MERCK LTD ( FORMERLY E MERCK INDIA LTD), MUMBAI V. ACIT CIR 6(3), MUMBAI

ITA 5430/MUM/2009

• Counselvise Citation: 543019914 RSA 2009
• Duration Of Justice: 2 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 22-02-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 30-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Assessee Lawyers: MRS ARATI VISSANJI
• Keywords: Reopening of assessment; Depreciation; Business expenditure; Search and seizure; Audit objection; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 80IB; 32; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE HONBLE PRESIDENT SHRI G.E.VEERABHADRAPPA AND SHRI D.K.AGARWAL (JM) ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) MERCK LIMITED, (FORMERLY E.MERCK (INDIA) LIMITED), LLOYDS CENTRE POINT, UNIT NO.21 & 22, 2 ND FLOOR, A, APPASAHEB MARATHE MARG, PRABHADEVI, MUMBAI -400025. PAN: AAACE2616F ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 6(3), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020. APPELLANT V/S RESPONDENT APPELLANT BY : MRS.ARATI VISSANJI AND SHRI AJI T SHAH RESPONDENT BY : SHRI P.C.MAURYA ORDER PER D.K.AGARWAL (JM) THIS APPEAL ARISES AS A RESULT OF ORDER PASSED BY T HE TRIBUNAL IN MA NO.356/MUM/2011 ARISING OUT OF ITA NO.5430/MUM/2009 DATED 9.9.2011, WHEREIN THE TRIBU NAL HAS RECALLED ITS EX-PARTE ORDER DATED 31.5.2011 WHICH W AS DECIDED AGAINST THE ORDER DATED 3.8.2009 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2002-03. DATE OF HEARING : 22.2.2012 DATE OF PRONOUNCEMENT : 20.3.2012 ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) 2 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE A SSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURI NG, TRADING AND MARKETING OF BASIC VITAMINS, DRUGS, LABORATORY AND FINE CHEMICALS, REAGENTS, PHARMACEUTICAL SPECIALTIES, DI AGNOSTICS AND PIGMENTS. THE RETURN WAS FILED DECLARING TOTAL INCOME AT RS.55,08,96,440/-. AFTER PROCESSING OF THE RETURN U/S 143(1), THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.56,06,82,590/- VIDE ORDER DATED 23.3.2005 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). SU BSEQUENTLY, THE AO REOPENED THE ASSESSMENT AFTER RECORDING TH E FOLLOWING REASONS : RETURN OF INCOME DECLARING TOTAL INCOME OF RS.55,08,96,440/- WAS FILED BY THE ASSESSEE COMPANY ON 28/10/2002. THE FOLLOWING ARE NOTICED: 1. ASSESSEE COMPANY HAS DEBITED RS.23,622,193/- BEI NG ROYALTY TO P&L A/C WHICH INCLUDES TRADE MARK ROYAL TY PAID TO MERCK KGAA GERMANY AMOUNTING TO RS.23,569,579/-/. THE ASSESSEE COMPANY IS PAYING PREDETERMINED INSTALLMENTS IN LIEU OF LUMPSUM PAYME NT FOR ACQUIRING AND EXCLUSIVE USE OF TRADE MARK LICEN SE. AS SUCH RS.2,35,69,579/- PAID DURING THE YEAR SHOULD H AVE BEEN CAPITALIZED BEING AN INTANGIBLE ASSET AND DEPRECIATION U/S 32 HAS TO BE ALLOWED. HOWEVER, TH E ASSESSEE COMPANY HAS CLAIMED THE ENTIRE SUM AS REVENUE EXPENDITURE, RESULTING IS EXCESS ALLOWANCE. 