IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 17530 of 2011
For Approval and Signature:
HONOURABLE THE ACTING CHIEF JUSTICE MR.BHASKAR BHATTACHARYA
HONOURABLE MR.JUSTICE J.B.PARDIWALA
========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ?
YES 2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy of the judgment ? NO Whether this case involves a substantial question of
4 law as to the interpretation of the constitution of NO India, 1950 or any order made thereunder ?
5 Whether it is to be circulated to the civil judge ? NO =========================================================
LANXESS ABS LIMITED NOW KNOWN AS INEOS ABS (INDIA) LTD. -
Petitioner(s) Versus
DY. COMMISSIONER OF INCOME TAX, - Respondent(s)
========================================================= Appearance :
MR TEJ SHAH for Petitioner(s) : 1, MR KM PARIKH for Respondent(s) : 1, =========================================================
HONOURABLE THE ACTING CHIEF JUSTICE
CORAM :
MR.BHASKAR BHATTACHARYA
and
HONOURABLE MR.JUSTICE J.B.PARDIWALA
Date : 11/04/2012 CAV JUDGMENT
(Per : HONOURABLE MR.JUSTICE J.B.PARDIWALA)
By this writ-application under Article 226 of the Constitution of India, the writ-petitioner, an assessee under the Income Tax Act, 1961 ('the Act', for short) has prayed for issuance of mandamus to quash and set-aside the notice dated 29th March 2011 issued under Section 148 of the Act (Annexure-A to the writ-application).
It is also prayed for quashing and setting aside the order passed by the respondent dated 11th November 2011, rejecting the objections raised by the writ-petitioner to the notice issued under Section 148 of the Act for the Assessment Year 2006-07 (Annexure-F to the writ- application).
The facts leading to the filing of the above petition under Article 226 of the Constitution of India may be summed up thus :
(1) The petitioner is a company engaged in the business of manufacturing ABS resins and SAN resins, trading of polycarbonate and wind power generation.
(2) The petitioner filed return of income for the Assessment Year 2006-07 declaring the total income of Rs.28,56,42,112=00. The said return was accompanied by a statement of total income, Form No.1, 3CD and 3CD, audit report obtained under Section 44AB of the Act and the audited balance-sheet.
(3) The Assessing Officer for the Assessment Year 2006-07 selected the case for scrutiny and issued notices under Section 142(1) of the Act, calling for various details. Explanation was also called for as to why unutilized cenvat credit should not be included in the value of closing stock. The notices issued by the Assessing Officer were replied by the writ-petitioner.
(4) The Assessing Officer, after being satisfied with the details and information provided by the writ-petitioner, passed an order under Section 143(3), allowing the claim of the writ-petitioner relating to the concerned issue amongst others.
(5) After a period of about three years at the end of the Assessment Year 2006-07, a notice dated 29th March 2011 under Section 148 of the Act was issued by the respondent along with the reasons for initiating the proceedings under Section 147 of the Act.
(6) The petitioner, in response to the above notice, filed return of income for the Assessment Year 2006-07, and subsequently on 31st March 2011 and 7th November 2011, the petitioner submitted written objections against the reopening of completed scrutiny assessment.
(7) On 11th November 2011, the Assessing Officer disposed of the objections filed by the writ-petitioner against the reasons for reopening. Hence, the present petition.
The case made out by the writ-petitioner in this writ-application may be summed up thus :
(1) It is the case of the petitioner that as per Appendix-IX to clause 22(a) of Form 3CD – Tax Audit Report for the year under review, the cenvat credit balance stood at Rs.7,02,95,215=00 which included credit in respect of capital goods amount to Rs.14,95,903=00 and credit in respect of others amount to Rs.6,87,99,812=00. According to the petitioner, these amounts are reflected in the balance sheet under the head “loans and advances” as rightly observed in the notice. It was brought to the notice of the Assessing Officer that since the petitioner did not debit the unutilized balance of cenvat credit to profit and loss account, the outstanding was shown under the head “loans and advances” and, therefore, the question of adding the same to profit and loss account did not arise.
