THE DY CIT RG3(3), Mumbai V. M/S. RAMA PETROCHEMICALS LTD., Mumbai

ITA 8791/MUM/2004

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48625 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 05-04-2011
• Assessment Year: 1997-1998
• Appeal Filed On: 06-12-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D B SENTHIL KUMARK GOPAL
• Assessee Lawyers: J D MISTRI
• Keywords: Business expenditure; Search and seizure; Difference of opinion; Block assessment; Change of opinion
• Section: 147; 148; 132; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, H, MUMBAI BEFORE SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 8791 TO 8793/MUM/2004 (ASSESSMENT YEAR 1997-98 TO 1998-99 AND 2000-01) DCIT RANGE 3(3), ROOM NO.609,6 TH FL, AAYAKAR BHAVAN, M K ROAD, MUMBAI-21. ..APPELLANT VS M/S RAMA PETROCHEMICALS LTD., 812 RAHEJA CHAMBERS NARIMAN POINT, MUMBAI-400021. PAN: AABCR4292B .. RESPONDENT REVENUE BY : SHRI D B SENTHIL KUMARK GOPAL ASSESSEE BY : SHRI J D MISTRI O R D E R PER VIJAY PAL RAO THE APPEAL NO.8791/MUM/2004 AND 8792/MUM/2004 BY THE REVENUE ARE DIRECTED AGAINST THE CONSOLIDATED O RDER DATED 14.09.2004 OF CIT(A) FOR THE ASSESSMENT YEAR 1997 -98 AND1998-99. THE APPEAL NO. 8793/MUM/2004 BY THE RE VENUE IS DIRECTED AGAINST THE SEPARATE ORDER DATED 14.9.2 004 OF CIT(A) FOR THE ASSESSMENT YEAR 2000-01. ITA NO. 8791 TO 8793/MUM/2004 2 2. IN ALL THE APPEALS IN ITA NO. ITA NO. 8791,8792 AND 8793/MUM/2004 FOLLOWING GROUND OF APPEAL IS COMMON THEREFORE, THE GROUND OF APPEAL TAKEN IN 8791/MUM/ 2004 IS REPRODUCED BELOW FOR THE SAKE OF CONVENIENCE : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.80,30,620/- WITHOUT TAKING INTO ACCO UNT THE FACT THAT THE AUTHORIZED OFFICER DURING THE COU RSE OF SEARCH WORKED OUT SUPPRESSION OF YIELD OF METHAN OL FROM NAPTHA; 2.1 IN ITA NO. ITA NO. 8791 AND 8792/MUM/2004 COMMO N GROUND RAISED REGARDING RE-OPENING OF THE ASSESSMEN T WHICH READS AS UNDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN QUASHING THE REOPENING PROCEEDINGS U/S 147 WITHOUT APPRECIATING THE FACT THAT DUE TO SUPPRESSION OF YIELD OF METHO NO9L FROM NAPTHA THERE HAS BEEN ESCAPEMENT OF INCOME 2.3 ANOTHER GROUND OF APPEAL RAISED IN ITA NO.8793/MUM/2004 READS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDIT ION ON ACCOUNT OF PAYMENT TO EMPLOYEES FOR CONVEYANCE WHEN ASSESSEE COULD NOT FURNISH THE SPECIFIC DETAIL S OF PAYMENTS ITA NO. 8791 TO 8793/MUM/2004 3 3. FACTS RELATING TO THE FIRST COMMON ISSUE ARE TH AT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING/TRADING IN METHANOL, CONSTRUCTION OF COMMERCIAL BUILDINGS, LEASING OF PLANT AND MACHINERY AND FINAN CIAL ACTIVITIES. THE REGULAR