Commissioner of Income-tax v. Barnala Steel Industries Ltd
[Citation -2015-LL-0218-5]

Citation 2015-LL-0218-5
Appellant Name Commissioner of Income-tax
Respondent Name Barnala Steel Industries Ltd.
Court HIGH COURT OF ALLAHABAD
Relevant Act Income-tax
Date of Order 18/02/2015
Judgment View Judgment
Keyword Tags valuation of closing stock • reassessment proceedings • income chargeable to tax • reopening of assessment • reason to believe • tax audit report • purchase price • raw material • valid notice • excise duty
Bot Summary: Whether, on the facts and in the circumstances of the case, the Tribunal is justified in upholding the order of the Commissioner of Income-tax in holding that the issue of commission paid having not been covered by the reasons recorded within the meaning of section 148(2) as such the reopening under section 147/148 of the Act is not valid under the law 2. Proceedings were initiated on October 18, 2001, under section 147 of the Income-tax Act, 1961 and the notice under section 148 of the Act was served on the appellant on January 19, 2001. The learned counsel for the Department submitted that once assessment proceedings are reopened under section 147 of the Act, the Assessing Officer was justified in making a fresh assessment of the entire income and could also reconsider the question of claiming deduction on the commission paid by the petitioner. The decision of the Supreme Court in V. Jaganmohan Rao is not applicable in the instant case as it is a case of reassessment under section 34 of the Indian Income-tax Act, 1922, which provision underwent a substantial change under sections 147 and 148 of the Income-tax Act, 1961. The finality of assessment proceedings on other issues remains undisturbed and it makes no difference whether the assessment proceedings have become final on account of framing of an assessment under section 143(3) of the Act or on account of non-issue of a notice under section 143(2) of the Act within the stipulated period. The Supreme Court held that the Assessing Officer could only assess or reassess the escaped income in respect of which proceedings under section 147 of the Act have been initiated but also any other income chargeable to tax, which may have escaped assessment and which comes to his knowledge, subsequently, in the course of such proceedings. Admittedly, in the instant case, it is not the case of the assessing authority that during the course of proceedings under section 147 of the Act it came across any material relating to the payment of commission suggesting escapement of income under any of the heads.


JUDGMENT judgment of court was delivered by Tarun Agarwala J.- This is appeal filed by Department for assessment year 1999-2000, which was admitted at following substantial questions of law: "1. Whether, on facts and in circumstances of case, Tribunal is justified in upholding order of Commissioner of Income-tax (Appeals) in holding that issue of commission paid having not been covered by reasons recorded within meaning of section 148(2) as such reopening under section 147/148 of Act is not valid under law? 2. Whether, on facts and in circumstances of case, Tribunal is justified in upholding order of Commissioner of Income-tax (Appeals) in holding that reopening of assessment under section 147/148 is bad in law?" facts leading to filing of appeal is that assessee had filed his return on January 31, 1999, showing loss of Rs. 15,54,275. said return was processed on March 31, 2000. Proceedings were initiated on October 18, 2001, under section 147 of Income-tax Act, 1961 (hereinafter referred to as "the Act") and notice under section 148 of Act was served on appellant on January 19, 2001. reasons recorded by Assessing Officer for reopening assessment is as under: "Reasons: 18-10-2001. On going through case records, it is seen that as per annexures 2 and 3 of tax audit report, assessee has made valuation of closing stock of raw material at cost. raw material of assessee is iron ingots and billets on which excise duty and trade tax was paid at time of purchase. purchases made by assessee have been reduced by value of excise duty and trade tax, only net amount has been debited to purchase account. valuation of closing stock of raw material has been made by assessee on purchase price without including excise duty and trade tax. assessee has shown closing stock at Rs. 45,52,265 on which excise duty at 15 per cent. comes to Rs. 6,84,340 and assessee has also paid trade tax at Rs. 55,554 as per annexure 3 of audit report. Thus, assessee has not included amount of Rs. 7,38,994 (6,84340 = 5,5554) on account of excise duty and trade tax while valuing closing stock of raw material as provisions of section 145A of Income-tax Act, 1961, have been introduced with effect from April 1, 1999. Therefore, I have reason to believe that assessee's income of Rs. 7,38,994 has escaped from assessment. Hence, action under section 147 Explanation 2 of Income-tax Act, 1961, is taken. Issue notice under section 148 of Income tax Act, 1961. (Sd............) ACIT, Circle 1, M. Nagar." Based on aforesaid reasons to believe, case was reopened under section 148 of Act as appellant had shown less value of raw material amounting to Rs. 7,38,994 in closing stock. After due investigation Assessing Officer made addition of Rs. 49,278 on valuation of closing stock due to less value of raw material