(2) It is the case of the petitioner that in view of Circular No.783/16/2004-cx (F.No.267/62/2003-cx-8) dated 28th April 2004, it was brought to the notice of the Assessing Officer that the case of dual benefit as set-up against the writ-petitioner is clarified in paragraph 2 of the said Circular viz. (i) Cenvat credit debited to profit and loss account by claiming as expenditure and (ii) Maintaining the cenvat credit account which is subsequently utilized for the purpose of payment of duty. The profit and loss account was credited while taking credit of cenvat by reducing the material input value and, therefore, there is no foundation on which the impugned notice under Section 148 of the Act could have been issued.
(3) According to the petitioner, the expression “reason to believe” contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons including such belief.
(4) The respondent sought to reopen the assessment under Section 147 of the Act by issuing a notice under Section 148 of the Act notwithstanding the fact that there is no valid reason to issue such notice.
(5) The reasons recorded for issue of notice under Section 148 of the Act indicate mere change of opinion of the Assessing Officer on the selfsame issue, which was processed in the original assessment. There was no failure on the part of the petitioner either in filing the return or full furnishing of the particulars.
(6) The Assessing Officer, vide letter dated 6th August 2009 at Point No.28, raised a specific query as to “justification note as to why unutilized cenvat credit should not be included in the value of closing stock”. Thereafter, vide letters dated 18th August 2009 and 24th August 2009, it was replied to the said queries, “we confirm that as on 31st March 2006 there was no cenvat credit outstanding and remaining unadjusted in the P & L account. All credits have been accounted in RG 23 of Excise Records. The value of purchases of raw materials is correspondingly reduced”. So the Assessing Officer was aware of the fact regarding the accountability of cenvat credit, its utilization and no dual benefit was taken by the petitioner. Hence, he did not make any addition on account of accountability of unutilized cenvat credit. The said details were made available to the Assessing Officer and, therefore, an opinion is already formed by way of scrutiny assessment. Subsequently, in absence of any external material coming to his possession that the petitioner has unaccounted a sum of Rs.2,92,81,496=00 towards unutilized cenvat credit, which has escaped assessment, the assumption of jurisdiction is bad in law.
(7) The entire initiation of jurisdiction under Section 147 read with Section 148 of the Act is contrary to the ratio of the recent three-judge-bench decision of the Supreme Court in the case of Kelvinator of India Limited, reported in 320 ITR 561.
Contentions on behalf of the Petitioner :
(1) Mr.Tej Shah, learned counsel appearing on behalf of the petitioner strenuously contended before us that the change of opinion cannot be the basis of notice under Section 148 of the Act within four years.
(2) Relying on the Apex Court decision in the case of Kelvinator of India (supra), Mr.Shah contended that in the case before us, no “tangible materials” have been disclosed in coming to a conclusion that there was escapement of income from assessment. Mr.Shah, in this connection, had drawn our attention to the reasons for initiation of proceedings and has contended that the reasons itself indicate that this is a case of mere “change of opinion”.
(3) According to Mr.Shah, in the course of regular assessment under Section 143 of the Act, the Assessing Officer raised a specific query as to the “justification note as to why unutilized cenvat credit should not be included in the value of closing stock” and the petitioner gave elaborate replies dated 18th August 2009 and 24th August 2009, pointing out that as on 31st March 2006 there was no cenvat credit outstanding and remaining adjusted in the profit and loss account. Mr.Shah points out that the Assessing Officer being satisfied, framed a favourable opinion and did not make any addition on account of accountability of unutilized cenvat credit.
(4) According to Mr.Shah, therefore, there was no justification of issuing notice under Section 148 of the Act simply on the basis of change of opinion, which is not even borne out by the record.
(5) That in the guise of reassessment, assessment made under Section 143(3) is sought to be reviewed. The respondent is seeking to apply his mind on the same set of facts which were already there at the time when the original assessment was made. No new fact or material has been brought on record for the formation of reason to believe that the income of the petitioner has escaped assessment. There was no material, which has nexus with the forming of the requisite belief.
The writ-application is opposed by the Revenue by filing affidavit-in-reply, thereby opposing the prayer of the writ-petitioner and the defence of the Revenue may be epitomized thus :
(1) The writ-petition filed by the petitioner is a premature one inasmuch as only a notice under Section 148 of the Act has been issued and in the event the petitioner is aggrieved by the reassessment order to be passed, the statutory remedy of appeal under the provisions of the Act is available.
(2) Mr.K.M.Parikh, learned counsel appearing on behalf of the Revenue contended that all that is necessary for the purpose of invoking Section 148 of the Act within the period of limitation is that something escaped at the time of regular assessment.
