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Attorney(S)
  • Revenue by: Shri Mohd. Javed
  • Assessee by: Shri S.N. Agrawal & Shri Pankaj Mogra
Judges
  • D.T. Garasia, J.M.
  • O.P. Meena, A.M.
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citation codes
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Attorney(S)
  • Revenue by: Shri Mohd. Javed
  • Assessee by: Shri S.N. Agrawal & Shri Pankaj Mogra
Judges
  • D.T. Garasia, J.M.
  • O.P. Meena, A.M.
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Smart Summary

Structured Summary of the Provided Opinion (D.T. Garasia, J.M.)

Factual and Procedural Background

The opinion concerns an appeal arising from the reopening of an assessment under sections 147/148 of the Income-tax Act. The document opens by stating, "This appeal has been filed by the assessee against the order of the learned CIT(A)-I, Indore, dated 30.8.2013," and subsequently records a list of grounds said to be raised by the revenue. The core factual matrix as recorded in the opinion is as follows:

  • The assessee filed its return of income on 31 October 2001. An intimation under section 143(1) was passed on 20 December 2002.
  • A notice under section 148 was issued on 22 August 2007 and a return in response was filed on 15 September 2005 (dates and sequence as reflected in the opinion).
  • The reopening was initiated after a revenue audit objection that highlighted a discrepancy between MODVAT/MODVAT-credit figures shown in the audit report and excise duty debited in the Profit & Loss account.
  • The audit report figures for MODVAT/utilisation and the P&L excise debit differed by Rs. 231,081; the Assessing Officer (AO) translated this into alleged concealed sales of Rs. 51,60,039 by applying an excise duty rate.
  • The assessee submitted reconciliations and explanations (including a reconciliation statement of excise duty paid/adjusted) before the AO and later at the appellate stage, asserting that all sales were duly accounted for and that the figures reconciled once opening/closing stock provisions and PLA (paid licence account) entries were considered.
  • The AO recorded reasons for reopening, considered the audit objection and the assessee's reconciliation, and proceeded to add Rs. 51,60,039 as concealed sales (penalty proceedings under section 271(1)(c) were initiated separately).
  • The CIT(A) annulled the reassessment, holding that the reopening under section 147 was not justified because the AO lacked tangible material linking the discrepancy to escapement of income and had not properly dealt with the reconciliation evidence; the CIT(A) relied on judicial authorities addressing reopening and "review" of completed assessments.
  • The revenue appealed to the Tribunal against the CIT(A)'s order. The Tribunal considered submissions of both sides, examined the reconciliation and the AO's conduct on the objection, applied the authorities relied upon by the parties, and dismissed the revenue's appeal.

Legal Issues Presented

  1. Whether the reopening of the completed assessment under section 147/notice under section 148 was proper and valid in the presence of the audit objection and the material already available with the Assessing Officer.
  2. Whether the AO was justified in making additions (including Rs. 51,60,039 on account of alleged suppression of sales) based on the discrepancy between MODVAT/utilisation figures and excise duty debited in the Profit & Loss Account.
  3. Whether, in view of the reconciliation and explanations furnished by the assessee (including adjustments for opening stock and PLA entries), there existed "tangible material" to form a reason to believe that income had escaped assessment.
  4. Ancillary: Whether specific additions made by AO—relating to share capital/share premium (Rs. 66,00,000), unsecured loan and interest (Rs. 40,00,000 and Rs. 3,16,143) and cash expenditure (Rs. 5,30,000)—should be sustained in view of earlier decisions or other assessments of related entities.

Arguments of the Parties

Revenue / Assessing Officer (as represented by the Departmental Representative)

  • The reopening was justified because there was material in the form of the revenue audit objection showing that MODVAT credit utilised (as per audit) did not tally with excise duty debited in the P&L account, indicating a short debit of Rs. 231,081 and therefore possible concealed sales of Rs. 51,60,039.
  • The AO treated the difference as new information and a basis to form a "reason to believe" escapement of income, and obtained prior permission for reopening.
  • The department contended that the AO had information available to him and that the AO's reopening and subsequent additions were therefore justified.
  • Revenue also argued against the CIT(A)'s deletions of other additions (share capital, unsecured loans, cash expenditure, and interest) by reference to precedents and earlier assessments of related companies (as reflected in the grounds of appeal).

