2018 (10) TMI 1042 - HC - Income Tax

Reopening of assessment - Applicability of section 145A - valuation of closing stock - as per AO unutilized CENVAT credit should have been included in the closing stock which would alter the assessee s profit for the year under consideration - Notice beyond the period of four years - Held that - The documents on record would however show that the entire issue of assessee s treatment of such unutilized CENVAT credit while computing the valuation for the closing stock had come up for minute scrutiny during the original assessment proceedings. AO was conscious of the methodology adopted by the assessee. He had raised multiple queries which we have reproduced. The assessee had replied to such queries. The replies of the assessee have already been reproduced. It was only after such scrutiny that AO had passed the order of assessment, in which, after recording detailed reasons, he made limited disallowance in relation to the unutilized CENVAT credit. We are informed that even this disallowance is a subject matter at the ends of the assessee. With this aspect we are however not directly concerned. Not open for AO to reexamine the entire issue which would be merely on the change of opinion. It is wellsettled as held by the Supreme Court in case of CIT Vs. Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT OF INDIA . Even post 01.04.1989, amendments in section 147, the concept of change of opinion prevented the Assessing Officer to reopen the assessment still holds good. This quite apart, the impugned notice has been issued beyond a period of four years from the end of relevant assessment year. Clearly, there was no failure on the part of the assessee to disclose truly and fully all material facts necessary for assessments. AO referred to the material which was already on record during the course of assessment - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Applicability of Section 145A regarding the valuation of closing stock and unutilized CENVAT credit.
3. Alleged failure to disclose fully and truly all material facts necessary for assessment.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The petitioner challenged the notice for reopening the assessment issued by the Assessing Officer (AO) on 27.03.2018. The petitioner is a limited company that had filed its return of income for the assessment year 2011-12. The original assessment was completed under Section 143(3) on 25.05.2015. The AO issued the impugned notice to reopen the assessment based on the belief that income had escaped assessment due to the non-inclusion of unutilized CENVAT credit in the closing stock, which was allegedly required under Section 145A of the Income Tax Act.

2. Applicability of Section 145A:
During the original assessment, the AO scrutinized the petitioner’s method of valuation of closing stock, particularly the applicability of Section 145A. The AO had raised queries regarding whether the petitioner followed the inclusive method of accounting as prescribed under Section 145A. The petitioner responded, explaining their method and stating that there was no deviation from the accounting standards prescribed under Section 145A. Despite this, the AO made limited additions related to unutilized CENVAT credit in the original assessment order.

3. Alleged Failure to Disclose Fully and Truly All Material Facts:
The AO, in the reasons recorded for reopening the assessment, claimed that the petitioner did not fully and truly disclose material facts necessary for the assessment. However, the court found that the entire issue of the petitioner’s treatment of unutilized CENVAT credit had been scrutinized during the original assessment. The AO was aware of the methodology adopted by the petitioner, had raised multiple queries, and received detailed replies from the petitioner. The court noted that the AO’s attempt to reopen the assessment was merely a change of opinion, which is not permissible as per the Supreme Court’s ruling in CIT Vs. Kelvinator of India Limited.

Judgment:
The court concluded that the reopening of the assessment was not justified. It was observed that the AO had already scrutinized the issue of unutilized CENVAT credit during the original assessment, and there was no failure on the part of the petitioner to disclose material facts fully and truly. Additionally, the notice for reopening was issued beyond four years from the end of the relevant assessment year, which further invalidated the notice. Consequently, the impugned notice was set aside, and the petition was allowed and disposed of.