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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 ..... veshafts (India) Limited v. Income Tax Officer [2002 (11) TMI 7 - SUPREME Court] - the reassessment notice is not sustainable on the issue of valuation of closing stock - on the issue of valuation of closing stock of M/s MRPL Ltd. and taking of accommodation entries, the order is cryptic and does not deal with the objections raised, it needs to be relooked by the AO – the matter remitted back to the AO for re-examination of the issue of reopening on the ground of valuation of closing stock of M/s MRPL Ltd. and taking of accommodation entries Decided partly in favour of Assessee. - WP (C) 1452/2013 - - - Dated:- 5-2-2014 - Sanjiv Khanna And Sanjeev Sachdeva,JJ. For the Petitioner : Mr. Ajay Vohra and Ms. Kavita Jha, Advocates. For the Respondent : Mr. Kamal Sawhney, Sr. Standing Counsel with Mr. Judy James, Jr. Standing Counsel ORDER Sanjeev Sachdeva, J. 1. The petitioner has filed the present petition impugning the notice dated 29.03.2012 under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) seeking to reopen the assessment for the year 2005-06 and also the order dated 28.01.2013 dismissing the objections filed by the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should, be shown separately under the head Current Investments and Fixed Investment as their valuation will differ in each category. The assessee has not submitted any document in support of such valuation. Hence, the investments should have been valued at cost which meant the value of shares has been under assessed by Rs.9,36,589/- 3. It has also been noticed during the perusal of records that 4,40,000 shares of MRPL held by Ashok Mittal Co. costs Rs.20.09 per share and their market value is Rs.47.58 as on 31.03.2005 whereas the shares of MRPL have been shown at Rs.22.10 per share on 31.03.2004 which means that they have been held for a period more than 12 months and accordingly, should be valued at cost. The purchase cost of shares cannot in any case come down from Rs.22.10 per share to Rs.20.09 per share which means that the closing stock has been undervalued by Rs.8,84,400/-. 4. Information has been received from the Dy. Director of Income tax (Inv.) Unit 1(4) Mumbai wherein it has been stated that a search operation u/s 132 of the IT Act was undertaken in the case of M/s Mahasagar Securities Private Limited on 25.11.2009 on the basis of information received by him re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed income launched by means of obtaining bogus accommodation bills. No further details of entries or transactions were supplied. 10. The petitioner filed objections to the issuance of notice on 15.01.2013. With regard to the objection and method of valuation of closing stock, the petitioner stated as under:- In this respect, it may be stated that Ashok Mittal Co. is having stock in trade as its Current Investment , as can be seen from the copy of Balance Sheet annexed herewith and also filed during original assessment proceedings. The stock in trade (shares) has been shown under the head current assets loan advances and have been valued at cost or market prices, whichever is lower as certified by the proprietor . It may be stated that the current investment (viz. stock in trade) should be valued in accordance with AS-13. As per AS-13, the carrying amount of current investment is to be valued at lower of cost or fair value. Keeping in view the method of valuation as stated in AS-13, the assessee has valued its closing stock as on 31.03.2005, at lower of cost or market value. It may further be noticed that the assessee has been following the same method of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r printout of stock trading account as mentioned in Comtech Software (As maintained by share brokers at that time). As per the inventory details of MRPL, as per software (on which books of accounts was maintained by the assessee) M/s. Ashok Mittal Co. was having only 4,00,000 share of MRPL as on 31.03.2005 and the same has valued at Rs.22.10 per share, and the amount of closing stock has been worked out at Rs.88,40,000/-. The details furnished during assessment proceedings the amount of closing stock of MRPL shares has been shown at Rs.88,40,000/- while the quantity was wrongly shown at 4,40,000 instead of 4,00,000 shares, (due to clerical error) hence the amount of value of closing stock was wrongly worked at Rs.20.01 per shares (i.e. Rs.88,40,000/- divided by 4,40,000 (No. of shares). The amount of closing stock of MRL has been correctly shown at Rs.88,40,000/- following the method of valuation viz. cost price or market price whichever is lower ). The quantity of closing stock of MRPL as on 31.03.2005 can be seen from the DMAT statement, wherein quantity of MRPL has been shown as 4,00,000 shares. (Copy of DMAT statement is annexed). From the above facts, it can be seen