DCIT 9(1), MUMBAI V. GHARDA CHEMICALS LTD, MUMBAI

ITA 5917/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8542 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 16-10-2012
• Assessment Year: 2000-2001
• Appeal Filed On: 27-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVEN VED
• Keywords: Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO. 5917/MUM/2010 ASSESSMENT YEAR-2000-01 THE DCIT, RANGE 9(1), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. GHARDA CHEMICALS LTD., 5/6, JER MANSION, W.P. VARDE MARG, OFF TURNER ROAD, BANDRA (W), MUMBAI040 050 PANAAACG 1255E (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PAVEN VED RESPONDENT BY: SHRI NITESH JOSHI DATE OF HEARING :16.10.2012 DATE OF PRONOUNCEMENT: 19.10.2012 O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)- 19, MUMBAI DT. 10.5.2010 PERTAINING TO ASSESSMENT YEAR2000-01. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT THE REOPENING OF T HE ASSESSMENT U/S.147 WAS INVALID SINCE NO NEW FACTS WERE BROUGHT ON RECORD, CONTRARY TO THE PROVISIONS OF SECTION 147 OF THE I.T . ACT, 1961, AS AMENDED WITH EFFECT FROM 01 .04.1989, WHICH STIPULA TE THAT 4HE PROVISIONS OF SECTION 147 CA BE INVOKED IF THE ASSE SSING OFFICER HAS REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, IRRESPECTIVE OF WHETHER NEW FACTS HAVE EMERGED OR NOT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN NOT FOLLOWING THE RATIO OF THE D ECISION OF THE HONBLE ITA NO. 5917/M/2010 2 BOMBAY HIGH COURT IN THE CASE OF DR. AMINS PATHOLO GICAL LABORATORY (256 ITR 683) TO THE EFFECT THAT SUBJECT TO THE ASS ESSING OFFICER HAVING REASON TO BELIEVE THAT TAXABLE INCOME HAD ESCAPED A SSESSMENT, THE PROVISIONS OF SECTION 147 CAN BE INVOKED EVEN IF TH E RELEVANT MATERIAL WAS ON RECORD AT THE TIME OF ORIGINAL ASSESSMENT BU T THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND TO IT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.6,64 ,49,000/- BEING PROVISION FOR EXCISE DUTY, DISREGARDING THE OBSERVA TION IN THE TAX AUDIT REPORT THAT THE VALUATION OF FINISHED GOODS WAS EXC LUSIVE OF EXCISE DUTY. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT F OR THE YEAR UNDER CONSIDERATION, RETURN OF INCOME WAS FILED ON 30.11. 2000 DECLARING NET LOSS OF RS. 67,95,94,542/-. THE RETURN WAS ACCOMPANIED , I NTER ALIA , WITH AUDITED ACCOUNTS, STATUTORY AUDIT REPORT, TAX AUDIT REPORTS , COST AUDIT REPORTS ETC. THE ASSESSMENT WAS COMPLETED U/S. 143 (3) DETERMINING T HE ASSESSED LOSS AT RS. 62,01,36,482/-. 4. THE ASSESSEE PREFERRED AN APPEAL AGAINST THE SAI D ASSESSMENT ORDER. AFTER GIVING APPEAL EFFECT TO THE APPELLATE ORDER, THE REVISED ASSESSED LOSS CAME TO RS. 67,95,84,542/-. VIDE NOTICE DT. 26.3.20 07, THE ASSESSMENT WAS REOPENED U/S. 147 OF THE I.T. ACT. IN RESPONSE TO T HE NOTICE RECEIVED U/S. 148, THE ASSESSEE INTIMATED THE AO TO CONSIDER THE RETURN FILED ON 30.11.2000 AS THE RETURN IN RESPONSE TO THE SAID NOTICE, THE A O RECORDED THE FOLLOWING REASONS FOR REOPENING THE ASSESSMENT. PERUSAL OF THE RECORD REVEALS THAT THE ASSESSEE IS DEALING IN CHEMICALS AND THE SALES SHOWN AT RS.3142396660/- ARE NET OF E XCISE DUTY. THE CLOSING STOCK OF RAW MATERIAL AND PACKING MATERIAL VALUED AT RS.17,31,21,000/- AND RS.47,09,39,000/- RESPECTIVEL Y ARE ALSO NET OF EXCISE DUTY AS PER REPORT IN FORM NO.3 CD. THE REP ORT HAS FURTHER SHOWN BALANCE UNUTILIZED MODVAT CREDIT LYING AS ON 31/03/2000 AT RS. 4,92,17,206/-. IN