TRUMAC ENGINEERING CO, V. ITO WD 2(3)4,

ITA 4885/MUM/2003

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1793 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 23-03-2010
• Assessment Year: 1995-1996
• Appeal Filed On: 26-06-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KESHAV SAXENA
• Assessee Lawyers: P J PARDIWALA
• Keywords: Reopening of assessment; Reason to believe; Set aside
• Section: 43B; 143(3); 251; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR, (ACCOUNTANT MEMBER), AND SMT. ASHA VIJAYARAGHAVAN, (JUDICIAL MEMBER) ITA NO.4885/MUM./2003 ASSESSMENT YEAR : 1995-96 DATE OF HEARING 23.3.2010 TRUMAC ENGINEERING CO. P. LTD., FORMERLY KNOWN AS TRUMAC ENGINEERING CO. LTD., 43, DR. V.B. GANDHI MARG, FORT, MUMBAI 23 PAN AAACT2153N .. APPELLANT VS INCOME TAX OFFICER, WARD 2(3)(4), AAYAKAR BHAWAN, M.K. ROAD, MUMBAI 20 RESPONDENT APPELLANT BY : SHRI P.J. PARDIWALA RESPONDENT BY : SHRI KESHAV SAXENA O R D E R PER PRAMOD KUMAR A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS DIRE CTED AGAINST LEARNED COMMISSIONER (APPEALS)S ORDER DATED 27 TH MARCH 2003, IN THE MATTER OF ASSESSMENT U/S 143(3) R/W SECTION 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ), FOR ASSESSMENT YEAR 1995-96. ITA NO.4885/MUM./2003 TRUMAC ENGG. CO. P. LTD. [2] 2. IN GROUND NO.1, THE ASSESSEE HAS RAISED THE FOLLOWI NG GRIEVANCE:- 1. LEARNED CIT(A) HAS ERRED IN NOT ADJUDICATING TH E GROUND REGARDING THE REOPENING OF THE ASSESSMENT. THE REOPENING OF THE A SSESSMENT OUGHT TO HAVE BEEN QUASHED INTER-ALIA ON THE GROUND THAT A) THE ASSESSMENT HAS BEEN RE-OPENED WITHOUT SATISF YING THE JURISDICTIONAL CONDITIONS NECESSARY FOR RE-OPENING OF THE ASSESSME NT. B) REASONS RECORDED FOR RE-OPENING OF THE ASSESSMEN T COULD NOT HAVE LED THE ASSESSING OFFICER TO BELIEVE THAT INCOME OF THE ASS ESSEE HAS ESCAPED ASSESSMENT BY REASON OF FAILURE ON THE PART OF THE ASSESSEE TO DI SCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE ASSESSMENT MADE U/S 143(3) READ WITH SECTION 14 7 OUGHT TO BE QUASHED. 3. TO ADJUDICATE ON THIS GRIEVANCE, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSMENT WAS REOPENED BY RECORDING THE FOLLOW ING REASONS. ASSESSMENT U/S 143(3) IN THIS CASE HAS BEEN COMPLE TED ON A TOTAL INCOME OF RS.13,01,37,241/- VIDE ORDER DATED 12.1.1 998. IN THE RETURN IT IS SEEN THAT VALUATION OF CLOSING STOCK HAS BEEN MADE WITHOUT CONSIDERING EXCISE DUTY AND CUSTOMS DUTY RE MAINING PAYABLE ON UNCLEARED FINISHED GOODS. REFERENCE IS MADE TO NOTE NO.7 TO THE ANNUAL REPORT RELEVANT OF ASSESSMENT YEAR. 1994-958. SINCE IT HAS BEEN HELD IN THE CASE OF CIT VS BRITISH PAINTS (INDIA) LTD., 188 ITR 44 (SC), THAT ANY SYSTEM OF ACCOUNTING WHICH EXCLUDES FOR VALUATION O F CLOSING STOCK ALL COSTS OTHER THAN COST OF RAW MATERIALS IS LIKELY TO RESULT IN A DISTRORED PICTURE OF THE TRUE STATE OF BUSINESS, ON THE FACTS OF THIS CASE IT IS NOTED THAT RS.28,44,074/- REPRESENTING EXCISE DUTY AND CU STOMS PAYABLE ON THE CLOSING STOCK SHOULD HAVE BEEN CONSIDERED BY THE AS SESSEE FOR THE PURPOSE OF VALUATION OF CLOSING STOCK. THIS HAS NOT BEEN DONE EITHER IN THE COMPUTATION BY THE ASSESSEE OR IN THE ASSESSMEN T ORDER. 