DCIT 7(3), MUMBAI vs. VIP INDUSTRIES LTD, MUMBAI

The present appeal has been preferred by the Revenue against the order dated 20.05.2013 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2006-07.

The sole issue raised by the Revenue in this appeal is relating to the action of the Ld. CIT(A) in holding that the reopening of the assessment under section 115WG of the Income Tax Act by the Assessing Officer (hereinafter referred to as the AO) on the ground that the fringe benefits chargeable to tax for the year under consideration had escaped assessment during the assessment of fringe benefits under section 115WE(3) of the Act. The AO reopened the assessment under section 115WG read with section 115WH of the Act forming his reasons to believe that the fringe benefits liable to be taxed under the 2 M/s. VIP Industries Ltd. relevant provisions had escaped assessment for the year under consideration on the basis of the repot of the audit party. The AO, thereafter, recorded reasons that on perusal of record it has been found that under the head ‘Sale Prmotion’ as against the value of fringe benefit of Rs.17,71,808/-, the value taken was Rs.13,26,233/-. Similarly, under the head ‘Gift’ value of Rs.84,988/- was taken instead of Rs.24,44,368/-. He, therefore, was of the belief that there was underassessment on fringe benefit of Rs.28,04,945/-. He, therefore, held that it was a fit case of making reassessment under section 115WG of the Act by issuing notice under section 115WH of the Act.

We may mention here that the copy of the reasons recorded is placed at page 11 of the paper book. A perusal of the same reveals that the AO has not put any date on the said document and therefore the reasons recorded are undated. Further, a perusal of the assessment order decided by the AO under section 115WE(3) read with section 115WH of the Act reveals that it has been mentioned therein that the original assessment was completed under section 115WE(3) vide order dated 18.07.08. Subsequently, the notice under section 115WH of the Act was issued on 28.03.12 which was served on the assessee on 02.04.12. Hence, admittedly the reopening in this case was done after the expiry of 4 years from the end of the relevant assessment year. The Ld. CIT(A) vide impugned order has quashed the reassessment on the ground that it was a case of change of opinion by the AO. The Ld. CIT(A) has observed that in the original assessment proceedings under section 115WE(3), the AO considered schedule VI of the P&L Account and the details submitted during the course of the assessment which revealed that the AO had considered the assessee’s claim of treating the expenses other than declared in the Fringe Benefit Tax return as exempt. The AO had also made discussion in respect of assessee’s festival bonanza expenses and discount to employees. The Ld. CIT(A), after considering the overall facts and circumstances of the case, 3 M/s. VIP Industries Ltd. further observed that in this case the notice under section 115WH was issued after lapse of 4 years from the end of assessment year under consideration; That the assessee had also raised objections in this respect but the same were dismissed by the AO. The Ld. CIT(A) thereafter concluded that no fresh information or material was available before the AO upon the basis of which he could have reason to believe that the fringe benefits for the year in the case of assessee has escaped assessment. It was just change of opinion of the AO on the facts and evidences which were already before the AO during the original assessment proceedings and the AO had thoroughly examined the details submitted by the assessee. There was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Ld. CIT(A), therefore, held that since the reopening in this case was based merely on the basis of change of opinion, hence the same deserved to be quashed. He accordingly quashed the reopening of the assessment made by the AO under section 115WG read with section 115WH of the Act.

We have heard the rival contentions and have also gone through the records. The Ld. A.R. of the assessee has brought our attention to the original assessment order passed under section 115WE(3) dated 18.07.08. A perusal of the same reveals that all the details were furnished by the assessee before the AO during the original assessment proceedings. The AO has given a categorical observation that a perusal of schedule VI to P&L Account and the details submitted during the course of assessment it was seen that the assessee had treated the expenses other than declared in the Fringe Benefit Tax return as exempt. Thereafter, the AO has mentioned that the details of expenses were verified and then he proceeded to assess the fringe benefits under the different heads as detailed in the said assessment order dated 18.07.08. Hence, the AO had fully applied his mind to the details submitted and thereafter the fringe benefits were assessed. No new material has come into the knowledge of the 4 M/s. VIP Industries Ltd. AO on the basis of which he had got any reason to believe that the fringe benefits for the year had escaped assessment. Reopening merely on the basis of change of opinion or on the basis of certain audit report is not justified and hence is not sustainable in the eyes of law.

From the above findings, we do not find any infirmity in the order of the Ld. CIT(A) quashing the reopening in this case. There is no merit in the appeal of the Revenue and the same is accordingly dismissed.