JORD ENGINEERS (INDIA) LTD, MUMBAI V. DCIT (OSD) 8(1), MUMBAI

ITA 644/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8510 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: J
• Assessment Year: 2003-2004
• Appeal Filed On: 30-01-2015
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHRI
• Assessee Lawyers: VIAJY MEHTA
• Keywords: Reopening of assessment; Difference of opinion; Condonation of delay; Change of opinion
• Section: 143(3); 147; 148; 144

Judgement Text

1 I.T.A. NO. 644 & 718 /MUM/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J , MUMBAI BEFORE SHRI B.R. BASKARAN ( ACCOUNTANT MEMBER ) AND SHRI AMIT SHUKLA ( JUDICIAL MEMBER) I.T.A. NO. 644 & 718 /MUM/201 5 (ASSESSMENT YEAR : 20 03 - 04 ) M/S JORD ENGINEERS (INDIA) LTD 504, VISWANAK, CHAKALA ANDHERI (EAST), MUMBAI - 99 VS THE DY.CIT (OSD) - 8 ( 1 ), MUMBAI PAN : AA ACJ2871P (APP ELLANT ) (RESPONDENT) APP ELLANT BY SHRI VIAJY MEHTA RESPONDENT BY SHRI ALOK JOHRI DATE OF HEARING : 15 - 1 2 - 2016 DATE OF PRONOUNCEMENT : 31 - 0 1 - 201 7 O R D E R PER BENCH: - BOTH THE APPEALS FILED BY THE ASSESSEE RELATE TO AY 2003 - 04. THE APPEAL NUMBERED AS ITA 644/M/2015 RELATES TO THE QUANTUM ASSESSMENT PROCEEDINGS AND THE OTHER APPEAL RELATE TO PENALTY PROCEEDINGS. THE ASSESSEE IS CHALLENGING THE ORDERS PASSED BY LD CIT(A) - 17, MUMBAI IN BOTH THE PROCEEDINGS. 2. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE ASSESSEE CHALLENGING THE ORDER PASSED BY LD CIT(A) IN QUANTUM ASSESSMENT PROCEEDINGS. THE ASSESSEE IS CHALLENGING THE DECISION OF LD C IT(A) IN REFUSING TO CONDONE THE DELAY OF 141 DAYS IN FILING APPEAL BEFORE HIM AND ALSO IN CONFIRMING THE ADDITION MADE BY THE AO. 2 I.T.A. NO. 644 & 718 /MUM/2015 3. THE LD A.R SUBMITTED THAT THE IMPUGNED ASSESSMENT WAS REOPENED BY THE AO AFTER EXPIRY OF FOUR YEARS FROM THE END OF TH E ASSESSMENT YEAR. HE SUBMITTED THAT THE ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. HE SUBMITTED THAT ASSESSEES REPRESENTATIVE DID NOT APPEAR BEFORE THE AO IN THE REOPENED PROCEEDINGS AND HENCE THE ASSESSMENT WAS COMPLETED BY THE AO TO THE BEST OF HIS JUDGEMENT U/S 144 R.W.S. 147 OF THE ACT. THE ASSESSEE COULD FILED APPEAL BEFORE LD CIT(A) AFTER A DELAY OF 141 DAYS. THOUGH THE ASSESSEE SHOWED SUFFICIENT CAUSE IN FILING THE APPEAL BELATEDLY, THE LD CIT(A) WAS NOT CONVINCED WITH THE REASONS FURNISHED BY THE ASSESSEE FOR THE DELAY AND HENCE HE HAS REFUSED TO CONDONE THE DELAY. 