that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication money; short term/long term capital gain/loss etc. etc. As stated in the above paragraph the assessee is a sole proprietor of Ashok Mittal Co. which was dealing in shares and all the purchases and sales are properly recorded in the books of M/s. Ashok Mittal Co. and are supported by proper share brokers contract notes; invoices/bills and these books were examined by the DCIT while framing assessment u/s 143(3) of the Income Tax Act. 13. By the order dated 28.01.2013, the objections of the petitioner to the reopening of assessment have been rejected. The perusal of the order shows that the Assistant Commissioner of Income Tax has very cryptically dealt with the objections raised by the petitioner. The order does not deal with any of the objections raised and merely reiterates the reasons. The rationale given for rejecting the objections is that the proceedings under Section 147 to reopen the case are initiated only when the Assessing Officer has reason to believe that there is an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. 14. This reasoning per se is fallacious. When objections are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me made in the impugned order. 19. Recently in the case of M/s. SMCC Construction India Ltd. vs. Assistant Commissioner of Income Tax, W.P.(C) 2250/2012 in order dated 23.08.2013, we have held as under:- The words reason to believe indicate that the belief must be that of a reasonable person based on reasonable grounds emerging from direct or circumstantial evidence and not on mere suspicion, gossip or rumour. The reason to believe recorded do not refer to any material that came to the knowledge of the Assessing Officer whereby it can be inferred that the Assessing Officer could have formed a reasonable belief that the expenditure referred to had not crystallized during the relevant year. The reasons to believe recorded that income has escaped assessment are not based on any direct or circumstantial evidence and are in the realm of mere suspicion. The requirement of law is reason to believe and not reason to suspect . In the present case Since the reasons to believe recorded indicate that the Assessing Officer has acted on mere surmise, without any rationale basis, the action of reopening of the Assessment is thus clearly contrary to law and unsustainable. 20. With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edge of the Assessing Officer. The Assessing Officer, at the time of original assessment, clearly formed an opinion. Thus notice under Section 148 seeking to reopen the assessment for the first reason is clearly an instance of change of opinion, which is impressible in law. There is true and complete disclosure of the method of valuation in the balance sheet. The issue was examined in the first round. The assessing officer has merely intended to revisit the said concluded assessment and it is a clear case of change of opinion which is not permissible in law. 24. With regard to valuation of closing stock of shares of MRPL, the stand of the petitioner is that the total number of shares held by the petitioner is 4,00,000 and inadvertently, on account of a typographical clerical mistake, the number of shares has been shown as 4,40,000. The total investment is of Rs.88,40,000. As per the petitioner the number of share held are 4,00,000 but inadvertently they have been shown as 4,40,000. For 4,00,000 the value per share is Rs. 22.10 and at 4,40,000 the value per share comes to Rs. 20.09. The total value of closing stock of Rs.88,40,000/- remained the same. There is no purchase of 40,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that had come to the knowledge or notice of the Assessing Officer. The material or evidence which gave reason to the Assessing Officer to believe that there is an escapement of income should be indicated. There has to be a material or evidence existing on record for the reasons to believe which should have a direct nexus to the formation of such belief. 26. The record further reveals that the Assessing Officer had received information, material and documents from the Mumbai Commissionorate. However the same is also not adverted or referred to by the Assessing Officer while disposing of the objections raised by the Assessee. 27. In the aforesaid factual position, it was necessary for the Assessing Officer to deal with the said two objections raised and return a finding. The perusal of the order shows that the Assistant Commissioner of Income Tax has very cryptically dealt with the objections raised by the petitioner. The order does not deal with any of the objections raised and merely reproduces the reasons. When objections are raised to the notice under Section 148 seeking to reopen the assessment, the Assessing Officer has to deal with the objections on merits following ..... X X X X Extracts X X X X X X X X Extracts X X X X
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