reopening s.147

[rajul5234]

guj. H. C. in s.c.a. 13911/2011 dt. 23/11/11 . jayantkumar m. doshi held reopening u/s 147 bad in law even within 4 years from end of the year concerned and even when there is no discussion on the issue sought to be reopened in the original order u/s 143(3). only s/c notice and replies are enough to indicate implied opinion of assessing officer in original scrutiny order.

R. K. Patel

[ankit.agarwal]

hw can i get more info. on this?

[ashutosh majumdar]

Here is the text: (I have also attached it as an attachment - just log-in & download)

SCA/13911/2011 10/10 ORDER

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

SPECIAL CIVIL APPLICATION No. 13911 of 2011

=========================================================
JAYANTKUMAR MOTICHAND DOSHI - Petitioner(s)
Versus
ASST COMMISSIONER OF INCOME TAX CIRCLE - II & 1 - Respondent(s)
=========================================================
Appearance :
MR RK PATEL for Petitioner(s) : 1,
MR PRANAV G DESAI for Respondent(s) : 1 - 2.
=========================================================
CORAM :    HONOURABLE MR.JUSTICE AKIL KURESHI
   and
   HONOURABLE MS JUSTICE SONIA GOKANI

Date : 23/11/2011

ORAL ORDER
(Per : HONOURABLE MR.JUSTICE AKIL KURESHI)

Heard the learned counsel appearing for the parties for final disposal of the petition.

Petitioner has challenged notice dated 1.2.2011 issued by the Assessing Officer under section 148 of the Income Tax Act, 1961 (Act for short). The petitioner has also challenged order dated 31.8.2011 by which the Assessing Officer was pleased to dispose of the objections of the petitioner to the notice for reopening of the assessment previously framed under scrutiny.

Briefly stated facts are as follows:

The petitioner-assessee filed its return of income for the assessment year 2007-08. Such return was taken in scrutiny by the Assessing Officer. He ultimately framed scrutiny assessment under section 143(3) of the Act on 2.12.09. It is the case of the petitioner that during such assessment proceedings, several issues were raised by the Assessing Officer. Such questions were replied by the petitioner. Barring one, no addition was made in the final order of assessment.

The Assessing Officer, issued notice dated 1.2.2011 seeking to reopen the assessment previously framed for the said assessment year 2007-08. He called upon the assessee to file return in the prescribed form within 30 days from the date of receipt of the notice. The Assessing Officer had recorded his reasons for reopening the assessment which read as follows:

"The return of income was filed by the assessee on 31-10-2007. The assessment was completed u/s.143(3) on 29-12-2009 determining taxable income of Rs.58,19,290/-. From the records, it is observed that in profit and loss account, the assessee disclosed opening stock of Rs.1,94,52,650/-. The closing stock as on 31st March 2007 is disclosed at Rs.38,90,530/-. The reduction in the stock amounts to Rs.1,55,62,120/-. However, the assessee has not disclosed any sales. Even if it is presumed that no profit was derived on sales, the assessee has not even shown realizable value of the stock of Rs.1,55,62,120/-. This amounts to under assessment to the extent of Rs.1,55,62,120/-. The assessee has also claimed medi claim expenses of Rs.24,228/- in the profit and loss account which is a personal and on business expense hence not allowable.

Therefore, income of the assessee has escaped assessment to the above extents. I am therefore satisfied that this is a fit case for reopening the case u/s.147 of the I.T.Act. Issue notice u/s.148 of the I.T.Act."


The petitioner raised objections to such proposal for reopening the assessment vide his communication dated 12.2.2011. With respect to the discrepancy in the valuation of closing stock, the assessee contended that during the course of assessment proceedings, inquiry regarding value of the stock was made by the Assessing Officer. The assessee had explained the basis of valuation of the stock. The Assessing Officer after applying his mind to the facts of the case came to the conclusion that valuation was proper. Reopening of assessment on the basis of same set of facts would only amount to change of opinion which would not permit the Assessing Officer to reopen the assessment. With respect to expenses of Rs.24,228/- towards medical claim, the assessee contended that no such claim was made in the return filed. Thereafter, the Assessing Officer by his order dated 31.8.2011, disposed of the objections of the petitioner. He was of the opinion that no opinion was formed on the question of valuation of the stock in the regular assessment previously framed. However, with respect to the expenses towards medical claim, the Assessing Officer made no observation in his order dated 31.8.2011.