Assessee / Appellant

  • The assessee maintained that all sales were duly recorded in its books and that the apparent discrepancy arose from the manner in which excise duty and MODVAT entries, opening/closing stock provisions and PLA entries are reflected; it submitted a reconciliation statement explaining the figures and showing excise duty payments totaling Rs. 8,173,799 and an excise expense in P&L of Rs. 7,512,187 after appropriate adjustments.
  • The assessee argued that the essential pre-condition for issuing a notice under section 147 is that the AO must have "reason to believe" from tangible material that income has escaped assessment; merely picking two figures from the assessee's own return/audit report did not constitute fresh material establishing escapement.
  • The assessee relied on authorities (Kelvinator of India Ltd., Orient Craft Ltd.) to submit that reopening based on information already in the return/intimation without fresh tangible material is impermissible and amounts to an unlawful review of earlier concluded proceedings.
  • The assessee criticised the AO for not disposing of the objections properly and for failing to address the reconciliation statement; it asked that the reassessment be annulled for lack of valid reason to reopen.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
GKN Driveshaft (India) Limited, 259 ITR 19 (Hon'ble Apex Court) Principle regarding reopening assessments and requirement that AO must have fresh tangible material (and that a reopening cannot be a review of accepted returns/intimation). The CIT(A) and the Tribunal noted that the AO had not followed the direction in GKN; the Tribunal accepted the view that reopening must be based on tangible material beyond the returned figures. The AO's action was characterized as amounting to a prohibited review of the completed assessment.
Kelvinator of India Ltd., 320 ITR 561 (Supreme Court) Doctrine that reopening by the AO cannot be used to review earlier completed proceedings and that there must be tangible material to form a fresh reason to believe escapement of income. The CIT(A) and the Tribunal relied on Kelvinator to hold that reopening was improper where the AO merely revisited figures already in the return/intimation without new material; the Tribunal applied this principle to conclude that the AO lacked "tangible material" linking the discrepancy to unaccounted sales.
SICA Educational Trust, 10 ITJ 05 (Jurisdictional High Court) — as followed by ITAT That non-disposal of objections by the AO is a curable defect and the AO should be directed to decide the objections before proceeding with reassessment. The ITAT had earlier (per the opinion) followed SICA and directed the AO to dispose the objection; the present proceedings noted that the AO then took an adverse view but nevertheless failed to properly adjudicate the reconciliation when deciding the objection, which influenced the CIT(A)'s and Tribunal's conclusions.
Orient Craft Ltd. (Delhi High Court) — ITA No. 555/2012, dated 12.12.2012 Observed that an AO reaching belief of escapement merely by "going through the return of income" after acceptance under section 143(1) is tantamount to an unlawful review and arbitrary exercise of power under section 147. The CIT(A) relied on the Orient Craft observation to support the proposition that the AO's action in the present matter—forming belief on the basis of figures in the return/audit report without external corroboration—was arbitrary and impermissible; the Tribunal accepted this usage.

Court's Reasoning and Analysis

The Tribunal (D.T. Garasia, J.M.) summarized the factual matrix, examined the sequence of events, and reviewed how the AO arrived at the conclusion to reopen and subsequently make additions. The court's reasoning proceeded in distinct steps:

  1. Identification of the AO's stated reason for reopening: the AO relied on a revenue audit objection pointing to an alleged mismatch between MODVAT credit utilised (figure taken from audit report/return) and the excise duty debited to the Profit & Loss account, a difference of Rs. 231,081, which the AO translated to alleged concealed sales of Rs. 51,60,039.
  2. Examination of the assessee's reconciliations: the assessee filed detailed reconciliation statements showing total excise duty payments of Rs. 8,173,799 (including MODVAT and PLA), and explained adjustment of Rs. 661,612 relating to opening stock provisions that result in the P&L excise expense figure of Rs. 7,512,187. These reconciliations were placed before the AO and the CIT(A).
  3. Assessment of AO's conduct and sufficiency of material: the Tribunal noted that the AO "picked and chose" two figures from the assessee's own records (the MODVAT claim and the P&L debit) and treated the numerical difference as evidence of secret excise duty payment and corresponding concealed sales. The court found this approach inadequate because both figures originated in the assessee's own return/reconciliation and no independent external evidence was produced to demonstrate unaccounted sales.
  4. Failure to properly dispose objections: the ITAT earlier had directed the AO to dispose of the assessee's objection; although the AO issued a subsequent order, the Tribunal found that the AO did not properly engage with or reject the reconciliation explanation and remained silent on key points of the reconciliation when deciding the objection and in the reassessment order.
  5. Application of binding/relevant authorities: the Tribunal applied the principles in Kelvinator (Supreme Court) and the observations in Orient Craft (Delhi High Court), reiterating that reopening cannot constitute an impermissible review of completed proceedings and that a "reason to believe" must rest on fresh, tangible material that links to escapement of income. The Tribunal found that the AO lacked such tangible material and effectively attempted a review of the return/intimation by re-examining the same figures.
  6. Conclusion: because the AO did not properly rebut the reconciliation, did not produce external material linking the discrepancy to unaccounted sales, and relied on figures from the assessee's own records without further corroboration, the "reason to believe" required for a valid reopening under section 147 was not shown to exist. The Tribunal therefore found no merit in the revenue's appeal and dismissed it.

Holding and Implications

Final Holding: The appeal of the revenue is DISMISSED.

Implications and direct consequences:

  • The Tribunal upheld the CIT(A)'s annulment of the reassessment that arose from the reopening under sections 147/148: the reopening was held to be improper for lack of tangible material to form a reason to believe that income had escaped assessment.
  • The specific addition of Rs. 51,60,039 as concealed sales (and the foundational basis for reopening derived from the alleged MODVAT/excise discrepancy) was not sustained by the Tribunal in view of the reconciliations and the legal principles applied.
  • The Tribunal relied on existing authorities (Kelvinator, Orient Craft, and related directions following SICA) in reaching its conclusion; the opinion does not purport to lay down any novel legal proposition or new precedent beyond application of those authorities to the facts of the case.

No broader binding precedent was created by this decision beyond the Tribunal's application of the cited authorities to the facts; the direct effect is the dismissal of the revenue appeal and the upholding of the CIT(A)'s decision to annul the reassessment.

Order pronounced in open Court on 21 November, 2016 (as recorded in the opinion).

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    Acit 3(1) Indore v. Mittal Appliances Ltd. .

    D.T. Garasia, J.M.:— This appeal has been filed by the assessee against the order of the learned CIT(A)-I, Indore, dated 30.8.2013.

    2. The following grounds of appeal are raised by the revenue:—

    1. On the facts and in the circumstances of the case, the ld. CIT(A) erred in holding that the reopening the case was not proper in absence of any valid reason because there was information in hands of the A.O. in the form of audit objection.

    1.1 On the facts and in the circumstances of the case, the ld. CIT(A) was not justified in holding that the reopening was not valid because the Hon'ble Supreme Court has held that the material available with the A.O. in the form of audit objection can be utilised for initiating the proceedings u/s 147 of the Act

    2. On the facts and in the circumstances of the case, the decision of the ld. CIT(A) in deleting the addition of Rs. 66,00,000/- made by the A.O. on account of share capital and share premium is not acceptable since the Hon'ble ITAT has accepted the share capital in the case of Lunkad Group of companies as genuine in the A.Y. 2004-05 and 2005-06 the facts of which were entirely different to that of this year.

