TaxTMI 
TaxTMI 
2014 (5) TMI 895
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.... a sum of Rs.63,23,501/- and added back the same to the income of the assessee. Before the Assessing Officer, the assessee had raised a contention that in case the closing stock was to be revalued, the opening stock was also required to be revalued which was rejected by the Assessing Officer holding as follows: "3.5 During the course of assessment proceedings, another contention has been raised in this respect, namely, if the closing stock of this year is sought to be changed, the opening stock also should accordingly be changed and net effect should be taken into consideration to determine the profit of the year. In this respect, it may be mentioned that the assessee's contention is not acceptable because the assessee has been following wrong method of accounting in respect of closing stock and if it is allowed to adjust the difference in opening stock, the profit & loss account would not reflect the true picture of the profit during the year because all along these years the assessee has been unilaterally suppressing its value of work-in-progress and thereby the profit of the year. 3.6 As per various decision of the Superior Courts including in the case of CIT Vs. Corporation B....
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....od of valuation and therefore, there was no question of the department having permitted the same. Accordingly, the decisions in the case of Mel Mould Corp. Vs. CIT & Trivani Engg. Works Vs. CIT 167 ITR 742 (All) will not apply. On the other hand, the present case is more akin to the case before the Privy Council and K.G. Khosla & Co. Vs. CIT (Supra). Thus, the Assessing Officer applying the same yardstick to the opening stock of work-in-progress, will do well to revise such an opening stock also and come to the correct amount of under valuation. In doing so, he would be free to reopen the immediately preceding year since the closing stock of the preceding year would be the same as the value of opening stock of the year under consideration i.e. assessment year 1997-98. Thus, closing stock value of work in progress, will necessarily be enhanced in the preceding year i.e. assessment year 1996-97. This course of action would be in consonance with the decision rendered in the case of CIT Vs. Bengal Jute Mills Co. Ltd. reported in 107 CTR 34 (Cal.). The Calcutta High Court have, in this judgment held that in case of consequential adjustment made in the opening stock, if there is any esca....
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....7-98 as a result of CIT (A)'s order is misconceived and is devoid of any merit and is rejected/dismissed." The assessee unsuccessfully challenged the order dated 30th May, 2003 before the CIT (Appeal), who by his order dated 20th November, 2003 held as follows: "On a careful consideration, I am of the opinion that neither there was the competent directions by the CIT (A) to substitute the opening stock the accounting year relevant to the assessment year in appeal at Rs.63,23,501/- nor there has been a revision of the return by the appellant of the preceding assessment year 1996-97 to the extent of Rs.63,23,501/-. The Assessing Officer's action in not having allowed allowance of Rs.62,23,501/- in the order under section 154 (in appeal) is quite justified. Incidentally, the order of the CIT (A) if given effect as intended by the appellant would result in an income lower than the income returned by the appellant, which never is the intention of the legislature while providing for appellate remedy under the Income Tax Act. Under the Income Tax Law no Appellate Authority under the Income Tax Act in my opinion has any power to lower the income of the appellant than returned one, except....
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....to this addition in the value of closing stock of W.I.P. as on 31.3.1997, the opening stock value of W.I.P. as on 1.4.1998 i.e. for the assessment year 1998-99 was enhanced equally and correspondingly. Thus, the assessee is trying to take double & undue benefit in the assessment year 1998-99 as well as in the assessment year 1997-98 of this addition of Rs.41,03,008/- made in the assessment year 1997-98. By following the appellate authorities directions reproduced above in para 4 above, the AO is equally duty bound & directed to revalue the closing stock of assessment year 1996-97. Thus, the addition in the opening stock value as on 1.4.1996 will be set off/ neutralized by the corresponding & consequential addition in the closing stock value as on 31.3.1996 i.e. for the assessment year 1996-97. Thus, both the additions in the values of W.I.P. as on 1.4.1996 & 31.3.1996 will be nullified by each other. As per directions of the Hon'ble ITAT, both the values have been reworked out and value beyond or prior to 31.3.1996 cannot be reworked out because that is not the directions of the CIT (A) or the ITAT in their orders". The assessee once again preferred an appeal against the orde....