(3) Mr.Parikh contended that on close scrutiny and perusal of the statutory form No.3CB prescribed under Rule 6G(2) of the Income Tax Rules, more particularly, Item No.12(b) as regards the details of deviation, if any, from the method of valuation prescribed under Section 145A and the effect thereof on the profit and loss, the petitioner failed to disclose true and correct facts to the Assessing Officer and thereby indicated that there is no deviation from the method of valuation prescribed under Section 145A of the Act. According to Mr.Parikh, such disclosure with respect to the details of deviation, if any, is required to be stated by the assessee in the prescribed format under the Income Tax Act and the Rules as applicable thereto and by non- disclosure of such material fact, the Assessing Officer was fully justified to reopen the assessment for escaped assessment within the meaning of Section 147 of the Income Tax Act.
(4) Mr.Parikh also contended that the assessee had unutilized the cenvat credit, which was not shown as closing stock in the profit and loss account and the same was reflected in the balance sheet as on 31st March 2006 as “loans and advances”. He has submitted that, therefore, the issue forming part of the impugned notice for reopening does not find space in the entire body of the assessment order.
(5) He has submitted that there is no change of opinion in the present case as canvassed by the petitioner.
(6) According to him, Explanation of Section 147 of the Act, which was substituted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1st April 1989, more particularly, Explanation 2(c)(i) is more appropriate and relevant in the present case.
(7) Relying on the decision of the Supreme Court in the case of CIT v/s. PVS Beedies Private Limited, reported in (1999)237 ITR 13(SC), it is submitted that reopening of assessment even on the basis of factual error pointed out by the internal audit party is valid and, therefore, the contentions of the petitioner are not tenable in law. He contended that the decision of the Supreme Court in the case of PVS Beedies (supra) holds the field and even the subsequent judgment of the Apex Court in the case of Kelvinator India Limited (supra) has not disturbed the ratio as laid down in PVS Beedies (supra). He lastly contended that the Assessing Officer had valid reason to believe that income has escaped assessment and, therefore, after formation of such belief the Assessing Officer recorded reasons and issued the impugned notice which cannot be said to be, in any manner, unjustifiable or illegal as there is no change of opinion.
Therefore, the only question that arises for determination in this writ-application is, whether the Assessing Officer was justified in issuing the notice under Section 148 of the Act in the facts of the present case.
In order to appreciate the question involved in this petition, we first propose to deal with the reasons for initiating proceedings under Section 147 of the Act as disclosed by the Assessing Officer. The reasons assigned by the Assessing Officer are quoted below :
(1) It is noticed that the assessee company followed mercantile system of accounting. Purchase, sales and closing stock were accounted net of excise duty (exclusive method). As per annexure to Item No.22(a) of the CA's report in Form 3CD the details of cenvat credit availed on raw materials and utilized by the company during the previous year relevant to Assessment Year 2006-07 were shown. It was seen from the annexure that the assessee had opening balance of cenvat credit on raw material amounting to Rs.3,95,18,316=00 and the unutilized cenvat credit as on 31st March 2006 was to the tune of Rs.6,87,99,812=00 which was reflected in the balance sheet as on 31st March 2006 as loans and advances. Thus, unutilized cenvat credit on raw material pertaining to Assessment Year 2006-07 was to the tune of Rs.2,92,81,496=00.
(2) Since, the assessee followed the exclusive method of accounting in respect of excise duty, the cenvat credit was not shown as closing stock in the profit and loss account and thus understated the profit to the extent of unutilized credit. Thus, by not observing the provision of Section 145A, which mandates inclusive method of accounting, the profit was determined without considering the amount of unutilized cenvat credit. Therefore, the same being amount of unutilized cenvat credit of Rs.2,92,81,496=00 and same head escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961.
(3) In view of the above, I have reason to believe that the income to the extent of Rs.2,92,81,496=00 being amount of unutilized cenvat credit to the above extent escaped assessment within the meaning of Section 147 of the Income Tax Act. I am satisfied that the income has escaped assessment and this is a fit case to issue notice under Section 148.
(4) Notice under Section 148 is hereby issued.
In order to appreciate the aforesaid question, it will be profitable to refer to the provisions contained in Section 147 of the Act, which are quoted below :
Income escaping assessment.
