TaxTMI 
TaxTMI 
2016 (9) TMI 1644
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..... In the assessment originally completed under section 143(3) vide an order dated 28.12.2006, the total income of the assessee was determined by the Assessing Officer at Rs.2,12,08,683/-. Subsequently on scrutiny of records, it was noticed by the Assessing Officer that the deduction claimed by the assessee on account of provision for warranty expenses was wrongly allowed as provision was not an allowable expenditure. He was also of the view that the claim of the assessee for the loss of Rs.78,83,300/- pertaining to M/s. Bhartia International Limited, which was amalgamated with the assesseecompany, was allowed to be wrongly set off for the year under consideration as the said amalgamating company was not engaged in the manufacturing business for three years or more and the requisite certificate in Form No. 62 as provided in Rule 9C was also not furnished by the assessee. According to the Assessing Officer, there was thus escapement of income of the assessee from the assessment and a notice under section 148 was issued by him in the month of March, 2011 reopening the assessment after recording the reasons. In compliance to the said notice, the return of income was filed by the assess....
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....ing that the entire provision of warranty expenses amounting to Rs.17,66,700/- as an allowable expenses and deleting the entire addition. Whereas only the part of such provision which got crystallized during the relevant previous year, i.e. the amount of actual payment made during the year under the said head only should be allowed and the closing provision as on 31.03.2004 should be added back to the total income for the FY 2003-04 (AY 2004-05), as any sort of provision is not allowable as expenses, if it is not crystallized. (ii) That under the facts and circumstances of the case, the ld. CIT(A) has erred in law as well as in facts in allowing the set off of brought forward business loss and unabsorbed depreciation amounting to Rs.78,83,000/-. Grounds of Cross Objection by the assessee 1. That on the facts and on the circumstances of the case the learned CIT(A) had erred in not appreciating and deciding that the entire proceedings initiated under section 147/148 of the Act was bad in law, illegal, unjustified and abinitio void and the entire assessment framed under section 143(3)/147 of the Act, was subjected to be cancelled / quashed / set aside. 2. That on the facts....
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.... books of account maintained by the assessee were produced for the verification of the Assessing Officer during the course of original assessment proceedings along with other supporting documents and it, therefore, cannot be said that the issues raised by the Assessing Officer while reopening the assessment had not been examined during the course of original assessment proceedings. He contended that the reopening of assessment by the Assessing Officer thus was based on a mere change of opinion, which is not permissible in law as held, inter alia, by the Hon'ble Supreme Court in the case of CIT -vs.- Kelvinator of India Limited reported in 320 ITR 561 and by the Hon'ble Calcutta High Court in the case of Debashis Moulik -vs.- ACIT reported in 370 ITR 660. He also contended that the assessment originally completed under section 143(3) for the year under consideration was reopened by the Assessing Officer after the expiry of four years from the end of the assessment year and as per the first proviso to section 147, it was incumbent upon the Assessing Officer to point out specifically in the reasons recorded that the income chargeable to tax had escaped assessment by reason of the fail....
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....s' and the same was allowed at the time of assessment. In the Notes to the Profit & Loss Account, it was mentioned that it was a provision - 'Provision for Warrant Cost is made as a percentage of sales and is based on past experience / technical estimates". Since provision is not an allowable expenditure, the amount was required to added back in computation of income. Omission in this regard resulted in under assessment of income of Rs.45,89,836/-. M/s. Bhartla International limIted was amalgamated with M/s. Bhartiya Industries Ltd. w.e.f. May, 11, 2004. The loss of Rs.78,63,300/- pertaining to M/s. Bhartia International Ltd. was adjusted with the income of M/s. Bhartia Industries Ltd. during the F.Y. 2003-04 relevant to A.Y. 2004-05 and the set off of the loss was' allowed at the time of assessment made u/s.143(3). The set off of loss pertaining to amalgamating company Is governed by Sec. 72A of LT. Act read with I.T. Rule 9C. The Sec. 72A inter alia provided that the amalgamating company should have been engaged in the business for three or more years. Tax Audit Report for 2003-04, certified that the amalgamating company was engaged in the business of manufacturing ....
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....nd it, therefore, cannot be said that the relevant issues relating to assessee's claim for deduction on account of provision towards warranty and set off of brought forward losses of amalgamating company were not examined by the Assessing Officer. 10. In the case of CIT -vs.- Kelvinator of India Limited (supra), cited by the ld. counsel for the assessee, it was held by the Hon'ble Supreme Court that after the amendment made in section 147 w.e.f. 1.4.1989, the Assessing Officer has to have reason to believe that income has escaped assessment but this does not imply that the Assessing Officer can reopen an assessment on a mere change of opinion. It was held that the concept of "change of opinion" must be treated as an in-built test to check the abuse of power and hence the Assessing Officer even after the amendments made in the relevant provisions from April 1, 1989 has the power to reopen an assessment provided there is tangible material to come to the conclusion that there was escapement of income from the assessment. 11. In the case of Debashis Moulik -vs.- ACIT (supra), all information, documents and other records relating to the assessee for the relevant assessment year were p....
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.... ld. counsel for the assessee, there was not even a whisper in the reasons recorded by the Assessing officer to the effect that income had escaped assessment on account of any failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment and keeping in view this position clearly evident from the reasons recorded by the Assessing officer, which is similar to the present case, it was held by the Hon'ble Gujarat High Court that the requirement of the proviso to section 147 was not satisfied and the notice issued by the Assessing Officer under section 148 reopening the assessment was liable to be quashed. 13. In the case of Titanor Components Limited (supra), the Assessing Officer had not recorded the failure on the part of the assesese to disclose fully and truly all material facts necessary for his assessment for the relevant year and, therefore, the notice issued by him under section 148 reopening the assessment was quashed by the Hon'ble Bombay High Court holding that the same was not sustainable in law. 14. Keeping in view the ratio laid down in the above judicial pronouncements, we hold that the reopening of assessment originall....