Income Tax Appellate Tribunal - Hyderabad
Rasun Exports Private Limited, ... vs Dy. Commissioner Of Income Tax , ... on 10 June, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A" : HYDERABAD
(THROUGH VIDEO CONFERENCE)
BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER
AND
SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
I.T.A. No. 1721/HYD/2019
&
C.O.No.05/HYD/2020
(Arising in ITA No.1721/H/19)
Assessment Year: 2008-09
Dy. Commissioner of Rasun Exports Private Limited,
Income Tax, Vs HYDERABAD
Circle-3(1), [PAN: AABCR0773P]
HYDERABAD
(Appellant) (Respondent/Cross-Objector)
For Revenue : Shri Sunil Kumar Pandey, DR
For Assessee : Shri Kranthi, AR
Date of Hearing : 29-04-2021
Date of Pronouncement : 10-06-2021
ORDER
PER S.S.GODARA, J.M. :
This Revenue's appeal ITA No.1721/Hyd/2019 and the assessee's cross-objection No.5/Hyd/2020 for AY.2008-09 arise from the CIT(A)-3, Hyderabad's order dated 04-09-2019 passed in case No.0160/DCIT-3(1)/CIT(A)-3/2016-17, in proceedings u/s.143(3) r.w.s.147 of the Income Tax Act, 1961 [in short, 'the Act'].
Heard both the parties. Case file(s) perused.
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ITA No. 1721/Hyd/2019 C.O.No.5/Hyd/20202. Coming to Revenue's sole substantive grievance in its appeal ITA No.1721/Hyd/2019 that the CIT(A) has erred in law and on facts in quashing the impugned re-opening, both the learned representatives took us to the corresponding lower appellate discussion reading as under:
"VII) Ground Nos. 1, 2 and 3 in appeal relate to reopening of the assessment u/s.147. The appellant further contended these grounds that the initiation of proceedings u/s.147 was wrong as there was no omission or failure on the part of the appellant in disclosing fully and truly all material facts. It was also contended that the initiation of proceedings of Section 147 was erroneous as it involved resorting to looking at a new issue of disallowance u/s.10AA in contravention of the settled principles. Facts of the case, grounds of appeal, assessment order and submissions of the appellant were perused.
It is seen that the assessment was reopened after taking approval as required. The reasons recorded for the reopening of the reassessment has taken into account the provisions of Section 10AA. The reasons includes taking into account the earlier assessment u/s.143(3) which was completed for A.Y.2008-09 on 24.11.2010. It is also seen from the assessment record that the reasons for reopening of the assessment was communicated to the appellant company vide letter dated 30.04.2015. Subsequently, the assessment i.e. 143(3) r.w.s. 147 was passed on 31.03.2016.
On perusal of the assessment record for Asst. Year 2008-09, it is noted that the reopening of the assessment was due to RAP objection which was objected to by the DCIT, Circle-3(1), Hyderabad vide letter dated 28.11. 2014 addressed to the then CIT-Ill, Hyderabad. Subsequently, the Assessing Officer i.e. the DCIT, Cirlce-3(1), Hyderabad vide letter dated 04.07.2016 addressed to the pr.CIT-3, Hyderabad submitted as follows:-
2. In this case, the audit has pointed out the following objections:
(a) As per assessee's submission the company has set up 100 per cent export orientec unit in VSE7 and eligible for income tax exemption u/s. 10AA. But in the assessment order deduction was allowed u/s.10A and if exemption fails, under section 10A, assessee liable to pay tax under MAT on book profit of Rs.3,63,96,118/-.
(b) As per schedule 8 of consolidated balance sheet as on 31.3.2009 related from inventories, total closing stock as on 31.3.2007 (last year) was Rs.4,27,31,552/- which is inclusive of finished goods of :- 3 -:ITA No. 1721/Hyd/2019 C.O.No.5/Hyd/2020
Rs.28,43,879/-, work in progress of Rs.3,59,33,625/- and raw material of Rs.39,54,048/-. As per schedule 16 related to cost of goods sold which was debited in P & L account for the year ended 31.3.2008 relevant to AY 2008-09 it was seen that total dosing stock of last year amounting to Rs.4,27,31,552/- was debited as opening stock for the year under consideration for the unit of Mine and HO where as same needs to be distributed between Mine & HO and processing unit. As per schedule 16 of processing unit related to cost of goods sold which was debited to P & L account for the year under consideration an amount of Rs.39,54,048/- was debited as unit transfer . Hence, Rs.39,54,048/- needs to be reduced from opening stock of Rs.4,27,31,552/-
3. Subsequently, the assessment was reopened after obtaining the approval from the Commissioner of income Tax. During the course of reassessment proceedings, the assessee has submitted clarification in this regard.
