Income Tax Appellate Tribunal - Ahmedabad
Krishna Art Silk Cloth Pvt.Ltd.,, Surat vs Department Of Income Tax on 17 November, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "C" BENCH AHMEDABAD
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'सी'
Before Shri Rajpal Yadav, Judicial Member and
ी राजपाल यादव,
या यक सद य एवं
Shri Anil Chaturvedi, Accountant Member
ी अ नल चतुव द , लेखा सद य के सम ।
ITA No. 1776 & 2058/Ahd/2012
Assessment Year :2005-06
M/s. Krishna Art Silk Cloth Pvt. V/s. Dy. Commissioner of
Ltd., Income Tax, Circle-1, Surat
261/A GIDC, Pandesara, Surat -
394221
&
The Asst. Commissioner of M/s. Krishna Art Silk Cloth
Income-tax, Circle-1, Room No. Pvt. Ltd.,
108, Aayakar Bhavan, MajuraGate, 261/A GIDC, Pandesara,
Surat Surat - 394221
P AN No. AABCK1458N
(Appellant) .. (Respondent)
आवेदक क! ओर से/By Assessee Shri Rasesh Shah, A.R.
राज व क! ओर से / By Revenue Shri Dinesh Singh, Sr. D.R.
सन
ु वाई क! तार ख/Date of Hearing 04.11.2015
घोषणा क! तार ख/Date of Pronouncement 17.11.2015
ORDER
PER : Shri Anil Chaturvedi, Accountant Member
These two appeals of which one is filed by Assessee and the other by Revenue are against the order of CIT(A)-I, Surat, dated 26.06.2012 for the assessment year 2005-06.
I T A No s. 1 7 7 6 & 2 0 5 8 / Ah d /2 0 1 2 A.Y . 0 5 -0 6 ( M/ s.Kr i s h na Ar t Si l k C lo t h P vt . Ltd . ) Page 2
2. The relevant facts as culled out from the materials on record are as under:
3. The Assessee is a Company stated to be engaged in the business of dyeing and printing of fabrics on job work basis. The Assessee filed its return of income for A.Y. 05-06 on 26.10.2005 declaring total income at Rs.21,29,920/-. The case was selected for scrutiny and thereafter the assessment was framed u/s.143(3) vide order dated 31.12.2007 and the total income was determined at Rs.23,59,460/-. Subsequently, on perusal of breakup of loans and advances and the tax audit report, it was noticed by the Assessing Officer that Assessee had unutilized CENVAT credit of Rs.22,85,716/- as on 31.03.2005 which was not considered and included in the closing stock which as per the view of Assessing Officer, should have been included, while valuing stock and as required u/s.145A of the Act. Accordingly, notice u/s.148 of the Act was issued on 29.03.2011 and the case was reopened. In response to the notice u/s.148 of the Act; Assessee inter alia vide its submission dated 25.04.2011 stated that the return of income submitted on 26.10.2005 be considered as return furnished in response to the notice u/s.148of the Act. Thereafter, the assessment was framed u/s.143(3) r.w.s. 147 of the Act vide order dated 05.12.2011 and the total income was determined at Rs.39,86,233/-.
4. Aggrieved by the order of Assessing Officer, Assessee carried the matter before the ld.CIT(A) who vide order dated 26.06.2012 granted partial relief to the assessee.
I T A No s. 1 7 7 6 & 2 0 5 8 / Ah d /2 0 1 2 A.Y . 0 5 -0 6 ( M/ s.Kr i s h na Ar t Si l k C lo t h P vt . Ltd . ) Page 3
5. Aggrieved by the order of ld. CIT(A), Revenue and Assessee both are in appeal before us. The grounds raised by the Revenue reads as under:
"[1] On the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition of Rs.22,85,716/- made on account of unutilized CENVAT credit to Rs.1,98,510/- even though the assessee failed to apply the Provisions of Section 145A.
[2] On the facts and in circumstances of the case and in law, the Ld. CIT(A) did not appreciate the fact that the assessee reversed its claim that the amount is not the unutilized CENVAT credits but are the reverse entry of CENVAT as is done under the available options as per the Notification No.30.
