2015 (9) TMI 748 - HC - Income Tax

Validity of reopening of assessment - ITAT quashing the reassessment on the ground that the A.O has reopened the assessment on the same material which were in the records during the course of the original assessment proceedings - addition on account of Prior period expenses andunutilized CENVAT credit - Held that - On the basis of the reply of the Assessee filed before A.O it is thus seen that the AO was aware of the method of accounting followed by the Assessee for valuation of closing stock and after having examined the issue and on being satisfied with the material produced and the explanation of the Assessee, the A.O did not make any addition on account of unutilized CENVAT credit. Similarly, the submission of the Assessee with respect to prior period expenses was also accepted by the A.O without making any addition during the course of original assessment proceedings and it can thus be said that A.O had formed an opinion during the scrutiny assessment. Thus, in the present case and on considering the aforesaid facts, we are of the view that the impugned notice for reassessing the assessment year 200809 is issued merely on change of opinion and seeks to review the assessment which is already completed and the same in not permissible as per law. We thus set aside the notice of reopening the assessment dated 28.03.2011 and also all consequential orders. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.
2. Disallowance of prior period expenses.
3. Addition of unutilized CENVAT credit to the income.

Issue-Wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act:
The core issue revolves around whether the reassessment for AY 2008-09 was valid. The Tribunal held the reassessment invalid on the grounds that it was based on the same material available during the original assessment, thus constituting a mere change of opinion by the Assessing Officer (AO). The AO had initially scrutinized the assessee's valuation of closing stock and prior period expenses during the original assessment and had accepted the assessee's submissions without making any additions. The Tribunal observed that reopening the assessment on the same grounds without any new tangible material was not permissible under the law. The Tribunal's decision was upheld by the High Court, which agreed that the reassessment was solely on the change of opinion of the AO and thus invalid.

2. Disallowance of Prior Period Expenses:
The AO disallowed prior period expenses amounting to Rs. 99,44,276/- on the grounds that these expenses were not related to the previous year 2007-08, relevant to AY 2008-09. However, the assessee had provided detailed explanations during the original assessment proceedings, justifying the inclusion of these expenses based on the mercantile system of accounting. The Tribunal found that the AO had already considered and accepted the assessee's explanations during the original assessment, and thus, reopening the assessment on this ground was not justified. The High Court concurred with the Tribunal's view, noting that the AO had formed an opinion during the original scrutiny assessment and that reassessment on the same issue was not permissible.

3. Addition of Unutilized CENVAT Credit to the Income:
The AO sought to add unutilized CENVAT credit of Rs. 1,44,63,411/- to the income, arguing that the finished goods were shown inclusive of excise duty while raw materials were exclusive of CENVAT. The assessee had clarified during the original assessment that the closing stock of finished goods included the excise duty component and provided detailed workings as per Section 145A of the Act. The Tribunal noted that the AO had examined and accepted the assessee's method of accounting for CENVAT credit during the original assessment. Therefore, reopening the assessment on this ground was also deemed a change of opinion. The High Court upheld the Tribunal's decision, emphasizing that reassessment based on the same material already scrutinized and accepted by the AO was invalid.

Conclusion:
The High Court dismissed the appeal, agreeing with the Tribunal's findings that the reassessment for AY 2008-09 was invalid as it was based on a change of opinion by the AO. The Court found no substantial question of law arising from the appeal and upheld the Tribunal's decision to quash the reassessment proceedings. The judgments emphasized the principle that reassessment under Section 147 requires new tangible material and cannot be based on mere change of opinion on issues already considered during the original assessment.