TaxTMI 
TaxTMI 
2011 (10) TMI 485
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.... addition. Levy of interest under section 234D was also assailed. Ld. CIT (Appeals) confirmed the Assessing Officer's in regard to initiation of reassessment proceedings as well as on merits of addition. However, he deleted the interest levied under section 234D on refund given to assessee. Being aggrieved with the order of ld. CIT (Appeals), both assessee and department are in appeal before us. First we take up the assessee's appeals. ITA No. 260/Kol./2010 (Assessment Year : 2001-02) 3. Grounds No. 1 and 2 for assessment year 2001-02 read as under :- 1.(a) That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) erred in confirming the proceedings initiated by the Assessing Officer u/s 147 of the Act after four years from the end of the relevant assessment year, when the assessment of the appellant had been completed u/s 143(3) of the Act and there was no failure on the part of the appellant to disclose truly and fully all the material facts required for the assessment of the relevant assessment year. (b) That the Ld. CIT (Appeals) failed to appreciate the contention of the appellant that the reassessment proceedings had been initiated on a point w....
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....ngs, a complete note was furnished to the Assessing Officer on this aspect and after considering the same he did not make any addition on this issue. Ld. CIT (Appeals), however, did not accept the assessee's contention for the following reasons :- (i) In the computation of income and also in the explanatory note submitted to the Assessing Officer about valuation of closing stock and treatment of excise duty the assessee had only explained what accounting treatment was given to the excise duty while valuing the closing stock. (ii) The fact that the excise duty on the stock lying in godowns and depots outside the factory had actually been paid was never intimated to the Assessing Officer either in the return of income or in the submissions made during the assessment proceedings. (iii) It was not made clear to the Assessing Officer that the excise duty related to the stock lying in factory premises had already been debited in the Profit & Loss A/c. (iv) It was not clarified that the deduction for the excise duty on closing stock lying at factory and godowns was being claimed twice. Accordingly, he held that assessee did not disclose all the mater....
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....that year. In view of the above, I have reason to believe that income chargeable to tax at least for Rs. 9,94,27,363/- (Rs. 8,40,45,799/- + Rs. 1,53,81,564/-) has escaped assessment and such escapement is attributable to the assessee for double deduction on account of Excise Duty". Notice u/s. 148 may be issued subject to kind approval of Addl. CIT, Kol.-I, Kolkata." Shri Bajoria pointed out that in the reasons recorded, the Assessing Officer has not pointed out to even a single fact, which was not disclosed by the assessee. He submitted that the assessee had filed the computation of income and tax payable thereon while filing its original return contained at page 2 of the paper book. He pointed out that in the computation itself, the assessee had made following two adjustments :- (i) Excise duty on duty paid stock as on 31.03.00 claimed as a deduction in AY 2000-01 on payment basis in view of section 43B, now offered to tax Rs. 87,128,885 (ii) Excise duty pertaining to goods manufactured during the financial year ending on 31.03.00, but not dispatched from the factory as 31.03.00 claimed in AY 2000-01 on payment basis under section 43B, now offered to tax ....
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....o. 2) 7.1 Shri Bajoria further referred to letter dated 12.01.2004 filed by the assessee at the time of proceedings under section 143(3) contained at pages 8 to 10 of the paper book and submitted that the assessee had duly explained the mode of inclusion of excise duty in the closing stock and the manner in which such deduction was claimed. He referred to page 13 of the paper book, wherein Annexure-'D' referred to in assessee's reply dated 12.01.2004 is contained which reads as under :- "The company had since the insertion of section 145A in the Income Tax Act, 1961 had accounted for the excise duty element in valuation of closing stock of finished goods. There are two types of closing stock of finished goods (a) goods which are dispatched to branches/godowns/warehouses and (b) lying in factory premises not dispatched. In the first instance the duty of goods dispatched is paid and included in the value of closing stock, i.e. in other words credited to the profit & loss account. Similar amount is also debited to the profit and loss account upon payment of the duty thereby neutralizing the impacts on profits. In the second case the principle of the liability is determined by th....
