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TMI Blog2014 (4) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 143(3) post scrutiny at Rs.45,01,520/-. 3. The internal audit wing of the respondents raised audit objections vide memo dated 31.03.2008. The audit objections raised pertained to incorrect valuation of closing stock of shares and also the valuation of 4,40,000 shares of M/s MRP Limited at a cost of Rs.20.09, instead of purchase price of Rs.22.10. 4. The petitioner was asked and responded to the audit objections and alleged inaccuracies resulting in underassessment. The petitioner contended that the audit objections qua valuation of shares were not valid as the petitioner had valued the shares in terms of Accounting Standard -13 (AS - 13), which prescribes lower of cost or fair value as the method for valuation of shares/securities. As regards the valuation of shares of MRP Limited at below the purchase price, the petitioner contended that there was a typographical mistake wherein 4,00,000 shares had been inadvertently mentioned as 4,40,000 shares. 5. By notice dated 29.03.2012, issued under Section 148 of the Act, the Respondents sought to reassess the income of the petitioner. At the request of the petitioner, reasons recorded for issuance of notice under Section 148 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Choksi) were engaged in fraudulent billing activities and in the business of providing Bogus speculation profit/loss, short term/long term capital gain/loss. Share application money commodities profit/loss on commodity trading (Through MCS) and had been continuing this business for many years. A list of such assessee has been received which reveals that Shri Ashok Mittal & Co. has taken accommodation entries from these companies to the extent of Rs.3,13,07,210/-. 5. As per information supplied, M/s. Ashok Mittal & Co., has undertaken the transaction for taking accommodation entries from the said company has been shown at Rs.3,13,07,210/- which is required to be investigated by issue of notice u/s 148 read with section 147 of the Income-tax Act, 1961." 7. The reasons recorded are primarily on three grounds. Two of which were raised by the Audit Department and for which audit objections had been raised and had been replied to by the petitioner. The two objections earlier raised by way of audit objection pertained to incorrect valuation of the closing stock and incorrect rate of valuation of closing stock of shares of MRP Ltd. held by the petitioner. The third reason recorded was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accounts (Please refer to Para 1 of Page 2 of Assessment Order, copy of order is enclosed) the DCIT has accepted the trading results of the assessee for this year from dealing in shares, while framing assessment u/s 143(3) of the Income Tax Act vide his order dated 28.12.2007. Secondly the assessee was informed about the Audit Memo dated 31.03.2008 for the above assessment year (copy enclosed) and the assessee has already given the reply thereof vide its letter dated 14.08.2008 (copy enclosed), wherein the assessee has categorically stated that in view of the Supreme Court Judgment in the case of Investment Ltd. vs. CIT reported in 77 (ITR) 533, wherein it has been held 'tax payer is free to employ, for the purpose of this trade his own method of keeping accounts and for that purpose to value his stock in trade either at cost or market price'. The reliance is also place on Supreme Court Judgment in the case of CIT vs. A. Krishana Sawamy Mudiliar reported in 53 (ITR) 132 wherein it has been held "if there is a system of accounting regularly employed and by appropriate adjustment by the account maintained taxable profit may properly be deducted the ITO has bound to compute the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hoksi, the petitioner raised the following objections:- "In this respect, it may be stated that as per the list of companies (as prescribed by you in Annexure 'A' viz. reason for initiating proceedings u/s 148 of Income TAX Act) the names of certain companies have been stated viz. "Mahasagar Securities Pvt. Ltd.", "Alliance Intermediaries & Network Pvt. Ltd.", "Mihar Agencies Pvt. Ltd." and "Gold Star Finevest Pvt. Ltd.". In this respect, it is to state that the assessee or M/s. Ashok Mittal & Co. of which assessee is sole proprietor, has not undertaken any share dealing transactions with any of the above mentioned companies or any other company run and controlled by Mr. Mukesh Choksi in A.Y 2005-2006, hence the question of receiving any accommodation entry from any of the above mentioned companies or any other company managed and controlled by Mr. Mukesh Choksi, in this year is factually wrong. Moreover during the course of original assessment proceedings all records including books of accounts, contact notes, purchase/sale invoices relating to purchase and sale of shares by Ashok Mittal & Co. were duly produced for examination and were fully considered by the DCIT while framing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tively considered and dealt with and cannot be merely noted but not addressed. It is the very formation of an opinion that is challenged by way of objections. The challenge cannot be brushed aside cryptically. Application of mind should be apparent. 