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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI G. MANJUNATHA
O R D E R
PER MAHAVIR SINGH, VICE PRESIDENT:
This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-8, Chennai in 19 dated 16.07.2019. The re-assessment was framed by the ACIT, Company Circle 4(1), Chennai for the assessment year 2011-12 u/s.143(3) r.w.s.147 of the Income-Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 30.12.2018.
2 2. The first issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in reopening of assessment u/s.147 r.w.s 148 of the Act even though there is no failure on the part of the assessee to disclose fully and truly the material fact necessary for its assessment for the relevant assessment year and the original assessment was completed u/s.143(3) of the Act. For this, assessee has raised various grounds regarding reopening which are exhaustive and argumentative, hence need not to be reproduced.
On behalf of the assessee, Shri R. Vijayaraghavan argued and on behalf of Revenue, Senior DR, Shri P. Sajit Kumar argued. Brief facts are that the original assessment was completed by DCIT, Corporate Circle 4(1), Chennai u/s.143(3) of the Act vide order dated 30.03.2015 for the relevant assessment year 2011-12. Subsequently, the assessment was reopened by recording reasons that on verification of records i.e., assessment records and it is noticed from schedule-16 of the audited accounts of assessee that the assessee has claimed other expenditure in profit & loss account by debiting a sum of Rs.1,23,76,000/- towards provision for return rights. Further, as per balance sheet vide schedule -1 and provision for an amount of Rs.3,66,83,000/- shown as provision for return 3 rights. According to AO, the assessee has made mere provision and not actually incurred and therefore, the same is to be added. According to AO, income has escaped assessment within the meaning of section 147 and hence, notice u/s.148 of the Act was issued. Accordingly, reassessment was completed vide order dated 30.12.2018 u/s.143(3) r.w.s. 147 of the Act. Aggrieved, assessee preferred appeal before CIT(A).
3.1 The CIT(A), despite the fact that ground was raised by assessee that reopening of assessment in view of proviso to section 147 of the Act that there is failure on the part of the assessee to disclose fully and truly all material facts for framing of assessment for the relevant assessment year, he adjudicated the issue under the wrong presumption that there is change of opinion. He adjudicated the issue vide para 5 as under:- “Other than the above, no other disclosure had been made. The issue of provision for return rights had not been examined by the Assessing Officer in the original assessment proceedings. The Assessing Officer did not have any occasion to take any option on the issue of provision for return rights. To this extent, this issue had escaped the attention of Assessing Officer. The assessee is incorrect in stating that there has been a change of opinion. In fact, no opinion had been taken on this issue by the Assessing Officer. The disclosure made is very cryptic and without any details or justification. This issue of wrongful claim of provisions for return rightly has come to the knowledge of the Assessing Officer subsequent to the conclusion of earlier assessment proceedings. Having satisfied himself regarding the escapement of income, the Assessing Officer has initiated reassessment proceedings.
4 The initiation of proceedings u/s 147 cannot be faulted. The objections filed are rejected. The reasoning given by the Assessing Officer for assumption of jurisdiction s upheld.
Aggrieved, now assessee is in appeal before the Tribunal.
We have heard rival contentions and gone through facts and circumstances of the case. We have gone through the case records including the order of CIT(A), original assessment order and reassessment order. We have also gone through the paper-book filed by assessee consisting of 224 pages. The ld.counsel for the assessee before us filed copy of submissions made before AO on 20.03.2015 which are enclosed at assessee’s paper-book pages 162 to 177 and the relevant are at page 174, which reads as under:- “12. Nature of expenditure for which provisions which provisions were made for doubtful debts and returned rights a. Details of provisions made for doubtful debts have already been discussed under point no,4. b. We submit that the provision for return rights is created on account of the goods that could be returned by the distributors on account of the following reasons; damages or obsolescence or when the books do not have any sale value. The provision is created at the rate of 5% on the value of sales made during the last six months and corroborates to the industry norms in which the company operates. In this regard, please find enclosed the workings of provision for returned rights amounting to Rs. 12,375,507 debited to the profit & loss statement as Annexure 15. c. Legal arguments for allowing provision created for returned rights 5 We submit that as per section 37(1) of the Act, any expenditure not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing business income.