[3] On the facts and in circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer."
5.1 On the other hand, the grounds raised by the Assessee read as under:
"1. On the facts and in circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in reopening assessment u/s 148 of the act and thereby erred in framing assessment u/s.143(3) r.w.s. 147 of the I.T.Act, 1961.
2. On the facts and in circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the addition made by Assessing Officer to the extent of Rs.1,98,510/- as against the addition of Rs.22,85,716/- u/s 145A of the I.T. Act, 1961.
3. It is therefore prayed that the assessment be quashed or above addition made by the assessing officer may please be deleted."
6. Since, the grounds raised by the Assessee and Revenue are interconnected, so, both the appeals are considered together.
7. Assessing Officer on perusing the breakup of loans and advances of Balance Sheet and the tax audit report noticed that Assessee had unutilized CENVAT credit of Rs.22,85,716/- at the end of previous year ending on 31.03.2005, which was not considered while valuing the closing stock. The Assessing Officer was of the view that as per the provisions of Section 145A, Assessee should have included the unutilized CENVAT credit as part of I T A No s. 1 7 7 6 & 2 0 5 8 / Ah d /2 0 1 2 A.Y . 0 5 -0 6 ( M/ s.Kr i s h na Ar t Si l k C lo t h P vt . Ltd . ) Page 4 closing stock. He accordingly made addition of Rs.22,85,716/-. Aggrieved by the order of Assessing Officer, the matter was carried before the CIT(A) where Assessee challenged the reopening of assessment as well as the addition on merits. CIT(A) as far as the merits of reopening is concerned, upheld the order of Assessing Officer and held the reopening to be valid by holding as under:
"8. The primary requirement in-the proviso to section 147 is that full material facts should have been disclosed before the assessing officer. As discussed in the subsequent part of this Order in respect of ground no. 2, the appellant did not furnish the breakup of Cenvat OB into that pertaining to Colour/ Chemicals and grey even at the appellate stage. Moreover, what component of Cenvat reversal pertained to grey and what component was pertaining to Colour / Chemicals was also not mentioned/verifiable. Therefore, this ground of appeal is DISMISSED."
7.1 As far as the merits of addition is concerned, he granted partial relief to the assessee by holding as under:
10.1 The appellant has reversed Cenvat of Rs 22,85,716/- as unutilized cenvat credit. This includes Cenvat credit on grey of Rs. 20,87,206/- and Cenvat credit on colour and chemicals. However, this break up is as per the submission of appellant and it is not subject to verification.
10.2 The opening cenvat balance as per appellant is Rs.52,85,315/-However, no break - up of the same is available into balance pertaining to grey cloth and balance pertaining to colour and chemicals. Cenvat summary filed by the appellant is asunder :-
Credit grey 6314788
Credit Cap goods 131948
Credit colour and Chemicals 1157137
Les Canvat utilized 8769304
Less Cenvat reversed 2285716
Canvat balance 74334
However, if we compute as above, the balance comes to 1834168 and not 74,334/- Therefore, the accuracy and correctness of appellant's Submission is not verifiable.
I T A No s. 1 7 7 6 & 2 0 5 8 / Ah d /2 0 1 2 A.Y . 0 5 -0 6 ( M/ s.Kr i s h na Ar t Si l k C lo t h P vt . Ltd . ) Page 5 10.3 This inaccuracy has crept in, in view of manner in which the excise/cenvat account is maintained by the appellant. The appellant claims that it is doing job work and excise duty paid is recovered from the party concerned whose job work is done. Appellant also submitted that list of creditors as on 31.3.2004 includes an amount of Rs.44,42,914/- as "Grey Party Madvat Receivable" . From a perusal of form ER-1 filed before the Excise Authorities , it is noticed that appellant has mentioned cenvat reversal of colour and chemicals of Rs 1,98,510/- The remaining cenvat reversed is of Rs. 20,87,206/- The appellant was asked during the course of appellate proceeding about the break- up of opening cenvat into cenvat pertaining to colours / chemicals and cenvat pertaining to grey. However, the appellant could not furnish the required details.