4. WHEN ASSESSEE, INTER-ALIA, CHALLENGED THE REOPENING OF ASSESSMENT, THE LEARNED CIT(A) DECLINED TO TREAT THE GRIEVANCE AS A CADEMIC FOR THE REASON THAT THE ITA NO.4885/MUM./2003 TRUMAC ENGG. CO. P. LTD. [3] ASSESSEE WAS ALLOWED RELIEF ON MERITS. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 5. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUS ED THE MATERIAL ON RECORD, WE FIND THAT THE ISSUE WHETHER AN ASSESSMEN T CAN BE REOPENED FOR THE REASONS SET OUT BY THE ASSESSING OFFICER IS NOW SQU ARELY COVERED BY THE HON'BLE BOMBAY HIGH COURTS JUDGMENT IN THE CASE OF CAPRIHA NS INDIA LTD. VS PRAKASH CHANDRA, 256 ITR 721, WHEREIN THEIR LORDSHIPS HAVE, INTER-ALIA, OBSERVED AS FOLLOWS:- 9. FROM THE AFORESAID REASONS, IT IS EVIDENT THAT T HE REASONS FOR REOPENING THE ASSESSMENT IS THE DECISION OF THE APE X COURT IN THE CASE OF WALLACE FLOUR MILLS CO. LTD. VS. COLLECTOR OF CENTR AL EXCISE, WHEREIN IT IS HELD THAT THE TAXABLE EVENT FOR THE PURPOSE OF EXCI SE DUTY IS THE DATE OF MANUFACTURE OR PRODUCTION OF AN EXCISABLE ARTICLE. THERE CAN BE NO DISPUTE THAT THE TAXABLE EVENT FOR THE PURPOSE OF E XCISE DUTY IS DATE OF MANUFACTURING, BUT AS HELD BY THE APEX COURT IN THE CASE OF CCE VS. POLYSET CORPN. (2000) 10 SCC 241, THE RELEVANT DATE FOR THE PAYMENT OF EXCISE DUTY IS THE DATE OF CLEARANCE OF THE EXCISAB LE GOODS AND NOT THE DATE OF MANUFACTURING OF THE EXCISABLE GOODS. IN TH E INSTANT CASE, IT WAS SPECIFICALLY SET OUT IN THE RETURNS OF THE INCOME F ILED BY THE ASSESSEE THAT THE EXCISE DUTY ON FINISHED GOODS AND THE CUSTOMS D UTY ON RAW MATERIALS AND COMPONENTS LYING IN BONDED WAREHOUSE ON 31ST MA RCH, 1994 WERE NEITHER PROVIDED IN THE BOOKS NOR INCLUDED IN THE V ALUATION OF SUCH STOCKS AS PER THE PRACTICE CONSISTENTLY FOLLOWED BY THE ASSESSEE. THERE IS NO DISPUTE THAT IN THE ASSESSMENT ORDER DT. 15TH FE B., 2001, FOR THE ASST. YR. 1998-99, THE METHOD ADOPTED BY THE ASSESSEE HAS BEEN ACCEPTED BY THE REVENUE. MOREOVER, THE FACT THAT THE SAID EXCIS E DUTY AND CUSTOMS DUTY COMPONENTS WERE NOT INCLUDED IN THE BOOKS NOR IN THE VALUATION OF THE STOCKS, WAS KNOWN TO THE DEPARTMENT AND THE STE PS WERE SOUGHT TO BE TAKEN AS ON 29TH NOV., 1997 TO RECTIFY THE ASSES SMENT UNDER S. 154/155. HOWEVER, ON BEING SATISFIED, NO ACTION WAS TAKEN IN THE MATTER. UNDER THESE CIRCUMSTANCES, WHEN THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE HAS BEEN ACCEPTED BY THE R EVENUE FOR SUBSEQUENT YEARS AND THE DUTY LIABILITY ON THE BOND ED GOODS CRYSTALLISE ONLY ON THE DATE OF EXBOUNDING, IT CANNOT BE SAID T