VIEW OF THE PROVISIONS OF U/S. 145A, THE UNUTILI ZED MODVAT CREDIT RELATED TO RAW MATERIAL VALUED AT NET OF EXCISE DUT Y WAS TO BE ADDED TO ITA NO. 5917/M/2010 3 CLOSING STOCK OF RAW MATERIAL. THE OMISSION TO ADD HAS RESULTED IN UNDER-ASSESSMENT OF INCOME BY SIMILAR AMOUNT OF RS. 4,92,17,206/-. FURTHER THE ASSESSEE HAS DEBITED RS.6,64,49,000/- T O PROFIT & LOSS ACCOUNT TOWARDS EXCISE DUTY. IT IS PERTINENT TO ME NTION THAT PURCHASES ARE NET OF EXCISE DUTY AND SO ARE THE SALES. THUS, THE EXCISE DUTY ACCOUNT IS MAINTAINED SEPARATELY DUE TO WHICH DEBIT OF THIS AMOUNT SHOULD HAVE GONE TO EXCISE ACCOUNT. THEREFORE, THE EXPENDITURE DEBITED OF RS.6,64,49,000/- IS NOT ALLOWABLE. THUS THE UNDER-ASSESSMENT OF INCOME AMOUNTING TO RS .11,56,66,206/- LEADING TO SHORT LEVY OF TAX OF RS.4,04,83,173/- H AS OCCURRED. IT IS OBSERVED FROM RECORD THAT THE ASSESSEE HAS FIL ED TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS ON THE ISSUES DISC USSED ABOVE. 5. THE ASSESSEE STRONGLY OBJECTED TO THE REOPENING OF THE ASSESSMENT ON THE ABOVE REASONS. HOWEVER, THE SUBMISSIONS OF THE ASSESSEE WERE REJECTED BY THE AO WHO WENT ON TO ADD PROVISIONS FOR EXCISE DUTY DEBITED TO ACCOUNT AT RS. 6,64,49,000/- AND UNUTILIZED MODVAT CREDIT A T RS. 4,92,17,206/- AND CONCLUDED THE REASSESSMENT PROCEEDINGS ASSESSING NE T LOSS AT RS. 56,39,18,336/-. 6. THE ASSESSEE CHALLENGED THE VALIDITY OF THE REOP ENING OF THE ASSESSMENT BEFORE THE LD. CIT(A). AFTER CONSIDERIN G THE FACTS AND THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) WAS OF THE OPINION THAT ALL MATERIAL FACTS HAVE BEEN DISCLOSED BY THE ASSESSEE IN THE RETURN OF INCOME FILED. THE LD. CIT(A) FURTHER OBSERVED THAT THE RE OPENING IS BASED ON CHANGE OF OPINION AND THERE HAS BEEN NO FAILURE ON THE PAR T OF THE ASSESSEE TO DISCLOSE ALL MATERIAL FACTS AND WENT ON TO HOLD THA T THE REASSESSMENT IS INVALID. THEREAFTER, THE LD. CIT(A) WENT ON TO DEL ETE THE ADDITIONS ON MERITS OF THE CASE. 7. REVENUE IS AGGRIEVED BY THIS ORDER OF THE LD. CI T(A) AND IS BEFORE US. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONCEDED THAT THE AO HAS FRAMED THE REASSESSMENT ORDER ON FACTUAL ERRORS. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE FINDINGS OF LD. CIT(A). ITA NO. 5917/M/2010 4 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES. WE APPRECIATE THAT LD. DR H AS ACCEPTED THAT THE AO HAS PROCEEDED ON FACTUAL ERRORS. WE FIND THAT IN T HE TAX AUDIT REPORT U/S. 44AB OF THE ACT AT CLAUSE 12(A) UNDER THE HEAD METH OD OF VALUATION OF CLOSING STOCK, THE AUDITORS HAVE MENTIONED VALUATI ON OF CLOSING STOCK OF FINISHED GOODS AT LOWER OF COST OR MARKET VALUE, IN CLUSIVE OF EXCISE. WE FIND THAT IN THE REASONS FOR INITIATING PROCEEDINGS U/S. 148, THE AO HAS RECORDED THAT THE ASSESSEE HAS DEBITED RS. 6,64,49,000/- TO PROFIT AND LOSS ACCOUNT TOWARDS EXCISE DUTY, PURCHASES ARE NET OF EXCISE DU TY AND SO ARE THE SALES. THUS THE EXCISE DUTY ACCOUNT IS MAINTAINED SEPARATE LY DUE TO WHICH DEBIT OF THIS AMOUNT SHOULD HAVE GONE TO EXCISE AMOUNT. THE REFORE, THE EXPENDITURE DEBITED OF RS. 6,64,49,000/- IS NOT ALLOWABLE. CONS IDERING THE AUDIT REPORT WITH THE REASONS OF AO, WE FIND THAT IF THE ARGUMEN T OF THE AO IS ACCEPTED THEN IT WILL AMOUNT TO DOUBLE ADDITION ON THE SAME ACCOUNT AS THE ASSESSEE ON THE ONE HAND HAS DEBITED EXCISE DUTY TO THE PROF IT AND LOSS ACCOUNT AND ON THE OTHER HAND IT HAS CREDITED THE EXCISE IN THE VA LUE