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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश / O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the order of the Commissioner of Income Tax(Appeals)-9, Chennai in dated 29.08.2017 for the assessment year 2005-06.
M/s. Empee Distilleries Ltd., the assessee is engaged in the business of manufacture and sale of IMFL products. The assessment u/s.143(3) was completed on 28.12.2007. On receipt
of information from Deputy Commissioner of Income Tax, Circle 7,
Pune on 04.04.2008 that M/s. Brihan Maharashtra Sugar Syndicate
Ltd., (BMSSL) had settled Rs.1,04,37,072/- to the assessee after considering assessee’s objections on account of rate difference on supply of concentrated spirit supplied by M/s. BMSSL to the assessee in the past year. Therefore, the Assessing Officer observed that the assessee had not disclosed any such income in this regard and hence reopened the assessment U/s.147 issuing a notice u/s.148 dated 26.03.2012. The assessee sought the reasons for the reopening from the Assessing Officer and after receipt of it challenged it and the Assessing Officer disposed them by a separate order. Thereafter, he issued the notice U/2.143(2) after considering assessee’s reply etc., the Assessing Officer held, inter alia, that the cardinal principle of taxation is that the income accrued is taxable in the year of accrual, neither before nor after, and in the assessee’s case Rs.1,04,37,072/- had accrued in assessment year 2005-06 and hence assessee’s admission of such sum in the assessment year 2007-08 would not alter the situation and accordingly assessed the sum. Aggrieved the assessee filed an appeal before the CIT(A) challenging the reopening and on merits. The ld. CIT(A) dismissed the appeal . Against the order of the learned CIT(A), the assessee filed this appeal with following grounds :
1) “The order of the Commissioner of Income Tax (Appeals)-9, Chennai dated 29.08.2017 in for the above mentioned Assessment Year is contrary to law, facts and in the circumstances of the case. 2) The CIT (Appeals) erred in confirming the re-assessment order completed after expiry of four years from the end of the relevant Assessment Year overlooking the proviso below Section 47 of the Act without assigning proper reasons and justification. 3) The CIT(Appeals went wrong in recording the findings in this regard from para 7.3.1 to para 7.3.11 of the impugned order without assigning proper reasons and justification. 4) The CIT(Appeals) failed to appreciate that the understanding of the information received from Pune Income Tax Commissionerate was contradictory thereby vitiating the findings recorded in relation thereto while upholding the correctness of the re-assessment completed. 5) The CIT(Appeals) failed to appreciate that the order of the re-assessment under consideration was passed out of time, invalid, passed without jurisdiction and sustainable both on facts and in law. 6) The CIT(Appeals) erred in sustaining the addition of Rs.1,04,37,072/- on the presumption of cessation of liability based on the information received from the Pune Income Tax Commissionerate pertaining to the transaction with M/s. BMSSL without assigning proper reasons and justification.
7) The CIT(Appeals) failed to appreciate that the book entries in the order entity were wrongly relied upon to presume the cessation of liability in the hands of the Appellant thereby, vitiating the relating findings. 8) The CIT(Appeals) failed to appreciate that the conditions prescribed in section 41(1) of the Act were wrongly considered as complied with to come to the conclusion on the cessation of liability thereby vitiating the related findings. 9) The CIT(Appeals) failed to appreciate that the information received from Pune Income Tax Commissionerate was not fully shared with the Appellant and ought to have appreciated that the violation of the principles of natural justice would vitiate the re-assessment completely. 10) The CIT(Appeals) failed to appreciate that there was no proper opportunity given before passing the impugned order and any order passed in violation of the principles of natural justice would be nullity in law. 11) The Appellant craves leave to file additional grounds / arguments at the time of hearing.”
The ld.AR argued the case on the above lines and hence pleaded to allow the appeal.
Per contra, the ld. DR submitted that on the issue of validity of the reopening , the ld. CIT(A) found that the appellant is a long standing customer of M/s. BMSSL and buys spirits from it. During the account year 1999-2000 and thereafter, the appellant requested M/ s. BMSSL to supply it with high concentrated spirit so as to save transport cost from company's factory to Chennai because highly concentrated spirit is easier for transportation as its volume is less. M/ s. BMSSL accepted this request and consequently raised its selling price per litre. The company raised its -price disproportionately higher than the rise in the concentration levels of spirit warranted. The appellant company did not realize this and accepted the bills preferred by M/s. BMSSL. Later the appellant discovered the mistake, and took up the matter with M/ s.