At that stage, the petitioner approached this Court and filed this petition challenging the notice for reopening of the assessment as well as the order of the Assessing Officer disposing of the objections of the petitioner to such proposal.

Counsel for the petitioner taking us through the documents on record, contended that while framing the scrutiny assessment, the Assessing Officer raised several queries including the one with respect to valuation of the stock. The petitioner had rendered his explanation which was not found entirely satisfactory. The Assessing officer again raised queries with respect to this very issue. The petitioner replied to the fresh queries whereupon, the ultimate assessment order was passed accepting the valuation of closing stock as indicated by the petitioner in the return filed. Counsel, therefore, submitted that thereafter it was not open for the Assessing Officer to reopen the assessment on this sole ground since the same would amount to change of opinion. Counsel relied on a decision of the Delhi High Court in the case of Jal Hotels Co. Ltd. v. Assistant Director of Income Tax, 184 Taxman 1 wherein the court observed that it is well established that the Assessing Officer is not obliged to mention and discuss each and every argument or issue which has arisen in the course of the assessment. The court referred to and relied upon a decision of Full Bench of the Delhi High Court in the case of CIT v. Kelvinator 256 ITR 1, wherein the court had rejected the contention of the counsel for the Revenue that only because in the assessment order detailed reasons have not been recorded and analysis of the materials on the record may justify the A.O to initiate proceeding under section 147 of the Act. Counsel pointed out that the decision of the Full Bench in the case of Kelvinator (supra) came to be upheld by the Apex Court in the case of CIT v. Kelvinator of India Ltd., 320 ITR 561.

Learned counsel Shri Desai appearing on behalf of the Revenue, however, submitted that the assessment order is silent on the question of valuation of the closing stock. The Assessing Officer, therefore, cannot be stated to have formed an opinion. The assessment is sought to be reopened within four years from the end of relevant assessment year and therefore, is valid. He submitted that the assessee should be relegated to the authorities for full inquiry and fresh assessment. With respect to the claim of medical expenses, however, counsel was not in a position to controvert the stand of the petitioner that no such claim was made in the return filed by the assessee.

Having thus heard the learned counsel for the parties and having perused the orders on record, it can be seen that the assessment previously framed after scrutiny is sought to be reopened, of course, within four years from the end of the relevant assessment year. Under the circumstances, our inquiry would be whether the reasons stated would amount to mere change of opinion. In other words, question would be whether in the previous assessment, the Assessing Officer had after a conscious decision accepted the version of the assessee on the question of valuation of the stock.

We may recall that the reasons recorded for reopening the assessment were two in number. First pertained to valuation of the closing stock which according to the Assessing Officer was not properly done. Second reason was, according to the Assessing Officer, the assessee had claimed medical expenses which was not allowable. With respect to the second reason, it has by now come on record that the assessee had never made any such claim. The said reason therefore was not valid. As already noted, counsel for the Revenue was unable to controvert the stand of the petitioner that no such claim was made in the return filed. Under the circumstances, we would have to ascertain whether on the sole surviving reason of discrepancy in valuation of closing stock, reopening of assessment would be permissible.

We may notice that while framing scrutiny assessment, the Assessing Officer had raised series of queries under its communication dated 7.1.09. One of them was as follows:

"9. You have shown amount of Rs.1,94,52,650/- as opening stock in your P. & L. A/c. However value of closing stock is shown at Rs.38,90,530/-, and no purchase or sales of stock is shown in P. & L. A/c. You are requested to submit working of quantity and amount of opening stock and closing stock with basis of such working. Explain why no sales is shown from stock."