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....nd the required benefit was given to the assessee. But at the same time, a notice under Section 148 was issued on 10th June, 2010. The reasons for issuance of the aforesaid notice obviously was to give effect to the order dated 6th November, 2009 passed by the learned Tribunal at the instance of the assessee himself. The assessment order for the assessment year 1996-97 and the assessment year 1997-98 were as a matter of fact passed on 31st December, 2010. Pursuant to the order passed by the Appellate Tribunal dated 6th November, 2009, the closing stock of the assessment year 1996-97 was enhanced by a sum of Rs.63,64,820/-. Aggrieved by the aforesaid order, the assessee preferred an appeal which was allowed by an order dated 12th March, 2012 for the following reasons: "Even if for argument sake, it is considered that in the case of appellant company the Hon'ble ITAT in I.T.A. No.3216/Del/09 dated 06.11.2009 had given direction in terms of section 150(1) for reopening of assessment for A.Y. 1996-97, such direction is not valid in view of provisions of section 150(2) of the I.T. Act. The section 150(1) provides that the power to issue notice u/s. 148 in consequence of or giving effe....
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....lier order passed by the ld. CIT(A) or Tribunal. The order which was the subject matter of appeal before the Tribunal in ITA No.3216/Del/2009 was the order dated 04.06.2008 passed by the A.O. In the above circumstances, in our considered view, in view of the specific provisions contained in sub-section (2) of section 150 the issuance of notice of section 148 on 10.06.2010 in pursuance of the order of the Tribunal dated 06.11.2009 for A.Yr. 1996-97 is bad in law and untenable. We, therefore, do not find any error in the order of the ld. CIT(A). Thus the grounds of appeal of the Revenue are dismissed." Aggrieved by the order of the learned Tribunal, the revenue has come up in appeal. Mr. Bandopadhyay, learned advocate appearing for the revenue, submitted that the CIT(A) and the learned Tribunal fell into a patent error of law in proceeding on the basis that the notice under Section 148 of the Income Tax Act was barred by limitation. He submitted that the prayer of the assessee to have the opening stock for the assessment year 1997-98 revalued was allowed on the condition that the closing stock of the assessment year 1996-97 would correspondingly be enhanced. He contended that it ca....
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....a direction under Section 31. Mr. Murarka also cited the judgment in the case of N. K. T. S. Chettiar Vs. CIT Madras reported in 66 ITR 586 (SC) wherein the judgment in the case of Murlidhar Bhagwan Das (supra) was followed. He also relied upon a judgment of this Court in the case of Peico Electronics Vs. Deputy Commissioner of Income Tax reported in 210 ITR 991 (Cal) for the same proposition. Mr. Murarka also relied upon a judgment of the Apex Court in the case of Rajinder Nath Vs. CIT reported in 120 ITR 14 (SC) wherein it was held that "As regards the expression direction in Section 153 (3) (ii) of the Act, it is now well-settled that it must be an express direction necessary for the disposal of the case before the authority or Court. It must also be a direction which the authority or Court is empowered to give while deciding the case before it. The expressions "finding" and "direction" in Section 153 (3) (ii) must be accordingly confined. The last judgment cited by Mr. Murarka is by a Division Bench of this Court in the case of Mrs. R. H. Dave Vs. CIT reported in 140 ITR 1035 (Cal) wherein the Division bench taking into consideration the views expressed by the Apex Court in ....
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....on was explained at length by Marten C. J. in the case of Ahmedabad New Cotton Mills Company Limited vs. CIT 3 ITC 91. This judgment was ultimately affirmed by the Privy Council." Both the CIT (A) and the learned Tribunal opined that the reassessment made under Section 147 by the Assessing Officer on 31st December, 2010 was barred under Section 150(2) of the Act. Therefore primarily the following questions arise for determination:- a) Whether reopening of the assessment for the assessment year 1996-97 by the notice dated 10th June, 2010 was barred by Subsection (2) of Section 150 of the Income Tax Act as held both by the CIT appeal and the Income Tax Appellate Tribunal. b) Whether the reopening of the assessment for the assessment year 1996-97 was unlawful? Sub-section (2) of Section 150 of the Act provides as follows:- "The provisions of sub-section (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that subsection relates to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time the order which was the subject-matter of the appeal, reference or revisi....