    2.1 On the facts and in the circumstances of the case, the Decision of the ld. CIT(A) in deleting the addition of Rs. 40,00,000/- on account of unsecured loan and Rs. 3,16,143/- in respect of interest thereon observing that the A.O. has accepted the loan as genuine in another case for A.Y. 2007-08 because the assessment order referred by the ld. CIT(A) is proposed to be set aside u/s 263 being erroneous and prejudicial to the interest of the revenue.

    2.2 On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs. 5,30,000/- made by the A.O. on account of cash expenditure made for providing entire holding that the main ground (ground no. 2 and 2.1 above) are allowed because on these points the decision is not accepted and appeal is preferred.

    3. On the facts and in the circumstances of the case, the CIT(A) erred in deleting the addition of Rs. 51,60,039/- made by the A.O. on account of supression of sales observing that the assessee has reconciled the excise duty whereas no such reconciliation was furnished before the A.O.

    3. On the facts and in the circumstances of the case, the CIT(A) erred in deleting the addition of Rs. 51,60,039/- made by the A.O. on account of supression of sales because there was clearly difference in the MODVAT utilised as per audit report furnished by the assessee.

    3. The effective ground is ground no. 1 and 1.1. The short facts of the case are that the assessee filed the return of income on 31st October, 2001. The case was processed u/s 143(1) of the Act on 20.12.2002. The case was reopened u/s 147 of the Act and the notice u/s 148 of the Act was issued on 22.8.2007 in response to which the assessee filed the return of income on 15th September, 2005. The assessment was reopened u/s 148 read with section 147 of the Act and the matter travelled up to the Tribunal and the transaction set aside the matter to the file of the Assessing Officer and after verification, the Assessing Officer reopened the assessment on following reasons.:—

    “On verification, it is notice that the assessee has manufactured utensils alloys and sold them under payment of central excise duty through MODVAT credit/account which are as under:—

    Sales of appliances Rs. 16,77,70,039 as per P & L account Payment to Central Excise Duty Rs. 75,12,186.95

    On further verification, is is seen that the assessee company utilized MODVAT credit account for payment of excise duty as shown in annexure-6 of 3CD Audit report as under:—

    Particulars Op. Balanc e MODVAT credit availed MODVAT credit utilized on clearance of finished good excisable Closing Balance RG 23 Pt. II- 1,061, 8,229,78 7,639,917 1,651,589 A (Raw 721 5 Material) RG 23 Pt. II-C (Capital goods) 15,360 198,393 103,351 110,402 Total 7,743,268

    In this way the excess excise duty of Rs. 2,31,081/-(Rs. 7743268-Rs. 7512187) was paid as per invoices issued on clearance of finished goods. Besides, the assessee company has also concealed sales of Rs. 51,60,039/- (231081 × 22.33) by utilizing excess MODVAT credit.”

    The assessee vide notice issued u/s 142(1) dated 03.21.2010 was asked to explain the discrepancy as mentioned above. The assessee submitted the reply vide letter dated 10.12.2010, as mentioned below:—

    “1. In this respect it is clarified that the assessee has duly accounted for entire amount of sales in its books of account and there was no suppression of any sale as per excise record/act also. A reconciliation statement of excise duty paid/adjusted through excise record as compared to the financial statement was filed before you. The said chart is again enclosed for your ready reference.

    2. On perusal of the said chart you will find that assessee company had paid following amount of excise duty during the year under consideration:—

    Through RG-23 Part IIA (Modvat) Rs. 7639917 Through RG-23 Part IIC (Modvat) Rs. 103351 Through PLA Rs. 430531 Rs. 8173799

    3. That as per the mercantile system of accounting the assessee has to make provision of excise duty on closing stock of finished goods as on 31st March of every year.

