Income Tax Appellate Tribunal - Kolkata
Exide Industries Limited, Kolkata vs Assessee on 16 August, 2011
आयकर अपीलीय अधीकरण, बी " , कोलकाता,
अधीकरण Ûयायपीठ - "बी कोलकाता
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH : KOLKATA
सम¢)
सम¢ ौी एस.
(सम¢ वी. मेहरोऽा , लेखा सदःय एवं ौी महावीर िसंह, Ûयायीक सदःय,
एस वी. सदःय )
[Before Hon'ble Sri S.V. Mehrotra, A.M. & Hon'ble Sri Mahavir Singh, J.M.]
आयकर अपील संÉया / I.T.A Nos. 260, 261 & 262/Kol/2010
िनधॉरण वषॅ/Assessment Years : 2001-2002, 2002-03 & 2003-2004
Exide Industries Limited, -vs.- Deputy Commissioner of Income Tax,
Kolkata, (PAN-AAACE6641E) Circle-1, Kolkata
(अपीलाथȸ /Appellant) (ू×यथȸ/Respondent)
&
आयकर अपील संÉया / I.T.A Nos. 276, 277 & 278/Kol/2010
िनधॉरण वषॅ/Assessment Years : 2001-2002, 2002-03 & 2003-2004
Deputy Commissioner of Income Tax, -vs.- Exide Industries Limited,
Circle-1, Kolkata. Kolkata, (PAN-AAACE6641E)
(अपीलाथȸ /Appellant) (ू×यथȸ/Respondent)
For the Assessee : Shri R.N. Bajoria,
For the Department : Shri D.R. Sindhal, CIT, D.R.
सुनवाई कȧ तारȣख/Date of Hearing : 16.08.2011
घोषणा कȧ तारȣख/Date of Pronouncement : 21.10.2011
आदे श/ORDER
PER BENCH The assessee as well as the Department have filed these appeals for assessment years 2001-02 to 2003-04 against order of ld. Commissioner of Income Tax (Appeals)-XIII, Kolkata dated 23.11.2009.
2. In all the three years under consideration, re-assessment proceedings were initiated on the ground that assessee had claimed double deduction in respect of excise duty relatable to closing stock. The Assessing Officer after considering assessee's explanation, denied the assessee's claim and also levied interest under section 234D in respect of refund granted to assessee. Being aggrieved with the order of Assessing Officer, the assessee preferred appeal before ld. CIT (Appeals) assailing the initiation of proceedings under section 148 in all the 2 ITA Nos.260-262 & 276-278/Kol./2010 three years as well as on merits of addition. Levy of interest under section 234D was also assailed. Ld. CIT(Appeals) confirmed the Assessing Officer's in regard to initiation of re- assessment 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 which had been examined by his predecessor at the time of scrutiny assessment proceedings and the same constitutes a case of change of opinion, which is not a permissible ground for initiating reassessment proceedings as per the decision of the Apex Court in the case of CIT vs Foramer France reported in 264 ITR 566.
2.(a) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in confirming the disallowance made by the Assessing officer on the claim for excised duty payable / paid on closing stock of finished goods lying at factory at stock points aggregating to Rs.9,94,27,363/- (Rs.8,40,45,799/- & Rs.1,53,81,564/- respectively), which was claimed in view of the provisions of section 43B and the settled principle laid down by the Apex Court in the case of Berger Paints Ltd and the Tribunal's decision in appellant's own case in assessment year 1996-97.
(b) That the Ld. CIT(Appeals) erred in law by disregarding the decision of the Tribunal in the appellants own case for the assessment year 2004-05. which was binding on him, thereby acting against the principle laid down by the Apex Court in Union of India vs. Kamalakshmi Finance Limited - AIR 1992 SC 711.
4. The assessee, a widely held domestic Company, in all the assessment years under consideration, was engaged in the business of manufacture and sale of batteries. Original regular assessment was completed under section 143(3) vide order dated 31.03.2004 computing the total income of the assessee at Rs.29,10,29,833/-. Thereafter the order under section 143(3) dated 31.03.2004 was rectified under section 154 on 29.07.2004 and the total income was determined at Rs.28,81,91,504/-. On 19.03.2007, proceedings under section 147 were initiated by issue of notice under section 148 of the Income Tax Act by recording 3 ITA Nos.260-262 & 276-278/Kol./2010 reasons. Thus, admittedly the notice under section 148 has been issued beyond four years from the end of relevant assessment year.
5. Before the ld. CIT(Appeals), the assessee had submitted that there was no failure on the part of assessee to disclose all material facts related to the taxability of excise duty paid/ payable on closing stock. Since there was no failure on the part of the assessee, therefore, the notice issued under section 148 after 4 years of end of assessment year 2001-02 was bad in law. It was submitted that during the original assessment proceedings, 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 material facts relating to taxability of the excise duty paid/ payable on closing stock before the Assessing Officer and upheld the proceedings under section 147.
6. Shri R.N. Bajoria, ld. senior counsel for the assessee, submitted that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and, therefore, re-assessment proceedings initiated after expiry of four years from the end of relevant assessment year were without jurisdiction in view of proviso to section
147. Shri Bajoria referred to page 1 of the paper book, wherein notice issued under section 4 ITA Nos.260-262 & 276-278/Kol./2010 148 of the Act dated 19.03.2007 is contained. The reasons recorded by Assessing Officer are re-produced hereunder :-
"In the instant case, scrutiny assessment was completed u/s 143(3). At the lime of assessment, following income subject to tax escaped assessment in terms of section 147 of the IT Act on the following account:
The assessee had classified closing stock of finished goods under two heads (i) stock dispatched from factory (depot stock) and (ii) stock lying in factory (factory stock).
