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December, 05th 2014

                            Date of decision: 21st November, 2014

+                         ITA 319/2014

       COMMISSIONER OF INCOME TAX-VI           ..... Appellant
               Through   Ms. Suruchi Aggarwal, Sr. Standing


       VALVOLINE CUMMINS LTD.                 ..... Respondent
               Through     Mr. Ajay Vohra, Sr. Advocate with
               Ms. Kavita Jha, Advocate.



               This appeal by the Revenue under Section 260A of the

       Income Tax Act, 1961 (Act, for short), which pertains to

       assessment year 2006-07, has to be dismissed, albeit for slightly

       different reasons as recorded in the order dated 29 th November,

       2012 passed by the Income Tax Appellate Tribunal (Tribunal,

       for short).

       2.      The respondent-assessee had filed return of income

       declaring income of Rs.9,52,15,517/- for the assessment year

       2006-07 on 30th November, 2006. After issue of notice under

       Section 143(2), assessment order under Section 143(3) was

ITA 319/2014                                      Page 1 of 6
       passed on 24th December, 2008 accepting the returned income.

       3.      Thereafter, re-assessment notice dated 30th March, 2011,

       under Section 148 read with Section 147 of the Act, was issued.

       The said notice and re-assessment order has been set aside by

       the impugned order passed by the Tribunal dated 29th

       November, 2012.

       4.      The "reasons to believe" as recorded by the Assessing

       Officer for initiating re-assessment proceedings read as under:-

               "The Income tax Act, 1961, provides that a
               provision made in the accounts for an accrued
               or known liability is an admissible deduction,
               while other provisions made do not qualify for
               deduction. It has been judicially held that for a
               loss to be deductible, it must have actually
               arisen and incurred and not merely anticipated
               as certain to occur in future.

                     The assessment of M/s Valvoline
               Cummins Ltd. for the assessment year 2006 -
               07 was completed after scrutiny in Dec
               2008     determining     an    income      of
               Rs.9,52.15.517/-. The assessee made and
               was allowed provision for expenses
               amounting to Rs.1,53,57,778/-. As the
               provision towards an unascertained liability
               is not allowable under the Act, it should
               have been disallowed and taxed. The
               omission resulted in underassessment of
               income      by    Rs.1,53,57,778/-       with
               consequent tax effect of Rs.68,75,338/ -."

       5.      The first paragraph of the "reasons to believe" correctly

       records that a provision made in accounts for an accrued and

ITA 319/2014                                      Page 2 of 6
       known liability is an admissible deduction. Thus, the amounts

       shown under the head "provision" per se is not to be disallowed

       as unascertained expenditure. In the second paragraph of the

       "reasons to believe", the Assessing Officer after correctly

       noticing the position in law in the first paragraph, contradicted

       himself and erroneously recorded and inferred that provision for

       expenses amounting to Rs.1,53,57,778/- were wrongly

       allowed being an unascertained liability. The "reasons to

       believe" do not state why and how the Assessing Officer came

       to the conclusion that the provision for expenses of Rs.

       1,53,57,778/-was an unascertained liability. This has not been

       explained and clarified.

       6.      During the course of hearing before us, we had asked the

       counsel for the Revenue to point out and show that on what

       ground and reason the Assessing Officer came to the conclusion

       that the amounts shown under the head "provision" was an

       unascertained liability and not an accrued and certain liability.

       Noticeably,    the   respondent-assessee   was     following   the

       mercantile system of accounting and any liability which had

       been incurred was to be allowed as a deduction, even when

       payment was not made in the said year.

       7.      The Commissioner of Income Tax (Appeals) in the first

ITA 319/2014                                      Page 3 of 6
       appellate order has reproduced schedule 13 of the balance sheet,

       which for the sake of completeness is being reproduced below:-

                   "Schedule                                 As at                   As at
                   13:                                  March 31, 2006                March
                   Provisions                           Rs.                           31,2005


                              Provision for                     16,324,796                      12,833,564
                 Expenses (refer not 2

                 Note 1 ............................
                 Note 2:

                          Opening                               12,833,564                      17,297,108


                                    Provision                   15,357,778                      12,833,564

                 Made during the year

                 Amount used during the
                 year                                           11,866,546                      17,297,108

                 Closing provision                              16,324,796                   12,833,564"


       Thus, last year there were provisions and this year also provision

were made and there were payments. But, there is complete absence

and no material has been shown and brought on record to show that the

amount         included                 under          the   head        "provisions"       represented

ITA 319/2014                                                                  Page 4 of 6
"unascertained liability". Further, the Commissioner of Income Tax

(Appeals)      has   recorded   that   provision   for   commission   of

Rs.35,09,021/- had been added back in the computation of income in

accordance with Section 40(a)(ia) of the Act, for want of deduction of

tax at source. The Assessing Officer overlooked this fact indicating

non-application of mind.

8.     The "reasons to believe" must show live link and nexus with the

formation of prima facie opinion that income which should be taxed

has escaped assessment. In the absence of any cogent and relevant

material or information to show that the amount shown under the head

provision included unascertained liability, re-assessment proceedings

could not have been initiated. There is a difference between "reasons

to believe" and "reasons to suspect".       Mere surmise or suspicion

cannot be a ground to reopen assessment.

9.     It was the responsibility of the Revenue to bring on record

documents and material to show and establish that the "provisions"

related to unascertained liability and the Assessing Officer while

forming his opinion and recording "reasons to believe" was in

knowledge or aware of information or material to show that what was

shown under the head "provision" was not a certain and accrued

liability. In the absence of any material or information, "reasons to

believe" it has to be held were not relevant and meet the test of

ITA 319/2014                                       Page 5 of 6
satisfaction required to sustain the reopening. Use of the heading or

word "provision" in the balance sheet it is apparent became the

material or information to reopen. The word/expression "provision"

by itself and alone without other information/material, would not

reflect and indicate unascertained liability.    Thus, the assumption

drawn by the Assessing Officer in the "reasons to believe" is

farfetched, vague and a mere pretence.       It is also extraneous and

irrelevant to the issue and formation of belief that "unascertained

liability" had been claimed and allowed as expenditure.

10.    With the aforesaid observations, the appeal is dismissed.

                                             SANJIV KHANNA, J.

                                         V. KAMESWAR RAO, J.
       NOVEMBER 21, 2014

ITA 319/2014                                      Page 6 of 6
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