4. THE LD A.R SUBMITTED THAT THOUGH THE ASSESSEES HEAD OFFICE IS LOCATED IN MUMBAI, ALL THE OPERATIONS ARE BEING CARRIED ON FROM VADODARA. HENCE THE ASSESSMENT ORD ER SERVED AT THE HEAD OFFICE WAS FORWARDED BY THE MINISTERIAL STAFF TO THE THEN EXECUTIVE DIRECTOR SHRI ANIL KUMAR TAYAL, WHO WAS LOOKING AFTER DAY TO DAY MANAGEMENT OF THE COMPANY. SHRI ANIL KUMAR TAYAL HAD SUBMITTED HIS RESIGNATION LETTER DATED 30.11.20 10 AND HE WAS RELIEVED FROM DUTY ON 31.12.2010. SINCE THE ASSESSMENT ORDER WAS KEPT BY HIM IN HIS CUSTODY AND SINCE HE DID NOT BRING THE SAME TO THE NOTICE OF MANAGEMENT, THE MANAGEMENT WAS NOT AWARE OF THE ASSESSMENT ORDER PASSED BY THE AO TILL IT RECEIV ED NOTICE FOR PENALTY PROCEEDINGS. UPON RECEIPT OF PENALTY NOTICES, THE MANAGEMENT TOOK NECESSARY STEPS TO LOCATE THE ASSESSMENT ORDER AND ENGAGED A NEW COUNSEL TO PURSUE THIS MATTER. ACCORDINGLY THE NEW C.A TOOK STEPS TO FILE THE APPEAL BEFORE LD CIT(A) AND THE SAME HAS RESULTED IN A DELAY OF 141 DAYS. 3 I.T.A. NO. 644 & 718 /MUM/2015 5. THE LD A.R SUBMITTED THAT THE ABOVE SAID REASONS WERE NOT CONVINCING TO LD CIT(A) AND HENCE HE REFUSED TO CONDONE THE DELAY. HOWEVER, THE LD CIT(A) ALSO PROCEEDED TO DISPOSE OF THE GROUND CHALLENG ING THE VALIDITY OF REOPENING OF ASSESSMENT AS WELL AS THE GROUND RELATING TO THE MERITS OF ADDITION. HE SUBMITTED THAT THE LD CIT(A) DECIDED BOTH THE GROUNDS AGAINST THE ASSESSEE. 6. THE LD A.R SUBMITTED THAT THE ASSESSEE HAD SHOWN SUFFICIENT CAUSE IN NOT FILING THE APPEAL IN TIME AND HENCE THE LD CIT(A) WAS NOT JUSTIFIED IN REFUSING TO CONDONE THE DELAY. HE SUBMITTED THAT THE EXPRESSION SUFFICIENT CAUSE SHOULD RECEIVE LIBERAL CONSTRUCTION AND IN THE INTEREST OF JUSTICE, THE LD CIT(A) SHOULD HAVE CONDONED THE DELAY. THE LD A.R PLACED HIS RELIANCE ON THE FOLLOWING CASE LAW IN SUPPORT OF HIS CONTENTIONS: - (A) N.BALAKRISHNAN VS. M KRISHNAMURTHY (7 SCC 123)(SC) (DELAY OF 883 DAYS) (B) BABURAO DEORA WANKHEDE VS. SEWA SAHAKARI SANSTHA (W.P. NO.1974 OF 1 979 DATED 02 - 08 - 1988) (DELAY OF 10 YEARS) (C) PHOENIX MILLS LTD VS. ACIT (ITA NO.6240/M/2007 DATED 23 - 03 - 2010)(MUM ITAT) WHICH IS UPHELD BY HONBLE BOMBAY HIGH COURT, VIDE ITS ORDER DATED 09 - 12 - 2011 PASSED IN ITA NO.5596 OF 2010. (DELAY OF 1358 DAYS). THE LD A.R SUBMITTED THAT THERE WAS A DELAY OF 141 DAYS IN FILING APPEAL BEFORE LD CIT(A) AND THE ASSESSEE WAS HAVING SUFFICIENT CAUSE FOR FILING APPEAL BELATEDLY BEFORE LD CIT(A). FURTHER, NONE OF THE FACTS SUBMITTED BY THE ASSESSEE FOR THE DELAY WAS FOUND TO BE WRONG BY THE FIRST APPELLATE AUTHORITY. ACCORDINGLY HE SUBMITTED THE LD CIT(A) SHOULD HAVE 4 I.T.A. NO. 644 & 718 /MUM/2015 CONDONED THE DELAY BEFORE PROCEEDING TO DISPOSE OF OTHER GROUNDS ON MERITS. 7. THE LD D.R, ON THE CONTRARY, STRONGLY SUPPORTED THE DECISION OF LD CIT(A) I N REFUSING TO CONDONE THE DELAY. HE SUBMITTED THAT THE ASSESSEE DID NOT APPEAR BEFORE THE AO AND HENCE HE WAS CONSTRAINED TO PASS THE ASSESSMENT ORDER TO THE BEST OF HIS JUDGEMENT. HE FURTHER SUBMITTED THAT THE REASONS GIVEN BY THE ASSESSEE ARE SELF SERV ING AND ARE NOT SUPPORTED BY ANY DOCUMENT. HE FURTHER SUBMITTED THAT HONBLE SUPREME COURT, IN THE CASE OF ESHA BHATTACHARJEE VS. MANAGING COMMITTEE OF RAGHUNATHPUR NAFAR ACADEMY AND OTHERS (CIVIL APPEAL NOS.8183 8184 OF 2013 DATED 