Central excise duty on both stock of finished goods, was included in valuation of stock and the same amount was debited In accounts. In respect of depot stock (DS)) the central excise duty was paid before end of the year and in respect of factory stock (FS) central excise duty was paid before filing of return.
Though the amount of excise duty was debited in the P&L a/c. the assessee in computation of taxable income of the assessment year 2001-02, followed the practice of claiming separate deduction of excise duty under section 43B and adding back the same amount for tax during the next assessment as below:
A.Y. Stock as on Depot. Stock(DS) Factory Stock (FS)
01-02 31.3.01 84045799 15381564 (added back in02-03)
The practice resulted in double deduction as the same amount was taken into account twice (i) in determining profit & loss of the year through debit in P&L a/c. and (ii) in determining taxable income of the year through separate deduction from the profit/loss of the P&L a/c. of respective assessment year.
Since the amount of excise duty was debited in the respective year to determine the profit/loss of the year, there was no scope of claiming separate deduction of excise duty u/s. 43B for 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
5 ITA Nos.260-262 & 276-278/Kol./2010
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
Rs.22,157,699
section 43B, now offered to tax
Shri Bajoria further referred to page 6 of the paper book, wherein computation of income and tax payable thereon for assessment year 2002-03 is contained and pointed out that as per disclosure made in the computation of income for assessment year 2001-02, the assessee had made adjustment in assessment year 2002-03 as under :-
(i) Excise duty on duty paid stock as on 31.03.2001 and claimed as a deduction in AY 2001-02 on payment basis in view of section Rs.84,045,799 43B, now offered for tax
(ii) Excise duty pertaining to goods manufactured during the financial year ending on 31.03.01, but not dispatched from the factory as 31.03.01 claimed in AY 2001-02 on payment basis under section.
43B, now offered for tax Rs.15,381,564/-
With reference to above narration given in the computation, Shri Bajoria submitted that all the material facts in regard to assessee's claim of excise duty in terms of section 43B were duly disclosed in the computation. He, therefore, submitted that in view of proviso to section 148, proceedings initiated under section 147 were without jurisdiction.
7. The second limb of argument of ld. counsel for the assessee is that the entire 148 proceedings have been initiated on account of change of opinion, which cannot be done in view of the decision of Hon'ble Supreme Court in the case of CIT -vs.- Kelvinator of India Ltd. [2010] 187 Taxman 312 (SC). In this regard, learned senior counsel Shri Bajoria pointed out that, as noted above, the assessee had specifically disclosed in the computation the mode of claiming deduction under section 43B in regard to excise duty payment. Shri Bajoria referred to page 3 of the paper book, wherein the notice issued under section 142(1) dated 03.12.2003 in course of regular assessment proceedings is contained, in which at serial no. 9, the Assessing Officer had required the assessee to give details of the amount of duty tax, etc. on the closing stock as on 31.03.2001 and date of bill. Ld. counsel further referred to page 5 6 ITA Nos.260-262 & 276-278/Kol./2010 of the paper book, wherein the assessee's reply is contained and referred to Annexure-'H' to the said reply, which was as under :-
Particulars Amount included Subsequent Balance unpaid Tax Audit Report in closing stock payment Ref.
upto 5.10.01
Annexure 11A
Excise Duty 15,381,564/- 15,369,596/- 11,968/- Clause 21(i)(B)
(Serial No. 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 the Hon'ble Supreme Court in the case of Ujagar Paints vs. Union of,India reported in 38 ELT 535 (SC) that such liability to pay excise duty arises upon manufacture of goods although the obligation to discharge such liability arises only upon clearance of goods from the factory gate. Due to the accrual system of accounting and amendment in section 145A of the Income tax Act, the assessee is bound to account for the liability of finished goods of goods lying in stock pending dispatch by debiting the amount of duty in the profit and loss account. However, while ascertaining the value of closing stock of finished goods, pending dispatch, the same amount of excise duty is also included in the value of closing stock, i.e. in other words credited to the profit & loss account. Thus this will again neutralise its impact in the profit and loss account.
It is well established that a liability to be allowed in a year in which it anses 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. The asessee had both debited and credited the element of excise duty on dosing stock of finished goods 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 liability would be allowed only if the company makes the payment before the date f 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 under section 43B, since the duty is actually paid before the end of the 7 ITA Nos.260-262 & 276-278/Kol./2010 financial year. The duty amount for such goods lying at various stock points/ godowns for the assessment year 2001-2002 amounts to Rs.1,149,610/- which has been claimed as a deduction separately. Further the duty element of stock of goods manufactured but not sold and lying in closing stock at factory is accounted with the duty payable on such goods upon actual dispatch. The duty on such category of closing stock amounts to Rs.15,381,564. This amount s specified in Annexure 11A of the Tax Audit Report. On a perusal of the said annexure 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/- respectively.
The assessee had relied its claim following the principle laid down by the Special Bench of the Hon'ble Delhi Tribunal in the case of Indian Communication Network P. Ltd. -vs.- IAC reported in 206 ITR 96 (AT). In a similar issue before the Special Bench, where the assessee had all along included the value of customs duty, excise duty pertaining to goods unsold as a part of its closing stock of raw material and finished goods and claimed such duty upon actual payment as per the provisions of section 43B, it was held that such duty element should be allowed as a deduction under the express provisions of section 43B. The issue now stands settled by the Hon'ble Supreme Court in the case of Berger Paints India Limited vs CIT WB-IV, SLP no 19351 to 19353 of 2002 (copy enclosed)"
7.2. He further referred to the copy of letter dated 05.03.2004 filed by the assessee during the proceedings under section 143(3) contained at pages 15 & 16 of the paper book and pointed out that again note on excise duty of closing stock claimed as deduction under section 43B was filed before the Assessing Officer. Shri Bajoria further referred to page 29 of the paper book, wherein Annexure 11A, being part of Tax Audit Report, is contained. In this Annexure, details as required under section 21(1)(B) of the Tax Audit Report are contained, wherein sums referred to in section 43B(a), (c), (d), (e)- details of current year, have been given. Shri Bajoria submitted that after considering all these details, Assessing Officer had passed the assessment order dated 31.03.2004 and did not make any disallowance in this regard. He further submitted that merely because Assessing Officer did not discuss the assessee's claim in regard to payment of excise duty, does not imply that Assessing Officer had not applied his mind to the facts of the case. Shri Bajoria submitted that after considering the detailed submissions, Assessing Officer passed the assessment order.