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....xure you will find that the amount actually paid is Rs. 1,53,69,569 and hence there is a short payment of Rs. l1,968.The said amount of Rs. 11,968/- is offered to tax. Since it is already certified by the tax auditor that the amount of Rs. 15,386,9569 has actually being paid over the period April 2002 till the date of filing of return such amount has rightly been claimed as a deduction. It is well established that a liability to be allowed in a year in which it arises and section 43B of the Act creates an exception to the general rule i.e. debitum in praesenti, solvendum de futuruo in the sense that the liability in respect of taxes will be allowed only if the amount has been paid before the filing of the return. There cannot be any doubt that the duty has not been paid. Moreover, in the immediately succeeding financial year ending 3lst March, 2000 the assessee had offered the excise duty paid on stock of finished goods as on 3lst March, 2000, to the tax return for the assessment year i.e. 2000-2001. This was done to avoid a double deduction, which the assessee had already claimed in the immediately preceding years. Such duty amounted to Rs. 1,86,31,680 and 871,28,885/-respectiv....
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....titution by the term 'opinion' would give arbitrary powers to the Assessing Officer to reopen past assessment on a mere change of opinion. Thus, Shri Bajoria submitted that even according to Central Board of Direct Taxes, a mere change of opinion cannot form the basis for reopening a completed assessment. He referred to the decision of Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (supra), wherein it has been held that Assessing Officer has the power to reopen the assessment provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Hon'ble Apex Court further held that Assessing Officer has no power to review, he has the power to reassess, but the reassessment has to be based on fulfilment of certain preconditions 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 Assessing Officer. He further referred to the decision of the Hon'ble Bombay High Court in the case of Cartini India Limited v. Add....
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....(a) the duty on goods dispatched was paid as and when the goods were dispatched from factory to a warehouse or branch. However, since the goods had not been sold or transferred to any customer and were lying with the Branch, it constituted stock of the company and, therefore, formed part of the value of closing stock, i.e. in other words, credited to the profit & loss account. The duty element was also included in the value of closing stock dispatched but not sold. Similar amount of duty was also debited to the profit & loss account upon payment of the duty (as excise duty paid) thereby neutralizing the impacts on profits. The relevant accounting entries were - Excise Duty A/c. (Profit & Loss A/c.) Dr. 8,40,45,799/- To PLA/RG 23A Balance Cr. 8,40,45,799/- (being excise duty paid on goods dispatched from factory) Inventory- Finished goods Dr. 8,40,45,799/- To Excise Duty A/c. (Profit & Loss A/c.) Cr. 8,40,45,799/- (Being Excise Duty element of finished goods lying in branches/stock points included in the value of closing stock) With reference to the aforementioned entries, ld. counsel ....
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....ablished that a liability is to be allowed in a year in which it arises and section 43B of the Act creates an exception to the general rule i.e. debitum in praesenti solvendum defuturuo in the sense that the liability in respect of taxes will be allowed only if the amount has been paid before the filing of the return/prescribed date. Since the liability of excise duty arises on manufacture, the company has provided for such liability under the mercantile system and thereafter paid such duty before filing the return in order to claim deduction. Since the company had both debited and credited the element of excise duty on closing stock of finished goods (both for Depot Stock & Factory Stock) in the profit and loss account of the company, it had neutralized the impact in the profits of the company. However the said duty are allowable by virtue of the provisions of section 43B, i.e. such duty would be allowed only if the company makes the payment before the date of filing of the return. It is already stated that the duty on stock transfers to various branches/godowns (stock lying at stock point) are actually paid upon dispatch. Hence there is no question of non-allowability....