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.... Murarka did not dispute that on 12th August, 2002 when the aforesaid finding or direction was issued the exercise of reopening the assessment for the assessment year 1996-97 was well within time. On top of that the appellate order dated 12th August, 2002 was passed against the original order dated 8th March, 2000. The notice under Section 148 seeking to reopen the assessment of the year 1996-97 was not promptly issued thereafter because the direction to revalue the opening stock of the assessment year 1997-98 and the corresponding revaluation of the closing stock of the assessment year 1996-97 as directed by the order dated 12th August, 2002 was not implemented until the learned Tribunal by its judgment and order dated 6th November, 2009 directed as follows:- "Therefore, if by giving effect to the order of the Tribunal if income for asstt. year 1997-98 is to be reduced that has to reduce and if it also results into enhancement of income for asstt. year 1996-97, the same has also to be enhanced but separately." Pursuant to the aforesaid order dated 6th November, 2009 the opening stock for the assessment year 1997-98 and closing stock the assessment year 1996-97 were revalued givi....
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....e of the order, which was the subject-matter of the appeal, the provisions of section 150(1) cannot be invoked to the aid of the Revenue for making an assessment or reassessment." The submission that the finding and or direction issued in the appellate order dated 12th August, 2002 concerning revaluation of the closing stock of the assessment year 1996-97 is bad in law in the light of the judgment of the Apex Court in the case of Murlidhar Bhagwan Das does not appear to be sound because whenever an income is deleted or excluded from one year a corresponding inclusion in the appropriate year by resorting to reopening the assessment for that year is specifically permitted by the Explanation 2 to Section 153 (3) of the Act. Therefore the limitation provided under Section 148 and 149 of the Act has to be considered in the light of Section 150 and Sub-section (3) of Section 153 read with Explanation 2 thereof which provides as follows:- "Where, by an order [referred to in clause (ii) of sub-section (3)], any income is excluded from the total income of the assessee for an assessment year, then, an assessment of such income for another assessment year shall, for the purposes of section ....
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....t question that was urged in this case was that even if section 150(1) of the 1961 Act applied the notice had become barred. It was contended that a notice would become barred even under Section 150(1) if on the date of the appellate order the time for taking action for assessment for that year had become barred by the other provisions of the Act. The correct date in this connection would be the date when the order, which is the subject-matter of the appeal, was passed. If on that date the reassessment proceedings could have been validly taken then because of subsequent lapse of time the said reassessment proceedings do not become barred by time. In this case on the 29th of December, 1960, the original order for assessment was passed and, therefore, on that date action could have been taken for reassessment for the assessment year 1958-59. That was the date when the order which was the subject-matter of appeal was passed. In that view of the mater, in our opinion, the provisions of section 150(1) of the Income tax Act, 1961, would apply on the facts of this case." Reference may also be made to the judgment in the case of Additional CIT Vs. Kamlapat Moti Lal reported in 110 ITR 769....
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....t of such income for another assessment year shall be deemed to be one made in consequence of, or to give effect to, any finding or direction contained in that order (in appeal). The aforesaid judgment of the Allahabad High Court was affirmed by the Apex Court in Kamlapat Moti Lal Vs. Commissioner of Income Tax reported in 193 ITR 338. Reference may also be made to the judgment of the Andhra Pradesh High Court in the case of Abdul Rahman Saheb (B.A.R.) Vs. ITO reported in [1975] 100 ITR 541 wherein the following views were expressed:- "Thus, on a careful reading of Explanation 2 to sub-section (3) of Section 153, it is evident that the mere exclusion of an income from an assessment year by a higher authority in a proceeding before it, gives jurisdiction to the Income-tax Officer to assess or reassess that excluded income in a different assessment year, and, in such a case, under Explanation 2 to Section 153 (3), it will be deemed to have been made in consequence of or to give effect to a finding or direction contained in the said order. If there is no finding or direction in the order of a higher authority, then Explanation 2 to Section 153(3) of the Act will apply. On the other....