8 ITA Nos.260-262 & 276-278/Kol./20107.3. Shri Bajoria, ld. senior counsel for the assessee, submitted that the Board had elaborated its intention while clarifying the Amendment in section 148 vide its Circular No. 549 dated 31.10.1989 (182 ITR Statute 1). In Clause 7.2 of the said Circular, it is clearly stated that the amendments had been carried out only with a view to allay fears that the omission of the expression "reason to believe" from section 147 and their substitution 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 -vs.- Kelvinator of India Ltd. reported in 187 Taxman 312 (SC), 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 fulfillment of certain pre- conditions 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 -vs.- Addl. CIT reported in 314 ITR 275, wherein it has been held that where the material on record has already been considered and adjudicated upon, it would not be open to the Assessing Officer to disagree with the view already taken on the material on record. In such a case, reopening of assessment based on material already considered and adjudicated, would amount to reviewing assessment order by re-appreciating material on record which is not contemplated under section 147.
8. The third limb of argument of Shri Bajoria, ld. senior counsel appearing on behalf of the assessee is that apparently entire reassessment proceedings have been initiated on the basis of assessment order passed under section 143(3) for assessment year 2004-05. He submitted that the assessment order for assessment year 2004-05 is dated 22.12.2006 contained at pages 20-23 of the paper book and the notice under section 148 has been issued on 19.03.2007. He submitted that Tribunal has decided the issue for assessment year 2004-05 by upholding the decision of ld. CIT(Appeals) deleting the addition made by the Assessing Officer. Therefore, the very basis, on which the re-assessment proceedings were initiated, was not correct.
9 ITA Nos.260-262 & 276-278/Kol./20108.1. On merits, ld. counsel submitted that the issue for which the proceedings under section 147 of the Act had been initiated is concluded by Tribunal's order. He submitted that for the relevant assessment year Assessing Officer examined the alleged double claim of deduction on account of inclusion of excise duty in closing stock of finished goods amounting to Rs.9,94,27,363/-. Assessing Officer disallowed the claim of the assessee on the ground that the assessee had claimed the impugned deduction twice-- once by debiting the aforesaid sum in the profit & loss a/c. and for the second time, while computing the total income for the relevant assessment year. In this regard, ld. senior counsel Shri Bajoria explained that since the insertion of section 145A in the Income Tax Act, 1961, the company had accounted for the excise duty element in valuation of closing stock of finished goods. There were two types of closing stocks of finished goods, i.e. (a) goods which were dispatched to branches/ godowns/warehouses (referred to as Depot Stock) and (b) lying in factory premises not dispatched (referred to as Factory Stock). He submitted that in the first instance, i.e. (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 submitted that these entries neutralized the impact of excise duty in the profit & loss a/c. and, thus, the assessee did not get any deduction of the excise duty element.
Assessee's written submissions on merits regarding treatment of excise duty in case of factory stock are re-produced hereunder :-
10 ITA Nos.260-262 & 276-278/Kol./2010ACCOUNTING TREATMENT OF EXCISE DUTY IN CASE OF FACTORY STOCK In the second case ((i.e. (b)] the principle of the liability is determined by the Hon'ble Supreme Court in the case of Ujagar Prints vs. Union of India reported in 38 ELT 535 (SC) that such liability to pay excise duty arises upon manufacture of goods although the obligation to discharge such liability arises only upon clearance of goods from the factory gate. Due to the accrual system of accounting and amendment in section 145A of the Income tax Act, the assessee is bound to account for the liability of finished goods in stock pending dispatch by debiting the amount of duty in the profit and loss account. While ascertaining the value of closing stock of finished goods, pending dispatch, the same amount of excise duty is also included in the value of closing stock, i.e. in other words credited to the profit & loss account. Thus this will again neutralize its impact in the profit and loss account.
The relevant accounting entries are Excise Duty Ale (Profit & Loss Account) Dr 1,53,81,564 To Excise duty payable A/c (liability) Cr 1,53,81,564
(Being the amount of excise duty payable on the finished goods lying as closing stock pending dispatch) Kindly note that this liability of excise duty is hit by the provisions of 43B and is subsequently paid before filing of the return - as certified by the tax auditor.
Inventory -- Finished goods Dr 1,53,81,564 To Excise duty a/c. (Profit & Loss A/c. Cr.1,53,81,564
(Being Excise duty element of finished goods lying in stock pending dispatch now included in the value of closing stock).
Kindly note that the corresponding accounting entries entry also neutralizes the impact of excise duty in the profit & loss account.
As per the provisions of section 43B of the Act, any statutory duty, irrespective of its accounting treatment wo1 only be allowed as a deduction, provided such amount is paid before the due date of filing of return. It is well established 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 under section 43B, since the duty is actually paid before the end of the financial year.11 ITA Nos.260-262 & 276-278/Kol./2010
The duty amount for such goods lying at various stock points/ godowns for each of the assessment years have been claimed separately in the computation of income. Since the duty is already paid there is no separate disclosure in the tax audit report regarding its payment. Further as per the Central Excise Act, no dispatch is possible without payment of duty and hence the duty is already paid on depot stock.
Further the duty element of stock of goods manufactured but not sold and lying in closing stock at factory is accounted with the duty payable on such goods upon actual dispatch. For example the duty on such category of closing stock for AY 2001-02 amounts to Rs.1,53,81,564/-.
