9911796707
TMI Blog2011 (4) TMI 1036X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2010 issued by the respondent Deputy Commissioner of Income-Tax under Section 148 of the Income-tax Act, 1961 (hereinafter referred to as " the Act") stating that he has reason to believe that income of the assessee chargeable to tax for the assessment year 2003-2004 has escaped assessment within the meaning of Section 147 of the Act. The assessee was, therefore, required to file a return of income for the said year. 2. Briefly stated the facts are as follows:- 2.1 For the assessment year 2003-2004 the assessee had filed return of income showing income of Rs.1,41,74,770/- after claiming deduction under Section 80HHC of the Act. 2.2 The return of the assessee was taken in scrutiny assessment. The Assessing Officer framed assessment on 24.3.2006. By detailed order he computed total income of assessee at Rs.1,42,86,450/- after giving benefit of deduction under Section 80 HHC of the Act as found admissible. 2.3 By way of impugned notice the assessment was sought to be reopened by the respondent on the ground that income of the assessee for the assessment year in question had escaped assessment. 2.4 The respondent had separately recorded reasons for such proposal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues discussed above were come to notice after completion of assessment proceedings and were not discussed during the original assessment proceedings and the assessee also failed to disclose fully and truly all material facts as discussed above. Therefore, the case required to re-open u/s.147. Issue notice u/s.148 IT Act. " 2.5 Such reasons were communicated to the assessee. The assessee raised objections to the proposal to reopen assessment vide communication dated 18.11.2010. Such objections were, however, disposed of by the respondent by order dated 13.12.2010. 3. The assessee, therefore, has approached this Court in the present petition challenging such reopening of the assessment. We may notice that by the time the assessee approached the Court, it appears that draft assessment order was already passed. However, the Division Bench of this Court by order dated 23.12.2010 restrained the respondent from proceeding further pursuant to impugned letter dated 29.3.2010. No final order of assessment has been passed. 4. We have heard learned counsel for the parties for final disposal of the petition. 5. It is the case of the petitioner that in the return filed, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible. 7. The respondent, however, by communication dated 13.12.2010, which has also been impugned in this petition, disposed of such objections holding that before reopening, proper reasons were recorded and approval of the Commissioner of Income-Tax was also obtained. Reopening pertains to period beyond 4 years but within six years from the end of assessment year. In particular, with respect to valuation of closing stock and diversion of tax bearing funds for making interest free advances he noted as under: "It is found that the assessing officer did not call for or examine any details for Lot-wise movement of diamond from the stage of purchase of rough to the stage of its final product. The assessee also did not furnished the details to prove that whatever diamond sold was actually part of closing stock only. The assessee also did not furnished the details that which lot of rough diamond was converted and which lots of polished diamonds were produced and its sale to a particular party on a particular date. From the record available, it is not possible to ascertain that whatever bill were produced for sale of diamond in subsequent year were those diamonds which were manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not possible to ascertain whether the bills were produced for sale of diamonds in subsequent years. Whatever bills were produced for the sale of diamonds were those diamonds which were manufactured in the previous year and were part of the closing stock in the year 2003-2004. With respect to diversion of interest bearing funds he submitted that before the Assessing Officer at the time of original assessment proceedings, full details of advances made to the three parties were not placed. In short, counsel submitted that the notice was valid and reopening for assessment should be permitted. 12. Having thus heard learned advocates for the parties at considerable length though the point raised are three, point Nos. 1 and 2 essentially pertain to the valuation of closing stock. 13. It is the case of the department that the cost of polished diamond was Rs.8,089/- per carat. Market value at which the assessee sold them was Rs.10,266/- per carat, whereas for the purpose of valuation of closing stock, the assessee adopted the rate of Rs.7,656/- per carat. However, the assessee was required to adopt one of the two rates i.e. the cost price or the market value. The assessee, thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method of accounting employed in the previous year to which the assessee stated mercantile. Other item was whether there was any change in the method of accounting employed vis-a-vis that employed in the immediately preceding year. The assessee declared no change in the method of accounting employed. In a question as to method of valuation of closing stock employed in the previous year and whether there was any deviation from the method of valuation prescribed under Section 145A of the Act, the assessee answered "Rough diamonds: At cost price, Polished and Rejected Diamonds: At Cost or Market Price which ever is lower. No deviation is made from the method of valuation prescribed under Section 145A." In the same Form at item No.12, the assessee supplied details of raw-material which included opening and closing stocks of rough diamonds as well as polished diamonds. 17. In a communication dated 4.8.2005 by the assessee to the Assessing Officer it was stated as under:- "(3) As regards the valuation of closing stock, kindly note that the closing stock of rough diamonds has been made at cost price whereas the same for polished and rejection diamonds were made at cost or market p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant assessment year. 21. With respect to the point Nos.1 and 2 reasons recorded are not sufficient to permit reopening of the assessment. We reiterate that assessee had been adopting particular methodology for valuing his closing stock. For the purpose of closing stock, the assessee had accepted certain valuation for its polished and unpolished diamonds and rejects. Such methodology may or may not be fully acceptable. The question is whether all facts were presented before the Assessing Officer when the original assessment was being framed. We have taken note of details of documents on record, disclosures made by the assessee, answers to the queries raised by the Assessing Officer and find that the assessee cannot be blamed for failure to disclose fully and truly all facts necessary for assessment of the income. 22. With respect to ground No.3 in the reasons recorded we notice that in the return of income filed by the assessee, it had shown loans and advances of Rs.23,23,284/- against interest liability of Rs.50,77,260/- of the previous year and it had showed interest liability of Rs.31,38,795/-. Further vide its communication dated 10.11.2005 the assessee had supplied th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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