Gujarat H.C : Whether, where issue of accounting treatment in respect of unutilized CENVAT credit for purpose of valuing closing stock was already examined by Assessing Officer during scrutiny assessment, reopening of assessment on same issue without any tangible material was mere change of opinion and hence not sustainable

High Court Of Gujarat

Heavy Metal & Tubes Ltd. vs. DCIT, Ahmedabad, Circle-4 & 1

Assessment Year : 2008-09

Section : 147, 145

Akil Kureshi And Ms. Sonia Gokani, JJ.

Special Civil Application No. 2463 Of 2013

April  22, 2013

ORDER

Ms. Sonia Gokani, J – This writ petition under Article 226 of the Constitution of India is preferred by the petitioner being engaged in the business of manufacturing and sale of seamless and welded pipes and tubes, seeking following reliefs :-

“{A} Issues a writ of certiorari and/or a writ of mandamus and/or any other writ direction or order to quash and set-aside the impugned notice dated 12th March 2012 under Section 148 of the Income-tax Act, 1961 annexed hereto at Annexure-F alongwith preliminary order dated 25.02.2013 annexed hereto at Annexure-K, notice at Annexure-L for reassessment proceedings and reassessment order u/s. 143 (3) r/w 147, if any , passed thereafter.

{B} Pending admission, hearing and disposal of this petition, ad interim relief be granted and the respondent be ordered to restrain from enforcing compliance of the impugned notice dated 12.03.2012 under Section 148 of the Income-tax Act, 1961 annexed hereto at Annexure-F alongwith preliminary order dated 25.02.2013 annexed hereto at Annexure-K, notice at Annexure-L for reassessment proceedings and reassessment order u/s. 143 (3) r/w 147; if any, passed thereafter.

{C} Pending admission, hearing and till final disposal of this petition, stay the implementation/operation of the notice and orders to restrain the respondent from taking any further proceedings pursuant to the impugned notice dated 12.03.2012 under Section 148 of the Income-tax Act, 1961 annexed hereto at Annexure F alongwith preliminary order dated 25.02.2013 annexed hereto at Annexure K, notice at Annexure L for reassessment proceedings and reassessment order u/s. 143 (3) r/w 147; if any, passed thereafter.

{D} Award the cost of this petition.

{E} Grant such other and further reliefs, as this Honourable Court deems fit.”

2. Brief facts are as under:-

2.1 The petitioner-Company for the A.Y 2008-09 had filed its return of income with relevant document’s. During the course of assessment, the case of the petitioner was selected for scrutiny. Notice under section 142 (1) of the Income-tax Act, 1961 [“Act” for short] was issued by the respondent-officer raising certain queries; in all thirty five in number and requesting the petitioner to furnish the documents. One of the queries read as under :-

“(3) Accounting of indirect taxes, rates applicable and statements showing that the accounting system does not affect the profits of the Company.”

2.2 In response to the same, the assessee furnished the information in the following manner :-

“(3) The details showing Accounting of indirect taxes, rates applicable and statement showing that the accounting system does not affect the profit of the company etc. and note on accounting is attached as per “Encl 2”. {which is reproduced hereunder}.

Name of Tax Applicable Rate of Tax Note of Accounting
Upto 28.02.2008 From 01.03.2008 During F.Y 2007-08
Central Excise Duty On Sales 16.48% 14.42% Sales is accounted including sales tax and excise duty. Purchase is accounted net of VAT & Excise duty. Tax credit availed on purchase is accounted as receiveable and difference between Tax collected and Tax credit availed on purchase is accounted expenses. The unutilized credit of tax as reflected as receiveables. Closing stock is valued net of tax. A statement showing that accounting system does not affect the profit herewith
On Purchase 16.48% 14.42%
Local Sales Tax (VAT) On Sales   4%
On Purchase of different items 4%, 5%, 12.50%, 15%
Central Sales Tax {CST} On Sales 3%
On Purchase 3%