4. With regard to exemption u/s.10A, it is submitted that the exemption mentioned in the assessment order under sec.10A is a typographical mistake. It should be under sec. 10AA. The assessee is 100% EOU located in SEZ and entitled for deduction U/s.10AA.
Therefore, payment of MAT is not applicable to it.
4.1 With regard to opening and closing stock/ it was submitted by the assessee that the factory started its commercial production from 1.4.2007. The raw material for manufacturing polished granite slabs is granite blocks. To meet the requirement of raw material, the company is transferring granite slabs from its captive mines to factory. While preparing the financial statements of mine as on 31.3.2007 the material marked for factory i.e. Rs. 39,54,058/- was shown in the Closing stock schedule as raw materials in mine. Since the factory is 100% EOU separate books of accounts were maintained from 1.4.2007. The raw material ear marked for factory of Rs. 39,54,058/- as on 31.3.2007 was transferred to factory during the year 2007·08. In addition to this another Quantity for Rs. 42,45,107/- was also transferred to Factory during the year 2007 -
08. The receipts of the matt-~rial was recorded as inter unit transfers / purchase in the books of accounts of factory during the year 2007 -
08. 4.2 The contention of the assessee is verified and found that it is purely presentation mistake as stated by the assessee Rs.39,54,048/- was shown in the opening stock in the schedule of cost of goods sold of HO and Mines the same was credited as inter unit transfer to processing plant under sates schedule during the year 2007-08. So there is no excess debit of Rs. 39,54,048/- in the P&L account of HO and Mine.
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ITA No. 1721/Hyd/2019 C.O.No.5/Hyd/20205. In view of the above, the Pr.CIT is requested to write to the audit to drop the objection.
Yours faithfully xxxxxx Dy.Commissioner of Income Tax Circle-3(1), Hyderabad Subsequent to the above, the then Pr.CIT-3, Hyderabad vide letter dated 17.10.2016 addressed to the Pr. Director of Audit(Central), Hyderabad stated as follows:
Please refer to the above.
2. The Audit raised objection as under:
1. As per assessee's submission the company has set up an 100 percent export oriented unit in VSEZ and eligible for income tax exemption u/s 10AA. But in the assessment order deduction was allowed u/s 10A and if exemption falls under section 10A, assessee liable to pay tax under MAT on Book Profit of Rs.3,63,96,118/- and tax under MAT would be Rs.42,21,947/-.
While tax under normal provisions was worked out to be Rs.20,64,814/-. Hence, assessee is liable to pay another Rs.21,57,133/- (Rs.42,21,947-21,57,133). Moreover, form. 56F/and 3CD report was not placed on record.
2. As per schedule 8 of consolidated Balance Sheet as on 31.03.08 related form inventories, total closing stock as on 31.03.07 was Rs..4,27,31,552/- which is inclusive of finished goods of Rs.28,43,879/-, work in progress of Rs.3,59,33,625/- and raw material of Rs.39,54,048/-. As per schedule 16 related from cost of goods sold which was debited in Profit & Loss a/c for the year ended 31.03.08 relevant to Asst. Year 2008-09, it was seen that total closing stock of last year amounting to Rs. 4,27,31,552/- was debited to as a opening stock for the year under consideration for the unit of Mine & HO as against same needs to be distributed between Mine & H.O. and Processing unit (eligible unit for exemption). As per schedule 16 of processing unit(eligible unit) related from cost of goods sold which was debited to Profit & Loss Account [or the year under consideration an amount of Rs.3954048/- was debited as a unit transfer. Hence Rs. 39,54,048/- needs to be reduced from opening stock of Rs.4,27,31,552/- debited to Mine & H.O. (non eligible unit). The omission resulted in short computation of income Rs.39,54,048/-.
