DCIT, CIR-9(1), KOLKATA, KOLKATA vs. M/S LUMBINI BEVERAGES PVT. LTD., KOLKATA

After hearing rival contentions, perusing the papers on record and orders of the authorities below as well as the case-law cited, we hold as follows:- 3. In this case, the assessee filed its return of income on 01/12/2003, declaring loss of Rs.18,31,717/-. This was processed u/s 143(1) of the Act, on 12/02/2004. Later an assessment order u/s 143(3) of the Act was passed on 30th March, 2006, determining total loss at Rs.14,05,994/-. The assessee carried the matter in appeal before the ld. First Appellate Authority. Meanwhile, the assessments were re-opened u/s 147 by issuing notice u/s 148 of the Act. The Assessing Officer at page 1 of his order has brought out the grounds for issue of notice u/s 148 of the Act, which is extracted for ready reference:- "Company had claimed expenditure of Rs. 50,01,497/- during the previous year. Assessee was asked to explain nature of expenditure. As per explanation submitted by the assessee, expenses are revenue in nature. However on careful examination of ledger copy submitted by the assessee of expenses, fixed assets and depreciation chart, it was found that assessee was charging breakage relating to bottles, a "CAPITL ITEM', in revenue. Breakage in bottles may have arose at the time of handling or a t the time of purchase of new bottles. Assessee systematically transferred value of bottles to leakage & breakage ledger and claimed it as revenue item. Total item transferred was Rs.50,01,497/-. What it implies that for a similar expenditure, part expenses were claimed as depreciation and part as Leakage & Breakage. It was well settled in the case of CIT v. Vallabh Glass Works Ltd. [1982J 137 ITR 389 (GUJ.), expenditure of identical nature cannot be regarded as revenue expenditure for one purpose and capital expenditure for another. Assessee should had claimed it either fully under depreciation or under leakage & breakage. Moreover, depreciation @50% has been provided under Income-tax Act, to negate the effect of high rate of breakage of bottles. Therefore, Rs.50,01,497/- cannot be allowed as deduction on the ground of capital nature. Hence disallowed.”

The assessee objected as follows:- “1) That the company has been following a consistent basis of debiting the Profit & Loss Account with an expenses of breakages of glass bottles & plastic crates which occur at the production & sale point. The breakages has been considered a t a consistent rate of meager 1 % of units at each point for glass bottles & meager 0.5% of units for PVC Crates at each point.

The Assessing Officer rejected the contentions of the assessee and made a disallowance under the head “Leakage & breakage”. Aggrieved, the assessee carried the matter in appeal. The ld. First Appellate Authority, held that the re- opening is bad in law, for the following reasons:- a) There is no evidence that the reasons for re-opening were provided to the assessee and hence the re-opening is bad in law. b) This issue of leakages & breakages was considered during the original assessment proceedings and an amount of Rs.1 Lakh/- was disallowed in the order passed u/s 143(3) of the Act, on 30/03/2006. There is no new material that has come into possession of the Assessing Officer warranting the re- opening. The case-law i.e. CIT vs. Vallabh Glass Works Ltd. [1982] 137 ITR 389 (Guj.), relied upon by the Assessing Officer was an old case-law and was in existence when an order was passed u/s 143 on 30/03/2006. Hence the re- opening was made on a change of opinion. c) The Assessing Officer has failed to justify the re-opening of the assessment.

We find no infirmity in the order of the ld. First Appellate Authority. This is a clear case of change in opinion in the original assessment proceedings. This issue was considered and a disallowance of Rs. 1 Lakh/- was made. The reasons for re-opening are based on this very issue. This is nothing but a change of opinion. The Assessing Officer has not right to review his own order. Moreover, the appeal against the original assessment order was pending before the ld. CIT(A). The re-opening was made without any new material. Under these circumstances, we follow the propositions of law laid down in the following case-law and uphold the order of the ld. CIT(A) that the re-opening of assessment is bad in law.