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TMI Blog2016 (3) TMI 418X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot by any stretch of imagination be said that the A.O. has not gone through the tax audit report while framing assessment u/s 143(3) of the Act and in fact the A.O.is duty bound to go through the same before framing the assessment . The said information was also duly declared and disclosed in the computation of income filed with the Revenue Authorities. The Revenue is seeking reopening of the assessment based on the information received from the revenue audit team. Thus, as per section 147/148 of the Act change of opinion is not permitted as the AO while framing the original assessment u/s 143(3) of the Act vide orders dated 09-03-2008 has duly applied his mind to the issues as detailed above and is now re-opening the assessment merely on the basis of information received from revenue audit team while there is no independent application of mind by the AO before re-opening the assessment which is not permissible and more-so when the AO has passed scrutiny assessment u/s 143(3) of the Act in original assessment and four years have elapsed from the end of the assessment year when the assessment was reopened vide notice u/s 148 of the Act dated 28-03-2012 and the reasons were rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961 (Hereinafter called the Act ) vide assessment orders dated 09-07-2008 passed by the learned assessing officer (Hereinafter called the AO ) u/s 143(3) determining the total income of the assessee company at ₹ 63,19,825/-. Subsequently it was noticed by the AO that the income chargeable to tax has been under assessed on account of Modvat being not included in closing stock u/s 145A of the Act of ₹ 72,07,660/- and rebate on non-payment of sales tax deferred installments of ₹ 10,72,897/-. Notice u/s 148 of the Act dated 28.03.2012 was issued to the assessee company. In reply, the assessee company submitted that without prejudice, the assessee company is following the method of accounting of purchase and sales on net basis whereby the amount of sales and purchase are shown net of excise, sales tax etc. . In the tax audit report, every year the effect of Cenvat Credit (Modvat) was given on the opening stock and closing stock as adopted in gross method as per provision of section 145A of the Act and on the basis of effect of Modvat on valuation of opening and closing stock, the effect was given in the computation of income while filing the return of income wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company on extinguishment of a capital liability, which is not taxable. The assessee company submitted that the assessee company had taken the benefit of the scheme and paid the discounted value of loan which was payable in number of installments over the years by paying the discounted amount immediately in lumpsum. Hence, it can be called as waiver of part of amount of loan and not the revenue expenditure and hence provisions of Section 41 of the Act are not applicable. The assessee company s explanation was considered by the AO but not found to be acceptable as the assessee company has claimed Modvat on purchase of raw material and has valued its closing stock as net of Modvat. The amount of Modvat credit on closing stock is ₹ 72,07,660/ which is not added to closing stock of the assessee company. Therefore, as per provisions of Section 145A of the Act, the same needs to be added to the closing stock of the assessee company as its income. The provisions of section 145A of the Act is clear and unambiguous and it provides that the closing stock should be valued at inclusive of Cenvat. Therefore, the value of closing stock is increased by ₹ 72,07,660/- and additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s raised objection on three issues out of which in respect of leave encashment, they have accepted the reply of the A.O. and in the case of other two objections, they have not accepted the A.O. s reply. The objections raised by the revenue audit team are as under:- (i) Regarding Modvat Credit: The assessee company while computing the profit . gains of the business had claimed deduction of ₹ 37,03,717/- u/s. 145A being MODVAT included in the opening stock of Raw Material (refer annexure D of Tax Audit report). During scrutiny assessment the Assessing Officer accepted the computation. Audit Scrutiny revealed that the assessee company had not considered the MODVAT included in the closing stock. As per Annexure D of Tax Audit Report, the MODVAT included in closing stock u/s. 145A was ₹ 72,07,660/- which should have been added while computing the profit and gains of business. (ii) Rebate on Sales Tax Deferral: In its return of income the assessee company had claimed reduction of ₹ 10,72,897/- being rebate on non-payment of Sales tax deferral Installment (being capital receipts). On scrutiny the assessing officer allowed the deduction. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther view is taken which tantamount to change of opinion which is not permitted for re-opening of the assessment. In support, the assessee company relied on the following judgments:- (i) CIT v. Kelvinator of India Ltd. , 320 ITR 561(SC) (ii) ICICI Home Finance Co. Ltd. v. ACIT [2012] 210 Taxman 67(Bom.HC.) (iii) Vijay Rameshbhai Gupta v. ACIT [2013] 32 taxmann.com 41( Guj. HC), (iv) Rural Electrification Corpn. Ltd. v. CIT (LTU and other writ Petition bearing No. 7943/2011 2013-TIOL-366-HC-DELIT dated 23-4-2013(Del. HC) (v) Bhor Industries Ltd. v. ACIT and Others, 267 ITR 161 ( Bom. HC.) (vi) Grind Well Norton Ltd. v. ACIT, 267 ITR 673 (Bom.HC) (vii) Biswanath Tea Co. Ltd. v. DCIT, 267 ITR 687(Cal.HC) (viii) Cadila Healthcare Ltd. v. ACIT, 65 DTR 385 ( Gujarat HC.) (ix) Sun Pharmaceuticals Industries Ltd., SPARC v. ACIT, 2012-TIOL-527-HC-AHM-IT , (Guj. HC) In the light of above case laws, the assessee company contended that the reopening is bad in law and the assessment order dated 23.01.2013 passed by the AO u/s 143(3) read with Section 147 of the Act may be quashed. 