13 - 09 - 2013), HAS EXTR ACTED IN PARAGRAPH 13 OF ITS ORDER, THE FOLLOWING OBSERVATION MADE IN THE CASE OF MANIBEN DEVRAJ SHAH VS. MUNICIPAL CORPORATION OF BRIHAN MUMBAI: - 13 24. WHAT COLOUR THE EXPRESSION SUFFICIENT CAUSE WOULD GET IN THE FACTUAL MATRIX OF A GIVEN CASE WOU LD LARGELY DEPEND ON BONA FIDE NATURE OF EXPLANATION. IF THE COURT FINDS THAT THERE HAS BEEN NO NEGLIGENCE ON THE PART OF THE APPLICANT AND THE CAUSE SHOWN FOR THE DELAY DOES NOT LACK BONA FIDES, THEN IT MAY CONDONE THE DELAY. IF, ON THE OTHER HAND, THE EXPLANATION GIVEN BY THE APPLICANT IS FOUND TO BE CONCOCTED OR HE IS THOROUGHLY NEGLIGENT IN PROSECUTING HIS CAUSE, THEN IT WOULD BE A LEGITIMATE EXERCISE OF DISCRETION NOT TO CONDONE THE DELAY. EVENTUALLY, THE BENCH UPON PERUSAL OF THE APPLICATION FOR CONDONATION OF DELAY AND THE AFFIDAVIT ON RECORD CAME TO HOLD THAT CERTAIN NECESSARY FACTS WERE CONSPICUOUSLY SILENT AND, ACCORDINGLY, REVERSED THE DECISION OF THE HIGH COURT WHICH HAD CONDONED THE DELAY OF MORE THAN SEVEN YEARS. 5 I.T.A. NO. 644 & 718 /MUM/2015 THE LD D.R FURTHER SU BMITTED THAT THE HONBLE SUPREME COURT HAS SUMMARIZED THE PRINCIPLES TO BE FOLLOWED IN EXAMINING THE MATTER OF CONDONING THE DELAY IN PARAGRAPH 15 OF THE ORDER. THE LD D.R SUBMITTED THAT THE CASE OF THE ASSESSEE SHOULD BE EXAMINED IN TERMS OF THE PRINCIPL ES ENUMERATED BY HONBLE SUPREME COURT. THE LD D.R SUBMITTED THAT THE ASSESSEE DID NOT FURNISH REASON FOR NOT APPEARING BEFORE THE ASSESSING OFFICER. FURTHER THE REASONS FURNISHED BY THE ASSESSEE FOR THE DELAY ARE NOT SUPPORTED BY ANY EVIDENCES. HE FURTH ER SUBMITTED THAT THE CO - ORDINATE BENCH OF ITAT HAS REFUSED TO CONDONE THE DELAY IN THE CASE OF SHRI VIKAS BHALCHANDRA PATHARKAR VS. ACIT (ITA NO.3245/MUM/2012 DATED 20 - 08 - 2014), SINCE THE ASSESSEE THERE IS HAD FAILED TO FURNISH REASONS FOR THE DELAY ON DA Y TO DAY BASIS. 8. IN THE REJOINDER, THE LD A.R SUBMITTED THAT THE DELAY RELATED TO THE FILING OF APPEAL BEFORE LD CIT(A) AND HENCE NON - APPEARANCE OF THE ASSESSEE BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS IS NOT RELEVANT. HE SUBMITTED THAT THE HONBLE SUPREME COURT WAS CONCERNED WITH THE DELAY OF 2449 DAYS (ABOUT 7 YEARS) IN THE CASE OF ESHA BATTACHARJEEE (SUPRA). HE SUBMITTED THAT THE HONBLE SUPREME COURT WAS ALSO CONCERNED WITH THE DELAY OF 7 YEARS IN THE CASE OF MANIBEN DEVRAJ SHAH (SUPRA). HE SUBMITTED THAT THE HONBLE SUPREME COURT HAS NOTED, IN PARAGRAPH 12 OF THE ORDER PASSED IN THE CASE OF ESHA BATTACHARJEE (SUPRA), THE FOLLOWING OBSERVATIONS MADE IN THE CASE OF BALWANT SINGH (DEAD) V. JAGDISH SINGH AND OTHERS : - 25. WE MAY STATE THAT EVEN IF THE TERM SUFFICIENT CAUSE HAS TO RECEIVE LIBERAL CONSTRUCTION, IT MUST SQUARELY FALL WITH THE CONCEPT OF REASONABLE TIME AND PROPER CONDUCT OF THE PARTY CONCERNED. THE PURPOSE OF INTRODUCING LIBERAL CONSTRUCTION NORMALLY IS TO 6 I.T.A. NO. 644 & 718 /MUM/2015 INTROD UCE THE CONCEPT OF REASONABLENESS AS IT IS UNDERSTOOD IN ITS GENERAL CONNOTATION. 