"147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned [hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year]:
Provided that where an assessment under sub-section [3] of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the 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 the assessee to make a return under section 139 or in response to a notice issued under sub-section [1] of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:
Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.
Explanation 1.-- Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.-- For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-
[a] where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;
[b] where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;
[c] where an assessment has been made, but--
[i] income chargeable to tax has been under assessed; or
[ii] such income has been assessed at too low a rate; or
[iii] such income has been made the subject of the excessive relief under this Act; or
[iv] excessive loss or depreciation allowance or any other allowance under this Act has been computed.
Explanation 3.-- For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section [2] of section 148."
In the case before us, the assessee having challenged the notice of reassessment in a proceeding under Article 226 of the Constitution, before proceeding further, we propose to deal with the scope of interference in such a matter.
The Supreme Court in the case of the Commissioner of Income Tax, Gujarat v/s. M/s.A.Raman and Company, reported in AIR 1968 SC 49, had the occasion to deal with such a question. We may appropriately refer to the following observations made by a three- judge-bench in the above matter by relying upon the majority view taken in an earlier decision of that court taken by a bench of five judges:
“4. It was held by this Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, (1961) 41 ITR 191 = (AIR 1961 SC 372) that the High Court in appropriate cases has power to issue an order prohibiting the Income-tax Officer from proceeding to reassess the income when the conditions precedent do not exist. At p. 207, K.C. Das Gupta, J., delivering the majority judgment of the Court observed:
"It is well settled however that though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well settled will issue appropriate orders or directions to prevent such consequences.
The High Court may, therefore, issue a high prerogative writ prohibiting the Income-tax Officer from proceeding with reassessment when it appears that the Income-tax Officer had no jurisdiction to commence proceeding.
5. The condition which invests the Income-tax Officer with jurisdiction has two branches: (i) that the Income-tax Officer has reason to believe that income chargeable to tax has escaped assessment; and (ii) that it is in consequence of information which he has in his possession and that he has reason so to believe. Since the learned Judges of the High Court have concentrated their attention upon the second branch of the condition and have reached their conclusion in favour of the assessees on that branch, it would be appropriate to deal with the correctness of that approach. The expression "information" in the context in which it occurs must, in our judgment, mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment. If as a result of information in his possession the Income-tax Officer has reason to believe that income chargeable to tax had escaped assessment, the Income-tax Officer has jurisdiction to assess or reassess income under Section 147 (1) (b) of the Income-tax Act, 1961, Information in his possession that income chargeable to tax has escaped assessment furnishes a starting point for assessing or re-assessing income. If he has that information, the Income-tax Officer may commence proceedings for assessment or reassessment. To commence the proceeding for reassessment it is not necessary that on the materials which came to the notice of the Income-tax Officer, the previous order of assessment was vitiated by some error of fact or law.
6. The High Court exercising jurisdiction under Article 226 of the Constitution has power to set aside a notice issued under Section 147 of the Income-tax Act, 1961, if the condition precedent to the exercise of the jurisdiction does not exist. The Court may, in exercise of its powers, ascertain whether the Income-tax Officer had in his possession any information: the Court may also determine whether from that information the Income-tax Officer may have reason to believe that income chargeable to tax had escaped assessment. But the jurisdiction of the Court extends no further. Whether on the information in his possession he should commence a proceeding for assessment or reassessment, must be decided by the Income-tax Officer and not by the High Court. The Income-tax Officer alone is entrusted with the power to administer the Act; if he has information from which it may be said prima facie, that he had reason to believe that income chargeable to tax had escaped assessment, it is not open to the High Court, exercising powers under Article 226 of the Constitution, to set aside or vacate the notice for reassessment on a re-appraisal of the evidence.
7. The High Court in this case was apparently of the view that the information in consequence of which proceedings for reassessment were intended to be started, could have been gathered by the Income-tax Officer in charge of the assessment in the previous years from the disclosures made by the two Hindu undivided families. But that, in our judgment, is wholly irrelevant. Jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment. That information must, it is true, have come into possession of the Income-tax Officer after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected.”
(Emphasis supplied).
