JORD ENGINEERS (INDIA) LTD,MUMBAI vs. DCIT (OSD) 8(1), MUMBAI

We shall first take up the appeal filed by the assessee challenging the order passed by Ld CIT(A) in quantum assessment proceedings. The assessee is challenging the decision of Ld CIT(A) in refusing to condone the delay of 141 days in filing appeal before him and also in confirming the addition made by the AO.

The Ld A.R submitted that the impugned assessment was reopened by the AO after expiry of four years from the end of the assessment year. He submitted that the original assessment was completed u/s 143(3) of the Act. He submitted that assessee’s representative did not appear before the AO in the reopened proceedings and hence the assessment was completed by the AO to the best of his judgement u/s 144 r.w.s. 147 of the Act. The assessee could filed appeal before Ld CIT(A) after a delay of 141 days. Though the assessee showed sufficient cause in filing the appeal belatedly, the Ld CIT(A) was not convinced with the reasons furnished by the assessee for the delay and hence he has refused to condone the delay.

The Ld A.R submitted that though the assessee’s Head office is located in Mumbai, all the operations are being carried on from Vadodara. Hence the assessment order served at the Head office was forwarded by the ministerial staff to the then Executive Director Shri Anil Kumar Tayal, who was looking after day to day management of the company. Shri Anil Kumar Tayal had submitted his resignation letter dated 30.11.2010 and he was relieved from duty on 31.12.2010. Since the assessment order was kept by him in his custody and since he did not bring the same to the notice of management, the management was not aware of the assessment order passed by the AO till it received notice for penalty proceedings. Upon receipt of penalty notices, the management took necessary steps to locate the assessment order and engaged a new Counsel to pursue this matter. Accordingly the new C.A took steps to file the appeal before Ld CIT(A) and the same has resulted in a delay of 141 days.

The Ld A.R submitted that the above said reasons were not convincing to Ld CIT(A) and hence he refused to condone the delay. However, the Ld CIT(A) also proceeded to dispose of the ground challenging the validity of reopening of assessment as well as the ground relating to the merits of addition. He submitted that the Ld CIT(A) decided both the grounds against the assessee.

The Ld A.R submitted that the assessee had shown sufficient cause in not filing the appeal in time and hence the Ld CIT(A) was not justified in refusing to condone the delay. He submitted that the expression “sufficient cause” should receive liberal construction and in the interest of justice, the Ld CIT(A) should have condoned the delay. The Ld A.R placed his reliance on the following case law in support of his contentions:-

The Ld D.R, on the contrary, strongly supported the decision of Ld CIT(A) in refusing to condone the delay. He submitted that the assessee did not appear before the AO and hence he was constrained to pass the assessment order to the best of his judgement. He further submitted that the reasons given by the assessee are self serving and are not supported by any document. He further submitted that Hon’ble Supreme Court, in the case of Esha Bhattacharjee Vs. Managing Committee of Raghunathpur Nafar Academy and others (Civil appeal Nos.8183 – 8184 of 2013 dated 13-09-2013), has extracted in paragraph 13 of its order, the following observation made in the case of Maniben Devraj Shah Vs. Municipal corporation of Brihan Mumbai:-

In the rejoinder, the Ld A.R submitted that the delay related to the filing of appeal before Ld CIT(A) and hence non-appearance of the assessee before the AO during the course of assessment proceedings is not relevant. He submitted that the Hon’ble Supreme Court was concerned with the delay of 2449 days (about 7 years) in the case of Esha Battacharjeee (supra). He submitted that the Hon’ble Supreme Court was also concerned with the delay of 7 years in the case of Maniben Devraj Shah (supra). He submitted that the Hon’ble Supreme Court has noted, in paragraph 12 of the order passed in the case of Esha Battacharjee (supra), the following observations made in the case of Balwant Singh (dead) V. Jagdish Singh and others :-

The Ld A.R further submitted that the reasons furnished by the assessee for the delay in filing appeal before ld CIT(A) are real facts, which were not be concocted. He further submitted that the delay was 141 days and not running into several years. He further submitted that various principles summarized by the Hon’ble Supreme Court ultimately

We have heard rival contentions on this preliminary issue and perused the record. We notice that the reasons cited by the assessee for the delay need to be examined while examining the petition to condone the delay in filing appeals. If there is sufficient cause for the delay, then the courts may condone the delay and if no such sufficient cause is shown, then the delay would not be condoned. Further a distinction has to be drawn between a case where there is inordinate delay and where the delay is for few days. If the appellant is negligent or if the explanations are not bona fide, then the delay is not normally condoned. Though a liberal approach is normally followed in the matter of condonation of delay, yet the concept of liberal approach has to encapsule the conception of reasonableness and it cannot be allowed a totally unfettered free play.

In the instant case, the explanation of the assessee is that the assessment order was received at its Head office and the same was forwarded to the Executive Director located in Vadodara. The said Executive Director had given notice for resignation and in that process omitted to bring the assessment order to the notice of management. Only when the management received the notice for penalty proceedings, it came to know about the assessment order and then they searched for the assessment order and took steps to file the appeal through another Chartered Accountant. It is the case of the assessee that the authorized representative, who was originally authorized to appear before the AO, has failed to appear in the assessment proceedings and the same has resulted in passing of ex-parte order u/s 144 of the Act. It is also

On a careful consideration of the reasons cited by the assessee, we are of the view that the same cannot be considered to be a concocted story or the explanation can be taken as unreasonable one. The fact that the main operations of the assessee are carried out at Vadodara and the fact that the assessment order has been served to the Head office located at Mumbai are not disputed. It is stated that the clerical staff who received the order has forwarded the same to the then Executive Director and it is stated that the said Executive Director has submitted resignation letter at that point of time. Hence it is quite possible that the said Executive Director could not have passed on the assessment order to the management. Since the AO has passed the assessment order to the best of his judgement, it is possible that the management could not have also visualized the passing of assessment order. Only when the assessee received the penalty notice u/s 271(1)(c) of the Act, the assessee got alerted and it has taken steps to file the appeal through another Chartered Accountant. In this process, a delay of 141 days has occurred. Hence we are of the view that there was sufficient cause for the assessee in not filing the appeal in time before the Ld CIT(A). Accordingly we are of the view that the Ld CIT(A) was not justified in condoning the delay. Accordingly we set aside the order passed by Ld CIT(A) on this limitation issue.

The action of the Ld CIT(A) in not condoning the delay may be set aside on one more reason. We have noticed that the Ld CIT(A) has disposed of the grounds urged on validity of reopening of assessment and also on merits. Normally the necessity of disposing of the grounds relating to legal issues and merits shall arise only upon admission of the

We shall now take up the issue of validity of reopening of assessment. The original assessment for the year under consideration was completed by the AO u/s 143(3) of the Act on 24.03.2006. Subsequently the AO has reopened the assessment by issuing notice u/s 148 of the Act on 19-03-2010. Admittedly the assessment has been reopened after expiry of four years from the end of the assessment year, i.e., AY 2003-04. The assessing officer has reopened the assessment on the reasoning that the assessee has claimed a loss of Rs.2871.56 lakhs, being decrease in the value of stock, i.e., the opening and closing stock

The contention of the assessee is that the assessee has fully disclosed the facts relating to valuation in the original assessment proceedings. Placing reliance on the first proviso to sec. 147 of the Act, the Ld A.R submitted that the assessing officer is entitled to reopen the assessment after expiry of four years from the end of the assessment year only if there is failure on the part of the assessee to disclose fully and truly all material facts relating to computation of income. He submitted that the assessee was constrained to change the method of valuation of stock after the revised Accounting Standard-2 became mandatory. The semi finished goods were hither to valued at cost and the said fact was reported in the Annual report relating to AY 2002-03. The change in the valuation was also duly disclosed in the Annual report relating to AY 2003-04. The Ld A.R further submitted that the details of change were also communicated to the AO through a letter dated 02-01- 2006 filed in the original assessment proceedings before the AO. Copy of the letter filed before the AO is placed on record at page 46-47 of the paper book. The AO has completed the original assessment accepting the explanations of the assessee without making any addition. Accordingly Ld A.R submitted that the assessee has disclosed all the facts material to computation of income fully and truly. He submitted that the AO did not state in the reasons for reopening that there was failure on the part of the assessee. Hence the AO has reopened the assessment on mere change of opinion and hence the reopening has to be held as bad in law. The Ld A.R also placed reliance on the decision given by Hon’ble Bombay High Court in the case of Asian Paints Ltd Vs. DCIT (2009)(308 ITR 195).

We have heard rival contentions on this legal issue and perused the record. We notice that the impugned claim relating to loss on valuation of stock was related to “Semi finished goods”. The assessee has submitted before the Ld CIT(A) that the products manufactured as per the requirement of a customer would continue to be treated as “Semi finished goods” till it is billed to the customer. Hence in the books of account, the assessee continued to treat the goods as “Semi finished goods” and the value has also been reduced from Semi finished goods only.

The assessee has further stated that the revised Accounting standard -2 became mandatory from AY 2003-04 and hence it had to revise its valuation policy of semi-finished goods, i.e., from the policy of valuing it “at cost” to the policy of valuing it “at cost or market value whichever is less”. We notice that the assessee has reported its original valuation policy in the Annual report relating to AY 2002-03 and the revised policy in the Annual report relating to AY 2003-04. The assessee has reduced the valuation of semi-finished goods by passing an accounting entry, i.e., by crediting the Stock and debiting the loss as “material consumption”. We further notice that the assessee has also

We notice that the assessing officer has reopened the assessment after the expiry of four years from the end of the assessment year. We have noticed that the original assessment was completed by the AO u/s 143(3) of the Act. The reasons for reopening has been extracted in the assessment order passed u/s 143(3) r.w.s. 148 of the Act. In the reasons, the AO recognizes the fact that the assessee has changed the method of valuation of stock in terms of revised Accounting Standard-2. He also recognizes the fact that the change in the method of valuation has resulted in reduction of profit by Rs.2871.55 lakhs. We have noticed that all these details were already available before the AO in the course of original assessment proceedings. Further, the AO, no where states that there was failure on the part of the assessee to disclose fully and truly all the facts material to the computation of income, which is a primary condition to be satisfied for reopening of assessment after expiry of four years from the end of the assessment year, if the original assessment has been completed u/s 143(3) of the Act. This is so stated in the first proviso to sec. 147 of the Act.

The Ld D.R pointed out certain discrepancies in the quantity details given in the Tax audit report. In our view, the facts available in the books of account would prevail over the tax audit report. Further the AO has not considered the tax audit reports while reopening the assessment.

We shall now take up the appeal filed by the assessee against the penalty order passed u/s 271(1)(c) of the Act. Since the original assessment order has been set aside, the impugned penalty order would not survive in the eyes of law. Accordingly we set the orders passed by Ld CIT(A) and the AO.

In the result, both the appeals filed by the assessee are allowed.