This amount is specified in Annexure 1 1A of the Tax Audit Report. Since it is already certified by the tax auditor that the amount of Rs.1,53,69,596/- has actually been paid over the period April 2001 till the date of filing of return (upon dispatches) such amount is rightly been claimed as a deduction. The copy of the Annexure- 11 A of the TAR is enclosed at page no. 29 of the paper book.
8.2. Shri R.N. Bajoria, ld. senior counsel for the assessee submitted that mode of computation is in conformity with the principles laid down in the case of Maruti Udyog Ltd.
-vs.- DCIT for assessment year 1999-2000 reported in [2005] 92 ITD 119 (Delhi) and specifically referred to the following observations :-
"39. The next question for consideration is whether sum of Rs.22,46,88,464, representing the custom duty paid on imports of inputs for export but remained un-utilized by the end of the year, could be disallowed under section 43-B read with section 145A. In this regard, we are of the considered view that no disallowance under section 43B could be made in view of the judgment of Gujarat High Court in the case of Lakhanpal National Ltd.(supra) and Supreme Court judgment in the case of Berger Paints India Ltd. (supra) as well as decision of the Tribunal in the case of Indian Communication Network Ltd. (supra) and in the case of Sona Steering System Ltd. (supra). The objection of Assessing Officer for disallowance was that such sum was not debited to P&L account. In our opinion, this objection is without force since deduction under section 43B has to be allowed on actual payment basis irrespective of the method of accounting. The CIT(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 trading account, has the effect of cancelling the purchases to that extent debited to such trading account. Therefore, it cannot be said that deduction on account of purchases, to the extent included in the closing stock, stands allowed. Applying the same principle, it cannot be said that the custom duty paid and debited to profit and loss account stands allowed to the extent included in the closing stock.12 ITA Nos.260-262 & 276-278/Kol./2010
40. This view of ours is also fortified by the decision of Tribunal in the case of Sona Steering System Ltd (supra) whereon similar facts such claim was allowed. In that case, the assessee was debiting the purchases in trading account inclusive of custom duty and showing the closing stock inclusive of such duty. Such method of accounting was in consonance with the method now prescribed in section 145A. The assessee had claimed deduction under section 43-B equal to the amount of custom duty included in the closing stock but such claim was disallowed by Assessing Officer on the ground that such claim stood allowed by debiting the purchases in the trading account. However, the Tribunal allowed the claim of assessee by holding as under :-
"According to the accounting principles whenever the raw material purchased is shown in the closing stock and carried forward to the next year in the form of opening stock, it cannot be said that the cost of purchase has been allowed. For the similar reason the custom duty paid by the assessee has been added to the cost of raw material and the same has been shown in the closing stock and carried forward to the next year in the form of opening stock. Therefore, it cannot be said that the expenditure on account of customs duty stands allowed to the assessee in the year under consideration Therefore, following the decision of the Special Bench, the assessee is entitled to deduction of the aforesaid amount under section 43B in the year under consideration."
The above decision squarely applies to the facts of present case. Therefore, following the same, the claim of assessee is held to be allowable under n 43-B to the extent of Rs.20,60,14,392. Consequently, the order of CIT(A) is set aside and the disallowance of Rs.20,60,24,392 is deleted.
However, before parting with this aspect of the issue, we would like to clarify that assessee cannot be allowed double deduction - once on the basis of cash payment in the year under 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 claimed by assessee.
In sum and substance, ld. Senior Counsel submitted that on merits, the issue is concluded by the decision of Tribunal in assessee's own case for Assessment Year 2004-05.
13 ITA Nos.260-262 & 276-278/Kol./20109. Learned CIT(DR) submitted that assessee should not have debited excise duty in the Profit & Loss A/c. on accrual basis because the deduction is governed by the provisions of section 43B. He referred to pages 16 & 17 of ld. CIT(Appeal)'s order, which is as under :-
"Now if we first analyze the provisions of section 145A, we find that this section requires that whatever may be the accounting method regularly followed by the assessee, the excise duty paid or incurred by the assessee in respect of closing stock of finished goods should be included in the valuation of such goods. In respect of the goods lying in the godown/warehouses the excise duty has been actually paid by the assessee. As per section 145A the amount of this excise duty should be included in the value of such goods. The A/R of the assessee has claimed that when this paid excise duty is included in the value of the closing stock of the finished goods the corresponding entry passed in the Excise duty paid account (debited in the P&L account) is merely a neutralizing entry and by doing so the assessee is not claiming any deduction. Therefore, the assessee should be provided additional deduction for the same amount uls.43B separately. This argument of the AR is totally wrong. The fact is that when the excise duty paid is included in the value of the closing stock lying at godowns/warehouses it amounts to giving effect to section 145A. And when the paid excise duty is debited to P&L account the assessee is actually claiming deduction for excise duty paid. Once the, deduction has been allowed where is the question of allowing the deduction for the same amount uls.43B. Once these accounting entries are completed the treatment of these entries for taxation purposes in the P & A/c. is also completed. There cannot be any question for allowing the excise duty paid as a deduction once again u/s.43B. This is a clear cut case of claim of double deduction where the same excise duty which has been paid only once is being claimed as deduction two times. This is totally absurd and should not be allowed under any circumstances. By doing this the assessee is defeating the very purpose for which section 145A was introduced.
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 this amount can be allowed over and above what has been allowed in the P & L A/c."
