VALUATION SHOWN IN THE BALANCE SHEET. THE LD. A.R. HAS SUBMITTED THAT THIS ISSUE REQUIRED FRESH CONSIDERATION AND EXAMINATION OF DETAILS. HE HAS RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN TH E CASE OF CIT VS. LUBTEC INDIA LTD. (2009) 311 ITR 175 (DEL). 10. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT NO SUCH EXPLANATION WAS GIVEN BEFORE THE A.O. EITHER DURING THE ORIGINA L ASSESSMENT OR DURING THE REASSESSMENT PROCEEDINGS DESPITE THE ASSESSMENT WAS REOPENED ONLY ON THE GROUND OF DISCREPANCY IN THE CLOSING STOCK. HE HAS RELIED UPON THE ORDER OF LD. CIT(A). 11. WE HAVE CONSIDERED THE RIVAL SUBMISSION AS WELL AS RELEVANT MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT THERE WAS DISCREPANCY IN THE CLOSING STOCK SHOWN IN THE P&L ACCOUNT AND BALANCE SHEET IN RESPECT OF HAND TUFTED CARPETS. THE CLOSING STOCK OF HAND TUFTED CA RPETS SHOWN BY THE ASSESSEE IN THE P&L ACCOUNT IS RS. 6,63,479/- WHERE AS THE CLOSING STOCK OF HAND TUFTED CARPETS WAS SHOWN IN THE BALANCE SHEET AT RS. 95,00,744/-. THE LD. CIT(A) CONFIRMED THE ADDITION TO THE EXTENT OF DIFFERENCE BETWEEN THE CLOSING STOCK SHOWN IN THE P&L ACCOUNT AND BALANCE SHEET AMOUNTING TO RS. 88,37,265/- ON THE GROUND THAT THE ASSESSEE FAILED TO RECONCILE THE FIGURE OF CLOSING STOCK. THE DETAILS FILED BY THE ASSESSEE B EFORE THE LD. CIT(A) WERE NOT EXAMINED EITHER BY THE LD. CIT(A) OR BY THE A.O. BE CAUSE THE LD. CIT(A) DECLINED TO ADMIT THE ADDITIONAL EVIDENCE. WE ARE O F THE VIEW THAT THIS ISSUE HAS TO BE DECIDED AFTER CONSIDERING THE RELEVANT FA CTS AND DETAILS AND ITA 2153/M/12 11 THEREFORE PROPER EXAMINATION AND VERIFICATION OF RE LEVANT FACTS IS REQUIRED. HOWEVER, WE FIND THAT THE DETAILS FILED BY THE ASSE SSEE ALSO SUFFER FROM CERTAIN DISCREPANCY WITH REGARD TO THE QUANTITY OF SAMPLE I TEMS AND THEIR VALUATION SHOWN IN THE DETAILS COMPILED BY THE ASSESSEE. ACC ORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN THE INTERES T OF JUSTICE, WE REMIT THIS ISSUE TO THE RECORD OF THE A.O. FOR PROPER EXAMINAT ION AND VERIFICATION OF FACTS AND RELEVANT RECORDS AND THEN DECIDE THIS ISSUE AS PER LAW. . 12. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JAN. 2015 !' # $% &! ' 14-01-2015 ( ) SD/- SD/- (D.KARUNAKARA RAO) (VIJAY PAL RAO ) JUDICIAL MEMBER ACCOUNTANT MEMBER $ 5 MUMBAI ; &! DATED 14-01-2015 [ .6../ R.K. , SR. PS ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 7 () / THE CIT(A) 13, MUMBAI 4. 7 / CIT- -7I, MUMBAI 5. :;( 66<= , <= , $ 5 / DR, ITAT, MUMBAI G BENCH 6. (?@ A / GUARD FILE. ' / BY ORDER, : 6 //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , $ 5 / ITAT, MUMBAI