    4. That as per the books of accounts provision of excise duty of finished goods as appearing in the books of accounts as on 01.04.2000 was of Rs. 732279.89. That out of the said provision of excise duty the assessee had adjusted an amount of Rs. 661612.05 towards sale of old stock during the year under consideration. Further provision of Rs. 1195921.77 was made during the year on closing stock of finsihed goods as on 31.03.2001. The whole transaction can be summarized as under:—

    Provision of Excise Duty on Finished Goods:—

    Opening Balance 732279.89 Add: Provision during the AY 2001-02 119521.77 852801.66 Less: Excise duty adjusted towards sale of old stock 661612.05 Closing Balance 190189.61

    5. That as per deails submitted in para 2 the assessee has paid total excise duty of Rs. 8173799/- during the AY 2001-02. That out of the said excise duty payments during the year the assessee had adjusted excise duty towards sale of old stock of Rs. 661612.05 in the AY 2001-02 in para 4 above. Thus balance amount of Rs. 7512186.95 (Rs. 8179799-Rs. 661612.05) was debited in the P & L account during the AY 2001-02.

    Thus the assessee had duly accounted for entire amount of sale in its books of accounts and there was no suppression of any sale as per excise record also.”

    The submissions of the assessee were duly considered however, not found to be convincing. It is very much evident from the Audit Report that there has been difference in the excise duty actually paid and what has been offered by the assessee. Hence, a sum of Rs. 51,60,039/- is added in the income of assessee as concealed sales proceed. Penalty proceedings u/s 271(1)(c) is initiated separately.”

    3. The matter travelled to the learned CIT(A) and the learned CIT(A) has annulled the assessment order by observing as under:—

    4. I have gone through the facts of the case, the assessment order, the grounds of appeal and the appellant's submission. The appellant in the present case had filed its return of total income on 31-10-2001 declaring total income of Rs. 2590840/-. Intimation was also passed u/s 143(1)(a) on 20-12-2002. On the basis of audit objection, the completed assessment of the appellant company was reopened with the prior permission of the CIT on 22-08-2005. In the reason as recorded for reopening of the case, the then AO noted that the amount of Excise duty as mentioned in the Tax Audit report in form of MODVAT utilised of Rs. 7743268/- did not tally with the amount as debited in the Profit & Loss Account of Rs. 7512187/- and thereby it was observed that the appellant had debited lesser amount of excise duty of Rs. 231081/- in the P & L account and from this amount the AO worked out consequential concealment in turnover of Rs. 5160039/-. The appellant had filed objections which remained to be decided by the AO at the time of passing of the original assessment order on 29-12-2006. The appellant had preferred an appeal, before the Ld CIT(A) and in the appeal the assessment order was quashed by stating that the AO has not followed the decision of the Hon'ble Apex Court in the case of GKN Driveshaft (India) Limited as reported in 259 ITR 19 and Ld. CIT(A) also held that there was also no merit in the reason as recorded by the AO for reopening of the case.

    4.1.1 The department has challenged the order of my predecessor before the Hon'ble ITAT. Hon'ble ITAT vide its order dt 20.10.2009 following the decision of the Hon'ble Jurisdictional High Court in the case of SICA Educational Trust as reported in 10 ITJ 05 has held that non-disposing of the objection is the curable defects and accordingly directed the AO to first dispose off the objection against reopening of assessment of the appellant and then proceed further.

    4.1.2 The AO while passing the order following the direction of the Hon'ble ITAT, passed an order on 22-11-2010. The AO in his order in Para 5(B) has accepted that the present case was reopened on the basis of Revenue audit objection. In the said para it was also discussed that the amount of MODVAT utilised of Rs. 7743268/- as per audit report did not tally with the amount of Excise duty debited in the Profit & Loss Account of Rs. 7512187/-. Accordingly, AO came to form a view that appellant debited a lesser amount of Rs. 231081/- as excise duty expense in profit and loss account and accordingly came to an abrupt conclusion that such excise duty must have been concealed and thus estimated that corresponding unaccounted sales must be of Rs. 5160039/-. This was the only reason for reopening of the case. In Para 5(C), it was stated that the prior permission of the Ld CIT was obtained which was challenged by the appellant on the ground that permission of only Addl CIT was required on the facts of the present case. The AO in Para 5(D) reproduced the reason as recorded by his predecessor for reopening of the completed assessment. The table as discussed in the reasons for reopening is reproduced as under:—