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....thority would empower the Income-tax Officer to reopen the assessment for a different year and Explanation 2 to section 153 (3) of the Act. Explanation 2 does not validate any finding or direction given by the Appellate Assistant Commissioner in appeal which is invalid. Consequently, the issue would not touch the powers of the Appellate Assistant Commissioner, as envisaged in section 251 of the Act in disposing of an appeal before him. The Appellate Assistant Commissioner would be within his powers to exclude an income from an assessment if it did not pertain to that year. The Income-tax Officer then gets jurisdiction in such a case in view of the impugned Explanation to assess that income or reassess that income in another year, that is to say, it gives jurisdiction to the Income-tax Officer. The powers to hear an appeal given to the Appellate Assistant Commissioner under section 251 of the Act do not, therefore, require to be enlarged, because the exclusion of the income from an assessment would be within his jurisdiction. The next argument is equally devoid of force. In Janapada Sabha, Chhindwara v. Central Provinces Syndicate Ltd. AIR 1971 SC 57, the Supreme Court laid down th....
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.... provisions of sub-sections (1) and (2) shall not apply where the asessment, reassessment or recomputation is made in consequence of or to give effect to any finding or direction contained in an order under section 250, i.e., in an appeal under section 254 i.e., in an order of the Appellate Tribunal under section 260, i.e., in a decision of the High Court or Supreme Court on the case stated under section 262, i.e. in an appeal to the Supreme Court against a decision of the High Court on a reference under section 256, under section 263 which deals with the revisional jurisdiction of the Commissioner of Income-tax in respect of orders prejudicial to revenue, or under section 264 which deals with the revisional power of the Commissioner in respect of an order other than an order to which section 263 applies. A further category of orders consequent upon which an assessment, reassessment or recomputation is to be made without any bar of limitation is referred to in clause (ii) of sub-section (3) as an order of any court in a proceeding otherwise than by way of appeal or reference under the Act. Thus, the substantive provisions of sub-section (3) of Section 153 have removed the bar of li....
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....been removed. The provisions of sub-section (2) of Section 150 cannot, therefore, be availed of by the petitioner. The view which we taken is supported by a Division Bench decision of the Andhra Pradesh High Court in Abdul Rahman Saheb v. Income-tax Officer [1964] 52 ITR 335 (SC)." Reference may also be made to the judgment of Karnataka High Court in the case of Mysore Tobacco Co. Ltd. Vs. CIT reported in 157 ITR 606 wherein it was held that to obviate the difficulty arising out of the decision in the case of ITO Vs. Murlidhar Bhagwandas that the Explanation 2 to Section 153 (3) of the Act was enacted. The Division Bench opined that "it was, perhaps, to obviate this difficulty in giving effect to the finding or direction of any authority relating to an excluded income from any assessment, Explanation 2 to section 153 (3) was enacted. This provision would certainly come to the aid of the Department in the instant case, since the Tribunal has found that Rs.2,00,000/- added in the assessment year 1966-67 was a revenue receipt. The deletion of that income by the Tribunal for that assessment year shall be deemed to be a direction, and to give effect to the direction, reassessment coul....
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....3,329/- and thereby be directed to re-compute the business income of the A. Y. 1996-97." The aforesaid contention should have been raised by the assessee by challenging the appellate order dated 12th August, 2002 which the assessee did not do. Therefore the assessee is deemed to have accepted the finding or direction that "thus closing stock value of work in progress, will necessarily be enhanced in the preceding year i.e., assessment year 1996-97." Far from challenging the order dated 12th August, 2002 he went on litigating to have the said order implemented. The order was ultimately implemented on 31st December, 2010 consequent to a notice dated 10th June, 2010 under Section 148. The assessee's contention that the notice dated 10th June, 2010 was barred by limitation has been rejected by us. It is no longer open to the assessee to assail the order dated 12th August, 2002 on merits after having taken the benefit thereof in relation to the assessment year 1997-98. We are supported in our view by the following judgments:- In the case of Hope (India) Ltd. Vs. CIT reported in [1993] 203 ITR 118 a Division Bench of this Court held as follows:- "It is on the basis of the submissions....