At this stage, we propose to refer to two more decisions of the Supreme Court, one, in the case of Gemini Leather Stores v/s. The Income Tax Officer, 'B' Ward Area and others, reported in AIR 1975 SC 1268 and the other, in the case of Income Tax Officer, Income Tax-
cum-Wealth Tax Circle II, Hyderabad v/s. Nawab Mir Barkat Ali Khan Bahadur, Hyderabad, reported in AIR 1975 SC 703, which would be relevant for the purpose of this case.
In the case of Gemini Leather Stores (supra), while making a best judgment assessment, the Income-tax Officer had discovered certain transactions evidenced by the drafts, which the assessee had not disclosed. In spite of this discovery and the knowledge of all the material facts, the Income-tax Officer did not make necessary enquiries and draw proper inferences as to whether the amounts invested in the purchase of the drafts could be treated as part of the total income of the assessee during the relevant year. In such a situation, it was held that it was plainly a case of oversight and the Income-tax Officer could not take recourse to Section 147 (a) to remedy the error resulting from his own oversight and that therefore the notice under Section 148 should be quashed.
In the case of Nawab Mir Barkat Ali Khan Bahadur, Hyderabad (supra), the Supreme Court even went to the extent that non- production of the documents at the time of the original assessments cannot be regarded as non-disclosure of any material facts necessary for the assessment of the respondent for the relevant assessment years, where such documents conform to the documents already filed by the assessee in material particulars.
The following observations are in this connection relevant and are quoted below:
“Non-production of the documents executed in 1957 at the time of the original assessments cannot therefore be regarded as non-disclosure of any material fact necessary for the assessment of the respondent for the relevant assessment years. The High Court was right in holding that the Income-tax Officer had no valid reason to believe that the respondent had omitted or failed to disclose fully and truly all material facts and consequently had no jurisdiction to reopen the assessments for the four years in question. Having second thoughts on the same material does not warrant the initiation of a proceeding under Section 147 of the Income-tax Act 1961.”
(Emphasis supplied).
At this stage, we may rather aptly refer to a latest three-judge- bench decision of the Supreme Court in the case of Commissioner of Income Tax v/s. Kelvinator of India Limited, reported in (2010)2 SCC 723, where the said court after taking into consideration the effect of Direct Tax Laws (Amendment) Act, 1987 on section 147 made the following observations while dismissing the appeals preferred by the Revenue:
“5. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in Section 147 of the Act (with effect from1-4-1989), they are given a go-by and only one condition has remained viz. that where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1-4- 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, 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.
6. We 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 reassessment has to be based on fulfillment of certain precondition 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.
7. 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 the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words “reason to believe”, Parliament reintroduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the assessing officer.
8. We quote hereinbelow the relevant portion of Circular No. 549 dated 31-10-1989, which reads as follows:
“7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression ‘reason to believe’ in Section 147.—A number of representations were received against the omission of the words ‘reason to believe’ from Section 147 and their substitution by the ‘opinion’ of the Assessing Officer. It was pointed out that the meaning of the expression, ‘reason to believe’ had been explained in a number of court rulings in the past and was well settled and its omission from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended Section 147 to reintroduce the expression ‘has reason to believe’ in the place of the words ‘for reasons to be recorded by him in writing, is of the opinion’. Other provisions of the new Section 147, however, remain the same.”
(emphasis supplied)
9. For the aforestated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs.”
(Emphasis given by us).
Bearing in mind the aforesaid principles, we now propose to consider the case before us.
After hearing the learned counsel for the parties and after going through the aforesaid materials on record, we find that the main reason for opening the assessment is that the assessee company followed mercantile system of accounting . Purchase, sales and closing stock were accounted net of excise duty and CA's report in Form 3CD disclosed the details of cenvat credit availed on raw materials and utilized by the company during the previous year relevant to the Assessment Year 2006-07, showing that the assessee had opening balance of cenvat credit on raw material amount to Rs.3,95,18,316=00 and the unutilized cenvat credit as on 31st March 2006 was to the tune of Rs.6,87,99,812=00 as reflected in the balance sheet as on 31st March 2006 as loans and advances.
According to the Assessing Officer, the unutilized cenvat credit on raw material pertaining to the Assessment Year 2006-07 was to the tune of Rs.2,92,81,496=00. We find that the Assessing Officer took into consideration the fact that as the assessee followed the exclusive method of accounting in respect of the excise duty, the cenvat credit was not shown as closing stock in profit and loss account and, thereby, understated the profit to the extent of unutilized credit.