In response to such query, the assessee replied under his communication dated 30.1.2009 and stated as under:

"Details of opening and closing stock, we invite your kind attention as per clause No.28 of the audit report."
Not satisfied with the answer, the Assessing Officer raised further set of queries under his communication dated 10.12.09 and raised several questions with respect to different items. In particular, with respect to valuation of closing stock, he stated thus :

"In connection with your case, you have not given reply to the query raised in the notice dated 7.1.09 under section 142(1) with respect to the discrepancy in the valuation of opening and closing stocks. You have only stated that "details of opening and closing stock we have invite your kind attention as per clause No.28 of the audit report". Simply by stating so, you cannot be stated to have discharged your duty. Even the Assessing Officer would know that in the audit report there is no discrepancy. However, there is discrepancy in the amounts, for which explanation was called for. You have hopelessly failed in doing so. You are, therefore, once again called upon to explain this position for which this opportunity is being granted. Full details in response to notice under section 142(1) be supplied with respect to point No.9 along with necessary documents."

In response to such communication, the petitioner stated as under:

"Our stock is only stones measured in brass. There is no change in the quantity of opening and closing stock. Hence a copy of the audit report was filed. We have been asked to explain the basis of valuation of stock. We value the stock at cost or market value which ever is lower. During the year the stock has been valued @100 as against Rs.500/-. We have not been able to sell the stock. Hence the stock has turned into powder due to lapse of time. This has made it unsellable as kapchi. The market value of the stock is practically NIL. The valuation is therefore justified."


We may notice that several further queries were raised by the Assessing Officer in his communication dated 10.12.09. The petitioner had replied to such queries by his detailed reply under letter dated 15.12.09. Explanation to the so called discrepancy and the valuation of opening and closing stock was one of them.

It was after such detailed exercise that the Assessing Officer passed his order of assessment on 22.12.09. He made addition of certain items which according to him the assesseee had omitted from the return. Significantly, however, in framing the assessment, he accepted the valuation of opening and closing stocks as projected by the assessee in the return itself. In other words, despite his initial stand that there is discrepancy in the value of the opening and closing stocks, the Assessing Officer when ultimately framed the assessment did not make any changes with respect to such valuation.

Under the circumstances, we have no hesitation in coming to the conclusion that, in the facts of the case, permitting the Assessing Officer to reopen the assessment would only amount to permitting him to change the opinion. We are conscious that in the assessment order, the Assessing Officer has not made any detailed observation with respect to either acceptance or rejection of valuation of the assessee of the opening and closing stocks. In the facts of the present case, we are not required to go into the question whether merely because the Assessing Officer has not made any remark in the assessment order, the same can be stated to be his opinion. In the present case, facts are very glaring. The Assessing Officer was not satisfied with respect to several issues in the return filed by the assessee. He raised series of queries. Such queries were replied to by the petitioner. One of such queries was with respect to the discrepancy in the valuation of opening and closing stocks. The assessee rendered his explanation. When that did not satisfy the Assessing Officer, he in strong words called for further details. Such details were also supplied. On the basis of such further details, assessment was framed. In the assessment, valuation as projected by the assessee in the return was accepted. Any liberty to the Assessing Officer to reopen the assessment on the perceived notion that there was discrepancy in the valuation of the opening and closing stock would only amount to change of opinion. In the case of Kelvinator (supra), the Apex Court highlighted that even after amendment in section 147, reopening within four years would not be permissible on mere change of opinion.

Under the circumstances, the petition is allowed. Impugned notice dated 1.2.2011 issued to the petitioner is quashed. Resultantly, the order dated 31.8.2011 disposing of the objections also do not survive. The petition stands disposed of accordingly.

(Akil Kureshi J.)

(Ms.Sonia Gokani, J.)
(vjn)

[kondapalli]

This many be the correct position.You may refer to Dalmia cements vs DCIT,where in the court opined that unless the A.O records an explicit opinion,the matter is open for re-assessment.