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....T(A) has rejected the claim of assessee to the extent of Rs. 20,60,14,392/- on the ground that such amount was liable to be included in the purchase as well as closing stock simultaneously in view of provisions of section 145A. The stand of the revenue is that deduction of custom stands allowed by debiting the purchases of such amount in the P&L Account under section 145A and, therefore, no separate deduction can be allowed while computing the income. We are unable to accept such stand of the revenue. There is no dispute that as per section 145A, the purchase and closing stock inventory has to be adjusted with the custom duty paid. Such treatment under section l45A, in our opinion, would not affect the claim of assessee because in such situation, claim-of deduction cannot be said to be allowed in as much as inclusion of similar amount in closing stock nullifies the effect of debiting the duty paid in the P&L account. In fact duty paid on imports forms part of cost of purchase and resultantly such element also forms part of closing stock. The Hon'ble Supreme Court in the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481 has held that closing stock, shown to the credit side of trad....
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....r consideration under section 43B and on the basis of mercantile system in the next year. As already stated, the un-utilized raw material debited to P&L account gets cancelled it is included in the closing stock and the same is carried forward to next year as opening stock. When such stock is utilized in manufacturing next year, the deduction would stand automatically allowed in that year. That would amount to double deduction. Hence, Assessing Officer will look into this aspect while assessing the income of next year. The Assessing Officer will ensure that the deduction allowed in this year under Section 43B is included in the income of next year when such opening stock is disposed of. This clarification would apply in respect of each deduction under section 43-B where the deduction is allowed on the principle laid down in the case of Lakhanpal National Ltd. (supra) and in the case of Berger Paints India Ltd. (supra). With reference to aforementioned observations, ld. senior counsel Shri Bajoria submitted that since assessee itself had offered the amount claimed as deduction under section 43B in subsequent year as its income, therefore, in finale no double deduction had been cl....
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....roduced. Similarly in the case of the excise duty related to goods manufactured and lying at the factory premises the assessee has incurred liability to paid excise duty of Rs. 1,53,81,564/. As per the provisions of section 145A this amount is also required to be included in the value of such goods lying at the factory. In the books of account when the assessee includes this amount in the value of closing stock it passes a corresponding debit entry in the P & L A.c This debit entry means that the amount of excise duty included in the value of the closing stock is being claimed by the assessee as a deduction. If the assessee actually pays this outstanding excise duty before the due date of filing of the return, this amount debited in the P & L A/c will be fully allowed as a deduction. Otherwise the portion of this outstanding excise duty which is not paid before the due date of filing the return will be added back u/s. 43B of the I.T. Act. Here in case of the assessee since the whole amount of outstanding excise duty of Rs. l,53,81,564/- has been paid before the due date of filing the return therefore, there will not be disallowance u/s. 43B. However, no further deduction for thi....
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....essee had disclosed all material facts necessary for assessment. Ld. DR referred to the Explanation 2, clause c(i) to section 147 that since income chargeable to tax had been under-assessed, it was a case of deemed escapement of income. Accordingly, Assessing Officer had rightly initiated the re-assessment proceedings. 9.2 Learned Departmental Representative submitted that Assessing Officer had not raised any specific point regarding double deduction claimed by assessee. In this regard, he referred to the order-sheet notings dated 16.12.2003 and 25.02.2004 to demonstrate that Assessing Officer had only raised general query about excise duty. Ld. DR further submitted that ld. CIT also applied his mind before issuance of notice under section 148. In this regard, he referred to order dated 15.03.2007 of ld. CIT contained in the paper book. The proposal was sent on 27.02.2007 by DCIT, Circle-1, Kolkata to ld. CIT, who vide his order dated 15.03.2007 granted the said permission after due application of mind. Ld. DR submitted that in the notice issued under section 142(1), there was no mention of double deduction and, therefore, Assessing Officer did not apply his mind to this specifi....
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....as worked out. Ld. DR also relied on the decision of the Hon'ble Bombay High Court in the case of Girilal & Co. v. S.L. Meena ITO [2008] 300 ITR 432, wherein re-assessment proceedings had been upheld though regular assessment order was passed under section 143(3) determining the total income, on the ground that there was failure on the part of assessee to disclose material facts necessary for assessment and to specify size of land condition precedent for claiming special deduction under section 80IB. It was held that availability of information in annexure to return was not sufficient. Ld. DR also referred to the decision of Hon'ble Madras High Court in the case of Asstt. CIT v. Apollo Hospitals Enterprises Ltd. [2008] 300 ITR 167/171 Taxman 397 wherein notice under section 148 within four years was held to be valid on the ground that benefit of carry forward and set off of unabsorbed depreciation was wrongly allowed. In this case, the set off claimed by the assessee was held to be illegal and, therefore, AO had got jurisdiction to reassess such set off illegally availed off by the assessee and, therefore, there could not be any other possible view, which could be taken by the Asse....