Learned Departmental Representative further referred to page 3 of the assessment order, which reads as under :-
"The explanation of the assesese is not accepted because as soon as the excise duty on the closing stock is debited in the P&L A/c., the assessee is liable to pay the excise duty and if payment is not made, as on the closing date of the accounts, the amounts remained payable and the expenditure in respect of the amount debited in the P&L A/c. is allowable if the amount remaining payable as on 31.03.2001 was paid before the due date of filing the return under section. 139 of the I.T. Act".14 ITA Nos.260-262 & 276-278/Kol./2010
9.1. Learned Departmental Representative further referred to page 13 of the order of ld. CIT(Appeals), wherein he has observed as under :-
"I have carefully considered the above arguments of the A/R and the various documents submitted in the paper book. It is noted that in the computation of income and also in the explanatory note submitted to the A.O. about valuation of closing stock and treatment of excise duty the assessee has only explained what accounting treatment is given to the excise duty while valuing the closing stock. 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 A.O. either in the return of income or in the submissions made during the assessment proceedings. Similarly it was not made clear to the A.O. that the excise duty related to the .stock lying in factory premises has already been debited in the P/L Account. Thus, in any of the submissions made to the Assessing Officer during the assessment proceedings it not clarified that the deduction for the excise duty on closing stock lying at factory and godowns was being elaimed twice. In view of the above I am of the opinion that the assessee did not disclose all the material facts related to excise duty paid/payable on closing stock before the AO. Since the excise duty related to closing stock had been claimed twice as a deduction, the income of the assessee chargeable to tax had been under- assessed. As per clause c(i) of Explanation 2 under section 147 this is a case of deemed escapement of income".
With reference to the above facts, ld. Departmental Representative submitted that it will be wrong to say that the assessee 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 specific issue. Ld. DR further submitted that in the assessment year 2002-03 the alleged note of excise duty on closing stock filed along with letter dated 08.02.2005 was not before the Assessing Officer. He submitted that there is no initial of Assessing Officer and order sheet also does not refer to the letter dated 08.02.2005. In this regard, he referred to the copy of order sheet for assessment year 2002-03 15 ITA Nos.260-262 & 276-278/Kol./2010 contained at pages 5-9 of the paper book to demonstrate that there is no noting of the said letter dated 08.02.2005 and proceedings were adjourned to 17.02.2005 after partly being discussed. However, ld. CIT, DR fairly submitted that the letter is on assessment record. In the assessment year 2003-04, however, he did not dispute the existence of note on excise duty 9.3. Learned Departmental Representative relied on the decision of ITAT, Ahmedabad, Special Bench in the case of Gujarat Credit Corporation Limited -vs.- ACIT, reported in [2008] 302 ITR 250 (SB). In this case, loss on sale of securities held as investments was claimed and allowed in assessment as business loss instead of as capital loss. These facts provided a prima facie basis to the Assessing Officer to believe that income had escaped assessment. He contended that the claim of assessee was not allowable and, therefore, the same constituted 'reason to believe' that income had escaped assessment. In this case, Tribunal primarily relied on the decision of Hon'ble Gujarat High Court in the case of Praful Chunilal Patel -vs.- ACIT reported in 236 ITR 832], wherein it has been held that if there is material placed on record, which would show existence of income chargeable to tax and which ordinarily ought to have been included in the ascertainment of taxable income made in the assessment order but was not so included, that would itself provide a cause or justification for a belief to the Assessing Officer that such income had escaped assessment and the assessing Officer in such cases would be ex-facie justified in initiating the proceedings on such basis. The cases of non-assessment of an item of income chargeable to tax would warrant formation of requisite belief to initiate the proceedings within four years of the end of the relevant assessment year, even where full disclosures were made and yet an income chargeable to tax had escaped from being included in the final assessment order in which taxable income was worked out. Ld. DR also relied on the decision of the Hon'ble Bombay High Court in the case of Girilal and Company -vs.- ITO & Others reported in [2008] 300 ITR 432 (Bom.), 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 ACIT -vs.- Apollo Hospitals Enterprises Ltd. reported in [2008] 300 ITR 167 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 16 ITA Nos.260-262 & 276-278/Kol./2010 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 Assessing Officer on the given set of facts. The ld. D.R. relied on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT -vs.- Hindustan Tools & Forgings P. Ltd. [2008] 306 ITR 209. In this case re- opening was upheld merely on the ground that the assessee had been allowed excessive relief and, therefore, in view of clause (c) of Explanation 1 to section 147 of the Act, the re- assessment proceeding under section 147(b) was justified. In this case,, the assessee filed return for assessment year 1978-79. Subsequently, it filed a revised return claiming deduction on account of additional liability of sales tax out of the profit. The assessment was completed. Subsequently, the Assessing Officer reopened the assessment and issued notice under section 148 of the Income Tax Act. He observed that the assessee had collected sales tax and Central excise on the sale price of the Vanaspati including the amount of excise duty chargeable of vanaspati, but had not paid to the State Government and, therefore, it was liable to be included in the income of the assessee. Hon'ble Punjab & Haryana High Court upheld the re- assessment proceedings observing that specific information was sought as to when payments were actually made to the Government. However, the assessee without furnishing specific information gave copies of sales tax account for the previous year September 01, 1976 to August 31, 1997 relevant to the assessment year 1978-79. It was held that information furnished by the assessee gave no proof to the payment of liability in regard to sales tax collected in excess.
10. Shri Bajoria, ld. senior counsel in his rejoinder submitted that in the order sheet for assessment year 2001-02, the noting on 16.12.2003 in course of regular assessment proceedings reads as under :-
"Excise duty on closing stock as discussed".
He further referred to the office note dated 25.02.2004, which reads as under :-
"Also to clarify why excise duty paid as on 31.03.2001 is claimed in the computation".