2 THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.7,31,13,000/- U/S 80IB OF THE ACT, BEING 100% OF PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING UNI T OF GOA. THE PROFIT OF THE BUSINESS INCLUDED AN AMOUN T OF RS.28.16 LAKHS FROM DEPB ON EXPORT. SINCE DEPB ON EXPORT WAS NOT INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING THE SAME WAS NOT REQUIRED TO BE CONSIDE RED ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) 3 FOR THE COMPUTATION AND ALLOWANCE OF THE DEDUCTION . BEING AN EXPORT INCENTIVE, DEPB ON EXPORTS ARE NOT INCOME DERIVED DIRECTLY FROM THE INDUSTRIAL ACTIVIT Y AND SHOULD NOT BE CONSIDERED AS INCOME FOR COMPUTATION OF INCOME U/S 80IB. THE DECISION OF THE SUPREME COURT IN TILE CASE OF CIT VS. STERLING FOODS (1999) 237 ITR 579 IS RELIED UPON. HENCE, THIS HAS RESULTED IN EXCESS DED UCTION U/S.80IB. 3. THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.7,31,13,000/- U/S 80IB BEING 100% OF PROFIT OF T HE UNIT. HOWEVER IT IS SEEN THAT WHILE WORKING OUT DED UCTION U/S 8OHHC, THE DEDUCTION ALLOWED U/S 80IB WAS NOT REDUCED FROM THE PROFIT FOR QUALIFYING DEDUCTION U/ S 8OHHC. THE ASSESSEE CO. IS NOT ENTITLED FOR ANY DED UCTION U/S 8OHHC AS THE RESULTANT PROFIT IS NEGATIVE AS S HOWN BELOW : PROFIT BEFORE ALLOWING DEDUCTION U/S 8OHHC (AS PER ASSESSMENT ORDER) 1 ,05,47,979/- LESS . 80IB DEDUCTION ALLOWED AS PER ASSESSMENT 7,31,13,000/- LOSS (-) 6,25,65,021/- EVEN AFTER INCLUSION OF EXPORT INCENTIVES, THE RESU LTANT AMOUNT IS A LOSS. HENCE, AS PER THE PROVISIONS OF T HE ACT, THE CLAIM OF THE ASSESSEE U/S 8OHHC SHOULD HAVE BEE N NIL AS AGAINST RS.73,83,585/- RESULTING IN EXCESSIV E CLAIM OF RS.73,83,585/- U/S 8OHHC. THIS HAS RESULTED IN A N AMOUNT OF RS.73,83,585/- NOT BEING CHARGED TO TAX A ND CONSEQUENTLY ESCAPING ASSESSMENT. 4. IN VIEW OF THE THREE REASONS RECORDED HEREINABO VE, WHICH ARE INDEPENDENT OF EACH OTHER, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE F.Y. RELEVANT TO A.Y 2002-03. A NOTICE U/S 148 R.W.S. CLAUSE (B) OF EXPL.2 BELOW SECTION 1 47 OF THE I.T. ACT IS ACCORDINGLY ISSUED. IN RESPONSE TO NOTICE U/S 148 OF THE ACT, THE ASSES SEE SUBMITTED A COPY OF RETURN SHOWING THE SAME INCOME OF ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) 4 RS.55,08,96,440/- AS SHOWN IN THE ORIGINAL RETURN. THE ASSESSEE ON RECEIPT OF THE COPY OF REASONS RECORDE D BY THE AO OBJECTED THE VALIDITY OF THE REASONS RECORDED FOR R EOPENING OF THE ASSESSMENT. THE AO VIDE LETTER DATED 20.8.2007 DISPOSED OF THE SAME BY HOLDING THAT THE REOPENING OF THE AS SESSMENT IS PERFECTLY VALID AND JUSTIFIED. DURING THE COURSE O F ASSESSMENT PROCEEDINGS THE AO AFTER CONSIDERING THE ASSESSEES EXPLANATION ON ALL THE ISSUES COMPLETED THE ASSESS MENT AT A TOTAL INCOME OF RS.58,33,63,650/- VIDE ORDER DATED 30.8.2007 PASSED U/S 143(3) READ WITH SECTION 147 OF THE AC T. ON APPEAL, THE LD. CIT(A) VIDE ORDER DATED 3.8.2009 PARTLY ALLOWED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE GROUND NOS.1 TO 1.3 TAKEN BY THE ASSESSEE RE AD AS UNDER : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE FACTS AND CIRCUMSTANCES OF THE CAS E OF THE APPELLANT AND IN LAW ERRED IN- 1.1 CONFIRMING THE IMPUGNED REASSESSMENT ORDER PASS ED BY THE ASSESSING OFFICER U/S.143 (3) READ WITH SECT ION 147 OF THE ACT AND FURTHER ERRED IN CONFIRMING THE ORDE R TO THE EXTENT IT WENT BEYOND REASONS FOR REOPENING. 