AI Structured Summary
Not yet generated for this judgment
Judgment
Sonia Gokani, J.—The petitioner has challenged in this petition notice of reopening issued u/s 148 of the IT Act, 1961 seeking following prayers:
(A) Issue a writ of certiorari and/or a writ of mandamus and/or any other writ, direction or order to quash and set aside the impugned notice dt. 22-3-2012 u/s 148 of the IT Act, 1961 annexed hereto at Annex. E along with preliminary order dt. 18-2-2013 annexed hereto at Annex. Q for proceeding and completing reassessment proceedings and further, quash and set aside reassessment order, if any, passed u/s 143(3) r/w section 147 of the IT Act, 1961?
(B) Pending admission, hearing and disposal of this petition, ad interim relief be granted and the respondent be ordered to restrain from enforcing compliance of the impugned notice dt. 22-3-2012 at Annex. E and/or taking any other steps in this regard including framing of reassessment order or implementation of preliminary order dt. 18-2-2013 at Annex. Q. Further, reassessment order, if any, already framed after rejection of objections be stayed.
(C) Pending admission, hearing and till final disposal of this petition, stay the implementation/operation of the notice and orders to restrain the respondent from taking any further proceedings pursuant to the impugned notices at Annex. E including stay of operation of preliminary order at Annex. Q and reassessment order, if any, framed thereafter.
(D) Award the cost of this petition.
(E) Grant such other and further reliefs as this Hon''ble Court deems fit.
The brief facts are as follows:
The petitioner company for the assessment year 2006-07 filed the return of claim along with necessary Annexures. The assessing officer on scrutiny, framed assessment u/s 143(3) of the Act vide its order dt. 26-12-2008. One of the issues during such scrutiny in the original assessment was processing of section 145A for valuation.
The assessee had also preferred appeal before the Commissioner (Appeal) which also had included the issue in question and such order of the Commissioner (Appeal) favoured the assessee. It appears that the assessing officer issued notice u/s 148 on 22-3-2012.
On request, the reasons recorded for such reopening were communicated on 30-4-2012 to the petitioner assessee. It would be apt to reproduce these reasons:
The assessee company followed mercantile system of accounting purchases, sales and closing, stock were accounted net of excise duty (exclusive method). As per Annex. I chartered accountants report in Form 3CD, the details of Cenvat credit availed and utilized by the company during the previous year relevant to assessment year 2005-06 were shown. It was seen from the Annexure that the assessee had unutilized Cenvat credit of Rs. 1,62,38,050 lakhs which was reflected in the balance sheet as on 31-3-2005 as loans and advances. Since the assessee followed exclusive method of accounting, the unutilized Cenvat credit was required to be considered for adjustment u/s 145A and the income was arrived at without including the unutilized Cenvat credit. Non-observance of provision of section 145A of the Act, resulted in under-assessment of income of Rs. 1,62,38,050.
Objection to such reopening proceedings had been submitted by the petitioner vide its communication dt. 16-5-2012. It was contended that reopening is on the premise that the assessee followed exclusive method of accounting which is not in consonance with section 145A and therefore, Cenvat component in closing stock remained to be shown in the return of income and, therefore, there is concealment of income to the tune of Rs. 1.62 crores. It was also pointed out in such communication that the entire issue had been thoroughly scrutinised by the assessing officer and the assessee had fully and truly disclosed all material facts required for the assessment at the time of original assessment and on the basis thereof the assessing officer also added opening Cenvat to the returned income. Therefore, on expiry of period of four years from the end of relevant assessment year, the case cannot be reopened. However, such objections were not been sustained and the assessing officer on disposing of these objections of the petitioner, proceeded to reassess.