2.3 The petitioner also furnished details of accounts for the said year, in the following manner :-

A/c. Year Assessment Year 2008-09
12(b) Details of deviation, if any, from the method of valuation prescribed under section 145A, and the impact thereof on the profit & loss.
Sr. No. Particulars [Rupees] Increase in Profit {Rupees} Decrease in Profit
1 Increase in cost of opening stock on inclusion of excise duty on which MODVAT Credit is available/availed. 27572291
2  Increase in closing stock of materials on inclusion of excise duty 68687139
3  Increase in Purchase cost of materials on inclusion of excise duty 253108556
4  Accounting of MODVAT credit availed and utilized on raw materials consumed in payment of excise duty on finished goods accounted on the basis of raw materials consumed. 211993708
TOTAL 280680847 280680847

2.4 The Assessing Officer, at the time of assessment, framed under Section 143 (3) of the Act on 27th December 2010 calculated the income of the assessee at Rs. 15,07,96,240/=; permitting disallowances worth Rs. 7,90,75,045/=, after discussing at length in the body of the assessment various details.

2.5 It needs to be mentioned that the query raised in respect of accounting method followed by the assessee not reflecting the profit of the company had not been forming part of the assessment framed after the scrutiny.

3. The Assessing Officer on 12th March 2012, issued a notice to the petitioner under Section 148 of the Act for reopening of the assessment of A.Y 2008-09 on the ground that the income had escaped assessment within the meaning of Section 147 of the Act.

4. The petitioner-assessee made a request on 5th April 2012 for providing a copy of the reasons recorded for initiating such proceedings.

4.1 On receipt of such communication, the reasons recorded for initiating reassessment proceedings have been furnished to the petitioner vide communication dated 15th February 2013. The reasons recorded require to be profitably reproduced in toto :

“This has reference to your letter dated 10.04.2012 in connection with the notice under section 148 of the Act, issued by this office on 12.03.2012.

2. As desired by you, the relevant extract of the reasons recorded for initiating the re-assessment proceedings under section 147 of the Act is reproduced, as under for your reference:-

On verification of case records, it is noticed that the assessee is following exclusive method of accounting for CENVAT. From financial accounts of the assessee, it is noticed that the CENVAT receivables as on 01.04.2007 was of Rs. 88,03,406/= and as on 31.03.2008 was of Rs. 5,57,57,871/=. As per provisions of section 145A of the IT Act, the difference of Rs. 4,69,54,465/= is to be included in the closing stock of the assessee. The assessee had not included the amount of Rs. 4,69,54,465/= in its closing stock. Therefore, its income was under assessed by amount of Rs. 4,69,54,465/=.

In view of above, I have reason to believe that the income of the assessee is under assessed by amount of Rs. 4,69,54,465/=.

You are requested to attend office on 21.02.2013 alongwith your submission in this regard.”

5. Written objections have been raised by the petitioner vide communication dated 19th February 2013 objecting to such reopening of assessment inter alia contending that the issue is already examined during scrutiny assessment. On considering such objections raised by the petitioner, the Assessing Officer disposed of the same vide order dated 25th February 2013 by rejecting the grounds raised in the communication.

6. Being aggrieved by such non-acceptance of the objection and the process of reopening, the present petition is preferred requesting for the aforementioned prayers.

6.1 The principal ground raised by the petitioner in this petition is that as per Section 145A of the Income-tax Act, 1961, the method of accounting should be inclusive and the petitioner has been following the exclusive method and due to mere change in the method, income cannot escape the assessment. It is the say of the petitioner that one method of accounting of excise duty is inclusive method under which purchases recorded include the excise duty. Likewise, the sales and the closing stock also, when are recorded, it is always taking into account the excise duty. However, the assessee had followed exclusive method of accounting for the excise duty. There would be no entry in respect of excise duty found in the trading as well as in the profit and loss account in respect of the purchases.