According to the Assessing Officer, there was non-compliance of the provisions of Section 145A, which mandates inclusive method of accounting and the profit was determined without considering the amount of unutilized cenvat credit.
We have noticed that the Assessing Officer, vide letter dated 6th August 2009, raised a specific query at point No.28 in this regard with justification as to why unutilized cenvat credit should not be included in the value of closing stock. We also find from the record that this particular query was replied to the satisfaction of the Assessing Officer vide letters dated 18th August 2009 and 24th August 2009 informing that as on 31st March 2006 there was no cenvat credit outstanding and remaining unadjusted in the profit and loss account. It was also explained to the Assessing Officer that all credits have been accounted in RG 23 of the excise records and the value of purchases of raw materials is correspondingly reduced. Thus, what we find is that the Assessing Officer was aware of the fact regarding the accountability of cenvat credit, its utilization and the fact that no dual benefits were obtained by the petitioner. After being satisfied with the materials produced by the petitioner and the explanation, the Assessing Officer did not make any addition on account of accountability of unutilized cenvat credit. Thus, it can be easily said that the requisite details were made available to the Assessing Officer and, therefore, the opinion was already formed by way of scrutiny assessment. In absence of any other tangible material, the successor- in-office could not have formed his own independent opinion based on the same material that the petitioners have unaccounted sum of Rs.2,92,81,496=00 towards unutilized cenvat creit.
In the case of CIT v/s. Eicher Ltd., reported in (2007) 294 ITR 310 (Delhi), which was also the subject-matter of appeal before the Supreme Court in the case of Kelvinator of India Limited (supra), the Delhi High Court dealt with the similar point as would appear from the following observations quoted below:
“Applying the principles laid down by the Full Bench of this court as well as the observations of the Punjab and Haryana High Court, we find that if the entire material had been placed by the assessee before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did not express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the Assessing Officer did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse.
In so far as the present appeal is concerned, we find that the assessee had placed all the material before the Assessing Officer and where there was a doubt, even that was clarified by the assessee in its letter dated November 8, 1995. If the Assessing Officer, while passing the original assessment order, chose not to give any finding in this regard, that cannot give him or his successor in office a reason to reopen the assessment of the assessee or to contend that because the facts were not considered in the assessment order, a full and true disclosure was not made. Since the facts were before the Assessing Officer at the time of framing the original assessment, and later a different view was taken by him or his successor on the same facts, it clearly amounts to a change of opinion. This cannot form the basis for permitting the Assessing Officer or his successor to reopen the assessment of the assessee.”
We have already pointed out that the Supreme Court in the case of Kelvinator of India Limited (supra), dismissed the appeal preferred by the Revenue not only against the decision of the Full Bench of the Delhi High Court in the case of CIT v/s. Kelvinator of India Limited, reported in (2002) 256 ITR 1 (Delhi) but also against the above case of CIT v/s. Eicher Limited (supra) as both were heard analogously.
We shall also look into and deal with the judgment of the Supreme Court in the case of PVS Beedies Private Limited (supra) which has been heavily relied upon by learned advocate Mr.Parikh appearing for the Revenue. On going through the entire judgment, we find that in the said case, the original assessment got completed on 21st June, 1977. There were various other proceedings which ended in the Tribunal. The Tribunal, after considering all the aspects of the cases, remanded the cases back to the Income Tax Officer for passing a fresh order in accordance with law.
One of the points raised before the Income Tax Officer was that of justification for reopening of the assessment. At that point of time, it was pointed out that reopening was on the basis of the report made by the audit department. The Tribunal took the view that reopening under Section 147(b) of the Act was not permissible on the basis of a report given by the audit department.
We have also noticed the facts of the case. The reopening was done because in the original assessment donations made on body known as “PVS Memorial Charitable Trust” was held by the Income Tax Officer to be eligible for deduction under Section 80G of the Act. However, subsequently, it was pointed out by the internal audit party that recognition which had been granted to the PVS Memorial Charitable Trust had expired on 22nd September 1972, suggestive of the fact that it had expired before 1st April 1973. Therefore, in the relevant years of account the charitable trust was not a recognized charitable trust. Therefore, the donations to PVS Memorial Charitable Trust did not qualify for deduction under Section 80G of the Act as a donation made to a recognized charitable trust. The Supreme Court in this factual background took the view that the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Act. The Supreme Court took the view that the audit party merely pointed out the facts which were overlooked by the Income Tax Officer in the assessment. The Supreme Court also noticed the fact that recognition granted to the charitable trust had expired on 22nd September 1972 and this fact was overlooked by the Income Tax Officer. Allowing the appeal of the Revenue, the Supreme Court held that the case was not one of information on a question of law and saying so, the Supreme Court held that the audit party is entitled to point out factual error or omission in the assessment and reopening of the case on the basis of the factual error pointed out by the audit party is permissible under law.