We have heard learned counsel Shri R.K. Patel with Shri Bhargav Karia for the petitioner. It is strenuously argued before us that no notice u/s 148 could be sustained when there is a complete disclosure on part of the petitioner assessee. This being a notice of reopening beyond a period of four years from the end of relevant assessment year, being assessment year 2006-07, reopening would end on assessment year 2010-11. Impugned notice issued on 4-5-2012, the same requires to be quashed. Learned counsel has also taken us through various documents to emphasize that the issue pertaining to adoption of method not being in consonance with section 145A was already processed thoroughly at the time of scrutiny and therefore, in absence of anything to indicate that any material particulars had not been disclosed fully and truly, these proceedings need quashment.
As against that, learned counsel Shri Sudhir Mehta appearing for the Department has heavily relied upon some of the contentions raised in the affidavit-in-reply. He argued before us that the assessee had unutilised Cenvat credit to the tune of Rs. 1,62,38,050 and the same was reflected in the balance sheet of 31-3-2005 as loans and advances. The assessee followed exclusive method of accounting. Unutilised Cenvat credit was required to be considered for adjustment u/s 145A and the claim was arrived at by the petitioner without including such unutilised Cenvat credit. Therefore, it is urged that the reopening is justifiable and such notice on part of the assessing officer is not the change of opinion. He further contended that it is a question of law which cannot be prevented to be examined by the assessing officer and the petitioner assessee had ample opportunity to take all contentions before the assessing officer while he determined reassessment.
Upon thus hearing both the sides and on examination of documents and materials presented before us, at the outset, it is needed to be recorded that notice of reopening issued by the assessing officer is beyond the period of four years from the date of relevant assessment year, as the assessment year is 2006-07 and the impugned notice is dt. 22-3-2012. Therefore, the first and foremost requirement of law needed to be brought on record by the Revenue was that the petitioner had failed to disclose truly and fully material facts necessary for assessment. Not an iota of material is brought forthwith to indicate such non-disclosure or non-revelation on the part of the petitioner and therefore, on that count alone, notice "impugned cannot be sustained. Although in such circumstances, touching the merits may not be required at all and yet the issue raised is if examined, it pertains to unutilised Cenvat credit required to be considered for adjustment u/s 145A and not having been considered and the income arrived at is without including the unutilised Cenvat credit essentially harping on the non-observance of section 145A, resulting into underassessment of the income to the tune of Rs. 1.62 crores. Such notice has been issued as is evident, from the record of original assessment only. It is worth noting that this issue has been thoroughly scrutinised while finalising assessment on scrutiny on 26-12-2008. It would be relevant to reproduce some of the findings of the assessing officer:
As already explained, the provisions of section 145A were introduced by the Finance ( No. 2) Act, 1998 with a view to end the litigation which existed prior to that. In order to ensure that the values of the opening stock and closing stock reflect the correct value, an amendment was made to provide that such values shall be determined only after considering the element of tax, duty, cess or fee paid in relation thereto. In fact, the legislature proposed to introduce section 145A right from the assessment year 1986-87. The aforesaid provision in a way seeks to recognize and make it compulsory to value the stock in an inclusive method as against the prevailing practice of valuing the same by exclusive method. When the said retrospective amendment was objected very strongly by the taxpayer, the amendment was made prospective in nature and was made applicable from the assessment year 1999-2000. As a result of this amendment, the purchases and sales as well as inventory shall always include the element of tax, duty, cess or fee paid. Therefore, in the year when the provisions are implemented for the first time, there is bound to be an impact in that year, whereas in the subsequent year whatever valuation is put to the closing stock will surface as opening stock and thereby a debit to that years P & L account. Only the method of valuation of the closing stock gets switched over from exclusive method to inclusive method. If the assessee is allowed to adjust the opening stock of the year in question then it would amount to distortion of the value of the closing stock of the earlier year. Unless such addition is made in the earlier year the debit to this years P & L account by means of addition to the opening stock will reduce the taxable income and will only result in not applying the provisions of section 145A in the year in question.