7. On issuance of the notice, the respondents appeared and filed affidavit in reply inter alia contending that the notice under section 148 is within the period of four years from the end of the relevant assessment year. Since the reasons recorded for re-assessment reveal that the income has escaped the assessment, in absence of any opinion having been formed by the Assessing Officer in the original assessment, no interference at this stage in the writ petition is desirable as the notice under section 148 is valid and legal. It is not being disputed that the return of the petitioner was duly processed under Section 143 (1) of the Act and on scrutiny assessment, the assessment has been finalized. It is further not being disputed that the notice under section 143 (2) was issued on 26th August 2009 which had been replied to exhaustively. However, it is being contended that on verification of the case record, when it is realized that the assessee is following exclusive method of CENVAT and that the CENVAT receivables as on 1st April 2007 was of Rs. 88,03,406/= and as on 31st March 2008 was of Rs. 5,5 was required to be included in the closing stock of the assessee, but, the same since has not been included by the assessee as required under Section 145 (A) of the Act, this resulted into escapement of income, and therefore, re-assessment notice is legally and validly issued.

8. We have heard learned counsel Shri R.K Patel for the petitioner, who has raised two grounds – firstly, that the notice of reopening though is within a period of four years from the date of relevant assessment year, since the question has already been thoroughly scrutinized by the Assessing Officer when the query in respect of the issue of accounting treatment given to the unrealized CENVAT credit was also at large before the Assessing Officer, no reassessment on the very ground should be made permissible. Secondly, it has been argued by the learned counsel that on the basis of audit objection, this notice of reopening under section 148 of the Act has been issued. In absence of any independent application of mind on the part of the Assessing Officer, on that count alone, notice is not sustainable.

8.1 Per contract, learned counsel Ms. Mauna Bhatt appearing for the respondent-Department has stressfully argued that the notice is given within a period of four years and therefore, at this stage the Court may not interfere with the entire proceedings. She further urged that no opinion has been formed by the Assessing Officer ” On also, she has contended that it is incorrect to suggest that only on the basis of audit objection, such notice of reopening has been issued without independent examination of material.

9. Upon thus hearing both the sides and on examination of the material on the record, for the reasons to follow hereinafter, we are of the opinion that the notice of reopening issued under section 148 of the Act is neither valid nor sustainable.

10. As could be noticed from the material on record, the Assessing Officer at the time of original assessment had taken the return of the assessee in the scrutiny assessment. It had particularly raised a query with regard to the exclusive method of accounting for CENVAT followed by the assessee. According to the Assessing Officer, there was non compliance of provisions of section 145-A which mentions inclusive method of Accounting and the profit was determined without considering the amount of unutilized CENVAT credit. The Assessing Officer also called for details from the assessee in this regard. Such details were already furnished. It has been explained in detail by the assessee as to how the sales is accounted, including the Sales tax and the Excise duty with the facts and figures as well. A detailed statement has been furnished reflecting that the accounting system would not affect the profit of the company. As could be note from the assessment order passed for the relevant Assessment Year 2008-09, in which though having provided disallowances totalling worth Rs. 7.90 Crores [rounded off], the Assessing Officer has not chosen to say anything with regard to the issue raised in its letter dated 16th August 2010.

10.1 Later on, by impugned notice dated 12th March 2012, it has sought to reopen assessment on the very ground. We are of the opinion that it would not be permitted to raise the very ground, even within the period of four years, in as much as he has scrutinized this very issue, as that would otherwise amount to change of opinion on the part of the Assessing Officer.

10.2 This Court in case of Lanxess ABS Ltd. v. Dy. CIT [Special Civil Application No. 17530 of 2011, dated 11-4-2012] had dealt with an identical issue in a writ petition. The Court, after a detailed reasonings held in similar circumstances that the notice was illegal for having been issued without any tangible material to exercise jurisdiction under section 147 of the Act. Profitable, it would be, to reproduce some of the relevant portions of this decision:

“16. 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 fulfilment 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 from 1-4-1989), 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 fulfilment 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 my 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 noncompliance 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 credit.