ASSESSMENT FOR ASSESSMENT FOR ALL THESE THREE YEARS WAS COMPLETED U/S 143(3). SUBSE QUENTLY, THE ASSESSMENTS FOR ASSESSMENT YEARS 1997-98 AND 19 98-99 WERE RE-OPENED ON THE BASIS OF AUTHORIZED OFFICER S REPORT THAT THE ASSESSEE WAS SHOWING LESSER YIELD OF METHA NOL OUT OF NAPHTHA CONSUMED AS RAW MATERIAL. THIS REPORT OF THE AUTHORIZED OFFICER IS A RESULT OF SEARCH AND SEIZUR E ACTION TAKEN U/S 132 ON 15.10.1996. DURING THE SEARCH PR OCEEDINGS THE AUTHORIZED OFFICER HAD TAKEN DIPS OF STORAGE T ANK WITH A VIEW TO ASCERTAIN THE YIELD OF METHANOL OUT OF NAP HTHA CONSUMPTION. ON THE BASIS OF MEASUREMENT TAKEN DU RING THE EXERCISE OF DIPS THE AUTHORIZED OFFICER FOUND THAT THE YIELD OUT OF AVERAGE CONSUMPTION CONSUMED BY THE ASSESSEE F OR PRODUCING THE SIMILAR QUANTITY OF METHANOL WAS HIGH ER IN THESE ASSESSMENT YEARS. THE AO ACTED ON THE REPORT OF TH E AUTHORIZED OFFICER AND THEREON CONCLUDED THAT THE ASSESSEE IS ENGAGED IN A SYSTEMATIC SUPPRESSION OF PRODUCTIO N OF METHANOL BY SIMPLY OVERSTATING THE CONSUMPTION OF N APTTHA IN ITS ACCOUNTS BOOKS. ITA NO. 8791 TO 8793/MUM/2004 4 3.1 THE ASSESSEE CHALLENGED THE RE-ASSESSMENT FOR T HE ASSESSMENT YEARS 1997-98 AND 1998-99 ON THE GROUND OF VALIDITY OF THE REOPENING OF THE ASSESSMENT AS WELL AS ON MERITS OF THE ADDITION IN THE RE-ASSESSMENT ORDER. 3.2 AS REGARD, THE ASSESSMENT YEAR 2000-01, SINCE T HE ASSESSMENT WAS COMPLETED U/S 143(3), THEREFORE, TRH E ASSESSEE CHALLENGED THE ADDITION MADE BY HE AO ON THE BASIS OF REPORT OF THE AUTHORIZED OFFICER. 3.2 THE CIT(A), APART FROM HOLDING THAT THE RE-OPEN ING OF THE ASSESSEE AS INVALID ALSO HELD THAT THE ADDITION MA DE BY THE AO IN THE RE-ASSESSMENT ARE BASED ONLY ON THE REPOR T OF THE AUTHORIZED OFFICER WITHOUT ANY SUPPORTING AND OTHER CORROBORATING DOCUMENTS WHICH IS NOT JUSTIFIED. 4. WE HAVE HEARD THE LEARNED DR AS WELL AS THE LEAR NED AR AND CONSIDERED THE RELEVANT RECORD. THE LEARNED D R HAS HEAVILY RELIED UPON THE ORDER OF THE AO. ON THE OT HER HAND, THE LEARNED SR.COUNSEL FOR THE ASSESSEE SUBMITTED THAT EVEN THE DIPS TAKEN BY THE AUTHORIZED OFFICER DURING THE SEARCH PROCEEDINGS IS NOT FREE FROM ERROR AND NOT NECESSA RILY GIVING THE CORRECT MEASUREMENT. HE HAS SUBMITTED THAT THE MEASUREMENT TAKEN BY T HE AUTHORISED OFFICER BY TAK ING DIPS ITA NO. 8791 TO 8793/MUM/2004 5 CANNOT GIVE THE CORRECT READING AS THE AUTHORISED OFFICER IS NOT AN EXPERT AND EVEN IN EACH ATTEMPT IT WILL G IVE A DIFFERENT READING DEPENDING UPON THE PLACER AND THE MANNER IN WHICH DIPS IS TAKEN. HE HAS FURTHER SUBMITTED THAT IN A HUGE SIZE OF THE TANK A SLIGHTEST VARIATION OF READING CAN GI VE A BIG DIFFERENT OF THE QUANTITY. THEREFORE, IN ABSENCE O F ANY