26. THE LAW OF LIMITATION IS A SUBSTANTIVE LAW AND HAS DEFINITE CONSEQUENCES ON THE RIGHT AND OBLIGATION OF A PARTY TO ARISE. THESE PRINCIPLES SHOULD BE ADHERED TO AND APPLIED APPROPRIATELY DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF A GIVEN CASE. ONCE A VALUABLE RIGHT HAS ACCRUED IN FAVOUR OF ONE PARTY AS A RESULT OF THE FAILURE OF THE OTHER PARTY TO EXPLAIN THE DELAY BY SHOWING SUFFICIENT CAUSE AND ITS OWN CONDUCT, IT WILL BE UNREASONABLE TO TAKE AWAY THAT RIGHT ON THE MERE ASKING OF THE APPLICANT, PARTICULARLY WHEN THE DELAY IS DIRECTLY A RESULT OF NEGLIGENCE, DEFAULT OR INACTION OF THAT PARTY. JUSTICE MUST BE DONE TO BOTH PARTIES EQUALLY. THEN ALONE THE ENDS OF J USTICE CAN BE ACHIEVED. IF A PARTY HAS BEEN THOROUGHLY NEGLIGENT IN IMPLEMENTING ITS RIGHTS AND REMEDIES, IT WILL BE EQUALLY UNFAIR TO DEPRIVE THE OTHER PARTY OF A VALUABLE RIGHT THAT HAS ACCRUED TO IT IN LAW AS A RESULT OF ACTING VIGILANTLY. HE FURTHER SUBMITTED THAT THE HONBLE SUPREME COURT HAS TAKEN NOTE OF OBSERVATION MADE IN THE CASE OF MANIBEN DEVRAJ SHAH (SUPRA) THAT A DISTINCTION MUST BE MADE BETWEEN A CASE WHERE THE DELAY IS INORDINATE AND A CASE WHERE THE DELAY IS OF FEW DAYS AND WHERE AS IN TH E FORMER CASE THE CONSIDERATION OF PREJUDICE TO THE OTHER SIDE WILL BE A RELEVANT FACTOR, IN THE LATTER CASE NO SUCH CONSIDERATION ARISES. 9. THE LD A.R FURTHER SUBMITTED THAT THE REASONS FURNISHED BY THE ASSESSEE FOR THE DELAY IN FILING APPEAL BEFORE LD CIT(A) ARE REAL FACTS, WHICH WERE NOT BE CONCOCTED. HE FURTHER SUBMITTED THAT THE DELAY WAS 141 DAYS AND NOT RUNNING INTO SEVERAL YEARS. HE FURTHER SUBMITTED THAT VARIOUS PRINCIPLES SUMMARIZED BY THE HONBLE SUPREME COURT ULTIMATELY 7 I.T.A. NO. 644 & 718 /MUM/2015 PRESCRIBE THE MANN ER OF EXAMINING SUFFICIENT CAUSE. HE SUBMITTED THAT THE ASSESSEE HAS SHOWN SUFFICIENT CAUSE IN FILING APPEAL BELATEDLY BEFORE LD CIT(A). 10. WE HAVE HEARD RIVAL CONTENTIONS ON THIS PRELIMINARY ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE REASO NS CITED BY THE ASSESSEE FOR THE DELAY NEED TO BE EXAMINED WHILE EXAMINING THE PETITION TO CONDONE THE DELAY IN FILING APPEALS. IF THERE IS SUFFICIENT CAUSE FOR THE DELAY, THEN THE COURTS MAY CONDONE THE DELAY AND IF NO SUCH SUFFICIENT CAUSE IS SHOWN, THE N THE DELAY WOULD NOT BE CONDONED. FURTHER A DISTINCTION HAS TO BE DRAWN BETWEEN A CASE WHERE THERE IS INORDINATE DELAY AND WHERE THE DELAY IS FOR FEW DAYS. IF THE APPELLANT IS NEGLIGENT OR IF THE EXPLANATIONS ARE NOT BONA FIDE, THEN THE DELAY IS NOT NOR MALLY CONDONED. THOUGH A LIBERAL APPROACH IS NORMALLY FOLLOWED IN THE MATTER OF CONDONATION OF DELAY, YET THE CONCEPT OF LIBERAL APPROACH HAS TO ENCAPSULE THE CONCEPTION OF REASONABLENESS AND IT CANNOT BE ALLOWED