In the case of CIT v. Eicher Ltd. [2007] 294 ITR 310 (Delhi), which was also the subject-matter of appeal before the Supreme Court in the case of Kelvinator of India Ltd. (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.

Insofar 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. Kelvinator of India Limited in [2002] 256 ITR 1/123 Taxman 433 but also against the above case of Eicher Ltd. (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. 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) Stanley 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.”

10.3 This Court in case of Gujarat Power Corpn. Ltd. v. Asstt. CIT [2013] 350 ITR 266/[2012] 26 taxmann.com 51 (Guj.), also had an occasion to consider similar question of law where the reopening of the assessment on the very same claim was made on the basis of the same material which was held a mere change of opinion and impermissible.

10.4 For the purpose of the present petition, relevant findings of the said decision are being reproduced hereunder:-

“42. Bearing in mind these conflicting interests, if we revert back to central issue in debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in the return filed, has some doubt about eligibility of such a claim and therefore, raises queries, extracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever. Whether the Assessing Officer allows such a claim, rejects such a claim or partially allows and partially rejects the claim, are all options available with the Assessing Officer, over which the assessee beyond trying to persuade the Assessing Officer, would have no control whatsoever. Therefore, while framing the assessment, allowing the claim fully or partially, in what manner the assessment order should be framed, is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be stated that he did not form an opinion on such a claim. It is not unknown that assessments of larger corporations in the modern day, involve large number of complex claims, voluminous material, numerous exemptions and deductions. If the Assessing Officer is burdened with the responsibility of giving reasons for several claims so made and accepted by him, it would even otherwise cast an unreasonable expectation which within the short frame of time available under law would be too much to expect him to carry. Irrespective of this, in a given case, if the Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue that the Assessing Officer can not be seen to have formed any opinion on such a claim. Such a contention, in our opinion, would be devoid of merits. If a claim made by the assessee in the return is not rejected, it stands allowed. If such a claim is scrutinized by the Assessing Officer during assessment, it means he was convinced about the validity of the claim. His formation of opinion is thus complete. Merely because he chooses not to assign his reasons in the assessment order would not alter this position. It may be a non-reasoned order but not of acceptance of a claim without formation of opinion. Any other view would give arbitrary powers to the Assessing Officer.

43. We are, therefore, of the opinion that in a situation where the Assessing Officer during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition.”

11. In light of the aforementioned discussion, it could be held that the Assessing Officer has sought to reopen the assessment previously framed. The very issue of accounting treatment that the unutilized CENVAT credit should receive for the purpose of valuing the closing stock has been examined by the Assessing Officer. Entire relevant materials had been placed before him. No addition on this count was made, without of course, giving any reasons. In other words, Assessing Officer, for whatever reasons has chosen not to opine after having made the scrutiny on the very issue of the accounting method. In absence of any tangible material that existed already before the Assessing Officer, the notice for reopening issued by the Assessing Officer should be held to have been based on mere change of opinion. In the instant case, we are of the firm opinion that the Assessing Officer cannot be permitted to go ahead with the re-assessment proceedings, in view of the fact that he raised the query as to why unutilized CENVAT credit should not be included in the closing stock. He was aware fully regarding the accountability of CENVAT credit, its utilization and the fact that no wrong benefit was availed by the assessee. He still preferred not to make any addition on account of accountant ability of such credit and hence, he must be held to have formed an opinion and this exercise is nothing but an attempt to review its own order, which is impermissible under the law.

12. As a parting note, it is needed to be mentioned that one of the issues raised by the petitioner is of notice of reopening having been issued only on the basis of audit objections and this has been objected to by the otherside since on the first ground itself we have found the notice not sustainable under the law, we have chosen not to dwell further into the second objection raised.

13. This petition accordingly succeeds. Notice of reopening the assessment dated 12th March 2012 is hereby set-aside with all consequential orders. No costs.

[Citation : 364 ITR 609]