CORROBORATIVE EVIDENCE TO SHOW THAT THE ASESEEE IS SHOWING HIGH CONSUMPTION OF THE RAW MATERIAL, THE MEASUREME NT TAKEN AT A SINGLE POINT OF TIME CANNOT BE A BASIS OF ADDI TION. HE HAS SUPPORTED THE ORDER OF THE CIT(A). THE LD. SR.COUN SEL HAS FURTHER POINTED OUT THAT THERE ARE VARIOUS FACTORS OF SHOWING THE VARIATION IN THE CONSUMPTION LEVEL OF NAPHTHA AND BECAUSE NAPHTHA IS A HIGHLY VOLATILE LIQUID. THE LOSS DURING THE UNLOADING FROM TANK AND STORAGE AS WELL AS P LANT LOAD ARE SOME OF THE FACTORS OF CONSUMPTION LEVEL OF NAPHTHA. ON EACH TRIP/ SET-DOWN AND STARTUP 50MT TO 100 MT OF T HE NAPHTHA IS CONSUMED BY THE PLANT AND THEREFORE ALL THESE FACTORS CAN GIVE VARIATION IN YIELD. THE AO DID NO T CONSIDER ANY OF THE FACTORS. 4.1. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND R ELEVANT RECORD. WE FIND THAT THE AO HAS REOPENED THE ASSES SMENT AND MADE ADDITION OF THIS HIGH CONSUMPTION OF RAW M ATERIAL AND SUPPRESSED DETAILS OF SALES OF METHANOL NAPHTH A ON THE ITA NO. 8791 TO 8793/MUM/2004 6 BASIS OF REPORT OF THE AUTHORIZED OFFICER. UP TO THE DATE OF SEARCH THE ADDITION WAS MADE IN THE BLOCK ASSESSME NT AND FOR THE SUBSEQUENT PERIOD THE ADDITION HAS BEEN MADE FO R ALL THESE ASSESSMENT YEARS. SINCE THE ASSESSMENT FOR T HE ASSESSMENT YEARS 1996-97 AND 1997-98 WERE ALREADY COMPLETED U/S 143(3), THE AO MADE THIS ADDITION IN THE RE- ASSESSMENT. IT IS CLEAR FROM THE RE-ASSESSMENT TH E AO HAS NOT MADE ANY INQUIRY TO ESTABLISH THE FACT THE ADD ITION WAS MADE ON THE BASIS OF AUTHORISED OFFICERS REPORT. AS FAR AS THE ADDITION MADE IN THE BLOCK ASSESSMENT IS CONCE RNED THE BLOCK ASSESSMENT HAVE BEEN SET ASIDE ON THE TECHNI CAL GROUND. THE CIT(A) HAS ADJUDICATED UPON THIS ISSUE AS UNDER : I HAVE PERUSED THE ARGUMENTS OF THE APPELLANT AS WELL AS THE ASSESSMENT ORDER. IT HAS TO BE CONCEDE D THAT HUGE ADDITIONS HAVE BEEN MADE BY THE ASSESSING OFFICER WITHOUT ANY PROPER SUPPORTING MATERIALS. TH EN ASSESSING OFFICER HAD SIMPLY RELIED UPON THE CONSUMPTION RATIO AS CALCULATED BY THE AUTHORIZED OFFICER ON THE BASIS OF A SINGLE MEASUREMENT EXERCI SE AND HAD CONCLUDED THAT THE APPELLANT HAS ENGAGED IN A SYSTEMATIC SUPPRESSION OF PRODUCTION AND SALES. THE AO HAS ALSO NOT COLLECTED ANY OTHER CORROBORATI NG EVIDENCE TO PROVE THE SUPPRESSION OF PRODUCTION AND SALE PROCEEDS BY THE APPELLANT. EVEN DURING SEARCH AND SEIZURE PROCEEDINGS AND IN THE CORUS4E OF POST SEARCH ENQUIRIES THE ASSESSING OFFICER HAS NOT COME ACROSS ANY EVIDENCE TO SUBSTANTIATE THE CHARGES OF SUPPRESSION OF PRODUCTION AND SUPPRESSION OF SALES. A FULL-FLEDGED SEARCH OPERATION WAS CARRIED OUT IN TH E CASE OF THE APPELLANT AND THE SEARCH OPERATION AND THE ENQUIRIES