DCIT CEN CIR 7(3), MUMBAI vs. PAMPAC MACHINES P.LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य,राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार /Per Rajendra, AM- अनुसार Challenging the order dated 28/03//2016 of CIT(A)-49,Mumbai the Assessing Officer (AO) has filed the present appeal.Assessee-company,engaged in the business of manufacturing pharmaceutical packaging machines filed its return of income on 28/09/2008,declaring total income of Rs.16.25 crores. Effective ground of appeal is about holding the reassessment proceedings invalid.In this case, the AO had completed the assessment u/s.143(3)r.w.s.153A of the Act,assessing the total income at Rs.16.26 crores.On 15/06/2012, he issued a notice u/s. 148 of the Act, as he was of the opinion that taxable income had escaped taxation.He completed the assessment, u/s.143 (3)r.w.s.147 of the Act,on 13/02/2014,determining the income of the assessee at Rs.16.48 crores. 2.Aggrieved by the order of the AO,the assessee filed an appeal before the First Appellate Authority(FAA)and made detailed submissions.It also relied upon certain case laws.After considering the available material,he held that the assessee had relied upon the case of Cargo Clearing Agency(307ITR1)of the honorable Gujarat High Court in its support,that the judgment pertain to the assessments made under Chapter XIV B of the Act under the scheme of blog assessment, that the assessments made u/s.153 A were different from the block assessments, that submission made by it in that regard was not acceptable, that the amount of provision for leave encashment was made during the AY. 2008-09,that the disputed amount was added back in the AY.2012-13, that the argument of the assessee of non-escapement of income was not acceptable, there was no new tangible material before the AO for issuing a 3818/M/16-Pampac Machines P.Ltd.

notice u/s.148.He referred to the reasons regarded by the AO, wherein the AO had used the words ‘perusal of the record’and held that fresh tangible material was not existing before the AO for initiating reassessment proceedings. He relied upon the case of Motilal R.Todi (ITA/2910/Mum/2013,dated 22/09/2015)and held that reopening was invalid and was bad in law in absence of fresh tangible material. 3.Before us,the Departmental Representative(DR)stated that even if Tax Audit Report was available with the return of income,the assessee had not disclosed it during the assessment proceedings,that there was no disclosure of material fact.He referred to the explanation 1 to the 3rd provisio to the section 147 of the Act. The Authorised Representative(AR)argued that the reassessment proceedings were initiated after a period of four years,that no new tangible material was available to the AO that could justify issuing of notice u/s.148 of the Act,that details with regard to leave encashment were filed before the AO,that leave encashment details were based on actuarial valuation,that the original assessment was completed u/s153A of the Act,that reassessment proceedings could not be initiated in 153A cases.He referred to pages 134-140 of the PB as well answers to questions 2 and 3 raised by the AO vide its letter dated 16.10. 2009.He relied upon the case of Cargo Clearing Agency (307 ITR 1) of Hon’ble Gurarat High Court and case of Calcutta Chromotype Pvt. Ltd.(97 ITR 55) of the Hon’ble Calcutta High Court. With regard to the application filed by the assessee under rule 27 of the ITAT Rules, 1963 (Rules),the AR argued that there was no escapement of income,as held by the FAA. Alternatively,he argued that the assessee should be allowed relief in subsequent AY.,wherein the assessee had disallowed the disputed amount suo-motu,that the original assessment was completed u/s.153A of the Act,that re-opening was result of change of opinion. 4.We have heard the rival submissions.We find that original assessment was completed as per the provisions of section 153Aof the Act,that the AO had issued a notice u/s.148 of the Act , stating that taxable income had escaped assessment.Before proceeding further we would like to reproduce the reasons recorded by the AO for initiating re- assessment proceedings and it reads as follow: “The assessment was completed on 30. 12. 2009 u/s. 143 (3)r.w.s. 153B of the IT Act determining total income of Rs. 16, 26, 72, 050/-. Perusal of the record reveals that in the Tax Audit Report, the auditor has reported in clause 22 (i) (B) that Leave Encashment of Rs. 21,77,393/-is unpaid during the financial year 2007-08.These expenses are not an allowable expense u/s. 43B of the I.T.Act if not actually paid during the relevant year. Neither the assessee in the competition of income filed during the course of proceedings disallowed these expenses nor had the AO observed to disallow the same while passing Assessment Order u/s. 143 (3) read with section 153 B of the IT Act and has thus resulted in under assessment of 2 3818/M/16-Pampac Machines P.Ltd. income of Rs. 21, 77, 393/-. The assessee has failed to disclose fully and truly all material facts necessary for his assessment of this income in the return filed u/s. 139 and in response to notice u/s. 142 (1) of the Act in course of the scrutiny proceedings. This has resulted in under assessment of income of Rs. 21, 77, 393/-.” A perusal of the notice reveal that it is a case where the original assessment was completed u/s.143 (3) r.w.s.153 A,that reopening was done after a period of four years,that the basis for issuing notice u/s.148 was non-payment of leave encashment amount,that an entry in the Tax Audit Report was the reason for initiating the reassessment proceedings.Now,if fact of filing of Tax Audit Report i see s taken into consideration(Pg.134 of the PB),it becomes clear that necessary details were made available to the AO,during original assessment proceedings. In its letter,dated 16/10/2009,filed in response to the questionnaire issued by the AO on 15/10/ 2008, the assessee had mentioned as under: “With reference to the above,we submit ….. 3.Details of expenses debited under the head Profit and Loss account are produced for verification i.e. groupings as Annexure 2. 4.Copy of Return of Income filed,Audited Accounts,Tax Audit Report and required annexures are enclosed as Annexure 3A.” As the Tax Audit Report was available to the AO during assessment proceedings,so,the observation made,that the assessee had not filed necessary details,is factually incorrect. Considering the above,we are of the opinion that no new tangible material was relied upon by the AO for issuing notice u/s.148 of the Act.In other words,same material was used to initiate the reassessment proceedings.Thus,it is a case of mere change of opinion.We would like to rely upon the judgment of the Hon’ble Apex Court delivered in the case of Kelvinator India (320 ITR 561).In that matter the Court had held as under: “The concept of “change of opinion” on the part of the Assessing Officer to reopen an assessment does not stand obliterated after the substitution of section 147 of the Income-tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion.The concept of “change of opinion” must be treated as an in-built test to check the abuse of power. Hence after April 1, 1989, the Assessing Officer has power to reopen an assessment, provided there is “tangible material” to come to the conclusion that there was escapement of income from assessment. Reason must have a link with the formation of the belief.” The AO has not proved as to how there was a mistake on part of the assessee in not disclos - ing fully and truly all the necessary facts that led to escapement of income.We would also like to mention that section 43B(f) would apply only to those cases where an employer would be any amount to an employee out of leave salary standing to credit of employees.In the case under consideration provision was made on the basis of actuarial valuation. Therefore,the 3818/M/16-Pampac Machines P.Ltd. provision for leave encashment would not fall under the preview of clause(f)to section 43 B of the Act. 4.1.Here,we would also like to refer to the case of Calcutta Chromotype Ltd.(supra).In that matter the AO had issued a notice to the assessee u/s.148 of the Act on the ground that the profits on sale of machineries were not disclosed by the assessee.The assessee filed a writ petition challenging the notice on the ground that there was no omission or failure to disclose that item in the course of the original assessment because in the balance-sheet which was submitted as a part of their return for the relevant year, there was not only an entry showing on the liabilities side under the head "Machinery sales suspense" an amount of Rs. 2,17, 214.50 but also in that balance-sheet there was a note in these terms: "Machinery sales suspense Rs. 2,17,214.50.It was further argued that the disputed amount represented the sale proceeds of certain old machineries,that the original cost of the machineries was not available at the moment and, therefore, the profit or loss on the sale amount could not be ascertained for the present,that the management preferred not to show the amount as a deduction from the value of the relative assets, until the said profit or loss was ascertained, and below that note on the auditor's report to the shareholders in that balance-sheet,that balance-sheet and the trading and profit and loss account were in agreement with the books of accounts,that during the original assessment proceedings,as desired by the AO,a representa - tive of the company gave a list of the machineries which were sold during the relevant previous year and the officer duly considered the accounts and the statements which were produced in the course of the assessment proceedings.Deciding the matter Hon’ble High Court held as under: “…..the learned trial judge rightly negatived the contention on behalf of the revenue based on the Explanation to section 147 of the Act that production before the Income-tax Officer of account books and other evidence from which material evidence could with the diligence have been discovered by the officer will not necessarily amount to disclosure within the meaning of section 147. As held by the learned judge, Explanation 2 to section 147 was confined to cases of books of account and other evidence which are produced in the course of assessment proceedings; but the balance-sheet had to be filed along with the return by virtue of the provisions of rule 19 framed under the Indian Income-tax Act, 1922, and that makes the balance-sheet so filed, part of the return itself. In the present case, even if the balance-sheet was viewed as no more than a statement of accounts or evidence, even then the note that had been appended in the balance-sheet concerning that particular entry which the auditors in their report had certified to be in accordance with the books of account by itself would by much more than mere books of account and a disclosure of the state of things to the further knowledge of the assessee-company. Moreover, during the assessment proceedings, as desired by the Income-tax Officer, a detailed list of the old machinery sold was produced. That detailed list, taken with what appeared in the balance-sheet both in the entry and in the note appended, were enough to show that the assessee-company had done their duty to disclose all material facts within their knowledge, and the officer had formed his own opinion as to how to act on those materials. A person cannot be said to have omitted or failed to 4