1.2 CONFIRMING THE REASSESSMENT ORDER WHICH WAS ILL EGAL AND BAD IN LAW AND CONSEQUENTLY PASSING THE IMPUGNE D ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) 5 APPELLATE ORDER PARTLY CONFIRMING SUCH ILLEGAL AND BAD ORDER. 1.3 CONFIRMING THE REASSESSMENT ORDER DISALLOWING A ND ADDING VARIOUS ITEMS WHICH ARE THE SUBJECT MATTER O F THE APPEAL PETITION AND IN CONFIRMING ADDITIONS / DISALLOWANCES WHICH WERE NOT PART OF THE REASONS RECORDED FOR RE-OPENING THE ASSESSMENT. 5. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE WHILE FILING OF THE RETUR N HAS FILED ENTIRE MATERIAL AND EVIDENCE ALONG WITH THE RETURN OF INCOME. SHE FURTHER SUBMITS THAT DURING THE COURSE OF ORIGI NAL ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS AGAIN FILE D ALL THE RELEVANT DETAILS VIDE LETTER DATED, 6.8.2007 APPEAR ING AT PAGE 1 TO 37 OF THE ASSESSEES PAPER BOOK. SHE FURTHER SUB MITS THAT THE ASSESSEE HAS AGAIN FILED DETAILS VIDE LETTER DA TED 24.1.2005 APPEARING AT PAGES 156 TO 158 OF THE ASSESSEES P APER BOOK. SHE FURTHER SUBMITS THAT THE AO AFTER CONSIDERING ALL THE DETAILS FILED BY THE ASSESSEE HAS PASSED SCRUTINY ASSESSMENT ORDER DATED 21.3.2005 U/S 143(3) OF THE ACT. IN THE LIGHT OF THE ABOVE SHE SUBMITS THAT IT IS A CASE OF CHANGE OF OPINION AND NOT A CASE OF ESCAPEMENT OF INCOME AS NO TANGIB LE MATERIAL HAS COME TO THE NOTICE OF THE AO FOR RE-O PENING OF THE ASSESSMENT U/S 148. SHE FURTHER SUBMITS TH AT IT IS THE EVIDENT FROM THE REASONS RECORDED BY THE AO THAT TH E AO ON THE BASIS OF SAME VERY MATERIAL WHICH WAS ALREADY AVAILABLE ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) 6 AND DISCUSSED BY THE AO DURING THE COURSE OF ORIGI NAL ASSESSMENT PROCEEDINGS HAS REOPENED THE IMPUGNED ASSESSMENT WHICH IS NOT PERMISSIBLE UNDER THE LAW. SHE, THEREFORE, SUBMITS THAT THE PROCEEDINGS INITIATED U NDER SECTION 148 BE QUASHED. THE RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN CIT V/S KELVINATOR OF INDIA LTD. (2010) 320 ITR 561(SC) AND THE JUDGME NT OF THE HONBLE DELHI HIGH COURT IN SATNAM OVERSEAS LTD & ANR. V/S ADDL.CIT (2010) 228 CTR (DEL) 121. SHE FURTHER SUB MITS THAT EVEN OTHERWISE THE PAYMENT OF ROYALTY IS ALLOWABLE AS BUSINESS EXPENDITURE AND FOR THIS PROPOSITION THE RELIANCE WAS ALSO PLACED IN CIT V/S G4S SECURITIES SYSTEM (INDIA) P.L TD (2011) 338 ITR 46 (DELHI) AND CIT V/S V. R. V. BREWERIES & BOTTLING INDUSTRIES LTD (2011) 244 CTR (DEL) 576. SHE FURTH ER SUBMITS THAT THE DEDUCTION U/S 80IB IS ALSO ALLOWABLE IN FULL TO THE EXTENT OF PROFIT IN VIEW OF THE DECISION OF THE H ONBLE BOMBAY HIGH COURT IN ASSOCIATED CAPSULES P. LTD V/S DCIT & ANR (2011) 332 ITR 42 (BOM). 