CONDUCED THEREAFTER CONSTITUTE A CULMINATION OF INVESTIGATION BY THE IT DEPARTMENT. BUT SURPRISINGLY THE DEPARTMENT HAS NO COME ACROSS AN Y EVIDENCE OR INDICATION TO INDICATE THAT THE APPELLA NT ITA NO. 8791 TO 8793/MUM/2004 7 WAS SHOWING LESSER YIELD OF METHANOL BY OVERSTATING CONSUMPTION OF RAW MATERIALS. REGULAR PRODUCTION RECORDS ARE MAINTAINED BY THE APPELLANT. SUCH PRODUCTION RECORDS ARE SUBJECT TO CONSTANT CHECK AN D MONITORING BY THE EXCISE DEPARTMENT. THE EXCISE AUTHORITIES ARE CARRYING OUT REGULAR AUDIT OF THE APPELLANTS PRODUCTION RECORDS AND EVEN AFTER DISPENSING WITH THE EARLIER SYSTEM OF ON THE SPOT MONITORING OF CLEARANCE OF FINISHED GOODS, THERE AR E ENOUGH CHECKS AND CONTROLS TO DETECT THE CLANDESTIN E CLEARANCE OF GOODS BY ANY MANUFACTURER OR PRODUCER. THE PREVENTIVE WING OF EXCISE DEPARTMENT IS VERY ACTIVE AND IS KEEPING A CONSTANT WATCH OVER THE CLEARANCE OF EXCISABLE GOODS. IN ALL THESE YEARS NO CASE WAS REGISTERED AGAINST THE APPELLANT FOR SUPPRESSION OF PRODUCTION OR CLANDESTINE REMOVAL OF EXCISABLE GOODS FROM THE FACTORY PREMISES. IT IS W ELL NEIGH IMPOSSIBLE TO BELIEVE THAT A PERSON WHO IS ENGAGED IN A SYSTEMATIC SUPPRESSION OF PRODUCTION AND THE CONSEQUENT SALE OF SUCH UNACCOUNTED PRODUCTION WAS NEVER FOUND GUILTY BY THE EXCISE AUTHORITIES FOR ANY IRREGULARITIES IN THE OBSERVATI ON OF THE EXCISE RULES AND REGULATIONS. THE SALE TAX DEPARTMENT IS ANOTHER STATE GOVERNMENT AGENCY WHICH MONITORS THE SALES OF THE APPELLANT AND THE FIELD ACTIVITY OF SALES TAX DEPARTMENT IS SUBSTANTIAL. IT IS DIFFICULT TO BELIE VE THAT THE APPELLANT DODGED OFF ALL THESE GOVERNMENT MONITORING AGENCIES AND HAD CONTINUED TO PRODUCE AND SALE OUT THE GOODS IN AN UNACCOUNTED MANNER. THE EXCISE DEPARTMENT HAS ALSO NO OBJECTED TO THE CONSUMPTION RATIO OF THE APPELLANT. THE AO HAD NOT POINTED OUT ANY DEFECTS IN THE PRODUCTION RECORD MAINTAINED BY THE APPELLANT,. THEREFORE, THE PRODUCTION RECORDS OF HE APPELLANT WHICH HAVE BEEN SCRUTINIZED BY THE EXCISE DEPARTMENT CANNOT BE REJECTED ONLY ON THE BASIS OF SOME CONSUMPTION RA TIO WORKED OUT BY THE AUTHORIZED OFFICER DURING SEARCH PROCEEDINGS. AS POINTED OUT BY THE AR OF THE APPELLANT THE PROCEDURE OF TAKING MEASUREMENT OF LIQUID STORED IN A TANK IS A VERY DELICATE EXERCIS E AND EVEN A SLIGHTEST MISTAKE OR INEXPERIENCE O THE PER SON TAKING HE MEASUREMENT CAN SUBSTANTIALLY INCREASE OR DECREASE THE CONSUMPTION RATIO OF THE APPELLANT. SECONDLY, THE CONSUMPTION WORKED OUT BY THE ASSESSING OFFICER ON THE BASIS OF A SINGLE DAYS MEASUREMENT EXERCISE DOES NOT TAKE INTO ACCOUNT ITA NO. 8791 TO 8793/MUM/2004 8 VARIOUS OTHER FACTORS WHICH ARE RESPONSIBLE FOR INCREASED IN THE CONSUMPTION