SHRIRAM FOUNDRY LTD vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2 AND ORS

Rule, returnable forthwith. Counsel appearing for the respondents waives service. By consent the petition is taken up for final hearing. CNR No : HCBM010484902011 Uploaded on - 22/08/2020 wp-10957-2011

Leave to amend in terms of the draft amendment tendered, taken on record and marked “X” for identification. Amendment may be carried out forthwith. Verification dispensed with.

The Assessing Officer has sought to reopen an assessment for AY 2004-05 by a notice dated 10 February 2011 issued under Section 148 of the Income Tax Act, 1961. 4. In the present case an order of assessment was passed under Section 143(3) on 30 October 2006. A notice was issued to the petitioner under Section 148 on 10 February 2011. The following reason has been supplied to the petitioner on 16 August 2011 for reopening the assessment “You have claimed a melting loss in excess of 7.24%, which is higher than what is found in the similar line of business. So the melting loss earlier allowed is excess.”

The petitioner submitted objections on 9 November 2011 contending that the melting loss so claimed was in accordance with the audited accounts, the melting loss was duly disclosed in the books and Uploaded on - 22/08/2020 wp-10957-2011 statutory statements prepared under the Income Tax Act, 1961 and the Central Excise Rules; and that in the course of the original assessment under Section 143(3), the Assessing Officer had duly verified the accounts, audit reports, sales/purchase register and all other relevant books maintained by the assessee. Moreover it was stated that the relevant records are inspected by the Excise authorities in the course of Excise audits and the percentage of melting loss will vary from factory to factory depending on the type and quality of raw material, machinery and process used. The objections have been rejected by the Assessing Officer with the following observations: “Please note, on verification of your records for the year under consideration, melting loss claimed by you was found on higher side as compared to the rulings in that respect of the H’ble Income-Tax Appellate Tribunal, Pune Bench, Pune, in their judgement passed in ITA No. 696/PN/2006 for A.Y.2001-02 in the case of Saroj Castings Pvt.Ltd., Kolhapur. Normal allowable melting loss was ruled out at 5.5%, whereas, in your case it was claimed at 7.24%. In view of this fact, it was concluded, Uploaded on - 22/08/2020 wp-10957-2011 to that extent the assessment framed on 31/10/2006 has escaped the assessment by allowing excess claim of loss within the provisions of Sec.147 of the Act.”

Counsel appearing on behalf of the petitioner submits that reopening of the assessment has taken place beyond a period of four years from the end of the relevant Assessment Year. There is no allegation in the reasons disclosed to the petitioner that there was any failure to disclose fully and truly all material facts necessary for the assessment. Ex facie, the reasons which have been disclosed would only indicate that there is a change of opinion on the part of the Assessing Officer. As a matter of fact, by the order dated 9 December 2011 the assessment is sought to be reopened upon verification of the records for the year under consideration which would show that there was no failure on the part of the assessee to disclose material facts necessary for the assessment. On the other hand, counsel appearing on behalf of the Revenue submitted that there was no discussion in the order of the Assessing Officer in regard to the quantum of melting loss. Since the Assessing Officer has indicated that the melting loss claimed by the assessee was on the higher side, it should be implied that income has escaped assessment. Uploaded on - 22/08/2020 wp-10957-2011

The original assessment was completed under Section 143(3). The assessment is sought to be reopened beyond a period of four years from the end of the relevant Assessment Year. The jurisdictional condition is that in such case before an assessment can be validly reopened, there must be a failure on the part of the assessee to state fully and truly all the material facts necessary for the assessment. There is no such allegation in the reasons which have been disclosed to the assessee. The Assessing Officer has purported to reopen the assessment only recording that according to him the melting loss of 7.24% which was claimed by the assessee is higher than what is found in a similar line of business. This ex facie would amount merely to a change of opinion. As regards the contention of the counsel appearing for the Revenue that there was no discussion in the original order of assessment under Section 143(3) on the aspect of melting loss, it is evident that when the claim of the assessee was accepted during the course of the assessment proceedings, the Assessing Officer, as is normal in such cases, had not adverted to the melting loss claimed by the assessee or the reasonableness thereof. The claim of the assessee was nonetheless accepted by the Assessing Officer in the course of the order of assessment under Section Uploaded on - 22/08/2020 wp-10957-2011 143(3). The order which has been passed by the Assessing Officer while disposing of the objections of the assessee would in fact indicate that it was on a verification of the records of the assessee for the year under consideration that the Assessing Officer came to the conclusion that the melting loss was found to be on a higher side. The decision of the Tribunal in the case of Saroj Castings, which has been adverted to in the order of the Assessing Officer dated 9 December 2011, was rendered on 30 May 2008. The Assessing Officer could not have reopened the assessment on the basis of this subsequent decision of the Tribunal unless the jurisdictional requirements in the proviso to Section 147 were fulfilled. Moreover, the order of the Tribunal in Saroj Castings, a copy of which has been produced on record by the counsel for the assessee, does not indicate that any general principle of law was laid down in that case by the Tribunal. All that the Tribunal held there was that the Commissioner (Appeals) had properly worked out the reasonable wastage percentage as 5.5 % as against 6.6 % shown by the assessee in that case. As a matter of fact, the order of the Tribunal would also indicate that it was only the Revenue which was in appeal against the determination made by the Commissioner (Appeals) which was not challenged by the assessee. Hence, looked at from every perspective, it is evident that the Uploaded on - 22/08/2020 wp-10957-2011 Assessing Officer has transgressed the limits on his jurisdiction for seeking to reopen an assessment beyond a period of four years from the end of the relevant assessment year. Counsel appearing on behalf of the assessee has drawn the attention of the Court to the fact that on 21 December 2011, this Court while issuing notice to the respondents had passed an ad-interim order in terms of prayer clause (c) restraining the respondents from acting on the impugned notice or proceeding further by way of re-assessment for A.Y. 2004-05. A communication was addressed to the Assessing Officer on 27 December 2011 drawing the attention of the officer to the order passed by this Court. The Assessing Officer passed an order of assessment on 30 December 2011 since the period of limitation was to expire. The assessee has filed an application dated 10 February 2012 before the Assessing Officer. Since the reopening of the assessment under Section 148 is not valid, the consequential assessment order dated 30 December 2011 would have to be quashed and set aside.

Rule is accordingly made absolute by setting aside the impugned notice dated 10 February 2011, the order dated 9 December 2011 passed by the Assessing Officer on the objections of the assessee and the order of assessment dated 30 December 2011. There shall be no Uploaded on - 22/08/2020 wp-10957-2011 order as to costs. (DR.D.Y. CHANDRACHUD,J.)