15. The second reason for rejecting the objection given is that the explanation rendered by the petitioner would be looked into during the course of the assessment proceedings. There is a difference between recording of reasons to believe and reassessment order. Reopening is permissible on foundation of prima facie belief but the fact alleged or the reason propounded must have some basis and should not be mere surmise, gossip or rumour. 16. With regard to the objections raised by the petitioner that this was a case of change of opinion based solely on audit objection, the impugned order records that it is nowhere mentioned in the reasons for reopening of the case that it is on the basis of the audit objection. 17. Comparison of the reason to believe communicated vide letter dated 05.09.2012 and the audit memo dated 31.03.2008 shows that the reasons are verbatim copy of the audit memo. The reasons to believe reproduce the audit memo. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are valued at cost or market price whichever is lower clearly shows that the petitioner has made true and full disclosure of the manner of valuation. Since there is true and full disclosure which has been accepted by the Assessing Officer while framing the original assessment. This is also a case of change of opinion based on audit objection. 21. The relevant assessment year in the present case is 2005-06. Notice under Section 148 has been issued on 29.03.2012 i.e. after the expiry of 4 years from the end of the relevant assessment year. In terms of proviso to Section 147, the reassessment notice issued after the expiry of four years from the end of the assessment year has to satisfy the requirements of the said proviso i.e. the Assessee has failed to disclose fully and truly all material facts necessary for his assessment for that year. 22. The contention of the petitioner is that there is full and true disclosure of all material facts and the notice seeking to reopen the assessment is barred and invalid and the reassessment proceedings have been initiated merely on the basis of change of opinion based on the audit objections. 23. The petitioner was dealing in shares and securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letters dated 14.07.2008 and 15.07.2008 in reply to the Audit Objections, had confirmed that the shares of M/s MRPL were 4,40,000 and were valued at Rs. 20.09 per share being the lower of cost price and market price. This aspect has neither been noticed nor dealt with by the Assessing Officer while dealing with the objections raised by the Assessee. 25. With regard to the third aspect of accommodation entries allegedly taken by the petitioner from the company run by Mukesh Choksi, the petitioner has categorically taken an objection that he had no transaction whatsoever with either Mukesh Choksi or any of his companies. The Assessing Officer has not dealt with this objection or adverted to this factum in the impugned order. Apart from relying on the statement of Mukesh Choksi, there is no other evidence or material pointed out or referred to by the Assessing Officer while rejecting the objections. But what was stated and how the petitioner was implicated is not adverted to. At this stage no detailed discussion or elucidation is required. The prima facie or tentative view must have some basis or foundation to support and justify in depth and detailed inquiry. This should be indicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by way of objections. The challenge cannot be brushed aside cryptically. Application of mind should be apparent and has to be dealt with and answered. 28. In G.K.N Driveshafts (India) Limited v. Income Tax Officer ,(2003 259 ITR 19 (SC) the Supreme Court after due deliberation has prescribed procedure when an assessee objects initiation of reassessment proceedings. The assessee is required to file objections by a speaking order. Speaking Order means a reasoned order, which deals with the contentions and the issues raised keeping in mind the law on the subject relating to notices under section 147/148 of the Act. In the present case , objections have not been disposed of as per the said mandate, as the Assessing Officer instead of dealing with the objections and rejecting or accepting them, has not dealt with them but has adopted obscurantist attitude though he was obliged to deal with the objections and not obscure them. 29. In view of the aforesaid position, we are of the considered opinion that the reassessment notice is not sustainable on the issue of valuation of closing stock. However on the issue of valuation of closing stock of M/s MRPL Ltd. and taking of accommodation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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