With reference to these notings, Shri Bajoria submitted that specific query had been raised by the Assessing Officer. He submitted that after considering the details furnished before the Assessing Officer, he was required to draw the conclusion whether assessee had claimed double deduction or not. It was not for the assessee to guide him for arriving at any conclusion. Ld. counsel also referred to the decision of ITAT, Delhi, Special Bench in the 17 ITA Nos.260-262 & 276-278/Kol./2010 case of Indian Communication Network (P.) Ltd. -vs.- Inspecting Assistant Commissioner reported in (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 allowing to the assessee the effective deduction to which it was entitled under section 43B. Also, in the subsequent assessment year, the assessee's opening stock would stand reduced by a corresponding figure since it could not avail of a 'double deduction'.
Hence, the deduction of the impugned amount was allowed to the assessee, and the opening stock for the assessment year 1985-86 was directed to be reduced by the same figure".
11. We have considered the submissions of both the parties and have perused the material available on record. In all the three assessment years, the assessment has been completed under section 143(3). The reasons for initiation of proceedings under section 147 are identical in all the three assessment years. The only difference is that the proceedings under section 147 for assessment year 2001-02 have been initiated after four years from the end of relevant assessment year and in other two assessment years, proceedings have been initiated within four years from the relevant assessment year. There is no dispute on this aspect. Therefore, the validity of re-assessment proceedings under section 147 for assessment year 2001-02 has to be examined with reference to proviso to section 147 and in respect of other two years it is to be examined under the main provisions of section 147. As far as A.Y. 2001-02 is concerned, as per proviso, where the assessment under sub-section (3) of section 143, no action can be taken under section 147 after the expiry of four years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of assessee, inter alia, to disclose fully and truly all material facts necessary for assessment, for that assessment year. If we examine the facts for assessment year 2001-02, we find that in the computation of income, the assessee had given in detail the mode of claiming deduction in respect of excise duty payment as has been reproduced earlier in the submissions of ld. counsel for the assessee. That apart, in the notice issued under section 142(1) dated 03.12.2003, the Assessing Officer had specifically 18 ITA Nos.260-262 & 276-278/Kol./2010 required the assessee to furnish total amount of duty, tax etc. on the closing stock as on 31.03.2001 and date of payment. The assessee had filed details on 16.12.2008 in this regard, which have been reproduced earlier as per Annexure 'H' at page 7 of the paper book, which reads as under :-
Item No. 9Amount of Duty, Tax, etc. included in the closing stock as remained unpaid as at 31st March 2001:-
Particulars Amount Subsequent Balance unpaid Tax Audit report included in payment upto ref.
closing stock 05.10.01
Annexure 11A
Excise duty 15,381,564/- 15,369,596/- 11,968/- 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 followed by the company, the deduction of such excise duty is a availed only in the year in which the stock is sold.
It may kindly be noted that the assessee has offered to tax the entire sum of Rs.84,045,799/- being the claim on account of excise duty paid in respect of closing stock as on 31st March, 2001 in the computation of total income for the assessment year 2002-03. A copy of the computation of income for the assessment year 2002-03 is enclosed for your kind perusal (Annexure 'D').
11.1. Annexure-D referred to in above clarification clearly explained the mode of payment of excise duty and claim of deduction under section 43B. Again on 05.03.2004, detailed note of excise duty on closing stock of finished goods was filed before DCIT, Circle-1. Further, as far as assessment year 2001-02 is concerned, there is no dispute that this detailed note was submitted before the Assessing officer. In the reasons recorded, as noted above, the Assessing Officer has not pointed out as to which particular fact was not disclosed by assessee, which 19 ITA Nos.260-262 & 276-278/Kol./2010 was necessary for arriving at the alleged conclusion of double deduction being claimed by the assessee. The mandate of proviso is very clear that unless there is a failure on the part of assessee to disclose fully and truly all necessary facts for assessments, re-opening cannot be upheld. The alleged escapement must be on account of any omission or failure on the part of assessee to disclose fully and truly all material facts necessary for the assessment in the course of assessment proceedings. It is well settled law that once the assessee has disclosed all material facts necessary for assessment, then what inference is to be drawn from the said set of facts is for the assessing authority to decide and assessee is not supposed to guide the adjudicating authority in arriving at any particular conclusion. From the details furnished by assessee, it was for the Assessing Officer to decide whether the assessee had claimed any double deduction or not.
Therefore, the proceedings under section 147 were without jurisdiction and liable to be quashed in view of proviso to section 147. As we have already quashed the reassessment proceedings, therefore, we need not to go into the merits of the case as raised by the assessee in ground No.2. However, we find that on merits also the issue is covered in favour of assessee by the decision 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 proceedings under section 147 have been initiated on account of change of opinion or not. It is well settled law that merely on the basis of change of opinion, the Assessing Officer cannot 20 ITA Nos.260-262 & 276-278/Kol./2010 initiate 147 proceedings. The Hon'ble Supreme Court in the case of Kelvinator India Limited [2010] 187 Taxman 312 (SC) has observed as under :-
Head Note "..............Therefore, 1-4-1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe: failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion which cannot be per se reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfillment of certain pre-conditions 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. Hence, after 1-4-1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147. However, on receipt of representations from the companies against omission of the words 'reason to believe the Parliament re- introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. [Para 4]".
