2016 (6) TMI 984 - HC - Income Tax

Reopening of assessment - disallowance of provision for damaged goods - Held that - The quoted portion of the Tribunal s impugned order would, however, establish that the entire issue was considered by the Assessing Officer in the original scrutiny assessment. The Tribunal records that the Assessing Officer had raised several queries in the notice issued to the assessee, in which, in query No. 16 he had sought details of liability for damaged goods of ₹ 1,00,59,941/-. The assessee had filed its reply alongwith P&L account and details of all the expenses. The assessee had also placed material pointing out that the liability had reduced from ₹ 1,62,77,457/- in the preceding assessment year to ₹ 1,00,59,941/- in the present year. The assessee had also placed notes of policy for damaged goods stating that the same was received in damaged condition in subsequent years out of those sold during the year is made in the accounts of the year corresponding to the sales on estimation basis. Thus, full accounts, details and justifications for the claim was placed before the Assessing Officer during the original assessment proceedings. This was in response to the written query raised by the Assessing Officer. If, thereafter, in the final order of assessment, the Assessing Officer made no disallowance, it can hardly be stated that he did not form any opinion with respect to this claim of the assessee. - Decided against revenue

Summary

Issues:
1. Validity of re-opening of assessment under section 147 of the Income Tax Act, 1961.
2. Disallowance of provision for damaged goods amounting to ?77,03,560.

Issue 1: The first issue revolves around the validity of re-opening the assessment under section 147 of the Income Tax Act, 1961. The Assessing Officer re-assessed the income by disallowing a provision for damaged goods made by the assessee. The CIT(Appeals) upheld the decision of the Assessing Officer, but the Tribunal reversed these decisions. The Tribunal found that the Assessing Officer had already considered the issue during the original assessment proceedings. It was noted that the assessee had provided full accounts, details, and justifications for the claim in response to queries raised by the Assessing Officer. The Tribunal referred to previous court decisions emphasizing that re-opening assessments based on a mere change of opinion is impermissible. The court highlighted that once the Assessing Officer scrutinizes a claim during assessment and does not reject it, the claim is deemed allowed. The court concluded that the Assessing Officer had formed an opinion on the claim, even if reasons were not explicitly provided in the assessment order. The court relied on the principle that assessments cannot be re-opened solely on a change of opinion, and upheld the Tribunal's decision on the validity of the re-assessment.

Issue 2: The second issue pertains to the disallowance of a provision for damaged goods amounting to ?77,03,560. The Revenue contended that the notice for re-opening the assessment was issued within the statutory period, allowing the Assessing Officer to tax the income that had escaped assessment. However, the Tribunal found that the Assessing Officer had already considered the provision for damaged goods during the original assessment proceedings. The Tribunal observed that the assessee had provided detailed information and justifications for the provision, which was accepted by the Assessing Officer without any disallowance. The Tribunal held that the Assessing Officer had formed an opinion on the claim during the original assessment, and therefore, disallowing the provision in the re-assessment was unwarranted. The court upheld the Tribunal's decision on this issue, emphasizing that the Assessing Officer's acceptance of the claim during original assessment indicated the formation of an opinion, precluding the need for disallowance in the re-assessment. The court dismissed the tax appeal, affirming the Tribunal's decision on both grounds.