OF NAPHTHA. NAPHTHA I S ALSO USED AS A FUEL BY THE APPELLANT FOR STARTING AND SHUTTING DOWN THE PLANT AND THIS ALSO RESULTING ENHANCED CONSUMPTION. OTHER CONDITIONS ALSO AFFECT THE CONSUMPTION RATIO. THEREFORE, THE IMPERFECT MEASUREMENT EXERCISE CARRIED OUT BY THE AUTHORIZED OFFICER CANNOT BE THE BASIS FOR WORKING-OUT THE ACT UAL CONSUMPTION RATIO OF THE APPELLANT. OTHER THAN THE REPORT OF THE AUTHORIZED OFFICER THE ASSESSING OFFI CER DOES NOT HAVE ANY BASIS TO SUPPORT THE PRESUMPTION OF SUPPRESSION OF PRODUCTION AND SUPPRESSION OF SALE PROCEEDS. THE REPORT OF THE AUTHORIZED OFFICER UN LESS SUPPORTED BY ANY OTHER CORROBORATING EVIDENCE CANNO T JUSTIFY THE ADDITION OF SUCH HUGE AMOUNT TO THE INC OME OF THE APPELLANT. IN VIEW OF THE ABOVE I AM OF THE OPINION THAT THE ADDITIONS MADE BY THE ASSESSING OFFICER AFTER REOPENING THE ASSESSMENT ARE BASED ON A VERY WEAK FOOTING AND THE SAME ARE NOT SUSTAINABLE IN APPELLANT PROCEEDINGS. HERE I WOULD LIKE TO MENTIO N THAT THE REPORT OF THE AUTHORIZED OFFICER REGARDING SUPPRESSION OF PRODUCTION WAS NOT GIVEN ANY IMPORTANCE DURING THE FINALIZATION OF 158BC PROCEEDINGS AND THE BLOCK ASSESSMENTS HAVE BEEN COMPLETED WITHOUT MAKING ANY ADDITION ON ACCOUNT OF ALLEGED SUPPRESSION OF PRODUCTION AND SALES. BUT SUBSEQUENTLY SOMEHOW OR OTHER THE ASSESSING OFFICE HAD DECIDED TO ADOPT THE SAME REPORT AS A BASIS FOR REOPENING THE COMPLETED ASSESSMENT OF THE APPELLANT AND FOR MAKING ADDITION TO THE INCOME OF THE APPELL ANT ON ACCOUNT OF SUPPRESSED PRODUCTION. WHAT TRANSPIRED IN BETWEEN WHICH MA ETH ASSESSING OFFICE R TO ATTACH SUCH AN IMPORTANCE TO THE REPORT OF THE AUTHORIZED OFFICER IS NOT CLEAR FROM THE REASSESSME NT ORDER 4.2 IN VIEW OF THE ABOVE DETAILED DISCUSSIONS OF TH E CIT(A) THAT WHEN THE SALES TAX DEPARTMENT AND EXCISE DE PARTMENT HAVE NOT FOUND ANY DEFECT IN THE PRODUCTION AND BO OKS OF ACCOUNT AND SALES OF THE GOODS THEN SOLELY ON THE BASIS OF THE REPORT OF THE AUTHORIZED OFFICER, THE ADDITION IS N OT SUSTAINABLE, ITA NO. 8791 TO 8793/MUM/2004 9 IN ABSENCE OF ANY CORROBORATIVE AND SUPPORTIVE EVID ENCE TO JUSTIFY THE ADDITIONS 4.3 THE GROUNDS OF APPEAL NO.1 TAKEN IN ALL THESE T HREE APPEALS ARE DISMISSED. 5. THE GROUNDS OF APPEAL NO.2 FOR THE ASSESSMENT YE ARS 1997-97 AND 1998-99 IS REGARDING RE-OPENING OF THE ASSESSMENT U/S 147. 