6. The CIT(A) after considering the facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial facts necessary for his assessment for A Y 2006-07. I, therefore, have a reason to believe that the income chargeable to tax has escaped assessment and therefore, it is a fit case of assessing the same u/s 147 of the Act by issuing notice u/s 148 of the Act. The AO issued notice u/s 148 of the Act dated 28-03-2012 which is admittedly issued after the lapse of four years from the end of assessment year under consideration hence, the proviso to section 147 of the Act was clearly attracted. The CIT(A) held that as per provisions of the Act, if the A.O has reason to believe that income chargeable to tax has escaped assessment, the AO can reopen the completed assessment by issuing notice u/s 148 of the Act. Thus, for reopening the completed assessment, the A.O. should form a belief that income chargeable to tax has escaped assessment. Such belief should be formed on the basis of material information available to the A.O. The material/information should be such that on the basis of which a reasonable person could form a prima facie belief that income chargeable to tax had escaped assessment. Such material/information should come in possession of AO subsequent to the completion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nventory for the purposes of determining the income chargeable under the head profits and gains of business or profession shall be in accordance with the method of accounting regularly employed by the assessee company and further adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee company to bring the goods to the place of its location and condition as on the date of valuation and for this purpose, any tax, duty, cess or fee under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment. Thus, the ld. D.R. submitted that the assessee company should have included Modvat in the opening and closing stock in the impugned assessment year. The assessee company has included the Modvat in the opening stock which should be mandatorily required to be done but the same has not been added in the closing stock leading to income being escaped from assessment . Similarly with respect to benefit of ₹ 10,72,897/- being payments made by the assessee company towards sales tax deferral scheme , it was submitted that the assessee company has availed the benefit which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method is thereafter consistently followed and secondly the reduction of ₹ 10,72,897/- being rebate on non-payment of sales tax deferral installments scheme whereby the assessee company has followed the scheme of Government and prepaid sales tax remission liability. It cannot be a rebate given by the government considering that net present value of the sales tax paid to the government. All the details were given in the return of income filed with the Revenue and during the course of assessment proceedings u/s 143(2) of the Act read with Section 143(3) of the Act and the assessment was framed u/s 143(3) of the Act based on the record filed before the A.O. No information has come to the A.O. for taking a different view. The ld. Counsel contended that the assessments have been reopened based on the revenue audit team objection s. He drew our attention to page 12 to 14 of the paper book whereby all the reasons recorded have been mentioned. The ld. Counsel also relied upon the decision of Hon ble Bombay High Court in the case of ICICI Home Finance Co. Ltd. (supra) and the decision of Hon ble Gujarat High Court in the case of Vijay Rameshbhai Gupta (supra) and also the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -03-2008 has duly applied his mind to the issues as detailed above and is now re-opening the assessment merely on the basis of information received from revenue audit team while there is no independent application of mind by the AO before re-opening the assessment which is not permissible and more-so when the AO has passed scrutiny assessment u/s 143(3) of the Act in original assessment and four years have elapsed from the end of the assessment year when the assessment was reopened vide notice u/s 148 of the Act dated 28-03-2012 and the reasons were recorded on 26-03-2012 , and there is no failure on the part of the assessee company to truly and fully disclose all material information in the return of income filed with the revenue and during the course of original assessment proceedings u/s 143(2) of the Act read with Section 143(3) of the Act. In our considered view, reopening u/s 147 of the Act in the instant case cannot be held to be valid as per the provisions of the Act and the same is liable to be quashed. The CIT(A) has passed a well reasoned detailed order in which we find no infirmity and we uphold the same. Thus addition made by the A.O. vide re-assessment orders dated 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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