6. ON THE OTHER HAND, THE LD. DR WHILE RELYING ON T HE ORDERS OF THE AO AND THE LD. CIT(A) FURTHER SUBMITS THAT THE AO AFTER RECORDING THE REASONS UNDER SECTION 148 HAS REOPENE D THE ASSESSMENT, THEREFORE, THE PROCEEDINGS INITIATED AN D COMPLETED ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) 7 U/S 148 ARE VALID IN LAW AND FOR THIS PROPOSITION T HE RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF THE HONBLE DE LHI HIGH COURT IN DALMIA PVT.LTD V/S CIT (2011) TIOL - 628 -HC- DEL-IT AND THE DECISION OF THE TRIBUNAL IN LAKSHMI MACHINE WORKS LTD. V/S ACIT (2010) 1 ITR (TRIB) 92 (CHENNAI). HE , THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE AO AND CONFI RMED BY THE LD. CIT(A) BE UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT I S ALSO NOT IN DISPUTE THAT THE AO AFTER COMPLETING THE ORIGINAL ASSESSMENT U/S 143(3) ON 21.3.2005 HAS REOPENED THE ASSESSMEN T U/S 147/ 148 ON 15.11.2006 I.E. WITHIN 4 YEARS FROM TH E END OF THE RELEVANT ASSESSMENT YEAR. FROM THE READING OF THE REASONS RECORDED BY THE AO AND THE ASSESSEES EXP LANATION APPEARING AT PAGES 1 TO 37 AND 156 TO 158 OF THE AS SESSEES PAPER BOOK, WHICH WAS FILED AND CONSIDERED DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, WE OBSERVE THAT NO NEW MATERIAL HAS COME TO THE NOTICE OF THE AO TO INV OKE THE PROVISIONS OF SECTION 147 THAT THE INCOME HAS ESCAP ED ASSESSMENT. THE REVENUE HAS PLACED NO MATERIAL ON RECORD TO SHOW THAT THERE IS TANGIBLE MATERIAL TO COME TO T HE CONCLUSION ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) 8 THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSME NT. MERELY BECAUSE THE AO WANTS TO REVIEW HIS OPINIO N SIMPLY RELYING UPON THE RECORD WHICH WAS ALREADY AVAILABLE BEFORE HIM WHILE COMPLETING THE ORIGINAL ASSESSMENT PROCEEDING S U/S 143(3) AND WAS CONSIDERED IN ALL ASPECTS DOES NOT MEAN THAT THE ASSESSEE HAS ESCAPED HIS INCOME. 8. IN KELVINATOR OF INDIA LTD.(SUPRA), IT HAS BEE N HELD (PAGE 564): ON GOING THROUGH THE CHANGES, QUOTED ABOVE, MADE T O SECTION 147 OF THE ACT, WE FIND THAT, PRIOR TO THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987, REOPENING COULD BE DONE UNDER THE ABOVE TWO CONDITIONS AND FULFILLMENT OF THE SAID CONDITIONS ALONE CONFERRED JURISDICTION ON THE ASSESSING OFFICER TO MAKE A BACK ASSESSMENT, BUT I N SECTION 147 OF THE ACT (WITH EFFECT FROM 1ST APRIL , 1989), THEY ARE GIVEN A GO-BY AND ONLY ONE CONDITION HAS REMAINED, VIZ., THAT WHERE THE ASSESSING OFFICER H AS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSME NT, CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. THER EFORE, POST-1ST APRIL, 1989, POWER TO REOPEN IS MUCH WIDER . HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETAT ION TO THE WORDS 'REASON TO BELIEVE' FAILING 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 R EASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUA L DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REASSESS. THE ASSESSING OFFICER HAS NO POWER TO REV IEW ; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILMENT OF CERTAIN PRECONDITIONS AND IF THE CONCEPT OF 'CHANGE OF OPINION' IS REMOVED, AS CONTE NDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF REOPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' AS A N IN- BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSIN G ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) 9 OFFICER. HENCE, AFTER 1ST APRIL, 1989, THE ASSESSIN G OFFICER HAS POWER TO REOPEN, PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BELIEF. . 9. IN SATNAM OVERSEAS LTD & ANR.(SUPRA), IT HAS B EEN HELD THAT MERELY BECAUSE THE AO FEELS THAT HE HAS FAILED TO DO WHAT HE OUGHT TO HAVE DONE CANNOT BE A VALID GROUND FOR SEEKING INITIATION OF REASSESSMENT UNDER SECTION 147; AO HA VING REOPENED THE ASSESSMENTS SIMPLY RELYING UPON THE RE CORD WHICH WAS ALREADY AVAILABLE BEFORE HIM WHILE COMPLE TING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) AND WER E CONSIDERED IN ALL ASPECTS, REASSESSMENT PROCEEDING ARE NOT VALID. 10. IN DALMIA PVT.LTD (SUPRA), IT HAS BEEN HELD (PA GE 2 AND 3 OF THE ORDER): REASSESSMENT PROCEEDINGS HAVE BEEN INITIATED AFTER EXAMINING AND CONSIDERING THE AUDIT NOTE. THE NOTE RECORDS THAT THE AUDITORS SCRUTINY REVEALED THAT T HE ASSESSING OFFICER HAD ASKED THE ASSESSEE TO FURNISH COMPLETE DETAILS/CONFIRMATIONS IN RESPECT OF THE SU NDRY CREDITORS AMOUNTING TO RS.1,66,37,402/-. OUT OF THE SAID AMOUNT, THE ASSESSEE COULD SUBMIT CONFIRMATIONS IN RESPECT OF THE CREDITORS AMOUNTING TO RS.1,13,53,34 4/- AND THE BALANCE AMOUNT OF RS.52,84,058/- REMAINED UNCONFIRMED. THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER HAS HELD THAT THE PROVISIONS OF SE CTION 41(1) WERE ATTRACTED AS LIABILITY HAD REMAINED UNPA ID AND THE ASSESSEE HAD FAILED TO EXPLAIN NEXUS OF THESE EXPENSES WITH ITS BUSINESS ACTIVITIES. BUT UNCONFIR MED CREDITORS AMOUNTING TO RS.19,86,551/- ONLY WERE ADD ED ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) 10 BACK, IN SPITE OF TOTAL UNCONFIRMED CREDITORS OF RS.52,84,058/-. THIS HAD RESULTED IN UNDER ASSESSME NT OF RS.32,97,057/-. IN THIS REGARD, IT IS NOTICED THAT THE QUESTIONNA IRE/NOTICE DATED 14 TH SEPTEMBER, 2005, WHICH WAS ISSUED BY THE ASSESSING OFFICER AT THE TIME OF ORIGINAL ASSESSMEN T PROCEEDINGS. THE PETITIONER WAS ASKED TO SUBMIT LIS T OF SUNDRY CREDITORS WITH THEIR NAMES AND ADDRESSES, OP ENING AND CLOSING BALANCE AMOUNT WISE. THEREAFTER, BY ANO THER NOTICE DATED 14TH OCTOBER, 2005, THE PETITIONER WAS ASKED TO FURNISH NAMES AND ADDRESSES OF THE SUNDRY CREDITORS OF RS.1.66 CRORES EXPLAINING EACH CREDITO R AND GIVE DETAILS SINCE WHEN THE AMOUNT WAS OUTSTANDING. WHAT IS AVAILABLE ON RECORD AND WHAT WAS SUBMITTED BY THE ASSESSEE- PETITIONER AS PER THE REASSESSMENT NO TICE, WERE DETAILS OR CONFIRMATIONS TO THE EXTENT OF RS.1,13,53,344/-. NO OTHER DETAILS AND PARTICULARS WERE AVAILABLE. THIS WAS NOTICED IN THE AUDIT OBJECTION/ NOTE. INSPITE OF THIS, AN ADDITION OF RS.19,86,551/- WAS MADE IN THE ORIGINAL ASSESSMENT ORDER UNDER SECTION 41(1) O F THE ACT, BUT THERE IS NO EXPLANATION WHY NO ADDITION WA S MADE IN RESPECT OF RS.32,97,507/-. THE COMMISSIONER OF INCOME TAX ON THE NOTE COMMENTE D THAT THE AUDIT REPORT HAD BEEN ACCEPTED AND ACCORDI NGLY THE CASE WAS DISCUSSED WITH THE ADDITIONAL CIT, CIR CLE 10(1), ADDITIONAL CIT, R-10 AND THE COMMISSIONER OF INCOME TAX ON 27TH AUGUST, 2009 IN THE LIGHT OF A L ETTER WRITTEN BY THE ASSESSING