A TOTALLY UNFETTERED FREE PLAY. 11. IN THE INSTANT CASE, THE EXPLANATION OF THE ASSESSEE IS THAT THE ASSESSMENT ORDER WAS RECEIVED AT ITS HEAD OFFICE AND THE SAME WAS FORWARDED TO THE EXECUTIVE DIRECTOR LOCATED IN VADODARA. THE SAID EXECUTIVE DIRECTOR HAD GIVEN NOTICE FOR RESIGNATION AND IN TH AT PROCESS OMITTED TO BRING THE ASSESSMENT ORDER TO THE NOTICE OF MANAGEMENT. ONLY WHEN THE MANAGEMENT RECEIVED THE NOTICE FOR PENALTY PROCEEDINGS, IT CAME TO KNOW ABOUT THE ASSESSMENT ORDER AND THEN THEY SEARCHED FOR THE ASSESSMENT ORDER AND TOOK STEPS T O FILE THE APPEAL THROUGH ANOTHER CHARTERED ACCOUNTANT. IT IS THE CASE OF THE ASSESSEE THAT THE AUTHORIZED REPRESENTATIVE, WHO WAS ORIGINALLY AUTHORIZED TO APPEAR BEFORE THE AO, HAS FAILED TO APPEAR IN THE ASSESSMENT PROCEEDINGS AND THE SAME HAS RESULTED IN PASSING OF EX - PARTE ORDER U/S 144 OF THE ACT. IT IS ALSO 8 I.T.A. NO. 644 & 718 /MUM/2015 PERTINENT TO NOTE THAT THE IMPUGNED ASSESSMENT PROCEEDING IS A REOPENED ASSESSMENT PROCEEDING. 12. ON A CAREFUL CONSIDERATION OF THE REASONS CITED BY THE ASSESSEE, WE ARE OF THE VIEW THAT TH E SAME CANNOT BE CONSIDERED TO BE A CONCOCTED STORY OR THE EXPLANATION CAN BE TAKEN AS UNREASONABLE ONE. THE FACT THAT THE MAIN OPERATIONS OF THE ASSESSEE ARE CARRIED OUT AT VADODARA AND THE FACT THAT THE ASSESSMENT ORDER HAS BEEN SERVED TO THE HEAD OFFIC E LOCATED AT MUMBAI ARE NOT DISPUTED. IT IS STATED THAT THE CLERICAL STAFF WHO RECEIVED THE ORDER HAS FORWARDED THE SAME TO THE THEN EXECUTIVE DIRECTOR AND IT IS STATED THAT THE SAID EXECUTIVE DIRECTOR HAS SUBMITTED RESIGNATION LETTER AT THAT POINT OF TIM E. HENCE IT IS QUITE POSSIBLE THAT THE SAID EXECUTIVE DIRECTOR COULD NOT HAVE PASSED ON THE ASSESSMENT ORDER TO THE MANAGEMENT. SINCE THE AO HAS PASSED THE ASSESSMENT ORDER TO THE BEST OF HIS JUDGEMENT, IT IS POSSIBLE THAT THE MANAGEMENT COULD NOT HAVE ALSO VISUALIZED THE PASSING OF ASSESSMENT ORDER. ONLY WHEN THE ASSESSEE RECEIVED THE PENALTY NOTICE U/S 271(1)(C) OF THE ACT, THE ASSESSEE GOT ALERTED AND IT HAS TAKEN STEPS TO FILE THE APPEAL THROUGH ANOTHER CHARTERED ACCOUNTANT. IN THIS PROCESS, A DEL AY OF 141 DAYS HAS OCCURRED. HENCE WE ARE OF THE VIEW THAT THERE WAS SUFFICIENT CAUSE FOR THE ASSESSEE IN NOT FILING THE APPEAL IN TIME BEFORE THE LD CIT(A). ACCORDINGLY WE ARE OF THE VIEW THAT THE LD CIT(A) WAS NOT JUSTIFIED IN CONDONING THE DELAY. AC CORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS LIMITATION ISSUE. 