    Particulars Opening Balance MODVAT Credit availed MODVAT credit utilized on clearance of finished goods/excisable Closing Balance [RG23PT IIA [Raw Material] 1,061,721 8,229,785 7,639,917 1,651,589 RG 23PT II-C[Capital Goods] 15,360 198,393 103,351 110,402

    4.1.3 The AO in para 5[E] of his order reproduced the objection as raised by the appellant. The AO also reproduced the reconciliation statement as furnished by the appellant before the AO, which is reproduced as under:

    RECONCILIATION STATEMENT OF EXCISE DUTY PAID

    PARTICULARS MODVAT MODVAT RG P.L.A TOTAL RG23 PT II A 23 PT 11 Opening Balance 1,061,722 15,360 252,795 1,329,877 Deposit taken/Modvat credit claimed 8,229,785 198,393 370,000 8,798,178 Total 9,291,507 213,753 622,795 10,128,055 Duty paid/utilised 7,639,917 103,351 430,531 8,173,799 Closing Balance 1,651,590 110,402 192,264 1,954,256 Total Excise duty payment during the year 8173799 Less:— Excise duty adjusted towards sale of old stock [Out of opening stock of finished goods] 661612 Excise duty charged to the Profit & Loss Account 7512187

    PROVISION OF CENTRAL EXCISE DUTY ON FINISHED GOODS

    Opening Balance 733279.89 Add;- Provision made during the year 119521.77 852801.66 Less:— Excise duty adjusted towards sale of old stock 661612.05 190189.61

    4.1.4 The AO while deciding the objection of the appellant, in Para F. 2 has stated that, reconciliation statement of excise duty paid/adjusted through excise record as compared to financial statements were filed which were placed on record however the same will be subject to verification from the books of account vis a vis supporting papers and excise records. The AO in Para F. 3 has observed that the appellant has failed to disclose fully and truly all material facts necessary for assessment and in Para F. 4 the AO stated that it is apparent that the AO had the sufficiency of reason to believe that sales was suppressed to the extent of Rs. 5160039/-.

    4.1.5 I have considered the reason as recorded by the AO for reopening of the completed assessment. The notice was issued on the behest of the revenue audit party and the AO obtained prior permission of the CIT even when only JCIT/Addl CIT is authorised to give permission. The appellant has also challenged the reassessment by stating that there was no tangible material in possession of the AO as to prove the live link of concealment of income. The AO while deciding the objection as raised by the appellant utterly failed to comment on the reconciliation statement as furnished by the appellant. The appellant has explained that in Tax Audit report, the requirement is only to provide information about the MODVAT as claimed by the appellant and as utilised by the appellant. It was also explained that total amount of Excise duty as paid by the appellant was of Rs. 8173799/- and not of Rs. 7743268/- as considered by the AO while recording reason for reopening of the case. The appellant during the course of appellate proceeding provided the same information in different order, the same is reproduced as under:—

    S. No. Description Amount (Rs) 1 MODVAT RG23 PT II A 7,639,917 2 MODVAT RG 23 PT 11 103,351 7,743,268 3 Excise duty utilized through the PLA account 430,531 8,173,799 4 Less Excise duty utilized towards the provision as made in respect of opening stock of finished goods 661,612 Excise duty debited in the Profit & Loss Account 7,512,187

    4.1.6 As per this reconciliation table total excise duty paid comes to Rs. 81,73,799/- including excise duty actually paid of Rs. 4,30,531/- and Modvat credit of Rs. 77,43,268/-. Out of this, a reduction is made of Rs. 6,61,612/- as the excise duty utilized towards provision in respect of opening stock of finished goods, which results into a balance figure of Rs. 75,12,187/- which was claimed as excise duty expense in profit and loss account.

    4.1.7 The AO cannot pick and choose two different figures from the return of appellant itself and assume that a figure of excise duty was secretly paid. It is common sense that appellant will not conceal any excise duty payment especially when both figures are shown in the return of income. The AO picked up two figures of excise duty from the return of appellant itself, namely the excise duty of Rs. 7512186/- claimed as expense in profit and loss account and tax audit report of appellant was showing Modvat credit claim of Rs. 77,43,268/-. As both these figures are picked up from the return of appellant itself, it is difficult to comprehend as to how it could lead to a conclusion that the difference of these two figures of Rs. 2,31,082/- was a suppressed claim of excise duty and consequently it is impossible to come to a conclusion from such reported numbers that certain sales of Rs. 51,60,039/- were transacted outside books of account, estimated from that figure of Rs. 2,31,082/- by applying excise duty rate. Without any iota of evidence of unaccounted sales, the figures reported in books cannot be used to come to such absurd conclusion.

    4.1.8 In view of these facts as also of specific direction of the Hon'ble ITAT, the AO was required to examine reconciliation statement filed by appellant and to find any mistake or gap in the explanation. But AO has remained silent on such reconciliation not only in the order deciding issue of reopening, but also in the reassessment order, which proves that stand of appellant was correct.

    4.1.9 Thus, the basic intention of the decision of the Hon'ble Apex Court in the case of GKN Driveshaft (India) Limited has been defeated. The AO has therefore not followed the direction given by the Hon'ble ITAT, Indore Bench. If the AO considered the objection in right perspective in that case, there was no reason for him to justify the reopening of the case. I am therefore of the considered opinion that the AO has grossly erred in not deciding the objection of appellant. There was no tangible material in possession of the AO as to have live link with the concealment of income.

    4.1.10 Hence, the basis of reopening itself was not proper in view of reconciliation statement of appellant, which was not rejected by AO, as also both the figures were picked up from appellant's own return of income, which could never lead to prove unaccounted sale, when there was no external evidence to prove unaccounted sales. Hence the very basis of “reason to believe” given by AO fails, because there was no tangible material to come to the conclusion that there is escapment of income from assessment and therefore reopening of the case cannot be sustained and for this purpose reliance is placed on the decision of Hon'ble Apex Court in the case of Kelvintor India Ltd. (SC) 320 ITR 561. In para 15 of the order of a recent decision by Hon'ble Delhi High Court in case of Orient Craft Ltd. (Appeal ITA No. 555/2012, dated 12.12.2012), it was noted that AO reached the belief that there was escapment of income “on going through the return of income” filed by the assessee after he accepted the same u/s 143(1) without scrutiny. This is nothing but a review of earlier proceedings deprecated by Supreme Court in case of Kelvinator (Supra). Then they further noted that there is no whisper of reasons recorded of any tangible material which came to possession of AO subsequent to the issue of intimation. It reflects an arbitrary exercise of power conferred u/s 147. Relying on the aforesaid decisions as well as on the facts of the case discussed above, it is held that reopening u/s 147 was not proper in absence of any valild reason to form a belief regarding escapment of income. Therefore, Ground No. (1) of appeal is allowed.”

    5. During the course of hearing, the learned DR submitted that the assessee's original assessment was completed u/s 143 read with section 147 of the Act. Thereafter, the matter travelled to the Tribunal and the Tribunal allowed the appeal of the department and the matter was restored to the file of the Assessing Officer and the preliminary ground was directed to be disposed of. The assessee's objection was for reopening the assessment order and after the objection, the Assessing Officer was of the view that during the assessment proceedings it was found that the assessee is manufacturing utensils and sold them under payment of Central Excise Duty through Modvat credit. It was found that the assessee company has utilised the Modvat credit. Moreover, the company has also concealed the sales. Therefore, the Assessing Officer was of the view that as per the books of accounts the provisions of excise duty on finished goods, as appearing in the books of accounts, as on 1.4.2002 was Rs. 732279/-. Out of the said provisions of excise duty, the assessee has adjusted the amount of Rs. 661612/- towards sale of old stock during the year under consideration. Thus, the assessee has made payment of excise duty adjusting the excise duty towards the sale of old stock. This, this was a new information. Therefore, the Assessing Officer has reopened the assessment and the reopening is justified. The Assessing Officer has reopened the assessment on the information which was available to him. Therefore, the learned CIT(A) is not justified in allowing the appeal on the ground that the reopening is not correct.