10.4 It is true that appellant is doing work on job work basis. Therefore, purchases shown for excise purpose from persons whose1 job work is .done do not enter the appellant's P &L A/c or Trading A/c. Similarly, the sales shown for excise purpose also do not enter the P&L A/c or Trading A/c. The corresponding Cenvat entries are also outside P&L A/c or Trading A/c. However, cost of colour chemicals does enter the P& L A/c/ Trading A/c. The appellant never included closing stock of Cenvat pertaining to Colours and Chemicals as per the requirements of section 145A.
10.5 The reversal of Colour and Chemicals cenvat can be allowed only to the extent in pertaining to Current Year. The reversal of Cenvat in opening balance (component pertaining to colours & chemicals) amounts to increasing the cost of colour / chemicals incurred in earlier years. In order to do so, appellant should have included the excise component in the closing stock of colour and chemicals last year as per section 145A. Since, the only debit is Profit & Loss Account is to the extent of Rs 1,98, 510/-, therefore, the addition is sustained to that extent.
10.6 However, it cannot be ascertained whether the remaining Cenvat reversed of Rs.20,87,206/- pertains to grey alone or not. It may include component of Cenvat on capital Goods and Cenvat on grey. However, these components will not affect the profit of the appellant company as this reversal "has not been routed through the P & L Account. Therefore, addition to that extent is deleted.
7.2 Aggrieved by the order of CIT(A), both parties are now in appeal before us.
7.3 Before us, the ld. A.R. submitted that the reopening in the present case is after four years and therefore, in the absence of any allegation on the part of the Assessee to make full and true disclosure the Assessing Officer cannot resort to the reopening of the assessment. He further submitted that no new I T A No s. 1 7 7 6 & 2 0 5 8 / Ah d /2 0 1 2 A.Y . 0 5 -0 6 ( M/ s.Kr i s h na Ar t Si l k C lo t h P vt . Ltd . ) Page 6 material had come in the possession of the Assessing Officer which leads him to believe about the escapement of income and the material, which has been considered by the Assessing Officer, was already before the Assessing Officer. He, therefore, submitted that in the present case, the reopening has been on account of change of opinion which is not permissible as per law. He further placed reliance on various decisions and also the decision of the co- ordinate Bench of the Tribunal of Kiran Industries. The ld. D.R., on the other hand, supported the order of Assessing Officer.
8. We have heard the rival submissions and perused the material on record. In the present case, the Assessee has challenged the reopening of the assessment for A.Y. 2005-06 and initiation of the reassessment proceedings for A.Y. 2005-06 in exercise of the powers u/s.147 r.w.s. 148 of the Act. In the present case, it is an undisputed fact that the original assessment for A.Y. 2005-06 was framed u/s.143(3) vide order dated 31.12.2007 and thereafter, notice u/s.148 was issued on 29.03.2011. Thus, the notice for reopening of assessment is beyond the period of four years from the end of the relevant assessment year. To confer the jurisdiction of Assessing Officer to issue notice of reopening of assessment beyond a period of four years u/s.148 of the Act, two conditions are required to be simultaneously satisfied; (i) the Assessing Officer must have reason to believe that income, profit and gain chargeable to tax have been under-assessed and
(ii) He must also have reason to believe that such under assessment has occurred by the reason of either omission or failure on the part of the I T A No s. 1 7 7 6 & 2 0 5 8 / Ah d /2 0 1 2 A.Y . 0 5 -0 6 ( M/ s.Kr i s h na Ar t Si l k C lo t h P vt . Ltd . ) Page 7 Assessee to make a return of his income or omission or failure on the part of Assessee to disclose fully and truly all material facts necessary for the assessment for that year. Both the aforesaid conditions are the conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice for reassessment beyond a period of four years. The reason to believe of income escaping assessment of the Assessing Officer must be based upon some tangible material i.e. it cannot be mere ipse dixit of the Assessing Officer. A different view on tangible material available earlier would be a change of opinion and would not amount to reasons to believe that income chargeable to tax has escaped assessment. In the present case, it is an undisputed fact that original scrutiny assessment was done u/s.143(3) of the Act for A.Y. 2005-06 on 31.12.2007 and the proposed re-assessment was sought to be taken after the expiry of four years from the end of the relevant assessment year. In such a scenario, the first proviso to Section 147 of the Act are attracted and according to which, no action for initiation of re- assessment proceedings for A.Y. 2005-06 could be initiated unless the income chargeable to tax has escaped assessment by reason of failure on the part of the Assessee to disclose fully and truly all material facts. At this moment, it would be relevant to reproduce the reasons that were recorded for reopening the assessment and which are placed by the Assessee on record and which reads as under:
"The assessment u/s 143(3) of the IT Act, 1961 was completed by the then AO on 31.12.2007 assessing total income at Rs.Nil as compared to the returned income of Rs.(-)21,29,920.
