TaxTMI 
TaxTMI 
2011 (3) TMI 1756
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....43(1). Along with the Income Tax Return, audited statement of account for the relevant assessment years along with the report of the statutory auditors under the Companies Act, Tax Audit Report under section 44-AB of the Act and statement showing computation of income were filed by the petitioner. Subsequent thereto, notices for reassessment for these two years were issued by the Assessing Officer on the ground that the income has escaped assessment to tax. In response to the notice, returns of income have been filed. A copy of the reasons recorded by the Assessing Officer was served on the petitioner. The present petitions have been filed questioning the legality and validity of the initiation of reassessment proceedings on the ground that there is no sufficient material on the record to form a reason to believe that income of the petitioner has escaped assessment. 3. In the counter affidavit, the Department has sought to justify its stand. The claim of the petitioner that it is 100% EOU and is covered under the provisions of Section 10 B of the Act has been disputed. 4. Heard Shri S.K.Garg along with Shri Ashish Bansal learned counsel for the petitioner and Shri Ashok Kumar....
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....been not done by the assessee, it is a clear case that the account books have not been maintained as per requirements of the Act and therefore, it is reasonable to believe that the income of the petitioner has escaped assessment. 8. Considered the respective submissions of the counsel for the parties. So far as the first point is concerned, it will not detain us any further. On a perusal of copy of the notice dated 13.5.2003 it would show that the said notice was perfectly in order except that it did not contain the rubber stamp of the Assessing Officer. In all material respects there was no defect in it. However, an objection was raised by the petitioner vide objection dated 6.6.2003 that in the said notice the designation of issuing authority has not been mentioned and as such the notice is in complete and bad in law. 9. Realising the defect pointed out by the assessee, with a view not to join on this issue, the assessing officer rightly thought it fit to issue a fresh notice by removing the defect which was there in the earlier notice. Every quasi judicial authority has power to rectify a mistake. 10. The objection of the petitioner is not that the assessing officer cou....
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....proceedings has been annexed as annexure-11 to the writ petition, wherein, in substance, it has been mentioned that the assessee has not taken into account the CST paid by it on purchases of raw materials while valuing the closing stock. It has paid a sum of Rs. 61,68,000/- as CST. Secondly, the excise duty amount has not been included while valuing the closing stock. A sum of Rs. 21,35,000 was paid as excise duty. The assessee has not correctly valued their closing stock and it has under valued it by excluding the CST and the excise duty paid there on, its income has escaped assessment. The English version of reasons as done by the petitioner, in the written arguments for the assessment year 2000-2001 is reproduced below: "Assessment year 2000-01 Ginni Filaments Ltd. Mathura Road, Chata, Mathura Reasons for initiating proceedings under section 147 Dt.12.5.2003 Assessee has filed the return for the assessment year 2001-2002 on 21.11.2000 showing a loss of Rs. 6,53,73,867. From a perusal of column no.12(a)(b) of the Audit Report as has been referred to in the return form, it is evident that the assessee has made following mistake....
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....f its goods in India on which excise duty is payable. Value of closing stock of finished goods has been shown at Rs. 7111,86,000, 30% of which comes to Rs. 213540 and on sum incurred, excise duty works out to Rs. 21350000. The assessee has not included this incurred excise duty in the valuation of closing stock of finished goods. In this manner assessee's income has been assessed at a figure lesser by Rs. 21350000". 14. Challenging the initiation of reassessment proceeding that these reasons are not valid reasons objection was filed before the assessing officer which has been rejected by the impugned order dated 28.6.2004. The court was taken through the order dated 28.6.2004. We were also taken through the other documents to show that the petitioner being 100% EOU will get reimbursement of CST by Development Commissioner and NEPZ, Noida. Similarly, the petitioner will get back excise duty paid by it on the finished goods exported outside India. 15. The very fact that the petitioner is 100% EOU as mentioned herein above has been disputed in the counter affidavit. For the purposes of the present case it is not necessary to enter into the controversy whether the petitioner ....
