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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI. B.R BASKARAN & SMT. BEENA PILLAI
PER BEENA PILLAI, JUDICIAL MEMBER
Present appeal has been filed by assessee against order dated 22/11/2018 passed by the Ld.CIT (A)-4, Bangalore for assessment year 2013-14 on following grounds of appeal:
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“1. The order of the learned Commissioner of Income Tax (Appeals)-4, Bangalore is opposed to the facts of the case and law applicable to it. 2. The learned Commissioner of Income Tax (Appeals) erred in confirming addition to the extent of Rs.37,00,000I- being a disallowance of expenses claimed under breakages & damages for the alleged reason that, it is only an estimate, in the nature of provision and hence not allowable. 3. The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact that, the breakages & damages which are loss to the appellant had already crystallized in the previous year relevant to A.Y.2011-12 and an expenditure on the basis of information available was claimed only for the reason that, the actual quantum of expenditure was not made known by KSBCL to whom the appellant sell IML as per Excise Act of Government of Karnataka as on the date of filing the return of income. 4. The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact that, the breakages and damages claimed was not a provision but expenditure crystallized during the relevant previous year and hence allowable under law for the A.Y.2011-12 U/s 28 of the act. 5. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of expenditure of Rs.66,31 408/- being arrack rentals paid allegedly for the reason that, it is a prior period expenditure. 6. The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact that, the expenditure though related to excise year 2001-02 fructified only during the previous year relevant to A.Y.2011-12 and hence allowable as expenditure for the said year. 7. The learned Commissioner of Income Tax (Appeals) erred in ignoring the fact that, the provisions of section 147 of the act, has been initiated after a period of four years from the end of the assessment year in a case where an order U/s.143(3) of the act had already passed and in the absence of any fresh material the said provisions could not have been invoked. 8. The learned Commissioner of Income Tax (Appeals) erred in ignoring the fact that. the invoking provisions of section 147 of the act was bad in law and therefore the consequential order U/s.143(3) r.w.s 147 of the act should have been annulled. 9. The learned Commissioner of Income Tax (Appeals) erred in ignoring the position of law laid down in the following decisions that, on a mere change in opinion the provisions of section 147 of the act could not have been invoked. i) Rallies India Ltd Vs. ACIT & Another (2010) 323 ITR 54 (Bom) ii) CIT V. (I) Kelvinator of India Ltd (ii) Eicher Ltd (2010) 320 ITR 561 (SC) iii) Asian Paints Ltd V. Deputy Commissioner of Income Tax & Another (2009) 223 CTR 141 (Bom) iv) CIT V. Younus Kunju (1997) 228 ITR 147 (Kerala)
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The learned Commissioner of Income Tax (Appeals) erred in ignoring the position of law laid down by the Hon'ble Supreme Court in the case of ACIT V. Dhirendra Hansraj Singh, S.L.P (C) No.32237 of 2018 wherein it is held that: when there is no failure on the part of the assessee to disclose all material facts at the time of original assessment, provisions of section 147 of the act cannot be invoked after a period of four years from the end of the assessment year. 11. The learned Commissioner of Income Tax (Appeals) erred in following the ratio laid down by Hon'ble Supreme Court in the case of Kalyanji Mavji & Co., V. CIT(S) 102 hR 287 (SC) ignoring the fact that, the said decision is for the A.Y.1956-57 and on the position of law as it stood in 1922 Act and there has been various amendments to the said provisions consequent to the introduction of 1961 act, under the circumstances, the said ratio has no applicability at all. 12. The appellant craves permission to add, delete or alter any of the grounds of appeal at the time of hearing. Prayer The appellant prays that, the Honourable Tribunal to kindly delete a. The addition consequent to disallowance of breakages of Rs.37,00,000/- under the provisions of section 28 of the act. b. The addition consequent to disallowance of arrack rentals paid of Rs.66,31 408/- for the alleged reason that, the said expense was a prior period expense. c. Annul the order U/s.143(3) r.w.s 147 of the act for the reason that, the said order is bad in law.” Brief facts of the case are as under: 2. The assessee is in the business of manufacturing of IMF L, rectified spirit, neutral spirit and other byproducts. It filed its return of income for year under consideration on 30/09/2011 declaring ‘nil’ income after setting off brought forward losses. The assessment was concluded under section 143(3) of the Act, on 28/02/2014 by making following disallowances: disallowance under section 14 A r.w.Rule 8D - Rs.28,62,262/- disallowance of deduction claimed under section 36 (1)(va) of the Act -Rs.3,38,328/-