    6. On the other hand, the learned counsel for the assessee relied upon the order of the learned CIT(A) and the decision in the case of CIT v. Kelvinator of India Ltd.; 320 ITR 561 and Orient Craft Ltd. (Delhi) ITA No. 555/2012 dated 12.12.2012. The learned counsel for the assessee submitted that the preliminary condition for issuing the notice u/s 147 of the Act is that the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any Assessment Year subject to provisions of sections 148 to 153 of the Act. However, in the case of the assessee, the reason to believe was not escapement of income but the presumption was of revenue audit which is not proper and legal by issue of notice u/s 147 and 148 of the Act. The second objection is that the Assessing Officer has not disposed of the objections of the assessee.

    7. We have considered the submissions of both the sides. Looking to the facts and circumstances of the case, we find that the learned CIT(A) has held that while reopening the assessment, reasons for reopening are reproduced in the order of the learned CIT(A) as under:—

    Particulars Opening Balance MODVAT Credit availed MODVAT credit utilized on clearance of finished goods/excisable Closing Balance [RG23PT IIA [Raw Material] 1,061,721 8,229,785 7,639,917 1,651,589 RG 23PT II-C [Capital Goods] 15,360 198,393 103,351 110,402

    8. The Assessing Officer reopened the assessment order on the ground that the assessee has utilised the amount of Modvat credit amounting to Rs..7743268/- as per the audit report which did not tally with the excise duty debited to the profit and loss account Rs. 7512187/-. Therefore, the Assessing Officer came to the conclusion that the assessee has debited lesser amount of Rs. 231081/- as excise duty expenses in profit and loss account and accordingly came to the conclusion that the excise duty must have been concealed and estimated the corresponding unaccounted sales of Rs. 5160039. From the above table, the learned CIT(A) was of the view that the assessee has explained in the tax audit report that the requirement is only to provide information about Modvat credit, as claimed and utilised by the assessee. The total amount of excise duty was Rs. 8173799/- and not Rs. 7743268/-. The assessee has filed reconciliation statement and as per the reconciliation table, excise duty paid comes to Rs. 8173799/- including excise duty actually paid Rs. 430531/- and Modvat credit of Rs. 7743268/-. Out of this, Rs. 661612/- as excise duty was utilised towards the provision in respect of opening stock of finished goods which resulted in balance figure of Rs. 7512187/- which is claimed as excise duty expenses in the profit and loss account. The learned CIT(A) was of the view that the Assessing Officer has picked and chose two different figures from the return of income filed by the assessee. The assessee has shown excise duty payment in his return of income. The Assessing Officer has taken up two figures of excise duty from the return of the assessee that the excise duty of Rs. 7512186/- claimed as expenses in profit and loss account and in tax audit report Modvat credit claimed was Rs. 7743268/-. Therefore, when these two figures were picked up from the return of income and audit report filed by the assessee, it cannot be proved that the Assessing Officer has any information. Moreover, the Assessing Officer has, by booking the two figures, come to the conclusion that there are unaccounted sales but there is no tangible material to come to the conclusion that there is escapement of income from assessment and, therefore, the reopening of the case cannot be sustained. We find that the learned CIT(A) has verified the accounts, reconciliation statement of excise duty paid which was filed before the Assessing Officer and the learned CIT(A) and the learned CIT(A) has held that there is no reason to believe that there is separation of sale to the extent of Rs. 5160039/-. We also get support from the order of the Hon'ble Apex Court in the case of Kelvinator of India Ltd. and Orient Craft Ltd. (supra). We, therefore, find no merit in this appeal of the revenue and dismiss the same.

    9. In the result, the appeal of the revenue stands dismissed.

    The order has been pronounced in open Court on 21 November, 2016.

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    Comments

    Acit 3(1) Indore v. Mittal Appliances Ltd. .
    (Nov 21, 2016)