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....e divergent views. The Department has also issued a circular No. 772 dated 23.12.1998 stating the above. A bare perusal of the aforesaid section would show that it contains two clauses (a) and (b). These two clauses are required to be read conjointly and they provide that in addition to the method of accounting regularly employed by the assessee, the amount of tax, duty etc. actually paid or incurred by the assessee to bring the goods to the place of its location has to be included. The Explanation further clarifies the position that any tax, duty, cess etc. shall be included notwithstanding any right arising as a consequence to such payment. 20. An Explanation is at time appended to explain the meaning of words contained in the section. It becomes a part and parcel of the enactment. Sometime, its purpose and object, is relevant to construe it. An Explanation, normally should be so read as to harmonize with and clear up any ambiguity in the main section and should not be construed so as to widen the ambit of the section. See Bihta Co-operative Development and Cane Marketing Union Ltd. and another versus Bank of Bihar AIR 1967 SC 389. The relevant observation is reproduced below:....
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....ay of incentive. The CST is not charged as a "cost" to the Profit & Loss Account, instead it is debited to "CST receivable account" wherein reimbursement made by the Development Commissioner are also credited and unrecovered part of the same is carried forward in the Balance Sheet. As regards Excise Duty, the petition is not required to pay the same by virtue of it being an 100% EOU in view of notification No. 125/84-CE dated 26.5.1984. The liability for excise duty is neither incurred nor required to be paid. 25. The aforesaid objection of the petitioner have been rejected by the impugned order and in our view rightly so in view of Section 145-A of the Act. 26. On a plain reading of Section 145-A, the aforesaid arguments are untenable in law. 27. In view of Section 145-A, there is no justification for not including the excise duty in the closing stock on the ground that the excise duty is refundable by the Central Government under a scheme if the finished goods are exported outside India. Suffice it to say that as per the provisions of the Central Excise Tariff Act, 1995, the duty is on excisable goods which are manufactured or produced in India. In Shinde Brothers v. ....
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....produced below: " It is wrong to assume that the valuation of the closing stock at market rate has, for its object, the bringing into charge any appreciation in the value of such stock. The true purpose of crediting the value of unsold stock is to balance the cost of those goods entered on the other side of the account at the time of their purchase, so that the cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions on which there have been actual sales in the course of the year showing the profit or loss actually realised on the year's trading..." 29. Ultimately it concluded in the following manner: "Any system of accounting which excludes, for the valuation of the stock-in-trade, all costs other than the cost of raw materials for the goods-in-process and finished products, is likely to result in a distorted picture of the true state of the business for the purpose of computing the chargeable income. Such a system may produce a comparatively lower valuation of the opening stock and the closing stock, thus showing a comparatively low difference between the two. In a period of rising turnover ....
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....ls Pvt. Ltd. Versus CIT (2004) 271 ITR 113, wherein certain judgements of the Apex Court has been relied upon, and submtited that the expression "reason to believe" in Section 147 does not mean purely subjective satisfaction on the part of the Assessing Officer. The belief must be held in good faith; it cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Assessing Officer in starting proceedings under section 147 is open to challenge in a court of law as held in S.Narayannappa versus CIT (1967) 63 ITR 219 (SC): Kantamani Venkata Narayana and Sons versus First Additional ITO (1967) 63 ITR 638 (SC); Madhya Pradesh Industries Ltd. Versus ITO(1970) 77 ITR 268 (SC); Sowdagar Ahmed Khan verus ITO (1968) 70 ITR 79 (SC); ITO v.Lakhmani Mewal Das (1976) 103 ITR 437 (SC); ITO versus Nawab Mir Barkat Ali Khan Bahadur (1974) 97 ITR 239 (SC); CST v. Bhagwan Industries (P) Ltd. (1973) 31 STC 293 (SC) and State of Punjab v.Balbir Singh(1994) 3 SCC 299. 33. Ther....
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....scrutiny at this stage. The sufficiency of the material cannot be gone into but relevancy certainly can be gone into. The reasons recorded by the concerned authority are relevant reasons to form a belief that the income of the petitioner has escaped assessment. 38. It is not correct to say that by invoking Explanation 2 to Section 147, the Department is in any manner supplementing the reasons. 39. The decision in the case of Vipan Khanna Vs.CIT reported in (2002) 255 ITR page 220 relied upon by the petitioner is misplaced one. It is distinguishable on facts as entirely a different controversy was involved therein. There the issue was when a reassessment notice has been given on the ground that the assessee has claimed excessive depreciation, the jurisdiction of the Assessing Officer is restricted only to the portion of the escaped assessment in respect of depreciation or he could consider other items of income which may have escaped assessment. The issue on hand was not at all involved therein and was not addressed too. 40. The other decisions relied upon by the counsel for the petitioner Sesa Goa Ltd. Versus JCIT reported in (2007) 294 ITR 101; P.R.Prabhakar versus CIT re....