5.1. THIS ISSUE IS COMMON FOR THE ASSESSMENT YEARS 1997-98 AND 1998-99. THE LD. DR HAS SUBMITTED THAT THE AO HAS REOPENED THE ASSESSMENT ON THE BASIS OF THE REPORT OF THE AUTHORIZED OFFICER WHEREBY THE ESCAPEMENT OF INCOME ON ACCOUNT OF SUPPRESSED YIELD OF METHANOL FROM NAPHT HA AS CALCULATED BY THE AUTHORISED OFFICER. THE LD. DR HAS FURTHER SUBMITTED THAT THE UP TO THE DATE OF SEARCH I.E. 15 .10.1996, THE SUPPRESSION OF YIELD WAS ASSESSED UNDER THE BLOCK ASSESSMENT AND RE-OPENED THE BLOCK ASSESSMENT. THE PERIOD FROM 16.10.1996 TO 31.3.1997 THE ASSESSMENT OF THE SUPPRESSED YIELD FOR THE ASSESSMENT YEAR 1997-98 W AS ASSESSED IN THE REOPENED ASSESSMENT AND SIMILARLY T HE ASSESSMENT FOR THE ASSESSMENT YEAR 1998-99 WAS ALSO REOPENED FOR THE SAME REASON. THE LEARNED DR HAS P OINTED ITA NO. 8791 TO 8793/MUM/2004 10 OUT THAT THE LEARNED CIT(A) HAS DECIDED THE ISSUE ONLY ON THE BASIS OF THE ORDER ON THE ISSUE IN BLOCK ASSESSMENT . HE HAD POINTED OUT THAT IN THE BLOCK ASSESSMENT, REPORT W AS AVAILABLE WITH THE AO AT THE TIME OF FRAMING THE BLOCK ASSES SMENT U/S 158BC AND THEREFORE WHEN THE BLOCK ASSESSMENT WAS REOPENED ON THE BASIS OF THE MATERIAL WHICH WAS ALR EADY WITH THE AO IT WAS HELD THAT REASSESSMENT WAS BASED ON CHANGE OF OPINION. WHICH IS NOT THE CASE FOR REOPENING OF T HE REGULAR ASSESSMENT BECAUSE THE REOPENING OF THE REGULAR ASS ESSMENT IS BASED ON THE SAID REPORT AND AT THE TIME OF ORIG INAL ASSESSMENT THE SAID REPORT WAS NOT AVAILABLE. ACC ORDINGLY, THE LEARNED DR HAS SUBMITTED THAT THE CIT(A) HAS F ALLEN IN ERROR WHILE DECIDING THE ISSUE OF ILLEGALITY OF REO PENING FOR THE REGULAR ASSESSMENT. HE HAS RELIED UPON THE ORDER O F THE AO. 5.2. THE LEARNED SR.COUNSEL OF THE ASSESSEE HAS SUB MITTED THAT THE REGULAR ASSESSMENT WAS COMPLETED U/S 143( 3) ON 29.3.2000, THEREAFTER THE ORDER U/S 154 WAS PASSED ON 29.12.2000 IN BETWEEN THE ORDERS U/S 158BC WAS ALSO PASSED ON 31.10.1997 AND NOTICE U/S 148 WAS ISSUED FOR REO PENING OF THE BLOCK ASSESSMENT ON 16.1.2001. WHEREAS, THE N OTICE FOR REOPENING OF THE REGULAR ASSESSMENT U/S 148 WAS ISS UED ON 26.3.2002 WHICH IS CLEARLY PASSED ON THE SAME REASO NING AS IT WAS FOR THE REOPENING OF THE BLOCK ASSESSMENT. THE LD. ITA NO. 8791 TO 8793/MUM/2004 11 SR.COUNSEL HAS FURTHER CONTENDED THAT THIS TRIBUNA L HAS ALREADY HELD THE REOPENING OF BLOCK ASSESSMENT IS I NVALID AS ON THE BASIS OF CHANGE OF OPINION. THEREFORE WHEN THE REASONING IS SAME THEN THE REOPENING IN THE REGULAR ASSESSMENT IS ALSO NOT SUSTAINABLE AND LIABLE TO BE QUASHED. HE HAS REFERRED THE REASONS RECORDED FOR THE REOPEN ING OF THE ASSESSMENT AT PAGES 53 OF THE PAPER BOOK. 5.3 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND R ELEVANT RECORD. THE REASONS RECORDED BY THE AO FOR RE-AS SESSMENT ARE AS UNDER : REASON RECORDED FOR RE-OPENING THE ASSESMENT FOR THE AY 1997-98 THE ASSESSMENT FOR THE AY 1997-98 WAS FINALIZED ON 29.3.2000. IT IS NOTICED THAT THE ASESEEE HAD SHOW N YIELD OF METHANOL OUT OF NAPHTHA CONSUMPTION, FOR T HE ABOVE PERIOD. THERE WAS