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Assessee filed appeal against the assessment order under section 143(3) before Ld.CIT(A) who allowed the appeal vide order dated 28/03/2014. Further an appeal was preferred by revenue before this Tribunal in ITA No.726/B/2016 wherein, this Tribunal by order dated 14/07/2017 dismissed the appeal of revenue. 4. In the meantime on 17/05/2016, notice under section 148 of the Act was issued to assessee in response to which, assessee filed return on 23/06/2016 and requested for reasons recorded to be furnished to assessee. 5. The reasons recorded were communicated to assessee on 01/07/2016 wherein following reasons were recorded: “i) A perusal of the assessment records reveal that the assessee debited an amount of Rs.43,15,888/- towards 'Breakages and Damage s'(Sch.15/Selling and distribution expenses). As per note below Sl.No. 18/19 Stock statement /Sch. 19 notes to accounts, "the amounts debited is a provision pending receipt details from KSBCL" and therefore, is not an admissible expense under the provisions of the Act, inasmuch as the amounts debited to the profit and loss account on account of 'Breakages and Damages' is only a provision and is not an aéertained liability as on the Balance Sheet date. The assessee company, vide its submissions dated 3.6.13 at Sch. 19 under the Head 'Significant Accounting Policies and notes to Accounts" at Sl. No. 19 (Pg. 16) Stock Statements) has in a 'Note' mentioned that "the breakages and shortages debited by the company is by way of Provision pending receipt of details from KSBCL". Hence, as the liability has not crystallized into an expense, the deduction is not an allowable deduction. ii) Further, the assesee debited Rs.66,31,408/- towards Arrack Rentals for which clear details are not forthcoming in the assessment records. It is seen that the expenditure pertains to A.Y. 2001-02 which is arising out of a demand raised by the Dy. Commissioner of Excise, Govt. of Karnataka during the F.Y.2010-11 vide his order dated 17.6.2010 and paid by the assessee company on 30.8.2010. As no provision appears to have been made in the FY 2001-02 towards this expenditure, the expenditure debited to the profit and loss account for the FY relevant to the AY 2011-12 partakes the character of a 'prior period expense' and hence not an allowable deduction. Further, it is not clear from the order
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of the Dy. Commissioner of Excise, Govt. of Karnataka, whether the demand has been raised on the individual, shri. J.P. Narayanasawamy, Arrack Contractor or on the assessee company. It needs to be ascertained as to who was awarded the arrack vending rights at NagamangaiaTaiuk and in whose name the license was issued.” 6. As per the reasons recorded, the Ld.AO proposed to disallow following expenditure: Breakages and damages-Rs.43,15,888/- Arrack rentals -Rs.66,31,408/- 7. Assessee filed various submissions in respect of the same which was disregarded by the Ld.AO. The Ld.AO passed order under section 143 (3) read with section 147 of the Act on 26/12/2017 by making the disallowances. 8. Aggrieved by the order of the Ld.AO, assessee preferred appeal before the Ld.CIT(A). The assessee raised the legal issue challenging the validity of reopening under section 147 of the Act, as it was after a period of 4 years from the end of the assessment year in which the original assessment order was passed. It was contested that there was no fresh evidence warranting invoking of the said provisions, and therefore the reopening is bad in law. 9. On merits assessee filed various submissions challenging the addition. 10. However the Ld.CIT(A) rejected the legal ground raised by assessee by observing as under: “The condition for re-opening the assessment can be stated that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment u/s.147. Where assessment u/s.143(3) or u/s.147 made earlier and reopening is done after expiry of four years from the end of the relevant assessment year reopening is possible only if income chargeable to tax has escaped assessment for such assessment year by
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reason of the failure on the part of the assessee to make a return u/s.139 or in response to notice issued u/s.142(1) or u/s.148 or to disclose fully and truly all material facts necessary for his assessment. The expression "has reason to believe" is wider than "is satisfied" as reasons must have a live link with the formation of belief. "Information" for reopening may come from external sources or even from materials already on record or may be derived from the discovery of new and important matter or fresh facts. Word "information" would also include true and correct state of law derived from relevant judicial decisions either of the I.T. authorities or Courts of law. Whether the ground on which the original assessment is based, is held to be erroneous by Supreme Court in some other case, that will also amount to a fresh information which comes into existence subsequent to the original assessment. Taxpayer would note allowed to take advantage of an oversight or mistake committed by the taxing authority as held in the case of Kalyanji Mavji & Co. Vs CIT(S) 102 ITR 287. The basis for re- opening of the assessment would certainly be the source of information. When an income liable to tax has escaped assessment in the original assessment proceedings due to oversight and inadvertence or a mistake committed by the ITO, he has jurisdiction to re-open the assessment. Reassessment is permissible even if the information is obtained after proper investigation from the material on record or from any enquiry or research into facts or law. In view of the above discussion, I am of the considered opinion that the Assessing Officer has got jurisdiction in reopening the assessment by issuing notice u/s,148 of the Act and therefore the grounds of appeal is hereby dismissed.” 11. On merits the Ld. CIT (A) confirmed the additions made by Ld. AO. 12. Aggrieved by the order of Ld. CIT (A) assessee is in appeal before us now. 13. At the outset the Ld.AR submitted that Ground No.8 has been raised challenging the validity of reopening of assessment beyond the period of 4 years. 14. The Ld.AR submitted that the Ld.AO initiated the penalty proceedings in respect of the items which were considered by the Ld. AO and the original assessment proceedings. He submitted that, issues being subject matter of reasons recorded for
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reopening were considered by the Ld.AO and the original assessment proceedings. The it was submitted that, the details of breakages and damages were part of stock statement furnished along with the audit report and also the tax audit report filed along with the return of income wherein the loss of stock quantity wise was indicated. 15. As far as the expenditure of excise duty paid is concerned the Ld.AR submitted that the specific query was raised by the Ld. AO during the course of hearing and the information was furnished along with letter dated 26/11/2013. The Ld.AR placed reliance on the said letter placed at page 33 of paper book wherein Paras 6 gives the details in respect of arrack rentals. 16. He thus submitted that the reopening beyond period of 4 years without there being a satisfaction recorded by the Ld.AO regarding failure on behalf of assessee to truly and fully disclose all material facts, is bad in law. In support of his contention, the Ld.AR placed reliance on following decisions: ACIT vs FIS Global Business Solutions India (P) Ltd. (2019) 262 Taxmann 369 (SC) CIT vs Kelvinator India Ltd. reported in 320 ITR 561 (SC) ITO vs TechSpan India Pvt.Ltd., (2018) 92 taxmann.com 361 (SC) Revolution Forever Marketing Pvt.Ltd. vs ITO reported in (2019) 413 ITR 400 (Del) Champ Energy Ventures Pvt.Ltd. vs ITO (2019) 102 taxmann.com 374 (Bom) Asian Paints Ltd. vs DCIT & Anr. reported in (2009) 223 CTR 141(Bom) Rallies India Ltd. vs ACIT & Anr. reported in (2010) 323 ITR 54 (Bom)
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ICICI Home Finance Company Ltd. vs ACIT reported in (2012) 25 Taxmann.com 241 (BOM) Asiatic Oxygen Ltd. vs DCIT reported in (2015) 60 taxmann.com 265 (Calcutta) CIT vs Younus Kunju reported in (1997) 228 ITR 147 (Kerela) 17. On the contrary, the Ld.DR submitted that the reassessment notice the present case is valid and that the disallowances made by the Ld. AO could not have been allowed as an expenditure. He reiterated the observations of Ld.CIT(A) that, even if the information was obtained after proper investigation from the materials on record or from any enquiry research into the facts or law, the reassessment is permissible. 18. We have perused submissions advanced by both sides in light of records placed before us. 19. Primarily, we observed that the Ld.CIT(A) has recorded that the basis of reopening is certainly the source of information that is already available on record. The Ld.CIT(A) further records that in the original assessment proceedings due to oversight and inadvertence or a mistake committed by the ITO, the incumbent assessing officer has jurisdiction to reopen the assessment. 20. This itself makes it clear that there was no fresh materials available on record for initiating the reassessment proceedings. The reopening of assessment beyond a period of 4 years have been proceeded with by the Ld.AO based on the materials available on record. 21. From the replies furnished by assessee during the original assessment proceedings placed in the paper book relied by the
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Ld.AR, we note that queries were raised by the Ld.AO on the same issue and assessee had filed submissions in respect of the issues considered for reopening the assessment. On a co-joint reading of all the materials filed by assessee before the Ld.AO in respect of alleged issues and the assessment order passed, it necessarily implies an opinion of the erstwhile assessing officer not to consider the issues to be taxable, though silent in the original assessment order. Therefore and the subsequent issuance of notice to reopen the assessment on such issues amounts to change of opinion. 22. Further the reasons recorded reproduced hereinabove suggests that there was no failure on behalf of assessee to fully and truly disclose all material facts necessary for assessment, which is a necessary precondition for reopening an assessment beyond a period of 4 years as stipulated under the Act. 23. The reasons recorded also reveal that, there has been no new material available with the Ld.AO which could justify the reopening of a concluded assessment beyond a period of 4 years. Respectfully following the ratio is laid down by various decisions cited hereinabove, we set aside and quash the notice dated 17/05/2016 seeking to reopen a concluded assessment to be bad in law. As we have set aside and quashed the notice of reopening, consequential assessment order passed by the Ld.AO stands to be quashed and set-aside.
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As we have quashed the assessment order passed by the Ld.AO, we do not find it necessary to adjudicate the issues on merits alleged by assessee. Accordingly, appeal filed by assessee is allowed in terms of Ground 8. In the result appeal filed by assessee stands allowed. Order pronounced in the open court on 8th March, 2021 Sd/- Sd/- (B.R BASKARAN) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 8th March, 2021. /Vms/ Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file By order
Assistant Registrar, ITAT, Bangalore
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Date Initial On Dragon 1. Draft dictated on Sr.PS 2. Draft placed before -3-2021 Sr.PS author -3-2021 3. Draft proposed & placed JM/AM before the second member -3-2021 4. Draft discussed/approved JM/AM by Second Member. -3-2021 5. Approved Draft comes to Sr.PS/PS the Sr.PS/PS 6. -3-2021 Sr.PS Kept for pronouncement on 7. -3-2021 Sr.PS Date of uploading the order on Website 8. If not uploaded, furnish -- Sr.PS the reason 9. File sent to the Bench -3-2021 Sr.PS Clerk 10. Date on which file goes to the AR 11. Date on which file goes to the Head Clerk. 12. Date of dispatch of Order. 13. Draft dictation sheets are No Sr.PS attached