13. THE ACTION OF THE LD CIT(A) IN NOT CONDONING THE DELAY MAY BE SET ASIDE ON ONE MORE REASON. WE HAVE NOTICED THAT THE LD CIT(A) HAS DISPOSED OF THE GROUNDS URGED ON VALI DITY OF REOPENING OF ASSESSMENT AND ALSO ON MERITS. NORMALLY THE NECESSITY OF DISPOSING OF THE GROUNDS RELATING TO LEGAL ISSUES AND MERITS SHALL ARISE ONLY UPON ADMISSION OF THE 9 I.T.A. NO. 644 & 718 /MUM/2015 APPEAL. AN IDENTICAL ISSUE CAME TO BE CONSIDERED BY HONBLE HIGH COURT OF MA DRAS IN THE CASE OF VIJAYESWARI TEXTILES LTD VS. CIT (256 ITR 560). THE HONBLE MADRAS HIGH COURT, IN THE ABOVE SAID CASE, NOTICED THAT THE TRIBUNAL REFUSED TO CONDONE THE DELAY, BUT PROCEEDED TO DISPOSE OF THE APPEAL ON MERITS ALSO. THE HONBLE MADRAS H IGH COURT OBSERVED AS UNDER: - MATTERS RELATING TO CONDONATION OF DELAY ARE INDEED DISCRETIONARY AND ARE NORMALLY LEFT TO THE TRIBUNAL AND THIS COURT WILL NOT ORDINARILY INTERFERE WITH THE DISCRETION. IN THIS CASE, AS WE HAVE ALREADY POINTED OUT, THE TRIB UNAL DID NOT STOP WITH THE ORDER DECLINING TO CONDONE THE DELAY, BUT CONSIDERED THE MATTER ON THE MERITS AND HAS PRACTICALLY TREATED THE APPEAL AS BEING PROPERLY BEFORE IT AND HAS ANSWERED THE QUESTION BROUGHT BEFORE IT WITH REFERENCE TO THE MATERIAL PLACE D ON RECORD. IT IS, IN THE CIRCUMSTANCES, WE HOLD THAT THE TRIBUNAL WAS IN ERROR IN NOT CONDONING THE DELAY. THE QUESTION REGARDING THE CORRECTNESS OF THE TRIBUNALS HOLDING THAT THE DELAY IS NOT TO BE CONDONED IS THEREFORE ANSWERED IN FAVOUR OF THE ASSE SSEE AND AGAINST THE REVENUE. THE ABOVE SAID OBSERVATIONS MADE BY HONBLE MADRAS HIGH COURT WOULD ALSO APPLY TO THE INSTANT CASE. 14. WE SHALL NOW TAKE UP THE ISSUE OF VALIDITY OF REOPENING OF ASSESSMENT. THE ORIGINAL ASSESSMENT FOR THE YEAR UNDE R CONSIDERATION WAS COMPLETED BY THE AO U/S 143(3) OF THE ACT ON 24.03.2006. SUBSEQUENTLY THE AO HAS REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 OF THE ACT ON 19 - 03 - 2010. ADMITTEDLY THE ASSESSMENT HAS BEEN REOPENED AFTER EXPIRY OF FOUR YEARS FROM T HE END OF THE ASSESSMENT YEAR, I.E., AY 2003 - 04. THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT ON THE REASONING THAT THE ASSESSEE HAS CLAIMED A LOSS OF RS.2871.56 LAKHS, BEING DECREASE IN THE VALUE OF STOCK, I.E., THE OPENING AND CLOSING STOCK 10 I.T.A. NO. 644 & 718 /MUM/2015 OF PROD UCTS NAMED FILTER AND CANE HARVESTER REMAINED THE SAME AND THE ASSESSEE HAS CLAIMED THE LOSS BY VALUING THEM AT A LOWER RATE. 15. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE HAS FULLY DISCLOSED THE FACTS RELATING TO VALUATION IN THE ORIGINAL ASSESSMENT PROCEEDINGS. PLACING RELIANCE ON THE FIRST PROVISO TO SEC. 147 OF THE ACT, THE LD A.R SUBMITTED THAT THE ASSESSING OFFICER IS ENTITLED TO REOPEN THE ASSESSMENT AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR ONLY IF THERE IS FAI LURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS RELATING TO COMPUTATION OF INCOME. HE SUBMITTED THAT THE ASSESSEE WAS CONSTRAINED TO CHANGE THE METHOD OF VALUATION OF STOCK AFTER THE REVISED ACCOUNTING STANDARD - 2 BECAME MAN DATORY. THE SEMI FINISHED GOODS WERE HITHER TO VALUED AT COST AND THE SAID FACT WAS REPORTED IN THE ANNUAL REPORT RELATING TO AY 2002 - 03. THE CHANGE IN THE VALUATION WAS ALSO DULY DISCLOSED IN THE ANNUAL REPORT RELATING