OFFICER. THE ASSESSING OFF ICER WAS ASKED TO EXAMINE THE CASE FOR ISSUE OF 148 NOTI CE. THEREAFTER, THE REASONS WERE RECORDED ON 31ST AUGUS T, 2009 BY THE ASSESSING OFFICER AND APPROVED BY THE COMMISSIONER OF INCOME TAX ON 3RD SEPTEMBER, 2009. THUS THE PRESENT CASE IS NOT OF A MECHANICAL ISSUE OF NOTICE AFTER AN AUDIT NOTE BUT A CASE WHERE THE AUD IT NOTE WAS THE STARTING POINT ALBEIT THE ASSESSING OFFICER AFTER DUE APPLICATION OF MIND AND AFTER CONSIDERING AND VERIFYING THE FACTS WAS SATISFIED THAT THERE WERE R EASONS TO BELIEVE THAT INCOME CHARGEABLE TAX HAS ESCAPED ASSESSMENT. EXPLANATION 2 SECTION 147 STIPULATES CIRCUMSTANCES WHEN INCOME CHARGEABLE TO TAX SHALL BE DEEMED TO HAVE ESCAPED ASSESSMENT. THE PRESENT CASE IS NOT ONE OF CHANGE OF OPINION AS URGED BY THE PETITIONER. QUEST ION OF ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) 11 CHANGE OF OPINION ARISES WHEN AN ASSESSING OFFICER FORMS AN OPINION AND DECIDES NOT TO MAKE AN ADDITION AND HOLDS THAT THE ASSESSEE IS CORRECT. IN THE PRESENT CASE T HE ASSESSING OFFICER HAD ASKED SPECIFIC AND POINTED QU ERIES WITH REGARD TO THE SUNDRY CREDITORS OF RS.1,66,37,4 02/- ASKED FOR CONFIRMATIONS, NAMES, ADDRESSES AND DETAI LS OF SERVICES RENDERED. AN ADDITION OF RS.19,86,551/- W AS MADE FOR FAILURE TO FURNISH CONFIRMATION AND EXPLAI N WHAT SERVICES WERE RENDERED BY THE CREDITORS. THERE IS N O DISCUSSION, GROUND OR REASON WHY ADDITION OF RS.32,97,507/- WAS NOT MADE INSPITE OF THE FAILURE OF THE ASSESSEE TO FURNISH CONFORMATION AND DETAILS. IT WI LL BE APPROPRIATE IN THIS REGARD TO REFER TO EXPLANATION 1 TO SECTION 147 OF THE ACT, IT IS WELL SETTLED THAT AUDIT OBJECTION ON THE POI NT OF FACT CAN BE A VALID GROUND FOR REOPENING OF ASSESSMENT. THE CONTENTION OF THE ASSESSEE THAT THE PRESENT CASE IS OF CHANGE OF OPINION HAS TO BE REJECTED. A POINT OF FA CT, VIZ. UNCONFIRMED CREDITORS, WAS BROUGHT TO NOTICE; THE SECOND QUESTION WHICH ARISES FOR CONSIDERATION IS WHETHER THE ASSESSEE HAD MADE FULL AND TRUE DISCLOS URE OF MATERIAL FACTS. THE PETITIONER WAS CALLED UPON AND ASKED TO FURNISH NAMES AND ADDRESSES OF THE SUNDRY CREDITORS AND SINCE WHEN THE AMOUNT WAS OUTSTANDING . THE PETITIONER WAS ALSO ASKED TO EXPLAIN DETAILS OF EACH CREDITOR. THERE IS NOTHING ON RECORD AND IT IS NOT EVEN THE STAND OF THE PETITIONER THAT THOSE DETAILS IN RESPE CT OF ALL PARTIES WERE FURNISHED. IF THERE IS NO DISCLOSURE AND DETAILS WERE NOT FURNISHED, THERE CANNOT BE FULL AN D TRUE DISCLOSURE. IN SUCH CIRCUMSTANCES, IT CANNOT BE HE LD THAT THERE WAS FULL AND TRUE DISCLOSER BY THE PETITIONER ASSESSEE. THE SECOND CONTENTION OF THE PETITIONER FAILS. IN VIEW OF THE AFORESAID, THERE IS NO MERIT IN THE PRESENT WRIT PETITION AND THE SAME IS ACCORDINGLY DISMISSED . 