2017 (8) TMI 243 - HC - Income Tax

Reopening of assessment - Allowability of addition made on account of closing stock - change in accounting policy of the company - Held that - The reopening of the assessment in the present case is sought to be made after four years after the original assessment order was passed under Section 143(3) of the Act. The first proviso to Section 147 is straightaway attracted. It mandates that there must be failure on part of the Assessee to make a full and true disclosure of all material facts necessary for the assessment. With regard to the addition sought to be made by the impugned order, the Petitioner did make a full and true disclosure of all material facts. Note-2 to the accounts which explained the change in the method of valuation of the closing stock. In fact, the AO himself acknowledged the mistake of overlooking that note. He, therefore, accepted the application filed by the Petitioner under Section 154 of the Act and rectified the assessment order by the subsequent order dated 4th March, 2013. These facts have been completely overlooked by the AO while seeking to reopen the assessment. The observation that the Assessee did not make a disclosure of the changed method of valuation is plainly contrary to the records. On the face of it, the reopening is unsustainable in law. There is another question urged by the Petitioner regarding the failure of the AO to comply with the procedure explained by the Supreme Court in GKN Driveshafts (India) Ltd v. Income Tax Officer 2002 (11) TMI 7 - SUPREME Court is left open for decision in an appropriate case. Reopening set aside. - Decided in favour of assessee.

Summary

Issues:
1. Re-assessment order challenge for AY 2009-10 under Section 147 read with Section 143(3) of the Income Tax Act, 1961.
2. Valuation of closing stock based on parent seed charges.
3. Rectification application under Section 154 of the Act.
4. Reopening of assessment under Section 147 of the Act.
5. Failure to follow proper procedure in passing re-assessment order.

Analysis:
1. The petition challenged the re-assessment order for AY 2009-10 under Section 147 read with Section 143(3) of the Income Tax Act, 1961. The petitioner, engaged in agricultural activities to develop hybrid seeds, faced issues regarding the valuation of closing stock based on parent seed charges.
2. The petitioner had filed a rectification application under Section 154 of the Act due to a change in the method of valuation of closing stock. The assessing officer (AO) acknowledged the mistake and rectified the assessment order accordingly.
3. Subsequently, another AO issued a notice under Section 147 of the Act, stating that the petitioner's income had escaped assessment. The reasons furnished highlighted the petitioner's failure to claim the change in the valuation policy in the original return of income or through a revised return.
4. The court observed that the AO did not follow the proper procedure of passing a separate order on the objections filed by the petitioner before proceeding with the re-assessment. The court found the reasons for reopening the assessment lacked tangible material and were based on the petitioner's rectification application claim.
5. The court set aside the re-assessment order, noting that the petitioner had made a full and true disclosure of all material facts regarding the change in valuation method. The court also highlighted the AO's failure to comply with the procedure outlined in a Supreme Court decision. The writ petition was allowed with no costs, and the pending application was disposed of.