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TMI Blog2025 (4) TMI 595X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned CIT(A) erred in not considering the submission of the assessee that the assessment is completed u/s 143(3) after considering all the required information submitted by the assessee during the assessment proceedings and hence no omission / failure on the part of the assessee. Accordingly, no action can be taken u/s 147 after the expiry of four years from the end of the assessment year. 4. The learned CIT(A) erred in issuing notice u/s 148 as no new material came into the possession f AO. All the material information was already submitted to the AO at the time of assessment u/s 143(3). 5. The learned CIT(A) erred in (i) ignoring the submissions of assessee that AO failed to provide the basis of arriving at the receipt of interest of Rs. 10,06,93,540/- and making the addition of Rs. 70,51,488/- (ii) stating that the assessee has offered interest of Rs. 9,36,42,052/- only. Though the learned CIT(A) accepted that Rs. 9,72,31,723/- was accrued during the year, he failed to consider the submission of assessee that Rs. 9,72,31,723/- was already offered to tax. 6. The learned CIT(A) erred in : (i) not appreciating the submissions of assessee that the AO should not have ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to disclose fully and truly all material facts necessary for assessment, reopening of assessment is bad in law and cannot be held to be valid. The Assessing Officer ("the AO") after considering relevant submissions of the assessee and also taking note of provisions of Explanation 1 to section 115JB(2) of the Act held that there is a fresh tangible material in the form of information received from ADIT (I&CI), Hyderabad that during the calendar year, the assessee company has received interest income of Rs. 9,78,37,070/- from its Mexico AE and further information from DIT(I&CI), New Delhi that the assessee company has received interest income of Rs. 28,56,470/- from Mexico as interest, clearly shows that the assessee company has received interest income of Rs. 10,03,93,540/-, whereas offered interest income of Rs. 9,36,42,052/-and thereby, there is escapement of income to the tune of Rs. 70,51,488/-. The AO further observed that the said information has been received after completion of original assessment proceedings in the case of the assessee which partakes the nature of fresh tangible material, which is sufficient to form basis for escapement of income and for issue of notice u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed by the assessee is as per Accounting Standard 2 issued by Institute of Chartered Accountants of India for valuation of inventory, therefore, submitted that it is not a provision created for inventory, but reduction in value of inventory and therefore, it does not fall under adjustment provided under section 115JB of the Act. The AO after considering relevant submissions of the assessee and also taking note of relevant provisions, observed that the assessee has created provision for diminution in value of asset, being stock-in-trade and the same needs to be added back to MAT calculation, as per provisions of Explanation 1 to section 115JB(2) of the Act. Since the assessee has not added back the diminution in value of the asset, the AO recomputed the book profit by adding back Rs. 73,10,00,000/- to the book profit u/s 115JB of the Act. 6. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee challenged reopening of assessment, in light of provisions of section 147 of the Act and contended that the AO has reopened the assessment, without there being any fresh tangible material in his possession, which came sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of the relevant assessment year, without there being any allegation on the part of the assessee to disclose fully and truly all material facts necessary for its assessment, for that assessment year. The learned counsel for the assessee, referring to the reasons recorded for reopening of assessment and approval u/s 151 of the Act submitted that, the AO reopened the assessment on the basis of fresh information received from ADIT(I&CI) and DIT(I&CI), however, the assessee has explained the reasons for difference in the interest income received from Mexican subsidiary in its books of accounts by way of notes to account and stated that the assessee is following financial year as its accounting year, whereas, subsidiaries are following calendar year, which is even evident from the information passed by the ADIT(I&CI). The learned counsel for the assessee further submitted that the assessment for the impugned assessment year is subjected to scrutiny assessment and during the course of assessment proceedings, a reference was made to Transfer Pricing Officer for determination of ALP on international transaction of the assessee with its AE. The TPO has not made any adjustment during TP pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest income, which has escaped assessment. Further, the AO has recorded reasons in respect of computation of book profit and made out a case that the assessee has not followed relevant provisions of the Act, while computing book profit u/s 115JB of the Act, which resulted in under assessment of tax. Since there is valid reason for reopening of assessment, the AO has rightly reopened the assessment. Therefore, the arguments of the assessee that there is full and true disclosure of necessary facts in respect of interest income and provision for loss of inventory is devoid of merit and cannot be accepted. Therefore, he submitted that the grounds taken by the assessee, challenging the reopening of assessment should be rejected. In this regard, he relied upon the decision of Hon'ble Karnataka High Court in the case of N.Govindaraju Vs.Income-tax Officer [2015] 60 taxmann.com 333 [Karnataka]. 10. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessment has been reopened after 4 years from the end of the relevant assessment year and the original assessment in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation from the ADIT(I&CI) that during the calendar year 2010 the assessee company has received interest income of Rs. 9,78,37,070/- from its Mexican AE. The AO has carried out enquiries and revealed that during the period, the assessee company has offered interest income from its Mexican AE at Rs. 9,36,42,052/-. Similarly, the AO has received one more information from DIT(I&CI), New Delhi that the assessee company has received interest income of Rs. 28,56,470/- from Mexican subsidiary. The AO once again carried out verification on relevant information and ascertained that the assessee has received interest income of Rs. 10,03,93,540/-, whereas offered interest income of Rs. 9,36,42,052/- and thereby, there is difference of Rs. 70,51,488/-, which escaped the assessment. The assessee has not disputed these facts. Although, it has reconciled the difference to the extent of relief given by the Ld.CIT(A), but still there is difference, which could not be reconciled by the assessee. Therefore, in our considered view, arguments of the assessee that there is true and full disclosure of necessary facts in respect of interest income received from Mexican subsidiary is devoid of merit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has reported the method of accounting followed for inventories and there is no dispute that the assessee has followed lower of cost or net realizable value, however, fact remains that there is no specific disclosure with regard to provision for obsolete inventory to the extent of Rs. 73,10,00,000/- either in the notes to account or explained to the AO during the course of assessment proceedings. Further the assessee followed lower of cost or net realizable value for valuation of inventory. Therefore, in our considered view once cost or net realizable value method is followed for valuation of inventory, there is no requirement of making separate entry for loss of inventory on account of obsolete stock in the financial statements. This is because, once the assessee followed lower of cost or net realizable value, the closing stock value determined by the assessee itself takes care reduction in the value of inventory. However, there is no requirement of passing separate entry into the books of accounts under the head obsolescence of inventory. In the present case, although the assessee claims that it follows lower of cost or net realizable value, but has made provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s founded entirely on the assessment records and the entire basis for reopening the assessment was the disclosure, which has been made by the assessee in the course of the assessment proceedings. In the present case, the entire basis for the AO to reopen the assessment is subsequent receipt of information from ADIT(I&CI) and DIT(I&CI). Therefore, in our considered view, the fact of the case stands in a different footing and cannot be made applicable to the case laws relied upon by the assessee. The assessee had also relied upon the decision of Hon'ble Madras High Court in the case of ACIT Vs. Seshasayee Paper and Board Ltd. [2023] 148 taxmann.com 432 (Madras) and more particularly para 9 of the order of the Hon'ble High Court. We once again notice that once there is a true disclosure of necessary facts and the AO reopened the assessment on the basis of material available on record, without there being any fresh tangible material which amounts to reopening of the assessment on the very same material contrary to proviso to section 147 of the Act and thus becomes invalid. In the present case as we have already stated in the earlier part of this paragraph, the AO has reopened the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lained the reasons for difference in interest income offered to tax. Therefore, he submitted that the additions made by the AO and sustained by the Ld.CIT(A) should be deleted. 17. The learned DR on the other hand, supporting the order of the Ld.CIT(A) submitted that the assessee could not reconcile the difference, therefore, the Ld.CIT(A) rightly sustained the additions and their order should be upheld. 18. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee has received interest of Rs. 10,06,93,540/-, whereas offered interest income of Rs. 9,72,31,723/-. The difference of Rs. 35,89,671/- could not be reconciled with relevant evidences, except stating that due to difference in financial year followed by the assessee and the subsidiaries, there is difference in interest income as reported by the subsidiaries. In our considered view, whether the assessee follows financial year or calendar year, but need to reconcile interest income with books of accounts of the assessee and interest income claimed to have been paid by the subsidiaries. Since the assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inventory to the material consumed account does not arise. In the present case, there is no dispute with regard to the fact that the assessee has debited Rs. 73,10,00,000/- under the head loss of inventory and explained that the said loss on inventory is on account of reduction in value of obsolete stock, blocked stocks and carrying the inventory at net realizable value. However, the assessee could not explain as to how the amount has been debited under the head loss on inventory into material consumed account. Therefore, going by the arguments of the assessee in light of the method of accounting followed for valuation of inventory, in our considered view, there is no merit in the claim of the assessee towards accounting policy and treatment given for reduction in value of assets, therefore, to this extent we cannot appreciate the reasons given by the assessee. 22. Having said so, let us come back whether the provision for loss on inventory is an item which needs to be added back to the book profit in terms of section 115JB(2) and Explanation 1 of the Act. As per section 115JB(2), Explanation 1, Clause (i), any amount or amounts as the provision for diminution in the value of any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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