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2011 (10) TMI 485 - AT - Income TaxValidity of reopening of assessment previously framed u/s 143(3) after a period of four years from the end of the relevant A.Y. - proceedings initiated on ground that assessee had claimed double deduction in respect of excise duty relatable to closing stock - AY 2001-02 - Held that - There is no dispute that detailed notes were submitted before the AO. In the reasons recorded, AO has not pointed out as to which particular fact was not disclosed by assessee, which was necessary for arriving at the alleged conclusion of double deduction being claimed by the assessee. The mandate of proviso is very clear that unless there is a failure on the part of assessee to disclose fully and truly all necessary facts for assessments, re-opening cannot be upheld - Decided in favor of assessee. Validity of reopening of assessment of AY 02-03 and 03-04 on aforesaid ground - assessment proceedings initiated within four years from the end of relevant AY - assessee contended change of opinion - Held that - AO after examining the details furnished before it arrived at a conclusion that Assessee had rightly claimed the deduction but he did not take into consideration as to what was the effect of claiming deduction once on mercantile basis of accounting and again u/s 43B in the computation. The true effect of double deduction, in the same year, of excise duty paid by assessee, was an important issue, on which AO should have applied his mind and then come to a conclusion. Non-application of mind on such a vital aspect cannot be considered as formation of opinion on the basis of details available before him. Therefore, re-assessment proceedings for AY s 2002-03 and 2003-04, were not initiated on account of change of opinion - Decided against the assessee. Since the assessee was following mercantile system of accounting. It had debited the excise duty on manufacture of goods and correspondingly included excise duty element in the closing stock to neutralize the effect of debit in the P/L A/c. The deduction had been claimed on the basis of actual payment u/s 43B. However, the assessee had made necessary adjustments in the respective years. It is clear that in ultimate analysis of various assessment years taken together, no double deduction had been claimed by the assessee. CIT (Appeals) rightly assailed levy of interest u/s 234D observing that since provisions of section 234D have come into force from 1.6.2003, therefore, this will be applicable from AY 2004-05 onward
Issues Involved:
1. Validity of re-assessment proceedings under section 147. 2. Alleged double deduction of excise duty on closing stock. 3. Levy of interest under section 234D. Issue-wise Detailed Analysis: 1. Validity of Re-assessment Proceedings under Section 147: For Assessment Year 2001-02, the re-assessment proceedings were initiated after four years from the end of the relevant assessment year. The assessee argued that there was no failure on its part to disclose all material facts related to the taxability of excise duty paid/payable on closing stock. The ld. CIT (Appeals) upheld the re-assessment proceedings, stating that the assessee did not disclose all material facts. However, the Tribunal found that the assessee had disclosed all necessary details during the original assessment proceedings, including the computation of income and tax payable, and detailed notes explaining the treatment of excise duty. The Tribunal concluded that the re-assessment proceedings were without jurisdiction as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, thus quashing the re-assessment proceedings for Assessment Year 2001-02. For Assessment Years 2002-03 and 2003-04, the re-assessment proceedings were initiated within four years from the end of the relevant assessment years. The Tribunal examined whether the proceedings were initiated on account of a change of opinion. It was found that the Assessing Officer had not applied his mind to the issue of double deduction during the original assessment proceedings. The Tribunal upheld the re-assessment proceedings for these years, stating that there was prima facie escapement of income, and the initiation of re-assessment proceedings was not on account of a change of opinion. 2. Alleged Double Deduction of Excise Duty on Closing Stock: The assessee claimed that since the insertion of section 145A in the Income Tax Act, it had accounted for the excise duty element in the valuation of closing stock of finished goods. The assessee followed a practice of debiting the excise duty in the Profit & Loss Account and including the same in the value of closing stock, thereby neutralizing the impact on profits. The deduction was claimed under section 43B on an actual payment basis. The Tribunal found that the assessee had not claimed any double deduction in the ultimate analysis, as the amount claimed as deduction under section 43B was offered to tax in the subsequent year. The Tribunal also noted that this issue was covered in favor of the assessee by its own case for Assessment Year 2004-05, where the Tribunal had upheld the assessee's methodology. 3. Levy of Interest under Section 234D: The Assessing Officer had charged interest under section 234D on the refund granted to the assessee. The ld. CIT (Appeals) allowed the assessee's claim, observing that the provisions of section 234D were applicable from Assessment Year 2004-05 onward. The Tribunal upheld this view, relying on the decision of the ITAT, Special Bench in the case of ITO v. Ekta Promoters (P.) Ltd., which held that interest under section 234D is chargeable from Assessment Year 2004-05 and could not be charged for earlier years even if regular assessments for those years were framed after 1-6-2003. Conclusion: - The re-assessment proceedings for Assessment Year 2001-02 were quashed due to the absence of failure on the part of the assessee to disclose material facts. - The re-assessment proceedings for Assessment Years 2002-03 and 2003-04 were upheld as they were not initiated on account of a change of opinion. - On merits, the issue of double deduction of excise duty was decided in favor of the assessee. - The levy of interest under section 234D was upheld to be applicable only from Assessment Year 2004-05 onwards.
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