TO AY 2003 - 04. THE LD A.R FURTHER SUBMITTED THAT THE DETAILS OF CHANGE WERE ALSO COMMUNICATED TO THE AO THROUGH A LETTER DATED 02 - 01 - 2006 FILED IN THE ORIGINAL ASSESSMENT PROCEEDINGS BEFORE THE AO. COPY OF THE LETTER FILED BEFORE THE AO IS PLACED ON RECORD AT PAGE 46 - 47 OF THE PAPER BOOK . THE AO HAS COMPLETED THE ORIGINAL ASSESSMENT ACCEPTING THE EXPLANATIONS OF THE ASSESSEE WITHOUT MAKING ANY ADDITION. ACCORDINGLY LD A.R SUBMITTED THAT THE ASSESSEE HAS DISCLOSED ALL THE FACTS MATERIAL TO COMPUTATION OF INCOME FULLY AND TRULY. HE SUBMITT ED THAT THE AO DID NOT STATE IN THE REASONS FOR REOPENING THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE. HENCE THE AO HAS REOPENED THE ASSESSMENT ON MERE CHANGE OF OPINION AND HENCE THE REOPENING HAS TO BE HELD AS BAD IN LAW. THE LD A.R ALSO PLACED RELIANCE ON THE DECISION GIVEN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF ASIAN PAINTS LTD VS. DCIT (2009)(308 ITR 195). 11 I.T.A. NO. 644 & 718 /MUM/2015 16. THE LD D.R, ON THE CONTRARY, SUBMITTED THAT THE ASSESSEE HAS SHOWN THE FILTERS AND CANE HARVESTER AS FINISHED GOODS. THERE IS NO CHANGE IN THE QUANTITY OF OPENING AND CLOSING STOCK IN RESPECT OF THE ABOVE TWO ITEMS. THE ASSESSEE HAS CLAIMED IMPUGNED DEDUCTION BY VALUING THE CLOSING STOCK AT A LOWER RATE. THE LD D.R FURTHER SUBMITTED THAT THE TAX AUDIT REPORT RELATING TO AY 2002 - 03 SHOWS THAT THE CLOSING STOCK OF FILTER AND CANE HARVESTER AS NIL FIGURE. ACCORDINGLY THE LD D.R SUBMITTED THAT THERE IS FAILURE ON THE PART OF THE ASSESSEE TO SHOW THE FACTS CORRECTLY. 17. WE HAVE HEARD RIVAL CONTENTIONS ON THIS LEGAL ISSUE AND P ERUSED THE RECORD. WE NOTICE THAT THE IMPUGNED CLAIM RELATING TO LOSS ON VALUATION OF STOCK WAS RELATED TO SEMI FINISHED GOODS. THE ASSESSEE HAS SUBMITTED BEFORE THE LD CIT(A) THAT THE PRODUCTS MANUFACTURED AS PER THE REQUIREMENT OF A CUSTOMER WOULD CO NTINUE TO BE TREATED AS SEMI FINISHED GOODS TILL IT IS BILLED TO THE CUSTOMER. HENCE IN THE BOOKS OF ACCOUNT, THE ASSESSEE CONTINUED TO TREAT THE GOODS AS SEMI FINISHED GOODS AND THE VALUE HAS ALSO BEEN REDUCED FROM SEMI FINISHED GOODS ONLY. 18. THE ASSESSEE HAS FURTHER STATED THAT THE REVISED ACCOUNTING STANDARD - 2 BECAME MANDATORY FROM AY 2003 - 04 AND HENCE IT HAD TO REVISE ITS VALUATION POLICY OF SEMI - FINISHED GOODS, I.E., FROM THE POLICY OF VALUING IT AT COST TO THE POLICY OF VALUING IT AT COST OR MARKET VALUE WHICHEVER IS LESS. WE NOTICE THAT THE ASSESSEE HAS REPORTED ITS ORIGINAL VALUATION POLICY IN THE ANNUAL REPORT RELATING TO AY 2002 - 03 AND THE REVISED POLICY IN THE ANNUAL REPORT RELATING TO AY 2003 - 04. THE ASSESSEE HAS REDUCED THE V ALUATION OF SEMI - FINISHED GOODS BY PASSING AN ACCOUNTING ENTRY, I.E., BY CREDITING THE STOCK AND DEBITING THE LOSS AS MATERIAL CONSUMPTION. WE FURTHER NOTICE THAT THE ASSESSEE HAS ALSO 12 I.T.A. NO. 644 & 718 /MUM/2015 OFFERED EXPLANATION WITH REGARD TO THE ABOVE SAID CLAIM BY FILING LE TTER IN RESPONSE TO THE QUERIES RAISED BY THE AO, MEANING THEREBY, THE ASSESSING OFFICER HAS ASKED SPECIFIC QUERIES IN THIS MATTER AND THE ASSESSEE HAS ALSO FURNISHED ITS REPLY. WE NOTICE THAT THE ASSESSING OFFICER DID NOT DISALLOW THE CLAIM IN THE ORIGIN AL ASSESSMENT PROCEEDINGS. 