OF THE CLOSING STOCK. ON THE OTHER, THE ISSUE RELATING TO THE ADDITION ON AC COUNT OF UNUTILIZED MODVAT. WE FIND THAT THE AUDITORS HAVE DEMONSTRATED THE IMP ACT ON THE PROFIT AND LOSS ACCOUNT WOULD BE NIL. IT WAS EXPLAINED BY THE AUDIT ORS THAT THE ASSESSEE IS FOLLOWING EXCLUSIVE METHOD WHEREIN RAW MATERIAL, PA CKING MATERIAL AND WORK- IN-PROCESS WERE VALUED NET OF MODVAT WHICH METHOD I S NOT IN ACCORDANCE WITH THE METHOD OF VALUATION AS PRESCRIBED U/S. 145A OF THE ACT. THE AUDITORS HAVE ALSO GIVEN THE DETAILS OF DEVIATION AND EFFECT OF SUCH DEVIATION IN THE PROFIT AND LOSS ACCOUNT. WE ALSO FIND THAT THE AO HAS NOT DISPUTED THE FACTUAL CORRECTNESS OF THE QUANTIFICATION OF DEVIATION IN T HE METHOD OF VALUATION VIS-- VIS SEC. 145A AS REPORTED BY THE TAX AUDITOR. 9. CONSIDERING ALL THE FACTS IN TOTALITY IN OUR HUM BLE OPINION, THE AO HAS NOT BROUGHT ANY TANGIBLE MATERIALS ON RECORD TO JUS TIFY THE REOPENING OF THE ASSESSMENT. WE ACCORDINGLY CONFIRM THE FINDINGS OF THE LD. CIT(A). WE ALSO ITA NO. 5917/M/2010 5 DRAW SUPPORT FROM THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF KELVINATOR OF INDIA 320 ITR 561 WHEREIN THEIR LORDS HIPS HAVE THUS HELD: THE CONCEPT OF 'CHANGE OF OPINION' ON THE PART OF THE ASSESSING OFFICER TO REOPEN AN ASSESSMENT DOES NOT STAND OBLITERATED AFTER THE SUBSTITUTION OF SECTION 147 OF THE INCOME- TAX ACT, 1961, BY THE DIRECT TAX LAWS (AMENDMENT) ACTS, 1987 AND 1989 . AFTER THE AMENDMENT, THE ASSESSING OFFICER HAS TO HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, BUT THIS DOES NOT IM PLY THAT THE ASSESSING OFFICER CAN REOPEN AN ASSESSMENT ON MERE CHANGE OF OPINION. THE CONCEPT OF 'CHANGE OF OPINION' MUST BE TREATED AS AN IN- BUILT TEST TO CHECK THE ABUSE OF POWER. HENCE AFTER APRIL 1, 1989, THE ASSESSING OFFICER HAS POWER TO REOPEN AN ASSESSMENT , PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION TH AT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASON MUST H AVE A LINK WITH THE FORMATION OF THE BELIEF RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT (SUPRA), WE HOLD THAT REOPENING IS BAD IN LAW. GRO UND NO. 1 IS DISMISSED. 10. IN GROUND NO. 2, THE REVENUE HAS QUESTIONED THE CORRECTNESS OF THE ORDER OF THE LD. CIT(A). ACCORDING TO THE REVENUE, THE LD. CIT(A) ERRED IN NOT FOLLOWING THE RATIO OF THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF DR. AMINS PATHOLOGY LABORATORY VS JCIT 252 ITR 673. 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CASE RELIED UPON BY THE REVENUE HAS NO RELEVANCE ON THE FACTS OF THE PRESENT CASE IN AS MUCH AS IN THAT CASE, THE ASSESSMENT WAS MADE U/S. 143(1 ) OF THE ACT WHEREAS IN THE PRESENT CASE, THE ORIGINAL ASSESSMENT WAS MADE U/S. 143(3) OF THE ACT. 12. WE HAVE CONSIDERED THE DECISION RELIED UPON BY THE REVENUE AND WE FIND THAT THE FACTS ARE CLEARLY DISTINGUISHABLE AS POINTED OUT HEREIN ABOVE. ACCORDINGLY, GROUND NO. 2 IS DISMISSED. 13. GROUND NO. 3 RELATES TO THE DELETION OF THE ADD ITION OF RS. 6,64,49,000/-. AS WE HAVE ALREADY HELD THAT REOPEN ING IS BAD IN LAW, WE DO ITA NO. 5917/M/2010 6 NOT PROPOSE TO DECIDE THIS ISSUE ON MERIT. ACCORDI NGLY, THE ISSUE RAISED IN GROUND NO. 3 IS OTIOSE. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THIS 19 TH DAY OF OCTOBER, 2012 SD/- SD/- (H.L. KARWA) (N.K. BILLAIYA ) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED 19 TH OCTOBER, 2012 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI