DCIT, CC - X, Kolkata, Kolkata V. M/s. Strassenburg Pharmaceuticals Ltd., Kolkata

ITA 763/KOL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4745 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 21-08-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 18-05-2011
• Court: TRIBUNAL
• Department Lawyers: RAJAT KR KUREEL JCIT LD
• Assessee Lawyers: ARVIND AGARWAL
• Keywords: Reopening of assessment; Depreciation; Audit objection; Additional evidence; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 147; 148; 139

Judgement Text

ITA NO. 763/KOL/2011-B-JM M/S. STRASSENBURG PHARMACEUTICALS LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BBENCH, KOL KATA BEFORE : SHRI P.M. JAGTAP , ACCOUNTANT MEMBER, AND SHRI S.S VISHWANETHRA RAVI, JUDICIAL MEMB ER, I.T.A NO. 763/KOL/2011 A.Y: 2003-04 D.C.I.T, CC-X, KOLKATA VS. M/S. STRASSENBURG PHAR MACEUTICALS LIMITED PAN: AAECS 2834H ( APPELLANT) (RESPONDENT) FOR THE APPELLANT- DEPARTMENT: SHRI RAJAT KR. KUREEL, JCIT, LD. SR.DR FOR THE RESPONDENT/ASSESSEE: SHRI AR VIND AGARWAL, ADVOCATE, LD.AR DATE OF HEARING: 16-03-2016 DATE OF PRONOUNCEMENT: 31-05-201 6 ORDER SHRI S.S VISWANETHRA RAVI, JM THIS APPEAL OF THE REVENUE IS ARISING OUT OF THE ORDER OF THE CIT(A), CENTRAL-II, KOLKATA IN APPEAL NO. 201/CC-X/CIT(A)C- II/10-11 DATED 25-02-2011 FOR THE ASSESSMENT YEAR 2003-04 AGAINST THE ORDER OF ASSESSMENT FRAMED U/S. 143(3)/147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL:- 1. THIS IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN ANNULLING THE RE-ASSESSMENT MADE U/ S. 1 43(3) J 147 DATED 31.12.2010, BY HOLDING THAT THE ASSESSING O FFICER HAS INCORRECTLY ISSUED THE NOTICE U/S 148 DATED 31.03.2010 AND THAT THE NOTICE WAS BARRED BY LIMITATION WITHOUT APPRECIATING THAT THE NOTICE AS ISSUED WITHIN SIX YEARS AND WAS NOT BARRED BY LIMITATION. 2. THIS IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) HAS ERRED IN ANNULLING THE RE-AS SESSMENT MADE VI]E, 143(3)/147 DATED 18.12.2007, BY HOLDING THAT T HE A.O. HAS FORMED ITA NO. 763/KOL/2011-B-JM M/S. STRASSENBURG PHARMACEUTICALS LTD. 2 HIS BELIEF ON AN INCORRECT ASSUMPTION WITHOUT A PPRECIATING THE FACT THAT IN THE ANNEXURE 'E' OF THE TAX AUDIT REPORT AND PROFIT & LOSS ACCOUNT THERE WERE DISCREPANCIES WITH REGARD TO CONSUMPTION OF RAW MATERIAL AND THEREFORE THE ASSESSEE HAD FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSME NT. 3. THAT THE PRESENT APPEAL IS BEING FILED FOR THE REASON THAT REVENUE AUDIT OBJECTION WAS ACCEPTED BY THE DEPARTMENT AN D FALLS UNDER THE EXCEPTIONAL CATEGORY OF THE BOARD'S INSTRUCTION NO . 3/2011 DATED 09.02.2011 THEREFORE ISSUE IS REQUESTED TO BE C ONSIDERED ON MERITS OF THE CASE. 4. THAT THE DEPARTMENT CRAVES LEAVE TO ADD, MODIF Y OR ALTER ANY OF THE GROUND(S) OF APPEAL AND J OR ADDUCE ADDITIONAL EVIDENCE AT THE TIME OF HEARING OF THE CASE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A PHARMACEUTICALS MANUFACTURING COMPANY AND FILED ITS RETURN OF INCOM E U/S. 139(1) OF THE ACT SHOWING TOTAL INCOME OF RS.1,65,28,510 ON 28-11-20 03.THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES WERE U/S. 143(2)/142(1) OF THE ACT. THE ASSESSMENT U/S. 143(3) OF THE ACT WAS COMPLETED ON 23-11-2005 AT R S.1,71,57,901 BY MAKING ADDITION OF RS.6,29,396/- BEING WBIPA RECEIVED BY THE ASSESSEE AND THE SAID ADDITION WAS DELETED BY THE CIT(A) VIDE HIS ORDER D ATED 05-05-2006. THEREFORE, THE ORDER U/S. 151/143(3) DATED 05-05-2006 WAS PASS ED REDUCING THE INCOME AT RS.1,65,28,510, WHICH WAS CONFIRMED BY THE ITAT, KO LKATA B BENCH KOLKATA VIDE ITS ORDER DATED 05-09-2006. THEREAFTER, THE AO ISSUED NOTICES U/S. 148 DATED 31.03.2010 AND 143(2) OF THE ACT AND SERVED UPON TH E ASSESSEE FOR RE-OPENING OF THE ASSESSMENT. THE REASON FOR REOPENING OF THE ASS ESSMENT IS AS UNDER:- IT IS SEEN FROM ANNEXURE-E TO THE TAR THAT TOTAL RAW MATERIALS CONSUMED ( IN QUANTITY) WAS 33329.184 KG WHEREAS 53621.121 KG(COSTING RS.1,26,79,377/-) WAS DEBITED TO THE PROFIT & LOSS ACCOUNTS AS RAW MATERIALS CONSUMED [ BULK DRU G (ACTIVE INGREDIENTS ) ] A PER CLAUSE-5 OF SCHEDULE-19 (NOTE S ON ACCOUNTS) FORMING PART OF THE BALANCE SHEET AS AT 31.3.2003 AND OF THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED ON 31.3.2003. ITA NO. 763/KOL/2011-B-JM M/S. STRASSENBURG PHARMACEUTICALS LTD. 3 TAKING THE AVERAGE RATE OF COST OF RAW MATERIALS C ONSUMED FROM THE SAID SCHEDULE-19 IN ABSENCE OF TOTAL COST OR UNIT WISE RATE IN THE TAR, TOTAL COST OF RAW MATERIALS CONSUMED A TAR COMES TO RS.78,81,098/- AS CALCULATED BELOW: 33329.184 X 1,26,79,377 = 78,81,098 53621.121 THUS, TOTAL RAW MATERIALS CONSUMED AS PER TAR SHO ULD BE RS.78,81,098/- WHEREAS TOTAL CONSUMPTION OF RAW MAT ERIALS OF RS.1,26,79,377/- HAD BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT (SCHEDULE 15 TO THE PROFIT & LOSS ACCOUNT). I, THEREFORE, HAVE REASON TO BELIEVE THAT INCOME O F THE ASSESSEE HAS ESCAPED ASSESSMENT TO THE TUNE OF RS.47,98,279 /- (RS.1,26,79,377/- MINUS RS.78,81,098/-) BY REASON O F THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRUL Y ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT FOR THE A.Y 2003-04. 4. IN RESPONSE TO SUCH NOTICE, THE ASSESSEE FILE D A LETTER DATED 28-04-2010 REQUESTING THE AO TO TREAT THE ORIGINAL RETURN U/S. 139 AS RETURN FILED IN RESPONSE TO NOTICE ISSUED U/S. 148 OF THE ACT. THE ASSESSEE ALSO OBJECTED TO THE RE-OPENING OF ASSESSMENT VIDE ITS LETTER DATED 19- 11-2010. THE LD. AR OF THE ASSESSEE SUBMITTED ANOTHER LETTER DATED 14-12-2010 BY PRODUCING BOOKS OF ACCOUNTS ALONG WITH STORES LEDGER, W HEREIN RAW MATERIAL PURCHASE AND CONSUMPTIONS ARE RECORDED CLAIMING THE DIFFERENCE AS FOUND BY THE AO. BEING NOT SATISFIED, THE AO ADDED THE SUM OF RS.47,98,279 /- ON A/C OF DISCREPANCY FOUND IN RAW MATERIAL USAGE/CONSUMPTION 5. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE TH E CIT(A). THE ASSESSEE SUBMITTED THAT ALL THE DETAILS REGARDING RAW MATER IALS USAGE AND CONSUMPTION WAS SUBMITTED TO THE AO DURING THE ORIGINAL ASSESSM ENT PROCEEDINGS. VIDE LETTER DATED 21-10-2005 THE ASSESSEE HAS MENTIONED THE NAM ES AND ADDRESSES OF THE SUPPLIERS AND THE AMOUNTS DETAILS THEREIN REGARDIN G THE PURCHASE OF RAW MATERIALS TO THE AO. FURTHER, THE ASSESSEE SUBMITTE D THAT THE AO DID NOT POINT ITA NO. 763/KOL/2011-B-JM M/S. STRASSENBURG PHARMACEUTICALS LTD. 4 OUT ANY DISCREPANCY IN THE ASSESSMENT PROCEEDINGS A ND ALLOWED THE CLAIM. THUS, SUCH ASSESSMENT CANNOT BE REOPENED U/S. 147 BY ISSU ING NOTICES UNLESS THE AO FINDS ANY NEW MATERIAL AGAINST THE ASSESSEE. FURTH ER, RE-OPENING OF ASSESSMENT BASED ON PRESUMPTION IS MERELY A CHANGE OF OPINION. THE LD.AR OF THE ASSESSEE HAS RELIED ON VARIOUS CASE LAWS IN SUPPORT OF ITS C ONTENTION. THE CIT FOUND THAT THE ASSESSEE HAS NEITHER INCORRECTLY DISCLOSED THE DETAILS OF RAW MATERIALS PURCHASE NOR INCORRECTLY DISCLOSED THE DETAILS OF USAGE AND CONSUMPTION OF RAW MATERIALS. THE CIT(A) AFTER CONSIDERING THE SUBMISS IONS, HOWEVER, PASSED ORDER REFERRING NOTICE DATED 31-3-2010 U/S. 148 OF THE AC T IS BEYOND LIMITATION OF PERIOD AS PRESCRIBED U/S. 147 OF THE ACT, THEREBY T HE RE-ASSESSMENT THEREON WAS ANNULLED BY THE CIT(A). 6. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US B Y RAISING RESPECTIVE GROUNDS OF APPEAL, WHICH HAVE BEEN MENTIONED HEREIN ABOVE. 7. DURING THE COURSE OF HEARING BEFORE US THE LD.D R CONTENDED THAT RE- OPENING OF ASSESSMENT U/S.147 IS CORRECT AND JUSTIF IED. THE AO HAS CORRECTLY ISSUED THE NOTICE U/S.148 DATED 31-03-2010 AND T HE SAME IS WITHIN LIMITATION OF PERIOD AS CONTEMPLATED U/S. 147 OF THE ACT. SECTION 147 IS A DEEMING SECTION TO INITIATE THE RE-ASSESSMENT PROCEEDINGS. ALL THE CLA USES ATTACHED THEREIN TO SECTION 147 ARE ALSO RELEVANT AND APPLICABLE TO THE PRESENT FACTS OF THE CASE FOR RE- OPENING OF ASSESSMENT AND THE CIT-A WAS NOT JUSTIFI ED IN ANNULLING THE SAME. HE RELIED ON THE ORDER OF THE AO IN MAKING ADDITION IN THE RE-ASSESSMENT PROCEEDINGS FRAMED U/S.147 OF THE ACT. 8. IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE TAR [TAX AUDIT REPORT] IN FORM NO.3CD WAS PRODUCED BEFORE TH E AO AND THE SAME IS ITA NO. 763/KOL/2011-B-JM M/S. STRASSENBURG PHARMACEUTICALS LTD. 5 PLACED AT PAGES 53 TO 60 OF THE ASSESSEES PAPER BOOKFOR SHORT AS APE. HE DREW OUR ATTENTION TO THE DEPRECIATION SCHEDULE, WH ICH IS ALSO AVAILABLE AT PAGE 28 OF THE APB. REGARDING PAGES 95 TO 98 OF THE APE, WHEREIN IT WAS SHOWN THAT THE ASSESSMENT FOR THE A.Y 2005-06 WAS COMPLET ED U/S. 147/143(3) OF THE ACT AND AO FOUND NO NEW MATERIAL THEREIN. FURTHER , HE ARGUED THAT NOTICE DATED 31-03-2010 ISSUED U/S. 148 IS BARRED BY LIMIT ATION TO INITIATE PROCEEDINGS U/S. 147 OF THE ACT. HE RELIED ON THE IMPUGNED OR DER OF THE CIT(A) IN ANNULLING THE SAME AND PRAYED BEFORE US TO ANNUL TH E RE-ASSESSMENT FRAMED BY THE AO U/S.147 OF THE ACT. 9. HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MA TERIAL AVAILABLE ON RECORD. IN THIS CASE THE ORIGINAL ASSESSMENT FOR THE YEAR U NDER CONSIDERATION I.E. AY 2003-04 WAS COMPLETED U/S. 143(3) OF THE ACT AND RE -OPENING OF THE SAME BY THE AO VIDE NOTICE ISSUED U/S.148 ON 31-03-2010 I.E WITHIN THE PERIOD OF SIX YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR IS HELD TO BE INVALID BY THE CIT(A) BEING BARRED BY LIMITATION BY RELYING ON 1 ST PROVISO TO SECTION 147 OF THE ACT BY HOLDING THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS FOR THE ASSESSMEN T YEAR UNDER CONSIDERATION. THE TIME LIMIT FOR ISSUANCE OF NOTICE U/S. 148 IS PRESCRIBED IN SECTION 149 AND AS PER CLAUSE (B) OF SECTION 149(1), NOTICE U/S. 14 8 CAN BE ISSUED BY THE AO WITHIN THE PERIOD OF SIX YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR IF THE INCOME CHARGEABLE TO TAX, WHICH HAS ESCAPED AS SESSMENT AMOUNTS TO OR LIKELY TO AMOUNT RS.1 LAKH OR MORE. AS PER THE REAS ONS RECORDED BY THE AO FOR RE-OPENING OF ASSESSMENT, THE INCOME THAT HAS ESCAP ED ASSESSMENT WAS QUANTIFIED AT RS.47,98,279/- AND, THEREFORE, THE PR OVISION OF CLAUSE (B) OF SUB- SECTION (1) 149 IS APPLICABLE MAKING THE AO ENTITLE D TO ISSUE NOTICE U/S. 148 WITHIN THE PERIOD OF SIX YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. ITA NO. 763/KOL/2011-B-JM M/S. STRASSENBURG PHARMACEUTICALS LTD. 6 HOWEVER, AS PER 1 ST PROVISO TO SECTION 147, WHERE THE ASSESSMENT U/S. 143(3) HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, THE AO IS NOT ENTITLED TO TAKE ACTION U/S.148 AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS ANY INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY A REASON OF FAILURE ON THE PART OF THE ASSESSEE TO MAKE/FILE RETURN U/S. 139 OR IN RESPONSE TO NOTIC E U/S.142(1)/148 OR TO DISCLOSE FULLY OR TRULY ALL NECESSARY FACTS FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. 10. IN THE PRESENT CASE, THE ALLEGATION MADE BY TH E AO IN THE REASONS RECORDED IS THAT THERE WAS FAILURE ON THE PART OF THE ASSES SEE TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION. THIS ALLEGATION OF THE AO WAS BASED ON ANNEX-E TO THE TAX AUDIT REPORT FILED BY THE ASSESSEE ALONG WITH THE RETURN WHERE RAW MATERIAL CONSUMPTION WAS SHOWN AT 33,329.184 KGS WHEREAS THE RAW MATERIAL CONSUMPTION DEBITED BY THE ASSESSEE TO ITS P & L AC COUNT WAS QUANTIFIED AS 53,621.121 KGS. AS EXPLAINED ON BEHALF OF THE ASSES SEE BEFORE THE CIT(A) AS WELL AS BEFORE US, THE QUANTITATIVE DETAILS GIVEN IN THE ANNEXURE OF TAX AUDIT REPORT WERE ONLY IN RESPECT OF SELECTED PRINCIPAL I TEMS AND THE SAME NOT BEING IN RESPECT OF THE ENTIRE RAW MATERIALS CONSUMED DUR ING THE YEAR UNDER CONSIDERATION, WE AGREE WITH THE VIEW OF THE CIT(A ) THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TR ULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT FOR THE YEAR UNDER CON SIDERATION AS ALLEGED BY THE AO. IT, THEREFORE, FOLLOWS THAT THE TIME LIMIT AVAILABLE FOR ISSUANCE OF NOTICE U/S. 148 AS PER 1 ST PROVISO TO SECTION 147 WAS ONLY FOUR YEARS FROM T HE END OF THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERA TION AND THE NOTICE ISSUED BY THE AO U/S. 148 BEYOND THE PERIOD OF FOUR YEARS WAS BAD IN LAW BEING ITA NO. 763/KOL/2011-B-JM M/S. STRASSENBURG PHARMACEUTICALS LTD. 7 BARRED BY LIMITATION AS RIGHTLY HELD BY THE CIT(A). CONSEQUENTLY, THE ASSESSMENT COMPLETED U/S. 147 R.W.S 143(3) OF THE ACT IN PURSUANCE OF SUCH NOTICE ISSUED U/S.148 OF THE ACT IS INVALID AND WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A) IN CANCELLING THE SAME . 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 31-05 /2016 SD/- SD/- P.M. JAGTAP S.S VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :31/05 /2016 **PRADIP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT- THE DCIT,CC-X, KOLKATA 18 RABINDRA SARAN I, KOL-1. 2 RESPONDENT M/S. STRASSENBURG PHARMACEUTICALS LTD P -6 CIT ROAD, KOL-14. 3 . THE CIT(A) CONCERNED 4. 5. THE CIT CONCERNED THE D.R 6. GUARD FILE TRUE COPY, BY ORDER ASSTT. REGISTRAR