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Income Tax Appellate Tribunal, ‘B’BENCH, KOLKATA
Before: Shri P.M. Jagtap , & Shri S.S Vishwanethra Ravi,
SHRI S.S VISWANETHRA RAVI, JM
This appeal of the Revenue is arising out of the order of the CIT(A), Central-II, Kolkata in Appeal No. 201/CC-X/CIT(A)C-II/10-11 dated 25-02-2011 for the assessment year 2003-04 against the order of assessment framed u/s. 143(3)/147 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
In this appeal, the revenue has raised the following grounds of appeal:- 1. This in the facts and circumstances of the case, the Ld. CIT(A) has erred in annulling the re-assessment made u/ s. 143(3) j 147 dated 31.12.2010, by holding that the Assessing Officer has incorrectly issued the notice u/s 148 dated 31.03.2010 and that the notice was barred by limitation without appreciating that the notice as issued within six years and was not barred by limitation. 2. This in the facts and circumstances of the case and in law the Ld. CIT(A) has erred in annulling the re-assessment made vi]e, 143(3)/147 dated 18.12.2007, by holding that the A.O. has formed
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his belief on an incorrect assumption without appreciating the fact that in the Annexure 'E' of the tax audit report and profit & Loss account there were discrepancies with regard to consumption of raw material and therefore the assessee had failed to disclose fully and truly all material facts necessary for assessment. 3. That the present appeal is being filed for the reason that Revenue Audit Objection was accepted by the department and falls under the exceptional category of the Board's Instruction No. 3/2011 dated 09.02.2011 therefore issue is requested to be considered on merits of the case. 4. That the Department craves leave to add, modify or alter any of the ground(s) of appeal and j or adduce additional evidence at the time of hearing of the case. 3. Brief facts of the case are that the assessee is a pharmaceuticals manufacturing company and filed its return of income u/s. 139(1) of the Act showing total income of Rs.1,65,28,510 on 28-11-2003.The case was selected for scrutiny and notices were u/s. 143(2)/142(1) of the Act. The assessment u/s. 143(3) of the Act was completed on 23-11-2005 at Rs.1,71,57,901 by making addition of Rs.6,29,396/- being WBIPA received by the assessee and the said addition was deleted by the CIT(A) vide his order dated 05-05-2006. Therefore, the order u/s. 151/143(3) dated 05-05-2006 was passed reducing the income at Rs.1,65,28,510, which was confirmed by the ITAT, Kolkata ‘B ‘Bench Kolkata vide its order dated 05-09-2006. Thereafter, the AO issued notices u/s. 148 dated 31.03.2010 and 143(2) of the Act and served upon the assessee for re-opening of the assessment. The reason for reopening of the assessment is as under:- “It is seen from Annexure-E to the TAR that total Raw Materials consumed ( in quantity) was 33329.184 kg whereas 53621.121 kg(costing Rs.1,26,79,377/-) was debited to the Profit & Loss Accounts as Raw Materials consumed [ Bulk Drug (Active Ingredients ) ] a per Clause-5 of Schedule-19 (Notes on accounts) forming part of the balance Sheet as at 31.3.2003 and of the Profit & Loss Account for the year ended on 31.3.2003.
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Taking the average rate of cost of Raw Materials consumed from the said schedule-19 in absence of total cost or unit wise rate in the TAR, total cost of Raw Materials consumed a TAR comes to Rs.78,81,098/- as calculated below: 33329.184 X 1,26,79,377 = 78,81,098 53621.121 Thus, total Raw materials consumed as per TAR should be Rs.78,81,098/- whereas total consumption of Raw Materials of Rs.1,26,79,377/- had been debited to the Profit & Loss Account (Schedule 15 to the Profit & Loss Account). I, therefore, have reason to believe that income of the assessee has escaped assessment to the tune of Rs.47,98,279/- (Rs.1,26,79,377/- minus Rs.78,81,098/-) by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for the A.Y 2003-04. “
In response to such notice, the assessee filed a letter dated 28-04-2010 requesting the AO to treat the original return u/s. 139 as return filed in response to notice issued u/s. 148 of the Act. The assessee also objected to the re-opening of assessment vide its letter dated 19-11-2010. The Ld. AR of the assessee submitted another letter dated 14-12-2010 by producing books of accounts along with stores ledger, wherein raw material purchase and consumptions are recorded claiming the difference as found by the AO. Being not satisfied, the AO added the sum of Rs.47,98,279/- on a/c of discrepancy found in raw material usage/consumption
Aggrieved, the assessee went in appeal before the CIT(A). The assessee submitted that all the details regarding raw materials usage and consumption was submitted to the AO during the original assessment proceedings. Vide letter dated 21-10-2005 the assessee has mentioned the names and addresses of the suppliers and the amounts details therein regarding the purchase of raw materials to the AO. Further, the assessee submitted that the AO did not point
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out any discrepancy in the assessment proceedings and allowed the claim. Thus, such assessment cannot be reopened u/s. 147 by issuing notices unless the AO finds any new material against the assessee. Further, re-opening of assessment based on presumption is merely a change of opinion. The Ld.AR of the assessee has relied on various case laws in support of its contention. The CIT found that the assessee has neither incorrectly disclosed the details of raw materials purchase nor incorrectly disclosed the details of usage and consumption of raw materials. The CIT(A) after considering the submissions, however, passed order referring notice dated 31-3-2010 u/s. 148 of the Act is beyond limitation of period as prescribed u/s. 147 of the Act, thereby the re-assessment thereon was annulled by the CIT(A).
Aggrieved, the Revenue is in appeal before us by raising respective grounds of appeal, which have been mentioned herein above.
During the course of hearing before us the Ld.DR contended that re- opening of assessment u/s.147 is correct and justified. The AO has correctly issued the notice u/s.148 dated 31-03-2010 and the same is within limitation of period as contemplated u/s. 147 of the Act. Section 147 is a deeming section to initiate the re-assessment proceedings. All the clauses attached therein to section 147 are also relevant and applicable to the present facts of the case for re- opening of assessment and the CIT-A was not justified in annulling the same. He relied on the order of the AO in making addition in the re-assessment proceedings framed u/s.147 of the Act.
In reply, the Ld. Counsel for the assessee submitted that the TAR [Tax Audit report] in form no.3CD was produced before the AO and the same is
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placed at pages 53 to 60 of the assessee’s paper bookfor short as APE. He drew our attention to the depreciation schedule, which is also available at page 28 of the APB. Regarding pages 95 to 98 of the APE, wherein it was shown that the assessment for the A.Y 2005-06 was completed u/s. 147/143(3) of the Act and AO found no new material therein. Further, he argued that notice dated 31-03-2010 issued u/s. 148 is barred by limitation to initiate proceedings u/s. 147 of the Act. He relied on the impugned order of the CIT(A) in annulling the same and prayed before us to annul the re-assessment framed by the AO u/s.147 of the Act.
Heard the rival submissions and perused the material available on record. In this case the original assessment for the year under consideration i.e. AY 2003-04 was completed u/s. 143(3) of the Act and re-opening of the same by the AO vide notice issued u/s.148 on 31-03-2010 i.e within the period of six years from the end of the relevant assessment year is held to be invalid by the CIT(A) being barred by limitation by relying on 1st proviso to section 147 of the Act by holding there was no failure on the part of the assessee to disclose fully or truly all material facts for the assessment year under consideration. The time limit for issuance of notice u/s. 148 is prescribed in section 149 and as per clause (b) of section 149(1), notice u/s. 148 can be issued by the AO within the period of six years from the end of the relevant assessment year if the income chargeable to tax, which has escaped assessment amounts to or likely to amount Rs.1 lakh or more. As per the reasons recorded by the AO for re-opening of assessment, the income that has escaped assessment was quantified at Rs.47,98,279/- and, therefore, the provision of clause (b) of sub- section (1) 149 is applicable making the AO entitled to issue notice u/s. 148 within the period of six years from the end of the relevant assessment year.
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However, as per 1st proviso to section 147, where the assessment u/s. 143(3) has been made for the relevant assessment year, the AO is not entitled to take action u/s.148 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 by a reason of failure on the part of the assessee to make/file return u/s. 139 or in response to notice u/s.142(1)/148 or to disclose fully or truly all necessary facts for his assessment for that assessment year.
In the present case, the allegation made by the AO in the reasons recorded is that there was failure on the part of the assessee to disclose fully or truly all material facts necessary for the assessment for the year under consideration. This allegation of the AO was based on Annex-E to the Tax Audit report filed by the assessee along with the return where raw material consumption was shown at 33,329.184 kgs whereas the raw material consumption debited by the assessee to its P & L account was quantified as 53,621.121 kgs. As explained on behalf of the assessee before the CIT(A) as well as before us, the quantitative details given in the Annexure of Tax Audit report were only in respect of selected principal items and the same not being in respect of the entire raw materials consumed during the year under consideration, we agree with the view of the CIT(A) that there was no failure on the part of the assessee to disclose fully or truly all material facts necessary for the assessment for the year under consideration as alleged by the AO. It, therefore, follows that the time limit available for issuance of notice u/s. 148 as per 1st proviso to section 147 was only four years from the end of the relevant assessment year under consideration and the notice issued by the AO u/s. 148 beyond the period of four years was bad in law being
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barred by limitation as rightly held by the CIT(A). Consequently, the assessment completed u/s. 147 r.w.s 143(3) of the Act in pursuance of such notice issued u/s.148 of the Act is invalid and we find no infirmity in the impugned order of the CIT(A) in cancelling the same.
In the result, the appeal of the Revenue is dismissed. Order is pronounced in the open court on 31-05 /2016
Sd/- Sd/- P.M. Jagtap S.S Viswanethra Ravi Accountant member Judicial Member Dated :31/05 /2016
**PRADIP(Sr.P.S.) Copy of the order forwarded to: 1. Appellant- The DCIT,CC-X, Kolkata 18 Rabindra Sarani, Kol-1. 2 Respondent –M/s. Strassenburg Pharmaceuticals Ltd P-6 CIT Road, Kol-14. 3. The CIT(A) concerned 4. The CIT concerned 5. The D.R 6. Guard File
By order Asstt. Registrar True Copy,
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