Thus, the facts of PVS Beedies Private Limited (supra) were altogether different and in the peculiar facts of the case, the Supreme Court held that reopening of the case on the basis of factual error pointed out by the audit party is permissible under Section 147(b) of the Act. Trying to derive analogy of the principle of PVS Beedies Private Limited (supra)to make it applicable in the present case, Mr.Parikh has tried to submit before us that in the present case also there was an error so far as the issue of unutilized cenvat credit was concerned.
We are afraid, the principle as propounded by the Supreme Court in the case of PVS Beedies Private Limited (supra) cannot be made applicable to the facts of the present case. In the present case, the Assessing Officer had raised a specific query in this regard, which was answered by the assessee to the satisfaction of the Assessing Officer on the basis of which the Assessing Officer did not make any addition on account of accountability of unutilized cenvat credit.
There is one more reason why the ratio as propounded by the Supreme Court in the case of PVS Beedies Private Limited (supra) would not be applicable in the present case.
We have noticed that PVS Beedies Private Limited (supra) was a case, dealing with Section 147(b) of the Act, as it stood prior to the Amendment Act, 1987, which came into force with effect from 1st April 1988. Section 147(b) of the Act as it stood prior the 1987 Amendment reads as under :
“(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year.”
Section 147, in force as on today and applicable to the present case, reads as under :
“147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section 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 the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.”
It was in context with Section 147(b) that the Supreme Court held that reopening of the case on the basis of information provided by the audit party as regards the factual error is permissible under law.
A decision is available as a precedent only if it decides a question of law. The respondent is, therefore, not entitled to rely upon a decision of the Supreme Court rendered in peculiar facts of the case not laying down any absolute proposition of law which can be termed as a binding precedent. We may profitably quote what the Supreme Court has observed in the case of Mehboob Dawood Shaikh v/s. State of Maharashtra, reported in (2004)2 SCC 362. In paragraph 12 of the said judgment, the Supreme Court has observed as under :
“There is no such thing as a judicial precedent on facts though counsel, and even Judges, are sometimes prone to argue and to act as if they were, said Bose J., about half a century back in Willie (William) Slaney v. The State of Madhya Pradesh, (1955 (2) SCR 1140 at page 1169). A decision is available as a precedent only if it decides a question of law. A judgment should be understood in the light of facts of that case and no more should be read into it than what it actually says. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court divorced from the context of the question under consideration and treat it to be complete law decided by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court.”
In the present case, it is only the difference of opinion of the successor-in-office which has been the basis for reopening of the assessment. Therefore, we are of the view that the judgment of the Supreme Court in the case of PVS Beedies Private Limited (supra) would not save the situation for the Revenue and is not helpful in any manner. On the other hand, we have to our profit a three-Judge bench decision of the Supreme Court in the case of Kelvinator of India Limited (supra), wherein the Supreme Court in clear terms has stated that the meaning of the expression “reason to believe” needs to be given a schematic interpretation, otherwise 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.
Thus, none of the reasons assigned by Assessing Officer for reopening the assessment was tenable in eye of law.
On consideration of the entire materials on record, we thus find that the condition precedent for exercising power of reopening the assessment as provided in Section 147 of the Act is absent and the Assessing Officer acted illegally in issuing notice of reassessment by forming a second opinion on the selfsame materials without having any “tangible material” to exercise jurisdiction.
We, consequently, set-aside the notice of re-assessment being (Annexure-'A' to the petition) and also the order dated 11th November 2011 (Annexure-'F' to the petition) rejecting the objections against reopening of the case under Section 147 of the Income Tax, 1961. The Special Civil Application is, thus, allowed. No costs.
(Bhaskar Bhattacharya, Acting C.J.)
(J.B.Pardiwala, J.)
/moin