19. WE NOTICE THAT THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. WE HAVE NOTICED THAT THE ORIGINAL ASSESSMENT WAS COMPLETED BY THE AO U/S 143(3) OF THE ACT. THE REASONS FOR REOPE NING HAS BEEN EXTRACTED IN THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S. 148 OF THE ACT. IN THE REASONS, THE AO RECOGNIZES THE FACT THAT THE ASSESSEE HAS CHANGED THE METHOD OF VALUATION OF STOCK IN TERMS OF REVISED ACCOUNTING STANDARD - 2. HE ALSO RECOGNIZ ES THE FACT THAT THE CHANGE IN THE METHOD OF VALUATION HAS RESULTED IN REDUCTION OF PROFIT BY RS.2871.55 LAKHS. WE HAVE NOTICED THAT ALL THESE DETAILS WERE ALREADY AVAILABLE BEFORE THE AO IN THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. FURTHER, THE AO, NO WHERE STATES THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE FACTS MATERIAL TO THE COMPUTATION OF INCOME, WHICH IS A PRIMARY CONDITION TO BE SATISFIED FOR REOPENING OF ASSESSMENT AFTER EXPIRY OF FOUR YEARS FROM TH E END OF THE ASSESSMENT YEAR, IF THE ORIGINAL ASSESSMENT HAS BEEN COMPLETED U/S 143(3) OF THE ACT. THIS IS SO STATED IN THE FIRST PROVISO TO SEC. 147 OF THE ACT. 20. THE LD D.R POINTED OUT CERTAIN DISCREPANCIES IN THE QUANTITY DETAILS GIVEN IN THE TAX AUDIT REPORT. IN OUR VIEW, THE FACTS AVAILABLE IN THE BOOKS OF ACCOUNT WOULD PREVAIL OVER THE TAX AUDIT REPORT. FURTHER THE AO HAS NOT CONSIDERED THE TAX AUDIT REPORTS WHILE REOPENING THE ASSESSMENT. 13 I.T.A. NO. 644 & 718 /MUM/2015 21. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE REOPENING OF ASSESSMENT IS BAD IN LAW AS PER THE FIRST PROVISO TO SEC. 147 OF THE ACT. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND QUASH THE IMPUGNED ASSESSMENT ORDER. SINCE WE HAVE HELD THAT THE REOPENING IS BAD IN LAW, THERE IS NO NECESSITY TO ADJUDICATE THE GROUNDS URGED ON MERITS. 22. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASSESSEE AGAINST THE PENALTY ORDER PASSED U/S 271(1)(C) OF THE ACT. SINCE THE ORIGINAL ASSESSMENT ORDER HAS BEEN SET ASIDE, THE IMP UGNED PENALTY ORDER WOULD NOT SURVIVE IN THE EYES OF LAW. ACCORDINGLY WE SET THE ORDERS PASSED BY LD CIT(A) AND THE AO. 23. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. O RDER PRONOUNCED IN THE COURT ON THIS 31 ST DAY OF JANUARY , 201 7 . SD/ - ( AMIT SHUKLA ) SD/ - (B.R. BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 31 ST JANUARY , 201 7 COPY TO : 1. THE APP ELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, J - BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES