D.C.I.T CIR - 7,KOLKATA., KOLKATA vs. M/S BCH ELECTRIC LTD( FORMERLY M/S BHARTIA INDUSTRIES LIMITED), KOLKATA

The assessee in the present case is a Company, which is engaged in the business of manufacturing and marketing of Control Gears, Motor Control Centres, Control Panels and enclosures, etc. The return of income for the year under consideration was filed by it on 28.10.2004 declaring total income of Rs.2,03,14,010/-. In the assessment originally completed under section 143(3) vide an order dated 28.12.2006, the total income of the assessee was determined by the Assessing Officer at Rs.2,12,08,683/-. Subsequently on scrutiny of records, it was noticed by the Assessing Officer that the deduction claimed by the assessee on account of provision for warranty expenses was wrongly allowed as provision was not an allowable expenditure. He was also of the view that the claim of the assessee for the loss of Rs.78,83,300/- pertaining to M/s. Bhartia International Limited, which was amalgamated with the assessee- company, was allowed to be wrongly set off for the year under consideration as the said amalgamating company was not engaged in the manufacturing business for three years or more and the requisite certificate in Form No. 62 as provided in Rule 9C was also not furnished by the assessee. According to the Assessing Officer, there was thus escapement of income of the assessee from the assessment and a notice under section 148 was issued by him in the month of March, 2011 reopening the assessment after recording the reasons. In compliance to the said notice, the return of income was filed by the assessee on 21.04.2011 declaring the same income of Rs.2,03,14,010/- as declared in the return originally filed on 28.10.2004. In the assessment completed

Against the order passed by the Assessing Officer under section 143(3)/147, an appeal was preferred by the assessee before the ld. CIT(Appeals) challenging the validity of the said assessment as well as disputing both the additions made therein by the Assessing Officer. After considering the submissions made by the assessee and perusing the relevant material on record, the ld. CIT(Appeals) did not find merit in the submission made by the assessee challenging the validity of the assessment made by the Assessing Officer under section 143(3)/147 and rejecting the same, he upheld the validity of the said assessment for the following reasons given in his impugned order:- “(i) After careful examination of the original assessment, it is noticed that the AO had not examined the matter and dealt with the issues under consideration, so there is no question of change of opinion.

The ld. CIT(Appeals), however, find merit in the submissions made by the assessee challenging both the additions made by the Assessing Officer in the assessment completed under section 143(3)/147 on account of disallowance of assessee’s claim for provision towards warranty expenses and set off of brought forward losses of amalgamating company

As the Cross Objection filed by the assessee raises a preliminary issue challenging the validity of the assessment made by the Assessing Officer under section 143(3)/147, we consider it appropriate to dispose of the same first.

Apropos this issue raised in the Cross Objection of the assessee challenging the validity of assessment made by the Assessing Officer under section 143(3) read with section 147, the ld. counsel for the assessee invited our attention to the copy of reasons recorded by the Assessing Officer as placed at page no. 31 of the paper book and pointed out that the assessment originally completed by the Assessing officer under section 143(3) was reopened by the Assessing Officer on the basis of the same records as were available while completing the assessment originally under section 143(3) of the Act. He contended that no new fact or new material had come to the possession of the Assessing Officer after completing the assessment originally under section 143(3), which formed the basis of reopening and thus the reopening of assessment by the Assessing Officer was clearly based on a mere change of opinion. As regards the observation made by the ld. CIT(Appeals) in his impugned order while upholding the validity of reopening that the relevant issues raised by the Assessing Officer in the reasons recorded were not examined by the Assessing Officer in the original assessment, the ld. counsel for the assessee invited our attention to the letter dated 17.11.2006 submitted by the assessee before the Assessing Officer during the course of original assessment proceedings, whereby the copies of audited accounts of the amalgamating company for the relevant three years were filed as per the requirement of the Assessing Officer. He also submitted that the regular books of account maintained by the assessee

The ld. D.R., on the other hand, strongly relied on the impugned order of the ld. CIT(Appeals) in support of the revenue’s case on this

We have considered the rival submissions and also perused the relevant material available on record. In order to appreciate the contention raised by the ld. counsel for the assessee in support of the assessee’s case on the preliminary issue raised in this case regarding the validity of reopening of assessment, it is relevant to refer to the reasons recorded by the Assessing Officer for reopening the assessment, which are as under:- “The return of income declaring a total income of Rs.2,03,14,010/- was filed on 28/10/2004. The assessment u/s. 143(3) of the I.T. Act was completed on 28/12/2006 at a total income of Rs.2,12,08,683/-. On scrutiny of records, it appears that the assessee debited the Profit & Loss Account by a sum of Rs.45,89,826/- towards 'Warranty Expenses' and the same was allowed at the time of assessment. In the Notes to the Profit & Loss Account, it was mentioned that it was a provision - 'Provision for Warrant Cost is made as a percentage of sales and is based on past experience / technical estimates". Since provision is not an allowable expenditure, the amount was required to added back in computation of income. Omission in this regard resulted in under assessment of income of Rs.45,89,836/-.

It is manifest from the reasons recorded by the Assessing Officer for reopening the assessment that the assessment originally completed under section 143(3) was reopened by the Assessing Officer on the basis of same records as was available before him while completing the original assessment under section 143(3) and there was no new material that had come to his possession on the basis of which the assessment was reopened by him. The ld. CIT(Appeals) in his impugned order and the ld. D.R. at the time of hearing before us have not disputed this position. They, however, have taken a stand that the issues raised in the reasons recorded by the Assessing Officer while reopening the assessment were not examined during the course of original assessment proceedings and, therefore, there was no question of expression of any opinion on the same and the question of change of opinion would not arise. However, as pointed out by the ld. counsel for the assessee, the relevant details relating to the amalgamating company were furnished by the assessee during the course of original assessment proceedings under letter dated 17.11.2006 as per the requirement of the Assessing Officer and the fact that these relevant details were specifically called by the Assessing Officer is sufficient to show that the issue relating to the assessee’s claim

In the case of CIT –vs.- Kelvinator of India Limited (supra), cited by the ld. counsel for the assessee, it was held by the Hon’ble Supreme Court that after the amendment made in section 147 w.e.f. 1.4.1989, 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 a mere change of opinion. It was held that the concept of “change of opinion” must be treated as an in-built test to check the abuse of power and hence the Assessing Officer even after the amendments made in the relevant provisions from April 1, 1989 has the power to reopen an assessment provided there is tangible material to come to the conclusion that there was escapement of income from the assessment.

In the case of Debashis Moulik –vs.- ACIT (supra), all information, documents and other records relating to the assessee for the relevant assessment year were placed before the Assessing Officer during the assessment proceedings under section 143(3) and the assessment completed under section 143(3) was sought to be reopened by the Assessing officer on the basis of new facts noticed from the same record and in these facts and circumstances of that case, it was held by the

As regards the other contention raised by the ld. counsel for the assessee while challenging the validity of reopening of assessment, it is observed that the first proviso to section 147 is very clear in this regard that where an assessment under section 143(3) has been made for the relevant assessment year, no action shall be taken by the Assessing Officer under section 147 after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year, inter alia, by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. In the present case, notice under section 148 was issued in the month of March, 2011, i.e. after the expiry of a period of four years from the end of the assessment year under consideration, i.e. A.Y. 2004-05. A perusal of the reasons recorded by the Assessing Officer, however, shows that no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment has been pointed out by the Assessing Officer, which resulted in escapement of any income of the assessee chargeable to tax from assessment as contemplated in the first proviso to section 147. In the case of General Motors India Pvt. Ltd. (supra) cited by the ld.

In the case of Titanor Components Limited (supra), the Assessing Officer had not recorded the failure on the part of the assesese to disclose fully and truly all material facts necessary for his assessment for the relevant year and, therefore, the notice issued by him under section 148 reopening the assessment was quashed by the Hon’ble Bombay High Court holding that the same was not sustainable in law.

Keeping in view the ratio laid down in the above judicial pronouncements, we hold that the reopening of assessment originally completed under section 143(3) by the Assessing Officer after the expiry of four years from the end of the assessment year under consideration without pointing out specifically in the reasons recorded that the income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment is bad in law and the assessment completed under section 143(3)/147 in pursuance thereof is liable to be cancelled on this ground also. We accordingly cancel the assessment made by the Assessing Officer under section 143(3)/147 holding the same as bad in law and allow the Cross Objection filed by the assessee.

Keeping in view the decision rendered above on the preliminary issue raised in the Cross Objection filed by the assessee cancelling the assessment made by the Assessing Officer under section 143(3)/147 holding the same to be invalid, both the issues raised in the appeal of the Revenue relating to the deletion by the ld. CIT(Appeals) of the additions made by the Assessing Officer in the said assessment have become infructuous. We, therefore, do not consider it necessary or expedient to adjudicate upon the same.

In the result, the appeal of the Revenue is dismissed, while the Cross Objection of the assessee is allowed. Order pronounced in the open Court on September 7th, 2016. Sd/- Sd/-