SEARCH AND SEIZURE ACTION U/S 132(1) TAKEN ON 15.11.1996 AT THE ASSESSEES DIFFERENT PREMISES. THE ACTION WAS TAKEN ON FACTOR Y PREMISES AT PATALGANGA ALSO. THE AUTHORIZED OFFICER S HAD TAKEN DIPS OF PLANTS TANKS FOR CALCULATING THE YIELD OF METHANOL OUT OF CONSUMPTION OF NAPHTHA. ON PRACTICAL EXERCISE, THE AUTHORIZED OFFICERS COMPUTE D THAT 1 M TONS OF METHANOL WAS PRODUCED OUT OF CONSUMPTION OF 758.300 KG OF NAPHTHA. THE TOTAL CONSUMPTION OF NAPHTHA DURING THE AY 1997-98 IN TH E FACT OF THE ASSESSEE WAS 39568.090 MT AND THE YIELD HAS BEEN SHOWN AT 49580.630MT. HOWEVER, ON APPLYING THE RATIO OF PRODUCTION OF METHANOL AT 1 M TON FROM CONSUMPTION OF 758.300 KG OF NAPHTHA, THE PRODUCTION SHOWN BY THE ASSESSEE IN THE YEAR SHOULD HAVE BEEN SHOWN FOR 1997-98 (52179.995 M TONS) THUS THE ACTUAL PRODUCTION BY THE ASSESSEE IS L4ESS BY 2599.365 M TONS THAT THE YIELD CALCULATED BY THE AUTHORIZED OFFICER THE VALUE OF METHANOL FOR LESS YIELD SHOWN AT THE RATE OF RS.9607.97 P MT PER M ITA NO. 8791 TO 8793/MUM/2004 12 TONS SHOWN BY THE ASSESSEES SALES RECORDED FOR 1997-98 M TON COMES TO RS.2,49,74,620/- WHICH WAS NOT SHOWN BY THE ASSESSEE; THEREFORE, I HAVE REASON TO BELIEF THAT AN INCOME OF RS.2,49,74620/- CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. CONSEQUENTLY, THE ASSESSMENT IS RE- OPENED U/S 147 OF THE IT ACT, 1961. ISSUE NOTICE U /S 148 O F THE IT ACT IT IS UNDISPUTED FACT THAT THE REOPENING OF THE REG ULAR ASSESSMENT WAS BASED ON THE REPORT OF THE AUTHORI ZED OFFICER WHICH IS A RESULT OF THE SEARCH AND SEIZURE ACTIO N UNDERTAKEN U/S 132 IN THE CASE OF THE ASSESSEE. THE REPORT OF AUTHORIZED OFFICER WAS NOT AVAILABLE ON THE ASSESSMENT REC ORD AND NOT CONSIDERED BY THE AO AT THE TIME OF FRAMING OF THE ORIGINAL ASSESSMENT. THE CIT(A) HAS ADJUDICATED THE ISSUE AND HELD THAT THE ASSESSMENTS HAVE BEEN REOPENED ON THE BASI S OF SAME FACTS AND INFORMATION WHICH WAS AVAILABLE TO T HE ASSESSING OFFICER AT THE TIME OF REGULAR ASSESSMENT . THE CIT(A) HAS OBSERVED THAT THE AO WHILE COMPLETING THE REGULAR ASSESSMENT MUST HAVE COME ACROSS THE REPOR T OF THE AUTHORIZED OFFICER, BUT SEEMS TO HAVE IGNORED THE S AME. THIS OBSERVATION OF THE CIT(A) IS PURELY PRESUMPTIVE AN D NOT BASED ON INVESTIGATION AND RECORD. THE CIT(A) HAS NOT GI VEN THE FINDING THAT THE REPORT OF THE AUTHORIZED OFFICER W AS AVAILABLE ON RECORD OF THE REGULAR ASSESSMENT. THEREFORE, TH E ASSESSMENT HAS BEEN REOPENED WITHIN FOUR YEARS AND BASED ON A NEW INFORMATION IN THE SHAPE OF REPORT OF TH E AUTHORIZED ITA NO. 8791 TO 8793/MUM/2004 13 OFFICER CAME TO THE KNOWLEDGE OF THE ASSESSING OFFI CER. IT IS SETTLED PROPOSITION OF LAW THAT AT THE TIME OF REOP ENING OF THE ASSESSEE, THE AO NEED NOT TO ENSURE THAT THE NEW I NFORMATION OR MATERIAL CAME TO HIS KNOWLEDGE IS CERTAINLY GO ING TO ESTABLISH THE ESCAPEMENT OF INCOME, IF PRIMA FACIE THE AO IS SATISFIED TO TAKE OPINION THAT THE INCOME ASSESSAB LE TO TAX HAS ESCAPE ASSESSMENT. THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, THE ORDER OF THE CIT(A) QUA REOPENING O F THE ASSESSMENT IS NOT SUSTAINABLE ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) QUA THIS ISSUE UPHOLDING THE R EOPENING OF THE ASSESSMENT. 5.4 THE GROUNDS OF APPEAL NO.2 OF BOTH THE APPEALS I.E FOR THE ASSESSMENT YEARS 1997-98 AND 1998-99 ARE ALLOWE D. 6. THE NEXT ISSUE IN THE APPEAL NO.8793/MUM/2004 IS REGARDING THE ADDITION ON ACCOUNT OF THE PAYMENT T O THE EMPLOYEES FOR CONVEYANCE. 6.1 THE ASSESSEE CLAIMED THE CONVEYANCE CHARGES OF RS.10,01,670/-. THE AO ASKED THE ASESEEE TO SUBMI T THE DETAILS REGARDING THE CONVEYANCE EXPENSES. THE AS SESSEE VIDE LETTER DATED 13.3.2003 STATED THAT THIS AMOUNT IS INCURRED FOR CONVEYANCE EXPENSES FOR HIS STAFF ON HIRED AND OUT DOOR WORK. IT WAS CLARIFIED THAT THIS AMOUNT WAS REIMBU RSED TO THE EMPLOYEES WHICH IN THE ROUTING COURSE OF BUSINESS. THE AO ITA NO. 8791 TO 8793/MUM/2004 14 MADE DISALLOWANCE OF RS.1 LAKH ON THIS ACCOUNT ON THE GROUND THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS REQ UIRE TO PROVE THE CLAIM OF THE ASSESSEE. 6.2 ON APPEAL, THE CIT(A) HAS DELETED THE DISALLOW ANCE MADE BY THE AO. 6.3 WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED T HE RELEVANT RECORD, WHEN THE PAYMENT ITSELF IS NOT IN DISPUTE AND THE SAME IS IN THE NATURE OF REIMBURSEMENT OF THE EXPENSES TO THE EMPLOYEES THEN EVEN IF IT IS NOT FO R THE REIMBURSEMENT OF BUSINESS EXPENSES BUT PAID THE E MPLOYEES THEN THE SAME CANNOT BE DISALLOWED AND TREATED AS I NCOME OF THE ASSESSEE. AT THE MOST IF THE AO FINDS THAT THI S AMOUNT HAS BEEN GIVEN AS AN EXTRA PAYMENT THE SAME CAN BE TREA TED AS PERQUISITES IN THE HANDS OF THE EMPLOYEES. ACCORDIN GLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) IN DELETING THE ADHOC ADDITION MADE BY THE AO. 7. IN SUM AND SUBSTANCE, THE GROUNDS OF APPEAL NO.1 IN ALL THE THREE APPEALS ARE DISMISSED. GROUNDS OF APPEAL NO.2 FOR THE ASSESSMENT YEARS 1997-98 AND 1998-99 IS ALLOWED AND GROUNDS OF APPEAL NO.2 FOR THE ASSESSMENT YEAR 2000 -01 IS DISMISSED. ITA NO. 8791 TO 8793/MUM/2004 15 8. IN THE RESULT, THE APPEALS OF THE REVENUE ARE PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL, 2011 SD SD (J.SUDHAKAR REDDY) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL M EMBER MUMBAI, ON THIS 29TH DAY OF APRIL, 2011 SRL:15411 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI