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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & DR. DIPAK P. RIPOTE
आदेश / ORDER PER RAVISH SOOD, JM:
The present appeal filed by the revenue is directed against the order passed by the CIT(Appeal)-1, Raipur, dated 13.12.2017, which in turn arises from the order passed by the A.O u/s. 147 r.w.s.143(3) of the Income- tax Act, 1961 (for short ‘Act’), dated 07.12.2016 for A.Y. 2009-10. Also, the assessee is before us as a cross-objector for the aforementioned year. The revenue has assailed the impugned order on the following grounds of appeal before us:
“1. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs.1,01,31,311/- made by the AO on account of difference in closing stock in balance sheet and Profit & Loss A/c.?" 2. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in holding that since the re-opening was done on the basis of change of opinion by the AO, thereby quashing the reopening proceedings u/s.147 of the I. T. Act?" 3. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) has erred in giving a finding that the material available on the record cannot be used for the reopening of the assessment, thereby ignoring the ratio of the decision of the Hon'ble Supreme Court in the case of M/s Kalyanji Mavji & Co. vs CIT(SC) 102 ITR 287, wherein it has been held that reassessment is permissible on the basis of the material already available on record and the information need not be from external source?" 4. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) has erred in ignoring the ratio of the decision of the Apex Court in the case of CIT vs P.V.S. Beedies Pvt. Ltd. (SC) 237 ITR 13 where in the Hon'ble Apex Court has held that "the reopening of the assessment on the basis of error pointed out by the Audit Parties valid?"
3 DCIT, Circle-3(1) Vs. M/s. Sankalp Realities CO No.01/RPR/2018
5. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in accepting the fresh evidence produced by the assessee, if any, without allowing the AO, proper opportunity to examine the same, thereby violating the provision on law under Rule 46A of I T Rules?" 6. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) has erred by giving a finding which in contrary to the evidence on record, as the Id CIT(A) has accepted the submission of the assessee which is factually incorrect, thereby rendering the decision, which is perverse?". 7. The order of the Ld. CIT(A) is erroneous both in law and on facts. 8. Any other ground that may be adduced at the time of hearing.”
On the other hand the assessee as a cross-objector has raised the following grounds:
“1. Ld. CIT(A) erred in not adjudicating upon ground no. 3 raised by the appellant before him, regarding validity of reassessment proceedings in absence of any finding recorded in the reasons about the failure on the part of appellant. The initiation of reassessment is without jurisdiction and is illegal.
2. Ld. CIT(A) erred in not adjudicating upon ground no. 4 raised by the appellant before him, regarding violation of mandatory requirement of law. The reassessment order passed by the AO is illegal inasmuch as it has been passed without disposing objections of appellant and the order is a non-speaking order.”
2. Original assessment was framed by the A.O vide his order passed u/s.143(3) of the Act, dated 15.12.2011 determining the income of the assessee firm at Rs.16,74,920/-.
Observing that though the assessee in “Schedule G” of its Balance sheet for the year under consideration had shown closing stock of land,
4 DCIT, Circle-3(1) Vs. M/s. Sankalp Realities CO No.01/RPR/2018 material and work-in-progress (WIP) of Rs.2,50,94,403/-, but had in its profit & loss a/c only disclosed closing stock of land of Rs.1,49,63,092/-, the A.O holding a conviction that the assessee had by short accounting its closing stock in the profit & loss a/c by an amount of Rs.1,01,31,311/- had suppressed its income to the said extent, reopened its case u/s.147 of the Act. Notice u/s.148 of the Act dated 31.03.2016 was issued to the assessee. In compliance, it was submitted by the assessee that its original return of income filed on 30.09.2009 may be treated as a return filed in compliance to the notice issued u/s.148 of the Act. Thereafter, the A.O at the request of the assessee made available to it a copy of the “reasons to believe” on the basis of which its case was reopened by him u/s.147 of the Act. Objections raised by the assessee as regards the validity of the jurisdiction that was assumed by the A.O for reopening of its concluded assessment were thereafter disposed off by the A.O on the basis of a speaking order.
During the course of the assessment proceedings, the A.O called upon the assessee to put forth an explanation as regards the short accounting of the closing stock by an amount of Rs.1,01,31,311/- (supra) in its profit and loss account for the year under consideration. In reply, it was the claim of the assessee that the aforesaid issue had been looked into by the A.O in the course of the original assessment proceedings and was accepted by him after considering the explanation of the assessee. On merits, it was the claim of the assessee that the impugned discrepancy was for two fold reasons, viz.
5 DCIT, Circle-3(1) Vs. M/s. Sankalp Realities CO No.01/RPR/2018 (i). that as the value of the land of the project i.e, “Aishwarya Residency” was not debited to the profit & loss account, therefore, it was not required to be credited to the same while account for the closing stock; and (ii) that as the various costs incurred in construction were debited to the WIP account and not to the profit & loss account, therefore, the WIP cost including construction material was not required to be credited in the same. However, the A.O not finding favor with the explanation of the assessee held the under valuation of closing stock of Rs.1,01,31,311/- (supra) as an unexplained investment of the assessee firm u/s.69 of the Act. Accordingly, the A.O vide his order passed u/s. 147 r.w.s. 143(3), dated 07.12.2016 assessed the income of the assessee firm at Rs.1,18,06,231/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). The assessee firm before the CIT(Appeals) assailed the impugned order both on the validity of the jurisdiction that was assumed by the A.O for reopening of its concluded assessment on the basis of a mere change of opinion; as well as submitted before him that no addition even otherwise on merits was called for in its hands. The assessee had submitted before the CIT(Appeals) the reasons leading to the difference in the value of closing stock as was disclosed in the balance sheet as against that shown in the profit & loss account. It was the claim of the assessee that as the stock of land at Telibandha, Aishwarya Residency and construction material (WIP) as a matter of regular practice were not routed through the profit &
6 DCIT, Circle-3(1) Vs. M/s. Sankalp Realities CO No.01/RPR/2018 loss account, and were carried/brought forward as a balance sheet item, therefore, the value of closing stock of such items was not required to be credited to the profit & loss account. It was submitted by the assessee that the amount that was transferred from WIP account to the profit & loss account and formed part of the cost of sale was duly credited by it in the closing stock. Alternatively, it was the claim of the assessee that as the respective investments in question were duly recorded in its books of account, therefore, no addition could have validly been made by the A.O u/s.69 of the Act. It was further the claim of the assessee that the A.O in the original assessment proceedings which had culminated into an order passed u/s. 143(3) dated 15.12.2011, vide a specific query No.18 of letter dated 05.09.2011 had called upon the assessee to explain the difference between amount of closing stock as was shown in the profit & loss account as against that appearing in its balance sheet. It was submitted by the Ld. AR that the assessee firm had thereafter, vide its letter dated 17.10.2011 duly explained to the A.O the reasons for the impugned discrepancy, and the same after necessary deliberations was accepted by him. The CIT(Appeals) finding favor with the contentions that were advanced by the assessee, both as regards the challenge thrown by him qua the validity of the jurisdiction that was assumed by the A.O for reopening of its concluded assessment on the basis of a mere “change of opinion”, as well as impliedly subscribed to his claim that now when certain items of balance sheet, viz.
7 DCIT, Circle-3(1) Vs. M/s. Sankalp Realities CO No.01/RPR/2018 (i) land at Telibandha : Rs.29,67,024/-; (ii) WIP Rs.63,14,287/-; and (iii) raw material Rs.8,50,000/- totaling to Rs.1,01,31,331 had not been posted either in the opening stock or in the closing stock of its profit & loss account, thus, the impugned variance was duly reconciled by the assessee. Considering the fact that the issue had been examined in detail by the A.O while framing the assessment u/s.143(3) dated 15.12.2011, the CIT(Appeals) was of the view that there was no justification on the part of the A.O to reopen the concluded assessment merely on the basis of a “change of opinion” on an issue which had specifically been queried and accepted by his predecessor in the course of regular assessment.
The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.
Admittedly, it is a matter of fact borne from record that the original assessment in the case of the assessee was framed by the A.O vide his order passed u/s.143(3) dated 15.12.2011, determining its income at Rs.16,74,920/-. As stated by the Ld. AR, and, rightly so, we find from a perusal of the records, that the A.O while framing of the original assessment
8 DCIT, Circle-3(1) Vs. M/s. Sankalp Realities CO No.01/RPR/2018 had vide his query letter dated 05.09.2011 at Query No.18 called upon the assessee to explain the difference between the amount of closing stock as was shown in the profit & loss account as against that appearing in its balance sheet, Page 16-17 of APB. In reply, the assessee had come forth with its explanation vide letter dated 17.10.2011, wherein it had duly explained the reasons for the difference in the value of closing stock as was shown in the profit & loss account as against that disclosed in the balance sheet, as under: “1. Various costs incurred during construction are debited to WIP. On the basis of the area sold during the year, appropriate cost as explained in para no. 8 of our letter dt. 13.10.2011 is transferred to Profit & Loss Account and the balance amount is carried forward as WIP (construction part). We are producing herewith the books of account.
Apart from the above, the land is valued at cost of purchase. The difference between the value of closing stock shown in Balance Sheet & the Profit & Loss Account (Rs.1,01,31,311/-) is on account of the fact that the value of WIP (Rs. 63,14,287/-), closing stock of material (Rs.8,50,000/-) and the value of land of Aishwarya Residency (Rs.29,67,024/-) is not appearing in the Profit & Loss Account. As explained earlier various cost incurred in construction are debited to WIP account and not to Profit & Loss Account. The cost is thus booked separately. Due to this, the closing WIP and the value of closing stock of material is not required to be credited to Profit & Loss Account. In the same way, the value of land of Aishwarya Residency (Rs. 29,67,024/-) is also not debited to Profit & Loss Account and therefore, its value is not required to be credited to Profit & Loss Account. The difference is tabulated below :- Closing stock as per Profit & Loss Account 1,49,63,072/- Land of Aishwarya Residency 29,67,024/- Closing stock of material 8,50,000/- WIP 63,14,287/- 1,01,31,311/- 2,50,94,403/-"
9 DCIT, Circle-3(1) Vs. M/s. Sankalp Realities CO No.01/RPR/2018 On a perusal of the aforesaid reply of the assessee as was filed in the course of the original assessment proceedings, it transpires that it was the claim of the assessee that the various costs which were incurred were debited to WIP, and, out of the same, appropriate costs considering the area sold during the year were on a pro-rata basis transferred to the profit & loss account, while for the balance amount was carried forward as WIP (construction part). Apropos, the difference in the value of land, it was submitted by the assessee that as the land of its project, viz. “Aishwarya Residency” of Rs.29.67 lac was not debited to the profit & loss account, therefore, for the said reason it was not required to be credited in the closing stock disclosed in the profit & loss account.
Ostensibly, the A.O while framing of the original assessment had, inter alia, vide his query letter dated 05.09.2018 specifically queried on the aforesaid issue, i.e., difference in the value of “closing stock” as was disclosed in the balance sheet, as against that shown in the profit & loss account, Page 16-17 of APB. As observed by us hereinabove, the assessee had duly replied to the aforesaid issue vide its letter dated 17.10.2011. Considering the aforesaid facts, we are of the considered view that the issue in hand was queried by the A.O in the course of original assessment proceedings, and was accepted by him after duly considering the reply that was filed by the assessee before him. In the backdrop of the aforesaid facts,
10 DCIT, Circle-3(1) Vs. M/s. Sankalp Realities CO No.01/RPR/2018 we are inclined to concur with the claim of the Ld. AR, that the concluded assessment of the assessee was reopened by the A.O not on the basis of any fresh material coming to his notice after culmination of the original assessment, but on the basis of a mere “change of opinion” on the same set of facts as were available before his predecessor at the time of framing of the original assessment, which, is not permissible in the eyes of law. Our aforesaid conviction is fortified by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India (2010) 320 ITR 561 (SC). The Hon’ble Apex Court in its aforesaid order, had held, that the case of an assessee cannot be reopened on the basis of a mere “change of opinion” by observing as under:-
"On going through the changes, quoted above, made to s. 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in s. 147 of the Act (w.e.f. 1st April, 1989), they are given a go by and only one condition has remained, viz., that where the AO has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to A.Y. 2012- 13 M/s Medley Pharmaceuticals Ltd. Vs. DCIT-10(2)(2) give a schematic interpretation to the words "reason to believe" failing which, we are afraid, s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided
11 DCIT, Circle-3(1) Vs. M/s. Sankalp Realities CO No.01/RPR/2018 there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to s. 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in s. 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the AO. We quote hereinbelow the relevant portion of Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1], which reads as follows: " “7.2 Amendment made by the Amending Act, 1989, to re- introduce the expression „reason to believe‟ in s. 147.--A number of representations were received against the omission of the words „reason to believe‟ from s. 147 and their substitution by the „opinion‟ of the AO. It was pointed out that the meaning of the expression, „reason to believe‟ had been explained in a number of Court rulings in the past and was well settled and its omission from s. 147 would give arbitrary powers to the AO to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended s. 147 to reintroduce the expression „has reason to believe‟ in place of the words „for reasons to be recorded by him in writing, is of the opinion‟. Other provisions of the new s. 147, however, remain the same."
Apart from that, reliance is placed on the judgment of the Hon’ble High Court of Delhi in the case of Rasalika Trading & Investment CO. (P) Ltd. Vs. Deputy Commissioner of Income Tax & Anr. (2014) 365 ITR 447 (Del). It was observed by the Hon’ble High Court that in a case where notice u/s.148 is based upon stale information which was available at the time of the original assessment, and in fact appears to have been used by the A.O while completing the proceedings u/s.143(3) of the Act, then, reopening of the case cannot be sustained. Further, the Hon'ble High Court of Bombay in the case of Asteroids Trading & Investment P. Ltd. Vs. DCIT (2009) 308 ITR 190
12 DCIT, Circle-3(1) Vs. M/s. Sankalp Realities CO No.01/RPR/2018 (Bom), had held, that an A.O is precluded from assuming jurisdiction to initiate reassessment proceedings on the basis of a “change of opinion”, observing as under:
"8. Perusal of the record shows that the petitioner had made full disclosure necessary for claiming deduction under s. 80M. The AO after applying his mind to the relevant records had made a specific order allowing the deduction. A perusal of the record shows that now respondent No. 1 proposes to reopen the assessment because according to him deduction under s. 80M was wrongly allowed, and, therefore, he was of the opinion that the income has A.Y. 2012-13 M/s Medley Pharmaceuticals Ltd. Vs. DCIT-10(2)(2) escaped assessment. Though, in the notice respondent No. 1 has used the phrase "reason to believe", admittedly between the date of the order of assessment sought to be reopened and the date of forming of opinion by respondent No. 1, nothing new has happened and there is no change of law, no new material has come on record, no information has been received. It is merely a fresh application of mind by the same officer to the same set of facts. Thus, it is a case of mere change of opinion, which, in our opinion, does not provide jurisdiction to respondent No. 1 to initiate proceedings under s. 148 of the Act. It can now be taken as a settled law, because of a series of judgments of various High Courts and the Supreme Court, which have been referred to in the judgment of the Full Bench of the Delhi High Court in the case of Kelvinator of India Ltd. (supra) referred to above, that under s. 147 assessment cannot be reopened on a mere change of opinion."
Accordingly, on the basis of our aforesaid observations, we concur with the claim of the Ld. AR that the A.O had clearly exceeded his jurisdiction and reopened the concluded assessment of the assessee on the basis of a mere “change of opinion”, which is not permissible in the eyes of law. We, thus, on the basis of our aforesaid observations quash the reassessment framed by the A.O vide his order passed u/s. 147 r.w.s. 143(3), dated 07.12.2016 for want of valid assumption of jurisdiction on his part.
13 DCIT, Circle-3(1) Vs. M/s. Sankalp Realities CO No.01/RPR/2018
As we have upheld the order of the CIT(Appeals) who had quashed the order passed by the A.O u/s 147 r.w.s 143(3), dated 07.12.2016 for want of valid assumption of jurisdiction on his part, therefore, we refrain from adverting to and therein adjudicating the other contentions raised by the revenue, which, thus, are left open.
In the result, appeal of the revenue is dismissed in terms of our aforesaid observations.
CO No.01/RPR/2018 A.Y.2009-10 13. As the appeal filed by the revenue had been dismissed by us in terms of our aforesaid observations, therefore, the cross-objection filed by the assessee having been rendered as merely academic in nature is dismissed.
Resultantly, both the appeal filed by the revenue and cross objection of the assessee are dismissed in terms of our aforesaid observations.
Order pronounced in the open court 13th January, 2023.