BMSSL in September 2001. After prolonged discussions and deliberations, M/ s. BMSSL accepted the appellant's claim to the tune of Rs.1,04,37,072/- as overcharging in the earlier years, so as to protect its business interest and maintain a long standing customer relationship with the appellant. The said sum was written off in the books of M/ s. BMSSL during the Assessment Year 2005-06 and therefore the liability to that extent against the appellant company is income for the appellant in the Assessment Year 2005-06. The appellant company did not offer Rs.1,04,37,072/- as income in the previous year relevant to the Assessment Year 2005-06 and therefore income to that extent actually escaped assessment for the relevant year. During the course of appeal proceedings, the AR of the appellant argued that reopening beyond 4 years is not possible as the appellant is said to have disclosed all the material facts relevant for the assessment. The contention of the AR is not acceptable because the above facts reveal that the income of the appellant was not offered to tax . In this regard, the ld. CIT(A) relied on various decisions viz., Indian Home Pipe Co. Ltd., 348 ITR 439 (BOM), and a Siel Power Products Ltd., 340 ITR 53 (Del), Kantamani Venkatesh Narayana & Sons v. Addl. ITO 63 ITR 638 SC, ITO v. Electro Steel Castings Ltd., 264 ITR 410 (Cal), Rajesh Jhaveri Stock Brokers P. Ltd., 291 ITR 500 SC, Kelvinator of India 187 Taxman 312 SC etc . In view of the above Judgements, the ld. CIT(A) held that until otherwise a case is made out that the A O examined the said issue and accepted, merely furnishing of such 'information which is found to be false at the time of initiation of reopening of assessment, the assessment can be reopened even in respect of assessment years beyond the limit of four years. The question of power of review comes only if the AO applied his mind to the fact of the case and took a course of action and subsequently he cannot change his course of action without any tangible material as that would amount to power of review. In the case of the appellant, there is no information that the A O examined the issue in the original assessment order or any questionnaire was issued or any submission was furnished on the said issue by the assessee inviting the attention of the AO. No case is made out to show that there was opinion already expressed by the AO on the matter which is sought to be reviewed under the reassessment proceedings. The appellant also contended that the original assessment got merged with the appellate orders, therefore reopening is not possible. This contention of the appellant is not correct.
The assessment can be reopened irrespective of whether the original assessment is in appeal or not, as long as the conditions required u/s 147 are satisfied. In this case, the conditions as required u/s 147 are satisfied. Therefore, the contention of the appellant is not acceptable.
Therefore, the ld DR supported the orders of lower authorities on this issue.
4.1 With regard to the merits of the issue, the DR invited our attention to the relevant portion of the order of the CIT(A) which is extracted as under :
“8.3.1 I have considered the AO's observation in para 8.1 and the appellant's submission in para 8.2. Vide this office letter dated 20.03.2017 the AO was requested to forward the nature of evidence available in his possession substantiating that a sum of Rs.l,04,37,072j- was finally settled. In response to which, the AO forwarded his report dated 03.07.2017 duly endorsed by the Addl. CIT vide his letter dated 05.07 2017 enclosing therewith the letter dated 23.08.2007 submitted by the AR of M/ s. BMSSL during the course of assessment proceedings in their case for the Assessment Year 2005-06, wherein it was mentioned that so as to protect its business interest and to maintain a long standing customer relationship, it was decided to accept the claim of M/ s. Empee Distilleries Ltd. M/s. BMSSL accepted the debit notes of the appellant to the tune of Rs.1,04,37,072/-. It is also mentioned therein that since the assessee company rejected its liability to pay these amounts and their irrecoverability is not in doubt, the company had therefore no option but to write off this amount as a bad debt in its books. Further, it was also mentioned that the company clubbed this write off with its other bad debts but chose to reflect it separately and specifically as 'price difference settlement a/c’ in the grouping general expenses. Therefore, M/ s. BMSSL requested its AO to allow its claim of bad debts 'since all the conditions laid down u/s 36(1)(vii) have been fulfilled. 8.3.2 A copy of the above referred letter dated 23.08.2007 was forwarded to the appellant vide this office letter dated 21.07.2017 requesting for its comments and to clarify why the said sum should not be treated as income in the hands of the appellant. In response to the above, the AR of the appellant appeared on 29.08.2017 and filed a submission stating that though the price difference settlement account pertaining to the appellant the appellant was written off as bad debt by M/s. BMSSL, however, there was absolutely no indication of the acceptance of the stand taken by the appellant in the assessment proceedings taken up for the Assessment Year 2005-06. However, verification of the ledger accounts of the appellant in the books of M/s. BMSSL as forwarded by the AO clearly reveals that a sum of Rs.1,04,37,072/- being the price difference settlement amount was credited on 31.03.2005 against the invoice raised thereby writing off of the same in the books of M/s. BMSSL for the previous year 2004-05 relevant to Assessment Year 2005-06, by passing journal entry. By this entry, the amount debited by the invoice was neutralized by crediting the same to the extent of Rs.1,04,37,072/-. Basically, the price difference settlement amount of Rs.1,04,37,072/- was written off in the books of M/s. BMSSL in the previous year 2004-05 relevant to Assessment Year 2005-06. In view of the above facts and circumstances, the amount foregone by M/ s. BMSSL during the Assessment Year 2005-06 accrues as income to the appellant in the same Assessment Year 2005-06. The appellant's contention that the said amount was offered as income during the Assessment Year 2007-08 and therefore there is no revenue loss is not acceptable, because the income or loss must be assessed to tax in the year in which it accrues. The impugned sum of Rs.1,04,37,072/- accrued to the appellant during the previous year 2004-05 relevant to the Assessment Year 2005-06 because it is during this year the said sum was written off in the books of M/s. BMSSL settling the claim in favour of the appellant. Therefore, the addition of Rs.1,04,37,072/- is hereby confirmed.”
Thus the learned Departmental Representative supported the above order.
We heard the rival submissions. It is clear from the above, that on receipt of information from the Deputy Commissioner of Income Tax, Circle 7, Pune on 04.04.2008 that M/s. Brihan Maharashtra Sugar Syndicate Ltd., (BMSSL) had settled Rs.1,04,37,072/- to the assessee after considering the assessee’s objections on account of rate difference on supply of concentrated spirit supplied by M/s. BMSSL to the assessee in the past year. Therefore, the Assessing Officer observed that the assessee had not disclosed any such income in this regard and hence reopened the assessment U/s.147 issuing a notice U/s.148 . The assessee sought the reasons for the reopening from the Assessing Officer and after receipt of it challenged it and the Assessing Officer disposed them by a separate order. The assessee has not challenged that order before any authority. However, it raised the validity of reopening plea before the CIT(A) . The ld CIT(A) held , inter alia, that the assessee has not disclosed the primary facts and that the impugned income of the assessee was not offered to tax . There is no information that the AO examined the issue in the original assessment order or any questionnaire was issued or any submission was furnished on the said issue by the assessee inviting the attention of the AO. No case is made out to show that there was opinion already expressed by the AO on the matter which is sought to be reviewed under the reassessment proceedings etc. Since the assessee has not placed any material to dislodge the findings recorded by the ld CIT(A) in this regard in his order , we do not find any reason to interfere with his order on this issue .
On the merits, after considering the assessee’s submissions, the Ld. CIT (A) obtained a report from the Assessing Officer and along with letter dated 23.08.2007 submitted by the AR of M/s. BMSSL at the time of their assessment proceedings for the assessment year 2005-06, he forwarded them to the assessee requiring to show as to why the impugned sum should not be treated as income and after considering assessee’s reply etc., dismissed the appeal in the above paras, extracted supra. The ld CIT(A) records the finding that the verification of the ledger accounts of the appellant in the books of M/s. BMSSL as forwarded by that A O clearly revealed that Rs.1,04,37,072/- being the price difference settlement amount was credited on 31.03.2005 against the invoice raised thereby writing off of the same in the books of M/s. BMSSL for the previous year 2004-05 relevant to Assessment Year 2005-06 , by passing journal entry. By this entry, the amount debited by the invoice was neutralized by crediting the same to the extent of Rs.1,04,37,072/-. Basically, the price difference settlement amount of Rs.1,04,37,072/- was written off in the books of M/s. BMSSL in the previous year 2004-05 relevant to Assessment Year 2005-06.
Therefore, the amount foregone by M/ s. BMSSL is a clear cessation of liability during the Assessment Year 2005-06, accrued as income to the appellant in the same Assessment Year 2005-06. Therefore, the appellant's contention that the said amount was offered as income during the Assessment Year 2007-08 and therefore there is no revenue loss is not acceptable, because the income or loss must be assessed to tax in the year in which it accrues. The impugned sum of Rs.1,04,37,072/- accrued to the appellant during the previous year 2004-05 relevant to the Assessment Year 2005-06 because it is during this year the said sum was written off in the books of M/s. BMSSL settling the claim in favour of the appellant. Therefore, the addition of Rs.1,04,37,072/- is hereby confirmed. Though the assessee pleaded that it had no indication of the acceptance of the assessee’s stand, it has not placed any independent material in support of its stand and further it has not placed any material as to how and on what basis it admitted the impugned income in the subsequent assessment year ie in ay 2007-08 also. In the above facts and circumstances, the case laws relied on by the assessee is not applicable to this case and hence we dismiss the corresponding grounds of the assessee.
In the result, the assessee’s appeal is dismissed.
Order pronounced in the Court on 13th January, 2020 in Chennai.