2015 (10) TMI 261 - HC - Income Tax

Validity of reopening of assessment - assessee had debited an amount to the profit and loss account by way of provision for obsolete stock - Income of the trading unit was required to be assessed separately and could not be set off against the brought forward losses of the Pune unit - incorrect allowance of deduction had been given to the assessee when it was not eligible for the same - goods in transit as also stores and spares - Held that - All the queries and issues have been specifically raised and answered by the assessee in the original assessment proceedings. Thus, even though the Assessing Officer did not make any addition in the assessment order, it would have to be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make any addition or to reject the stand of the assessee. Consequently, it will have to be presumed that the Assessing Officer had formed an opinion which is now sought to be changed through the re-assessment notice, which cannot be permitted. For all the foregoing reasons, the impugned notice under Section 148 dated 28.03.2013 and the impugned order dated 18.02.2014 are set aside and the re-assessment proceedings in respect of the assessment year 2006-07 stand quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice under Section 148 of the Income Tax Act, 1961.
2. Validity of the reasons provided for re-assessment under Section 147.
3. Alleged failure of the assessee to disclose material particulars.
4. Examination of the original assessment proceedings and whether the issues were already considered.

Issue-wise Detailed Analysis:

1. Legality of the notice under Section 148 of the Income Tax Act, 1961:
The petition challenges the notice dated 28.03.2013 issued by the Assessing Officer under Section 148, initiating re-assessment for the assessment year 2006-07. The notice is contested on the grounds that there was no failure on the part of the assessee to disclose particulars material for assessment, a requirement under the first proviso to Section 147.

2. Validity of the reasons provided for re-assessment under Section 147:
The reasons for re-assessment included:
- Provision for obsolete stock not being an ascertained liability.
- Incorrect set-off of brought forward losses of the Pune unit against the income of the Delhi unit.
- Incorrect allowance of deduction under Section 10B.
- Under-valuation of closing stock due to goods in transit and stores & spares not being accounted for.

3. Alleged failure of the assessee to disclose material particulars:
The court found that the assessee had disclosed all material particulars during the original assessment proceedings. For instance, the details of obsolete stock, brought forward losses, and valuation of stock were provided in response to specific queries from the Assessing Officer.

4. Examination of the original assessment proceedings and whether the issues were already considered:
- Provision for Obsolete Stock: The court observed that the provision for obsolete stock was specifically queried and answered during the original assessment. The details were provided, and the Assessing Officer had considered them, indicating a change of opinion rather than a failure to disclose.
- Set-off of Brought Forward Losses: The court noted that the issue of brought forward losses was addressed in the original assessment and rectification proceedings under Section 154, where the Assessing Officer verified and corrected the records.
- Deduction under Section 10B: The court agreed with the petitioner that the amount in question was exempted income, not a deduction. Even if adjusted, there would be no escapement of income.
- Goods in Transit and Stores & Spares: The court found that these details were provided during the original assessment, and the goods in transit could not be part of the stock as they were not received or claimed as a deduction.

Conclusion:
The court concluded that the notice under Section 148 and the order dated 18.02.2014 were invalid as the issues raised were already considered during the original assessment, amounting to a mere change of opinion. The re-assessment proceedings were quashed, and the notice and order were set aside.