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.... any conclusion. Ld. counsel also referred to the decision of ITAT, Delhi, Special Bench in the case of Indian Communication Network (P.) Ltd. v. IAC [1994] 49 ITD 56 , wherein it has been, inter alia, held as under :- "An assessee prior to insertion of section 43B, could claim the entire expenditure as deduction on accrual basis and there is. no reason why the same deduction cannot be made available subject to the rider that the entire amount has been paid in the year itself, and that is the condition which section 43B lays down. In the instant case, the assessee had paid customs duty and excise duty and charged the same to the trading/profit and loss account. A part of the amounts also found place in the closing stock. By the aforesaid mode, the deduction to the assessee wider section 43B was given only in part, whereas the intention of the Legislature was to allow it in full if actually paid and if otherwise found allowable. It was nobody's case that payments on account of customs duty and excise duty were not allowable deductions. The removal of the amount in question from the figure of closing stock would not be tantamount to 'tinkering' with the closing stock but allowi....
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....r as per Annexure 'H' at page 7 of the paper book, which reads as under :- Particulars Amount included in closing stock Subsequent payment upto 05.10.01 Balance unpaid Tax Audit report ref. Excise duty 15,381,564/- 15,369,596/- 11,968/- Annexure 11A Clause 21(i)(B) (Senior No. 2) Further vide letter dated 12.01.2004, this issue was further clarified at page 9 of the paper book, which reads as under :- Excise Duty included in closing stock of finished goods During the assessment year 2001-02 the assessee had claimed the excise duty paid on stock of finished goods as on 31st March, 2001 amounting to Rs. 84,045,799/-under the provisions of section 43B of the Income Tax Act, 1961 (hereinafter referred to as the "Act") since the same was paid before the date of filing of the return. As per the consistent accounting practice of the company, the excise duty is accounted for in profit and loss account only at the time of sale of its products. Accordingly, excise duty paid on finished goods lying in the factor as on 31st March, 2001 has not been debited in the profit and loss account. In fact, as per the accounting practice....
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....ision of I.T.A.T. in the assessee's own case for assessment year 2004-05, the extracts of which will be reproduced in the subsequent part of this order. 12. Resultantly, both the grounds raised by assessee are allowed. ITA No. 261 & 262/Kol./2010 (Assessment Year : 2002-03& 2003-04) 13. The re-assessment proceedings were initiated for both these assessment years with four years from the end of relevant assessment year. Ld. CIT (Appeals) upheld the proceedings under section 147 on the ground that Assessing Officer had allegedly recorded the reasons that assessee had claimed double deduction in respect of excise duty on closing stock and, therefore, the proceedings under section 147 of the Act had been initiated to disallow such claim of assessee. After giving the same reasons as noted above for assessment year 2001-02, ld. CIT (Appeals) further pointed out that as per Clause(c)(i) of Explanation 2, there was under assessment, therefore, in view of sub-clause (i) of Explanation 2 under section 147 the escapement of income is deemed to be there and therefore, proceedings were initiated. 14. In these two assessment years, the main aspect to be examined is whether the procee....
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....that Assessing Officer had formed a positive opinion on a particular issue after due application of mind. However, merely because details were available before him from which he could arrive at a particular conclusion would not imply that he formed any opinion unless he actually considered that issue. From the Assessing Officer's order it should be manifest that he had formed a particular opinion on that issue. But if it is not so, then merely on the basis of sufficient information being available before him, it cannot be concluded that he formed a particular opinion on an issue which has not even been touched upon by him in his order. It all depends on the facts of each case. In the present case, we find that all the details as required by Assessing Officer during the course of assessment proceedings were furnished before him and detailed note was also filed in this regard. After examining all those aspects, Assessing Officer arrived at a conclusion that Assessee had rightly claimed the deduction but he did not consider the true import of methodology adopted by assessee. He did not take into consideration as to what was the effect of claiming deduction once on mercantile basis of ....