Further, reliance is placed on the decision or the Honourable Supremc Court in the case of Rotork Controls India (P)Ltd. Vs. CIT(180 Taxman 422), wherein allowing the provision for warranty in respect of the accrual of liability has held as under:”
The ld.counsel for the assessee stated that the AO has considered this issue and after raising a specific query has not made any disallowance. We have gone through the documents placed before us by ld.counsel in the paper-book at page 153, whereby notice u/s.148 of the Act dated 12.09.2018, reasons recorded were supplied by the AO vide letter dated 28.09.2018 and the relevant reasons recorded reads as under:- “3) Subsequently, the assessee’s case for the Asst.Year 2011-12 has been reopened by issuance of notice u/s.148 dated 12.09.2018 for the following reasons: “On verification of records in Schedule-16 of “Other Expenditure” in the Profit and Loss Account, the assessee company has debited a sum of Rs.1,23,76,000/- towards provision for return rights. Further as per Balance Sheet vide Schedule-1, un the head, “Provisions” an amount of Rs.3,66,83,000/- [P.Y.2,43,08,000] has shown as provision for return rights. The assessee has only made a mere provision towards return rights and not actually incurred.”
4) Hence, I have every reason to believe that the income chargeable to tax has escaped assessment under the provisions of section 147 of the Income- tax Act, 1961.”
6 4.1 From the above reasons, it is clear that the assessee in first impugned assessment i.e., original assessment has filed complete details in regard to the provisions made for other expenses, i.e., provision for return rights. It means that the assessee has filed complete details of expenses and AO after considering the same has not made any addition. Now, the AO while issuing notice u/s.148 records the reasons from the records and no tangible material has come to his notice. Even the AO has not demonstrated that there is any failure on the part of the assessee to disclose fully and truly all material facts for framing of assessment for the relevant assessment year and original assessment was completed u/s.143(3) of the Act. The four year has elapsed from the end of the assessment year and after that reopening notice u/s.148 of the Act was issued. The relevant assessment year involved is assessment year 2011-12 and original assessment was completed u/s.143(3) of the Act vide order dated 31.03.2015. Notice u/s.148 of the Act was issued on 30.03.2018 i.e., beyond 4 years. Once, there is nothing on record i.e., any reasons recorded that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for framing of assessment for the relevant assessment year and original assessment is completed u/s.143(3) of the Act, no re-opening is possible. This view of ours is supported by the 7 decision of Hon’ble Supreme Court in the case of CIT vs. Foramer France, (2003) 264 ITR 566, wherein the Supreme Court has affirmed the decision of Hon’ble Allahabad High Court in the case of Foramer France vs. CIT, (2001) 247 ITR 436 and held that 14. Having heard learned counsel for the parties, we are of the view that these petitions deserve to be allowed.
It may be mentioned that a new Section substituted Section 147 of the Income-tax Act by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. The relevant part of the new Section 147 is as follows : "147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this Section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under Sub-section (3) of Section 143 or this Section has been made for the relevant assessment year, no action shall be taken under this Section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year."
This new Section has made a radical departure from the original Section 147 inasmuch as clauses (a) and (b) of the original Section 147 have been deleted and a new proviso added to Section 147.
In Rakesh Aggarwal v. Asst. CIT (1997] 225 ITR 496, the Delhi High Court held that in view of the proviso to Section 147 notice for reassessment under Section 147/148 should only be issued in accordance with the new Section 147, and where the original assessment had been made under Section 143(3) then in view of the proviso to Section 147, the notice under section 148 would be illegal if issued more than four years after the end of the relevant assessment year. The same view was taken by the Gujarat High Court in Shree Tharad Jain Yuvak Mandal v. ITO [2000] 242 ITR 612.
8 18. In our opinion, we have to see the law prevailing on the date of issue of the notice under Section 148, i.e., November 20, 1998. Admittedly, by that date, the new Section 147 has come into force and, hence, in our opinion, it is the new Section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new Section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso.” In view of the above facts and circumstances, we are of the view that the reopening is beyond 4 years and as the original assessment was framed u/s.143(3) of the Act, the Revenue could not establish any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment, the reopening in present case is bad in law and hence, quashed. Since we have quashed the reassessment on reopening, we need not to go into the merits of the case.
In the result, the appeal filed by assessee is allowed.
Order pronounced in the open court on 19th September, 2022 at Chennai.