ARJUN OIL TRADERS,SURAT vs. ACIT, NAVSARI CIRCLE, NAVSARI , NAVSARI

Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The CIT(A) observed that the assessee had violated the provisions of section 145A of the Act. The assessee had not followed the method of accounting as mentioned in the tax audit report in Form 3CD and not adjusted the figures of sales, purchases and inventory by including the amount of VAT. By doing so, the assessee had suppressed its income; therefore, the CIT(A) confirmed the addition made by the AO and dismissed the appeal of the assessee.

Aggrieved by the order of CIT(A), assessee filed present appeal before the Tribunal. The Ld. AR of the assessee submitted that reopening of assessment in the case of assessee is bad in law. The assessee was earlier subjected to scrutiny and assessed u/s.143(3) of the Act. During assessment proceedings, the AO had called for the details of the opening stock as well as closing stock. At the time of assessment u/s.143(3), the books of accounts were examined by the AO which has been mentioned in the assessment order. Therefore, it is obvious that the AO had seen the method of accounting followed by the assessee. Now for the same reason, the assessment is reopened which means that there is a change of opinion on the part of the AO. No new information or fact has come to the notice of the AO. When the AO had examined the books of account earlier and found the system of 2011-12 Arjun Oil Traders accounting proper and in consonance with the Income tax provisions, there was no point in reopening the assessment. 6.1 Regarding the issue of following ‘exclusive’ or ‘inclusive’ method of accounting, the Ld. AR stated that as per Accounting Standard - 2 prescribed by the ICAI, it is mandatory for every business entity to value closing stock excluding taxes for which the entity is entitled to claim credit. Hence, it is mandatory for a business entity to follow exclusive method of accounting wherein all sales purchases and stock are valued excluding Vatable taxes. On the other hand, section 145A of the Act prescribes inclusive method of accounting whereby all sales, purchases and stock need to be valued inclusive of taxes. The AO had stated in the assessment order that there would be a difference in profit of Rs.3,24,136/-, in case the profit is worked out under the inclusive method. The Ld. AR submitted that the while calculating gross profit in the assessment order, the AO had failed to put the figure of actual taxes paid by the assessee during the year, which was at Rs.2,20,915/-. Had the assessee been following inclusive method of accounting, the amount actually paid would have been debited to P&L account. Moreover, there would not be any balance of unutilized VAT credit in the books of account under inclusive method. The Ld. AR stated that it is a well-accepted fact that following exclusive or inclusive method of accounting has no impact on the profit or loss of an entity. In view of the above facts, the Ld. AR requested to quash the re- 2011-12 Arjun Oil Traders opening of the assessment in the case of the assessee and delete the addition of Rs.3,24,136/- by the AO u/s 145A of the Act.

On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) supported the orders of the AO and CIT(A). He submitted that the assessee had accounted sales and purchases in its trading account net of VAT, i.e., excluding the amount of VAT from the sales and purchases. This was a clear violation of the provisions of section 145A of the Act, which provided that the valuation of purchases and sales of goods and inventory for the purpose of determining the income chargeable under the head ‘profits and gains from business and profession’, shall be further adjusted to include the amount of any tax, duty, cess or fee. The ld. Sr. DR, therefore, requested to uphold the order of the CIT(A).

We have heard both the parties and perused the materials available on record. Since the assessee has challenged the validity of re-opening u/s 147 of the Act, let us decide the said jurisdictional issue, before deciding the case on merits. Indisputably, the assessee’s case was originally assessed u/s 143(3) of the Act on 05.10.2013. In the original assessment proceedings, the AO had examined the method of accounting and the tax audit report. Thus, all material facts were fully and truly disclosed by the assessee during the original assessment. Therefore, the mandate of the first proviso to section 147 of the Act is not fulfilled in the instant case. The AO has not explained as to which material facts necessary for the assessment were not fully and truly disclosed 2011-12 Arjun Oil Traders by the assessee during the original assessment proceedings. The subsequent re-opening was based entirely on the very same information that was already available in the assessment record. In such circumstances, it is a settled law that re-assessment cannot be initiated on a mere change of opinion. The Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd., 320 ITR 561 (SC) held as under: “………….. one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion……….” 8.1 The Hon’ble Gujarat High Court in case of Nila Infrastructure Ltd. vs. ACIT, [2023] 451 ITR 283 (Guj.) held as under: “…………. There was material available with the Assessing Officer and the assessee had not suppressed or withheld any information at the time of assessment proceedings and on this score itself the present impugned notice under which the re-assessment proceeding is to be undertaken or commenced on the said issue, cannot be sustained……” 8.2 In the present case, the AO has not brought any tangible material or fresh information on record to justify the formation of belief that income had escaped assessment. The reason recorded merely indicates re-examination of existing material. The re-assessment proceedings of completed assessment was initiated after 4 years from the end of the relevant AY. There was no failure on part of the assessee to disclose fully and truly any material facts during the original assessment proceedings. The re-opening is, therefore, 2011-12 Arjun Oil Traders based on mere change of opinion. The re-opening of assessment is not liable to be sustained in the eyes of law. Hence, the re-assessment proceeding u/s 147 of the Act is invalid and is hereby quashed.

Since the reopening has been held to be invalid and quashed, the ground on merit is academic in nature and does not require adjudication.

In the result, the appeal filed by the assessee is allowed. Order pronounced in accordance with Rule 34 of ITAT Rules, 1963 on 12/11/2025 in the open court.