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.... in regard to treatment of deduction claimed in regard to excise duty included in the closing stock. We find that since the assessee was following mercantile system of accounting. It had debited the excise duty on manufacture of goods and correspondingly included excise duty element in the closing stock to neutralize the effect of debit in the Profit & Loss A/c. The deduction had been claimed on the basis of actual payment under section 43B. However, the assessee had made necessary adjustments in the respective years. From the details noted above and from the submissions of ld. counsel, it is clear that in ultimate analysis of various assessment years taken together, no double deduction had been claimed by the assessee. Further, it is pertinent to note that Assessing Officer has also, inter alia, observed as under:- "To offset the double deduction, the assessee suo moto offered the Excise Duty deduction claimed u/s 43B of the IT Act, in the Assessment Year 2001-02 in the next Assessment Year's computation. By adopting this practice, the assessee firstly deferred the tax liability and secondly, derived benefit from differential rate of surcharge applicable in the A.Y.'s 2001-02 a....
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....eld. 6. Heard both the parties and perused the material available on record. In the case of C.K. Gangadharan & Anr. v. CIT cited supra the issue before the Hon'ble Supreme Court was whether the revenue can be precluded from defending itself by relying upon the contrary decisions. While answering this reference the Hon'ble Apex Court held that merely because in some cases the revenue has not preferred appeal that does not operate as a bar for the revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher Court when divergent views are expressed by the Tribunals or the High Courts. But while doing so none of the earlier decisions of the Hon'ble Apex Court were reversed though were referred and taken note of therein. 7. Now coming to the arguments taken by the Ld. DR that the Hon'ble Apex Court the case of Berger Paints (I) Ltd. has not decided the issue on merits, we find that in that case the assessee was a company engaged in the manufacture and sale paints, varnishes and other allied products. During the A.Yr, 1984-85 the assessee in its return disclosed a sum of 1,33,31,370/-. D....
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....at the instance of the assessee, the Tribunal, inter alia, referred the following question of law for the opinion of the High Court (253 ITR 738): "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in rejecting the assessee's claim for deduction of the excise and customs duties of Rs. 98,25,833 paid in the year of account and debited in the profit and loss account, on the ground that the crediting of the profit and loss account by the value of the closing stock, which included the aforesaid duties, did not have the effect of wiping out the debit to the profit and loss account?" The High Court answered the question referred to in favour of the revenue and against the assessee. For the A.Yr. 1986-87 the Tribunal upheld the claim of the assessee and allowed a deduction amounting to Rs. 77,81,948 claimed under section 43B of the Act being Central excise and customs duty, which had been included in the value of the closing stock. At the instance of the Revenue, the following question of law was referred to the High Court for the A.Yr. 1986-87 (254 ITR 498). "Whether, on the facts and in the circumstances of the case and under Explanati....
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.... an analysis of section 43B and makes a finding that the entire amount of excise duty/customs duty paid by the assessee in a particular accounting year was an allowable deduction in respect of that year irrespective of the amount of excise duty/customs duty which was included in the valuation of the assessee's closing stock at the end of the accounting year. After coming to this conclusion, the Gujarat High Court then proceeded to consider the impact of section 141A and granted appropriate relief thereunder. It is not possible for us to accept the contention of the Revenue that the judgement of the Gujarat High Court in Lakhanpal National Ltd.'s case [1986] 162 ITR 240 is distinguishable on the ground put forward." It is clear from the above that the Hon'ble Apex Court allowed the appeal of the assessee on merits of the case. Merely because the Hon'ble Apex Court also held as under it cannot be said that the Court did not decide the issue on merits : "If the Revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other asses....