and also added Rs. 54,07,792 on commission paid by petitioner to Pashupati Casting Pvt. Ltd., Aligarh. Assessing Officer also disallowed certain telephone expenditure, advertisement and payment made to catering service. assessee, being aggrieved, filed appeal before Commissioner of Income-tax, who partly allowed appeal holding that reassessment proceedings were validly reopened. appellate authority found that assessee had claimed 50 per cent. of depreciation against admissible rate of 40 per cent. and, therefore, Assessing Officer had valid reason to believe that income had escaped assessment and, therefore, reassessment proceedings were validly reopened under section 148 of Act in respect of amount of Rs. 7,38,994. appellate authority, however, held that Assessing Officer was not justified in making addition in respect of commission paid to Pashupati Casting Pvt. Ltd. amounting to Rs. 54,07,792. appellate authority found that assessee had claimed as expenditure on commission of Rs. 58,51,913 in his trading and profit and loss account and same was available on record and, therefore, in absence of any reason being recorded on this issue coupled with fact that said information was already available on record, appellate authority held that Assessing Officer was not justified in reopening assessment in respect of commission paid to Pashupati Casting Pvt. Ltd. and, consequently, deleted said addition. Department, being aggrieved, filed appeal, which was dismissed and, consequently, present appeal has been filed. We have heard Sri R. K. Upadhyay, learned counsel for appellant and Sri Rakesh Ranjan Agarwal, learned senior counsel along with Sri Suyash Agarwal for assessee. learned counsel for Department submitted that once assessment proceedings are reopened under section 147 of Act, Assessing Officer was justified in making fresh assessment of entire income and, therefore, could also reconsider question of claiming deduction on commission paid by petitioner. In support of submission, learned counsel placed reliance upon decision of Supreme Court in V. Jaganmohan Rao v. CIT and EPT [1970] 75 ITR 373 (SC) and ITO v. K. L. Srihari [2001] 250 ITR 193 (SC). decision of Supreme Court in V. Jaganmohan Rao (supra) is not applicable in instant case as it is case of reassessment under section 34 of Indian Income-tax Act, 1922, which provision underwent substantial change under sections 147 and 148 of Income-tax Act, 1961. After amendment of Income-tax Act, 1989, provisions for reassessment further underwent change. Supreme Court in aforesaid decision held that once proceedings under section 34 of Act are validly initiated, jurisdiction of Income-tax Officer is not restricted to portion of income that escapes assessment. Supreme Court held that once valid notice is served and assessment is reopened, previous underassessment is set aside and whole proceedings starts afresh. same view was reiterated following aforesaid decisions in case of K. L. Srihari (supra). aforesaid situation has changed in reassessment proceedings under Income-tax Act, 1961. Supreme Court in CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 (SC) held that when proceedings under section 147 of Act are initiated proceedings are opened only qua items of underassessment. finality of assessment proceedings on other issues remains undisturbed and it makes no difference whether assessment proceedings have become final on account of framing of assessment under section 143(3) of Act or on account of non-issue of notice under section 143(2) of Act within stipulated period. Supreme Court held that Assessing Officer could only assess or reassess escaped income in respect of which proceedings under section 147 of Act have been initiated but also any other income chargeable to tax, which may have escaped assessment and which comes to his knowledge, subsequently, in course of such proceedings. Admittedly, in instant case, it is not case of assessing authority that during course of proceedings under section 147 of Act it came across any material relating to payment of commission suggesting escapement of income under any of heads. On other hand, first appellate authority has given categorical finding that assessee had claimed as expenditure commission of Rs. 58,59,913 in his trading and profit and loss account and same was available on record. Consequently, in absence of any information having been received by Assessing Officer regarding escapement of commission income during course of proceedings under section 147 of Act he could not have formed opinion on this issue that it has escaped assessment. Further, reasons to believe does not record factum of escapement of commission. aforesaid decision of Supreme Court in Sun Engineering (supra) was followed in Vipan Khanna v. CIT [2002] 255 ITR 220 (P&H) which is fully applicable in instant case. In light of aforesaid, we are of opinion, that first appellate authority was justified in deleting addition of commission, on ground, that it was not covered by reasons recorded under section 148(2) of Act. Tribunal was justified in upholding order of first appellate authority. In light of aforesaid, appeal filed by Department fails and is dismissed. question of law is answered in favour of assessee and against Department. *** Commissioner of Income-tax v. Barnala Steel Industries Ltd
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