11. WHEREAS IN THE CASE BEFORE US ALL THE RELEVANT DETAILS FILED BY THE ASSESSEE ARE AT PAGES 1 TO 37 AND 156 TO 158 OF THE ASSESSEES PAPER BOOK. IT IS NEITHER THE CASE OF THE REVENUE THAT THE ASSESSEE HAS FAILED TO FURNISH THE RELEVA NT DETAILS ON ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) 12 WHICH THE AO HAS INITIATED THE PROCEEDINGS U/S 148 OF THE ACT NOR IT IS THE STAND OF THE REVENUE THAT THE DETA ILS FILED BY THE ASSESSEE ARE INCOMPLETE OR THE AO HAS FAILED TO CONSIDER THE SAME WHILE MAKING THE ORIGINAL ASSESSMENT OR IT IS A CASE OF AUDIT OBJECTION ON THE POINT OF FACTS. FOR THES E REASONS AND KEEPING IN VIEW THE OBSERVATIONS OF THEIR LORDSHIP S THAT QUESTION OF CHANGE OF OPINION ARISES WHEN AN ASSE SSING OFFICER FORMS AN OPINION AND DECIDES NOT TO MAKE AN ADDITION AND HOLDS THAT THE ASSESSEE IS CORRECT (PARA 14) , WE ARE OF THE VIEW THAT THE DECISION RELIED ON BY THE LD. D R IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS O F THE PRESENT CASE. 12. IN LAKSHMI MACHINE WORKS LTD (SUPRA), IT HAS BE EN HELD (PAGES 93 & 94 OF 1 ITR(TRIB): HELD, DISMISSING THE APPEAL, (I) THAT THE PROVISI ONS OF CLAUSE (III) OF THE EXPLANATION TO SECTION 115JA(2) WERE NOT CORRECTLY APPLIED BY THE ASSESSING OFFICER IN T HE FIRST ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT, WHICH RESULTED IN ESCAPEMENT OF INCOME WITHIN THE MEANING OF SECTION 147 OF THE ACT. THE NOTICE UNDER SECTION 148 OF THE ACT ISSUED WITHIN A PERIOD OF FO UR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR WAS RI GHTLY HELD BY THE COMMISSIONER (APPEALS) AS VALID. (II) THAT ADMITTEDLY THE ASSESSEE-COMPANY HAD BROUG HT FORWARD THE LOSS AS WELL AS THE UNABSORBED DEPRECIA TION AND THEREFORE, APPLICABILITY OF CLAUSE (III) OF THE EXPLANATION TO SECTION 115JA(2) COULD NOT HAVE BEEN AVOIDED BY THE ASSESSING OFFICER. ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) 13 13. SINCE THE ABOVE CASE IS PRIOR TO THE DECISION IN CIT V/S KELVINATOR OF INDIA LTD. (2002) 256 ITR 1 (DEL) (FB ), WHEREIN THE DECISION IN PRAFUL CHUNILAL PATEL V/S MAKWAN A (M.J.)/ASST. CIT (1999) 236 ITR 832 (GUJ) WAS DISSENTED FROM W HICH WAS RELIED ON IN THE CASE OF LAKSHMI MACHINE WORKS LTD . (SUPRA) AND ALSO THE DECISION OF THE HONBLE SUPREME COURT IN CIT V/S KELVINATOR OF INDIA LTD. (SUPRA), THE DECISION RE LIED ON BY THE LD. DR IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 14. APPLYING THE RATIO OF THE ABOVE DECISIONS CITED BY THE LD. COUNSEL FOR THE ASSESSEE TO THE FACTS OF THE PRE SENT CASE, WE HOLD THAT IT IS A CASE OF CHANGE OF OPINION AND NOT A CASE OF ESCAPEMENT OF INCOME. THERE IS NO TANGIBLE MATER IAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT AND HENCE THE PROCEEDINGS INITIATED BY THE AO U/S 148 AND CONFIRMED BY THE LD. CIT(A) ARE QUAS HED. THE GROUNDS TAKEN BY THE ASSESSEE ARE, THEREFORE, ALLO WED. 15. SINCE WE HAVE QUASHED THE ASSESSMENT, THEREFORE , WE DO NOT CONSIDER IT NECESSARY TO ADJUDICATE THE OTHER G ROUNDS TAKEN BY THE ASSESSEE ON MERITS AND ACCORDINGLY THE SAM E ARE TREATED AS INFRUCTUOUS AND, HENCE, REJECTED. ITA NO.5430/MUM/2009 (ASSESSMENT YEAR:2002-03) 14 16. IN THE RESULT, THE ASSESSEES APPEAL STANDS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20TH MARC H,2012. SD SD (G.E.VEERABHADRAPPA) (D.K.AGARWAL) PRESIDENT JUDICIAL MEMBER MUMBAI, DATED 20TH MARCH, 2012. SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUM BAI