14.1. In order to examine, whether re-assessment proceedings have been initiated on account of change of opinion or not, we have to examine whether the Assessing Officer had duly applied his mind to a particular issue and if we find that on that particular issue, after examining the relevant details during the course of assessment proceedings, Assessing Officer arrived at a particular conclusion then, unless some tangible material comes to his possession post-assessment, on same set of facts, re-assessment proceedings cannot be initiated. The phrase 'change of opinion' implies 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 21 ITA Nos.260-262 & 276-278/Kol./2010 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 accounting and again under section 43B in the computation. The true effect of double deduction, in the same year, of excise duty paid by assessee, was an important issue, on which Assessing Officer should have applied his mind and then come to a conclusion. Non-application of mind on such a vital aspect cannot be considered as formation of opinion on the basis of details available before him. We are conscious of the fact that it is not the duty of assessee to guide the Assessing Officer in arriving at a particular conclusion but at the same time, if on account of failure on the part of Assessing Officer to consider a vital issue, emanating from the details furnished by assessee, there is prima facie escapement of income then it cannot be said that the initiation of re-
assessment proceedings is on account of change of opinion. We, therefore, are of the opinion that in view of the findings on this issue in Assessment Order for A.Y. 2004-05, the Assessing Officer's prima facie belief regarding escapement of income cannot be questioned particularly in the light of deeming provision regarding escapement of income contained in Explanation(2)©(i) to section 147. Learned Departmental Representative has rightly submitted that at the time of recording of reasons, the Assessing Officer is only required to be prima facie satisfied regarding escapement of income and final conclusion is to be arrived at only after the re-assessment assessment proceedings are completed. He rightly submits that on being satisfied about double deduction being claimed by assessee, the Assessing Officer had issued re-assessment notice under section 148 by recording reasons. Ld. counsel has submitted that the Tribunal reversed the findings of Assessing Officer for assessment year 2004-05. In our humble opinion, it is not of much consequence as far initiation of re- assessment proceedings are concerned We, therefore, are of the opinion that re-assessment proceedings for assessment years 2002-03 and 2003-04, were not initiated on account of change of opinion and, therefore, we uphold the order of Ld. CIT (Appeals). Consequently, ground No.1 raised by assessee challenging the initiation of re-assessment proceedings stands dismissed for A.Y.'s 2002-03 and 2003-04.
15. Now coming to Ground no.2 relating to the merits of the case. We have considered in detail the modus operandi adopted by assessee 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 22 ITA Nos.260-262 & 276-278/Kol./2010 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 and 2002-03."
From the aforementioned observations it is evident that in ultimate analysis only the difference in rates of surcharge affected the tax liability. Further, we find that this issue is squarely covered by the decision of Tribunal in assessee's own case for A.Y. 2004-05, wherein it has been held as under:-
"4. At the time of hearing the ld. DR submitted that the ld. CIT(A) was wrong in deleting the disallowance by applying the ratio of the decision of the Hon'ble Apex Court in the case of M/s. Berger Paints (I) Ltd. 266 ITR 99 as the Hon'ble Apex Court has not decided the issue on merits and the assessee's appeal was allowed by holding that if the Revenue has not challenged the correctness of the law laid down by the High Court and accepted it in the case of one assessee then it is not open to the Revenue to challenge it correctness in the case of other assessee without just cause, placing reliance on the judgements of the Hon'ble Supreme Court in the case of Union of India vs. Kaurnudini Narayan Dalal [2001] 249 ITR 219; CIT v. Narendra Doshi [2002] 254 ITR 606 and CIT v. Shivsagar Estate [2002] 257 ITR 59. Since the Hon'ble Apex Court in the case of C.K.Gangadhan and Anr. Vs. CIT 304 ITR 61 has taken a different view than was taken by it in the cases of Union of India vs. Kaumudini Narayan Dalal [2001] 249 ITR 219; CIT v. Narendra Doshi [2002] 254 ITR 606 and CIT v. Shivsagar Estate [2002] 257 ITR 59, the ratio as laid down by the Hon'ble Apex Court in the case of Berger Paints (I) Ltd. is no more a good law on the issue at hand in this appeal. In view of this the Ld. DR submitted that the ld. CIT(A) was not justified in giving relief to the assessee by placing reliance on the decision of the Hon'ble Supreme Court, in the case of Berger Paints (I) Ltd.
5. The ld. AR, on the other hand, submitted that it is not correct to say that the Hon'ble Apex Court in the case of Berger Paints (I) Ltd. has not decided the matter on merits. He further submitted that the Hon'ble Apex Court while deciding the case of C.K. Gangadharan & Anr. -vs- CIT cited supra has not reversed its earlier decision in the case of Berger Paints Ltd. and reference of this case has been made as has been done of many other cases and therefore the case of Berger Paints (I) Ltd. is still a good law on this issue. He pleaded that the order passed by the Ld. CIT(A) may kindly be upheld.23 ITA Nos.260-262 & 276-278/Kol./2010
6. Heard both the parties and perused the material available on record. In the case of C.K. Gangadharan & Anr. -vs- 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/-. During this period the assessee incurred expenditure on account of customs and excise duty aggregating to Rs.5,85,87,181/- which was duly debited to the Profit and loss account and was also fully paid during the relevant previous year. In addition thereto, the assessee also credited to the profit and loss account an amount of Rs.98,25,833/- relatable to the customs and excise duty on the closing stock of inventory by including the said sum in the valuation of such closing stock. During the assessment proceedings the assessee claimed that under section 43B of the IT Act, 1961 it was entitled to deduction of the entire amount nof Rs.5,85,87,181/- being the duties actually paid during the relevant previous year.
On similar basis the assessee claimed deduction of an amount of Rs.1,22,54,261/- being the actual customs and excise duty including in the value of the closing stock for the A.Yr. 1986-87 and offered for tax a sum of Rs.98,25,833/- being customs and excise duties included in the value of the opening stock. Similarly for the A.Yr. 1987-88 the assessee claimed deduction of Rs.24,28,428/- (Rs.1,22,54,26l - Rs.98,25,833). The assessee claimed a deduction of Rs.77,81,739/- (Rs.2,00,36,000 - Rs.1,22,54,261) on similar basis for the A.Yr. 1987-88.
In the assessment proceedings of the A.Yr.1984-85, the AO allowed the assessee's claim that it was entitled to deduct the entire sum of Rs.5,85,87,181 being the duties actually paid during the relevant year previous to the assessment year 1984-
85. The CIT initiated proceedings u/s 263 of the Act on the ground that the AO had wrongly allowed the claim for deduction of an amount of Rs.98,25,833 towards customs and excise duty paid during the previous year but credited to the profit and loss account in closing stock of goods under the provisions of section 43B. The assessee relied upon the judgement of the Gujarat High Court in Lakhanpal National Ltd. -vs- ITO 162 ITR 240 in support of its claim. The CIT took the view that the Gujarat High Court's decision was distinguishable on facts and, therefore, made an order under section 263 of the Act disallowing the claim of the assessee. On appeal to the Tribunal, the Tribunal held that the Gujarat High Court's judgement in Lakhanpal National Ltd.'s case was distinguishable and confirmed the order of the CIT. On an application made under section 256(1) of the Act 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):24 ITA Nos.260-262 & 276-278/Kol./2010
"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 Explanation 2 to section 43B coming into force with effect from April 1, 1984. the Tribunal was justified in law in directing to allow the amount of Rs. 77,81,948 under section 43B of the IT Act, being Central excise and customs duty which had been included in the value of closing stock?"
For the A.Yr. 1987-88, the Tribunal allowed a similar claim and a reference came to be made to the High Court in the following terms (254 ITR 498):
"Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in directing the Income-tax Officer to allow the sum of Rs 24,28,428 being Central Excise and customs duty under section 43B of the Act on the ground that the said amount has been included in the value of closing stock."
16. The Hon'ble Calcutta High Court answered the questions referred in both the references in favour of the revenue and against the assessee. Though an application was made for certificate of appeal to the Hon'ble Supreme Court u/s 261 was rejected by the Hon'ble Calcutta High Court but the assessee being aggrieved challenged the decision of the Hon'ble High Court for all the three years by filing appeals before the Hon'ble Apex Court. The Hon'ble Apex Court set aside the judgement of the Hon'ble Calcutta High Court in all the A.Yrs. and answered the question referred to against the revenue and in favour of the assessee by observing as under :-
"The judgement of the Gujarat High Court in Lakhanpal National Lid.'s case [1986] 162 ITR 240 was relied upon and followed by the Bombay High Court in CIT v. Bharat Petroleum Corporation Ltd. [2001] 252 ITR 43 as well as by the Madras High Court in Chemicals and Plastics India Ltd. v. CIT [2003] 260 ITR 193. The Special Bench of the Tribunal also relied upon the judgement of the Gujarat High Court in Lakhanpal National Ltd.'s case [1986] 162 ITR 240. The Revenue has 25 ITA Nos.260-262 & 276-278/Kol./2010 attempted to distinguish the judgement of the Gujarat High Court on the facile ground that the judgement of the Gujarat High Court was one rendered in connection with a provisional assessment under section 141A and not in a regular assessment. In our view, this distinction is hardly acceptable. In any event, a reading of the Gujarat High Court's judgement shows that the judgement is not based merely on the adjustments permissible under section 141A, as is contended by the Revenue, but that the judgement proceeds on 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 assesses, without just cause."
7.1. In view of the above, we find ourselves unable to agree with the arguments advanced by the Ld. DR in this respect and the order passed by the Ld. CIT(A) is hereby upheld."
16.1. Respectfully following the decision for A.Y.2004-05, ground no2 raised by assessee is allowed.
Departmental Appeals vide I.T.A Nos. 276, 277 & 278/Kol/2010
17. These appeals are barred by limitation by two days. After hearing both the parties the delay is condoned in view of the decision of Hon'ble Supreme Court in the case of CIT Vs. West Bengal Infrastructural & Financial Corporation Ltd reported in 2011 [ 196 Taxman 321 (SC)] and the appeals are decided the appeal on merits.
18. The Assessing Officer had made addition on account of claim of deduction under section 43B of the Income Tax Act for payment of excise duty in all the three assessment years. While computing the tax, Assessing Officer had charged interest under section 234D on the refund granted to the assessee. The ld. CIT(Appeals) allowed the assessee's claim observing that since provisions of section 234D have come into force from 1.6.2003, therefore, this will be applicable from assessment year 2004-05 onward. Both the parties are 26 ITA Nos.260-262 & 276-278/Kol./2010 agreed that this issue is now covered by the decision of ITAT, Special Bench in the case of ITO -vs.- Ekta Promoters (P) Ltd., reported in 113 ITD 719 (Delhi-SB), wherein it has been held as under :-
"71. In view of the above discussion our answer to question referred to us is that interest under section 234D is chargeable from assessment year 2004-05 and it could not be charged for earlier years even though regular assessments for these years are framed after 1-6-2003 or the refund was granted for those years after the said date."
Respectfully following the decision of ITAT, Special Bench in the case of ITO -vs.- Ekta Promoters (P) Ltd. (supra), we uphold the order of ld. CIT(Appeals).
19. Resultantly, appeals filed by the Department are dismissed.
20. In the result, assessee's appeal for assessment year 2001-02 stands allowed and appeals for A.Y.'s 2002-03 and 2003-04 stand partly allowed and the Departmental appeals for all the three years stand dismissed.
Order pronounced in the open court on 21/10/11.
Sd/- Sd/-
महाबीर िसंह) Ûयायीक सदःय
(महाबीर एस.
एस. वी.
(एस वी. मेहरोऽा)
रोऽा लेखा सदःय
(Mahavir Singh) Judicial Member (S.V.Mehrotra), Accountant Member
(तारȣख)
तारȣख) Date: 21-10-2011
Copy of the order forwarded to:
1. Exide Industries Limited, Exide House, 59E, Chowringhee Road, Kolkata-
20.2 DCIT, Circle-1, Kolkata, P-7, Chowringhee Square, Kolkata-700 069.
3. CIT(Appeals)- ,Kolkata
4. CIT- , Kolkata
5. DR, Kolkata Benches, Kolkata (True Copy) By Order Assistant Registrar, I.T.A.T., Kolkata Laha, Sr. P.S.