HAT THERE WAS ANY REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSES SMENT SO AS TO EMPOWER THE AO TO INITIATE PROCEEDINGS UNDER S. 148 TO REOPEN THE ASSESSMENT. ITA NO.4885/MUM./2003 TRUMAC ENGG. CO. P. LTD. [4] 10. APART FROM THE ABOVE, IT IS NOT DISPUTED BY THE RESPONDENTS, THE STATEMENT MADE IN THE PETITION, THAT THE EXCISE DUT Y AND CUSTOMS DUTY HAVE BEEN PAID BEFORE THE DUE DATE OF FURNISHING TH E RETURNS OF INCOME. IF THAT BE SO, THE PROVISIONS OF S. 43B OF THE SAID ACT WILL BE SQUARELY APPLICABLE AND IN THAT VIEW OF THE MATTER, IT CANNO T BE SAID THAT THE INCOME HAS ESCAPED THE ASSESSMENT. A DIVISION BENCH OF THIS COURT IN THE CASE OF HINDUSTAN LEVER LTD. VS. V.K. PANDEY, JOINT CIT (2001) 170 CTR (BOM) 493 : (2001) 251 ITR 209 (BOM), IN SIMILAR CI RCUMSTANCES, THOUGH RESTRICTED TO THE FACTS OF THAT CASE, HAD QU ASHED SIMILAR NOTICE ISSUED UNDER S. 148. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE SATISFIED THAT THE CONDITIONS WHICH ARE REQU IRED TO BE FULFILLED BEFORE ISSUING NOTICE UNDER S. 148 HAVE NOT BEEN FU LFILLED AND IN THAT VIEW OF THE MATTER, THE NOTICE IMPUGNED IN THE PETI TION IS LIABLE TO BE QUASHED AND SET ASIDE. 6. RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF HONBL E JURISDICTIONAL HIGH COURT, WE QUASH THE RE-ASSESSMENT PROCEEDINGS. ALL OTHER GRIE VANCES OF THE ASSESSEE THUS DO NOT REQUIRE ANY ADJUDICATION BY US. IN OUR CONSIDERED V IEW IN THE CASE OF REOPENED ASSESSMENT, THE FIRST THIS TO BE EXAMINED IS VALIDITY OF RE-ASS ESSMENT PROCEEDINGS. IF THESE RE-ASSESSMENT PROCEEDINGS ARE NOT LEGALLY VALID, NOTHING SURVIVES FOR ADJUDICATION ON MERITS OF ADDITION. THE LEARNED CIT(A) OUGHT TO HAVE DECIDED THE VALIDI TY OF RE-ASSESSMENT FIRST. BE THAT AS IT MAY, WE HAVE NOW DECIDED THAT ISSUE AND CANCELLED T HE RE-ASSESSMENT PROCEEDINGS ITSELF. 7. IN THE RESULT, APPEAL IS ALLOWED IN THE TERMS INDIC ATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 30 TH DAY OF APRIL 2010. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI; 30 TH DAY OF APRIL 2010 ITA NO.4885/MUM./2003 TRUMAC ENGG. CO. P. LTD. [5] COPIES OF THE ORDER FORWARDED TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT, MUMBAI (4) CIT(A), MUMBAI (5) DR, H BENCH (6) GUARD FILE TRUE COPY BY ORDER, ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PRADEEP J. CHOWDHURY MUMBAI BENCHES SR. PRIVATE SECRETARY ITA NO.4885/MUM./2003 TRUMAC ENGG. CO. P. LTD. [6] DATE INITIAL 1. DRAFT DICTATED ON 23.4.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 26.4.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 26.4.2010 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 26.4.2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 26.4.2010 SR.PS/PS 6. DATE OF PRONOUNCEMENT 30.4.2010 SR.PS 7. FILE SENT TO THE BENCH CLERK 30.4.2010 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER