2016 (11) TMI 1682 - AT - Income Tax

Reopening of assessment u/s 147 - payment of excise duty adjusting the excise duty towards the sale of old stock - HELD THAT - AO was of the view that during the assessment proceedings it was found that the assessee is manufacturing utensils and sold them under payment of Central Excise Duty through Modvat credit. It was found that the assessee company has utilised the Modvat credit. Company has also concealed the sales - Assessing Officer was of the view that as per the books of accounts the provisions of excise duty on finished goods, as appearing in the books of accounts, as on 1.4.2002 was ₹ 732279/-. Out of the said provisions of excise duty, the assessee has adjusted the amount of ₹ 661612/- towards sale of old stock during the year under consideration. Thus, the assessee has made payment of excise duty adjusting the excise duty towards the sale of old stock. This, this was a new information. Assessing Officer has reopened the assessment and the reopening is justified. AO has reopened the assessment on the information which was available to him. CIT(A) is not justified in allowing the appeal on the ground that the reopening is not correct. AO reopened the assessment order on the ground that the assessee has utilised the amount of Modvat credit as per the audit report which did not tally with the excise duty debited to the profit and loss account - The assessee has shown excise duty payment in his return of income. AO has taken up two figures of excise duty from the return of the assessee that the excise duty of ₹ 7512186/- claimed as expenses in profit and loss account and in tax audit report Modvat credit claimed was ₹ 7743268/-. Therefore, when these two figures were picked up from the return of income and audit report filed by the assessee, it cannot be proved that the Assessing Officer has any information. Assessing Officer has, by booking the two figures, come to the conclusion that there are unaccounted sales but there is no tangible material to come to the conclusion that there is escapement of income from assessment and, therefore, the reopening of the case cannot be sustained. We find that the learned CIT(A) has verified the accounts, reconciliation statement of excise duty paid which was filed before the Assessing Officer and the learned CIT(A) and the learned CIT(A) has held that there is no reason to believe that there is separation of sale to the extent of ₹ 5160039/-. We also get support from the order in the case of Kelvinator of India Ltd. and Orient Craft Ltd. 2010 (1) TMI 11 - SUPREME COURT . We, therefore, find no merit in this appeal of the revenue and dismiss the same.

Summary

Issues Involved:
1. Validity of reopening the case under Section 147.
2. Deletion of additions made by the Assessing Officer (A.O.) on account of share capital, share premium, unsecured loan, interest, cash expenditure, and suppression of sales.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Case under Section 147:
The primary issue was whether the reopening of the assessment under Section 147 was justified. The A.O. reopened the case based on an audit objection, noting discrepancies in the MODVAT credit utilized and excise duty debited in the Profit & Loss account. The CIT(A) annulled the assessment order, observing that the reopening was based on an audit objection without tangible material linking to income concealment. It was noted that the A.O. failed to address the reconciliation statement provided by the assessee, which explained the differences in figures. The CIT(A) concluded that the reopening lacked valid reasons and tangible material, relying on the Supreme Court's decision in Kelvinator India Ltd., which emphasized that mere change of opinion does not justify reopening. The Tribunal upheld the CIT(A)'s decision, stating that the A.O.'s reason to believe was not substantiated by any new tangible material.

2. Deletion of Additions Made by the A.O.:
The CIT(A) deleted several additions made by the A.O., which were challenged by the revenue:

2.1 Share Capital and Share Premium:
The A.O. added ?66,00,000 on account of share capital and share premium, which the CIT(A) deleted. The CIT(A) noted that similar transactions were accepted as genuine in previous assessments of related companies. The Tribunal upheld this deletion, finding no new evidence to justify the addition.

2.2 Unsecured Loan and Interest:
The A.O. added ?40,00,000 as unsecured loans and ?3,16,143 as interest thereon. The CIT(A) deleted these additions, observing that the A.O. had accepted similar loans as genuine in another assessment year. The Tribunal agreed with the CIT(A), noting the lack of new evidence to support the A.O.'s additions.

2.3 Cash Expenditure:
The A.O. added ?5,30,000 for cash expenditure, which the CIT(A) deleted, stating that the main grounds for addition were not accepted. The Tribunal found no merit in the revenue's appeal on this point and upheld the CIT(A)'s deletion.

2.4 Suppression of Sales:
The A.O. added ?51,60,039 for suppression of sales, based on a discrepancy in MODVAT credit utilization. The CIT(A) deleted this addition, noting that the assessee provided a reconciliation statement explaining the excise duty payments and adjustments. The CIT(A) found that the A.O. did not verify this reconciliation and wrongly concluded suppression of sales without tangible evidence. The Tribunal upheld the CIT(A)'s decision, emphasizing that the A.O. relied on figures from the assessee's own return without any external evidence of unaccounted sales.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s annulment of the reopening and deletion of additions. The Tribunal emphasized the necessity of tangible material for reopening assessments and making additions, aligning with the principles laid down by the Supreme Court in Kelvinator India Ltd. and Orient Craft Ltd.