3. The case was reopened u/s 147 and order u/s 143(3) r:w.s. 147 was passed on 31.03.2016. During the course of assessment :- 5 -:
ITA No. 1721/Hyd/2019 C.O.No.5/Hyd/2020proceedings, the objections raised by audit were looked into and the clarifications of AO are as under:
1. With regard to exemption u/s.10A, the exemption mentioned in the assessment order under sec.10A is a typographical mistake. It should be under section 10AA. The assessee is 100% EOU located in SEZ and entitled for deduction u/s 10AA. Therefore, payment of MAT is not required. A copy of the letter dt.13.08.2015 furnished during scrutiny proceedings is enclosed herewith for ready reference.
2. With regard to opening and closing stock, the assessee submitted that Rs.39,54,048/- was shown in the opening stock in the schedule of cost of goods sold of HO and Mines. the same was credited as inter unit transfer to processing plant under sales schedule during the year 2007-08. So there is no excess debit of Rs.39,54,048/- in the P&L account of HO and Mine. Copies of explanation submitted by the assessee are enclosed for ready reference.
4. In view of the above, the objection at para 21 of LAR cited above is not maintainable and requires to be dropped for treating as Settled. A communication to this effect may be sent to this office at the earliest.
Yours faithfully, XXXXXXXXXXX From the from the assessment record, it is seen reopening of the assessment was on a issue which was examined in the original proceedings u/s.143(3) which was passed on 24.11.2010. This issue was with regard to exemption u/s.10AA which was clarified in the above two letters that due to typographical error Section 10AA was mistaken for Section 10A. Further, from the assessment record, it can be seen the reasons for reopening were based on an Audit Objection. The reopening of an assessment needs to be based on a tangible material which has a live-link with the formation of the belief that there was an escapement of income. In this context, the ratio of the Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (320 ITR 561)(SC) is applicable.
Hence, it can be seen that the reopening of the assessment was due to a change of opinion and Audit Objection. In the context of the change of opinion and audit objection in the appellant's case, the decisions of jurisdictional ITAT, High Court and Hon'ble Supreme Court etc., have been perused. The gist of some of the decisions are reproduced below:
S.Ranjith Reddy vs DCIT (2013) 35 taxmann.com 415 (Hyd, Trib.) :- 6 -:ITA No. 1721/Hyd/2019 C.O.No.5/Hyd/2020
The facts suggest that the Information that was considered by the Assessing Officer to reopen the assessment was already on record and if the Assessing Officer failed to consider the same for framing the assessment by Issuing notice under section 143(2), he was precluded from considering the same material for reopening of the assessment under section 147, read with section 148. Accordingly, the assessment is quashed.
DCIT vs Lee Pharma (P) Ltd (2012) 20 ITR(T) 409 (Hyd, Trib.) In the instant case, the Assessing Officer in the course of original assessment proceedings had called for the particulars regarding various items of income going into the computation of deduction under section 80HHC, for which the assessee 'had given the requisite details and particulars. Now the Assessing Officer has reopened the assessment to hold that the very same items of receipt has to be excluded In computing relief under section 80HHC. In other words, the Assessing Officer, on a reappraisal of the very same details, which was called for by him and furnished by the assessee, would like to come to a different conclusion. This clearly tantamounts to that reopening is merely on a change of opinion.
Thus the reopening is merely on a change of opinion of the Assessing Officer and he should have tangible material for forming an opinion that there has been an escapement of income. 'Reason to believe' will not include mere change of opinion. Respectfully following the ratio laid down by the Delhi High Court in the case of Kelvinator of India Ltd. [2002] 256 ITR 1/123 Taxman 433, the order of the Commissioner (Appeals) in treating the reassessment made by the Assessing Officer as null and void, deserved to be upheld.
An audit opinion in regard to the application or interpretation of law cannot be treated as Information for reopening the assessment under section 147(b).
ITO VS Object Connect India (P) Ltd (2014) 29 ITR(T) 518 (Hyd, Trib.) In view of the ratio laid down by the Delhi High Court in the case of Usha International Ltd. (supra) it is opined that the Commissioner (Appeals) has rightly quashed the reopening of assessment made by the Assessing Officer under section 147 observing that there was absolutely no fresh information provided or collected. Accordingly, the order of the Commissioner (Appeals) is upheld and the grounds raised by the Revenue on this issue is dismissed.
The Hon'ble A.P High Court [Sri Kalyan Jyoti Sengupta CJ, & Sri K.C. Bhanu, J] vide order in I.T.T.A.No.384 of 2013 dated 30.08.2013 in the case of CIT vs M/s.Lee Pharma Pvt. Ltd.,[20 ITR (T) 499 (Hyderabad)], while upholding the decision of the Hon'ble ITAT, :- 7 -:ITA No. 1721/Hyd/2019 C.O.No.5/Hyd/2020
Hyderabad on the issue of change of opinion and on audit objections have held that:
"...... Further, the learned Tribunal had taken a correct view that an audit opinion In regard to the application or interpretation of law cannot be treated as information. for reopening the assessment under section 147(b) of the Income Tax Act This proposition of law has been decided by the Supreme Court in the case of Indian & Eastern Newspaper Society v. Commissioner of Income Tax and also in the case of Commissioner of Income Tax v. Lucas TVS Ltd. Therefore, nothing remains to be decided by us in this appeal.
The appeal is accordingly dismissed. There will be no order as to costs."
It would be relevant to bring to note that in case of CIT vs Shilp Gravures Ltd [220 Taxman 382 (Guj.HC), various judicial decisions were relied upon including the decision of the Hon'ble Supreme Court in the case of CIT vs. Lucas TVS Ltd., [249 ITR. 306] (SC). In the case of CIT vs. Lucas TVS Ltd., [249 ITR 306], the Hon'ble Supreme Court while affirming the decision of the Madras High Court in 234 ITR 296 noted "Opinion of audit party regarding application or interpretation of law did not amount to Information therefore, reassessment based on opinion of audit party was not valid. On perusal of the decision of the Hon'ble Madras High Court in the case of CIT vs. Lucas TVS Ltd., [234 ITR 296] It Is seen that the decision of the Hon'ble Supreme Court in Indian and Eastern Newspaper Society vs, CIT [119 ITR 996] was applied. On perusal of the land mark decision in the case of Indian and Eastern Newspaper Society vs. CIT [119 ITR 996] It was held in para 11 as under:
"Under that section, the audit by the Comptroller and Auditor General is principally intended for the purposes of satisfying him with regard to the sufficiency of the rules and procedures prescribed for the purpose of securing an effective check on the assessment, collection and proper allocation of revenue. He is entitled to examine the accounts in order to ascertain whether the rules and procedures are being duly observed and he is required/ upon such examination, to submit a report. His power in respect of the audit of income-tax receipts and refunds are outlined in the Board's Circular No. 14/19/56-11, dated 28-7-1960. [Internal Audit Manual, Vol.II, p.39J. Paragraph 2 of the circular repeats the provisions of section 16 of the Comptroller and Auditor-General's (duties, Powers and Conditions of Service) Act, 1971. And paragraph 3 warns that "the audit department should not in any way substitute itself for the revenue authorities in the performance of their statutory duties". Paragraph 4 declares:
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"Audit does not consider it any part of its duty to pass in review the judgment exercised or the decision taken in individual cases by officers entrusted with those duties, but it must be recognized that an examination of such cases may be an important factor in judging the effectiveness of assessment procedure .... It is, however, to forming a general judgment rather than to the detection of individual errors of assessment, etc., that the audit enquiries should be directed."
The canons of judicial discipline which have been brought out by the Hon'ble Supreme Court In Jain Exports (P) Ltd., and Others vs. Union of India & Others [3 SCC 579J, Union of India & Others vs Kamiakshi Finance Corporation [55 ELT 433](SC) and the Hon'bIe AP High Court in the case of State of Andhra Pradesh vs. CTO (169 ITR 564) are respectfully followed. The Hon'ble AP High Court of Court In the case of State of Andhra Pradesh vs. CTO (169 ITR 564) while adjudicating a contempt of court case held:
"It is clear from the judicial pronouncements above referred to that the authorities and the tribunals functioning within the jurisdiction of the court in respect of whom this court has the power of superintendence under article 227 are bound to follow the decisions of this court unless, on an appeal, the operation of the judgment is suspended. It is not permissible for the authorities and the Tribunals to ignore the decisions of this court or to refuse to follow the decisions of this court on the pretext that an appeal is filed in the Supreme Court which is pending pr that steps are being taken to file an appeal. If any authority or the tribunal refuses to follow any decision of this court on the above grounds, it would be clearly guilty of committing contempt of this court and is liable to be proceeded against.
We have come across innumerable instances where the authorities below, especially authorities entrusted with, the collection of taxes and excise duties, refused to follow the decisions of this court on the around that appeals were either filed or steps were being taken, to file appeals, and raised fantastic tax demand initiated proceedings for recovery of such taxes. The result was that, this court was flooded with innumerable writ petitions: We need hardly observe that ail this is totally irregular and should have been avoided. We cannot help putting on notice ail the authorities concerned that this court would not hesitate to take stem action for contempt if decisions of this court are disregarded unless, the operation of the judgments of this court is suspended by the Supreme Court."
The ratio of the division bench decision of the Bombay High Court [S.H.Kapadia & V.C.Daga, 33.] in the case of Bank of Baroda vs H.C. Shrivatsava (256 ITR 385) as brought out in Para 16 of the judgement/findings are brought to note as they are on the issue judicial discipline. Para 16 of the judgement reads as follows:
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''At this juncture, we cannot resist from observing that the judgement delivered by the Tribunal was very much binding on the assessing officer. The assessing officer was bound to follow the judgments in its letter and spirit. It was necessary for the judicial unity and discipline that all the authorities below the Tribunal must accept as binding the judgement of the Tribunal. The assessing officer being inferior officer vis-s-vis the Tribunal, was bound by the judgment of the Tribunal and the assessing officer should not have tried to distinguish the same on untenable grounds. In this behalf, it will not be out of" place to mention that in the hierarchical system of courts which exists in our country, ft is necessary for each lower tiers including the High Court, to accept loyally the decisions of the higher tiers. It is inevitable in hierarchical system of courts that there are decisions of the Supreme Appellate Tribunals which do not attract the unanimous approval of all members of the judiciary. But the judicial system only works if someone is allowed to have the last word, and that last word once spoken is loyally accepted. The better wisdom of the court below must yield to the higher wisdom of the court above as held by the Supreme Court In the matter of CCE v. Dunlop India Ltd. AIR 1985 SC 330. "
Hence, Grounds Nos.1, 2 and 3 relating to reopening of the assessment are allowed as the reassessment is quashed and treated as void ab initio for the reasons cited supra. As the reassessment has been quashed in the case of the appellant, grounds of appeal no. 4, 5 and 6 are academic in nature".
3. We have given our thoughtful consideration to rival pleadings against and in support of the CIT(A)'s foregoing detailed discussions qua impugned re-opening issue. A perusal thereof sufficiently indicates that the Assessing Officer had contested the Revenue's audit objection allegedly pointing out escapement of assessee's taxable income which in turn was also approved by the Pr.CIT having jurisdiction (supra). It is in this clinching factual backdrop that the CIT(A) has applied the ratio of various judicial precedents (supra) that the same ought not to be taken as an instance of escapement of taxable income from being assessed. The Revenue is fair enough in not denying all these clinching aspects in its pleadings. We thus conclude that the Revenue's audit authorities' objection :- 10 -:ITA No. 1721/Hyd/2019 C.O.No.5/Hyd/2020
pitted against the Assessing Officer's opinion having jurisdiction regarding initiation of the impugned re-opening mechanism who duly concluded that no income had escaped assessment; must make way for the latter's opinion only. We accordingly uphold the CIT(A)'s impugned conclusion quashing the impugned re-opening for this precise reason alone. The Revenue's sole substantive ground as well as main appeal ITA No.1721/Hyd/2019 fail accordingly.
4. Learned authorised representative invited our attention to assessee's cross objection No.5/Hyd/2020 regarding merits of the various issues which stand rendered infructuous.
Ordered accordingly.
5. This Revenue's appeal ITA No.1721/Hyd/2019 is dismissed and assessee's cross objection C.O.No.5/HYd/2020 is dismissed as infructuous. A copy of this common order be placed in the respective case files.
Order pronounced in the open court on 10 th June, 2021 Sd/- Sd/-
(LAXMI PRASAD SAHU) (S.S.GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad,
Dated: 10-06-2021
TNMM
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ITA No. 1721/Hyd/2019
C.O.No.5/Hyd/2020
Copy to :
1.Dy.Commissioner of Income Tax, Circle-3(1), Hyderabad.
2.Rasun Exports Private Limited, 6-3-351, 4th Floor, Ravi Chambers, Road No.1, Banjara Hills, Hyderabad.
3.CIT(Appeals)-3, Hyderabad.
4.Pr.CIT-3, Hyderabad.
5.D.R. ITAT, Hyderabad.
6.Guard File.