The provisions, in my view, as introduced will have only to take into consideration the element of the tax, duty, cess or fee paid in the sales, purchases and inventory. It will not have an impact on the closing stock carried forward because what can be debited to this years P & L account is the closing stock of the earlier year will have to be necessarily the opening stock of this year. The change in the method of valuation of the closing stock as a result of section 145A has an overriding effect on section 145 relating to method of accounting itself. In other words, notwithstanding what is contained in section 145, the provisions of section 145A shall prevail. The sum and substance of that intent can only be achieved by making an addition to the value of the closing stock by its element of tax, duty, cess or fee, etc. and not by altering the opening stock. Whenever the assessee changed their method of accounting from one recognized method to another recognized method, there is bound to be tax effect in the year of change. On the same analogy, when the legislature has imposed a new system of valuing the closing stock, it is bound to have an impact in that year.
In view of the above, an addition of Rs. 1,33,26,815 is made u/s 145A to the total income of the assessee.
As has been noted earlier, this was also challenged before Commissioner (Appeal) and Commissioner (Appeal) vide its order dt. 13-3-2009 examined the said issue in detail and concluded in favour of the petitioner assessee and consequently set aside the order of the initiation of penalty as well. Profitable, it would be to reproduce these observations:
5.2 I have considered the submissions made by the appellant and observation of the assessing officer From the tax audit report for assessment year 2005-06 which is on record of the debt, it is clear that assessee has included excise duty of Rs. 1,33,26,815 in the closing stock as part of the adjustment and hence the same has to be allowed in the opening stock of assessment year 2006-07. As per the settled position of accounts and law, the issue regarding excise duty in the opening stock is clearly decided by the Hon''ble Tribunal, Mumbai in the case of (2006) 103 ITD 19 wherein the Hon''ble Tribunal has stated as under:
5.3 In view of the above it is clear that the requirement of section 145A is that the assessee must include tax, duties, cess, etc. for valuing the closing stock. The assessee can follow the exclusive method for the book purposes but for the purpose of tax audit report and disallowance u/s 43B it is necessary that the assessee must show the" effect of section 145A by following the inclusive method i.e., by including all tax, duties, cess etc. in the closing stock. The assessee has to necessarily follow the closing stock of last year as opening stock of the current year. Therefore, if the assessee has included the tax, duties, cess etc. in the closing stock of assessment year 2005-06 then he can claim it in the opening stock of assessment year 2006-07. From the tax audit report of assessment year 2005-06, it is clear that this amount has been including in the closing stock and hence it will be available in the opening stock for assessment year 2006-07. Hence the addition of Rs. 1,33,26,815 is wrong and is, therefore, deleted. This ground of appeal is allowed.
This order of course is pending before the Tribunal for determination and, therefore, we do not intend to opine conclusively on merit. Suffice to note from this petition that nothing has come on record to indicate that on the part of the assessee, there is any failure to disclose all the material facts fully and finally for the purpose of assessment.
When the very issue of Cenvat credit to be excluded for the book purposes, but for the purpose of tax audit, the assessee is required to include all taxes, dues, cess etc. for the valuation of closing stock, is thoroughly scrutinised by the assessing officer and when Commissioner (Appeal) also found such inclusion for the assessment year 2005-06, without opining on correctness of such findings on the part of both the authorities, it can be unhesitantly concluded that this attempt on the part of the assessing officer to reconsider the very issue beyond the period of four years without any failure on part of the petitioner to disclose all the material facts completely, would not allow this Court to sustain such action.
As is indicated to us, during the pendency of this petition, in absence of any prohibitory order, the assessing officer has already completed the reassessment and passed his final order on 28-2-2013.
In light of the discussion hereinabove, on Revenue failing to satisfy us on the legality of its action under challenge, we allow this petition quashing the notice of reopening dt. 22-3-2012 and consequentially the order of reassessment dt. 28-2-2013 passed by the AO.
Petition stands disposed of accordingly with no order as to costs.