I T A No s. 1 7 7 6 & 2 0 5 8 / Ah d /2 0 1 2 A.Y . 0 5 -0 6 ( M/ s.Kr i s h na Ar t Si l k C lo t h P vt . Ltd . ) Page 8 The provisions of Section 145A of the Act mandate inclusive method of accounting for the purpose of the Act in respect of duty, cess and taxes |even though the assessee might be following exclusive method of accounting. Assessee followed mercantile system of accounting (exclusive method). On perusal of the break up of loans and advances of the Balance Sheet and clause 22(a) of report in Form 3CD, it was observed that the assessee had unutilized CENVAT Credit of Rs.22,85,716 at the end of the P.Y. ending on 31.3.05 which was not considered for adjustment as required u/s.145A of the Act and included along with the closing stock. Omission to apply the provisions of Section 145A of the Act resulted in underassessment of Rs.22,85,716.
In view of the above, I have reason to believe that there is escapement of income of more than Rs.1 lac in the hands of assessee which is required to be taxed by reopening the assessment u/s. 147 of the Income-tax Act, 1961. Thus, it is a fit case for issuing notice u/s.148 of Income-tax Act."
On perusing the reasons, it is seen that though the Assessing Officer has mentioned that income had escaped but there is no allegation of the failure on the part of Assessee to fully and truly disclose the material facts for assessment and the Assessing Officer has also not indicated as to which material fact had not been fully and truly disclosed by the Assessee. In such a situation, we are of the view that merely having a reason to believe that income has escaped assessment will not be sufficient to reopen assessments beyond the period of four years from the end of relevant assessment year. Further, it is a settled proposition of law that assessment cannot be reopened on mere change of opinion and the Hon'ble Supreme Court in case of CIT vs. Kelvinator India Ltd. (2010) 320 ITR 561 (SC) has confirmed the decision of the full bench of the Delhi High Court and held that a mere change of opinion cannot form the basis for reopening the assessment. In view of the aforesaid facts, we are of the view that the jurisdictional requirement imposed by proviso to Section 147 in the matter of reopening of assessment has not been fulfilled and therefore we are of the view that the assumption of jurisdiction is without I T A No s. 1 7 7 6 & 2 0 5 8 / Ah d /2 0 1 2 A.Y . 0 5 -0 6 ( M/ s.Kr i s h na Ar t Si l k C lo t h P vt . Ltd . ) Page 9 jurisdiction and therefore the assessment order cannot be sustained and deserves to be quashed and set aside and thus, the ground of Assessee is allowed. Since the assessment order itself is quashed, the grounds raised by the Revenue does not survive and therefore, the grounds of Revenue are dismissed.
9. In the result, the appeal of the Assessee is allowed and that of Revenue is dismissed.
This Order pronounced in open Court on 17th Nov. 2015 Sd/- Sd/-
(Rajpal Yadav) (Anil Chaturvedi)
Judicial Member Accountant Member
True Copy
S.K.Sinha
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. अपीलाथ+ / Appellant
2. -.यथ+ / Respondent
3. संबं1धत आयकर आयु3त / Concerned CIT
4. आयकर आयु3त- अपील / CIT (A)
5. 7वभागीय - त न1ध, आयकर अपील य अ1धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड= फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपील य अ1धकरण, अहमदाबाद ।