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DCIT, Circle 9(1), New Delhi. Vs. Stryker India Pvt. Ltd.,C-5, Safdarjung Development Area, Commercial Complex,New Delhi.
September, 18th 2015


                        ITA No.2368/Del/2013
                       Assessment Year : 2006-07

DCIT,                              Vs. Stryker India Pvt. Ltd.,
Circle 9(1),                           C-5, Safdarjung Development
New Delhi.                             Area,
                                       Commercial Complex,
                                       New Delhi.
                                       PAN: AAECS2513F

                          CO No.174/Del/2013
                        (ITA No.2368/Del/2013)
                       Assessment Year : 2006-07

Stryker India Pvt. Ltd.,           Vs. DCIT,
C-5, Safdarjung Development            Circle 9(1),
Area,                                  New Delhi.
Commercial Complex,
New Delhi.

  (Appellant)                              (Respondent)

               Assessee By     :    Shri K.M. Gupta, Advocate
               Department By   :    Smt. Rashmita Jha, ACIT, DR
                                                         ITA No.2368/Del/2013
                                                           CO No.174/Del/2013

         Date of Hearing                :   16.09.2015
         Date of Pronouncement          :   17.09.2015

     This appeal by the Revenue and the Cross Objections by the

assessee arise out of the order passed by the CIT(A) on 17.1.2013 in

relation to the assessment year 2006-07.

2.   The only effective ground raised by the Revenue in its appeal is

against the quashing of re-assessment by the CIT(A). In the Cross

Objection, the assessee, apart from supporting the impugned order on

quashing the reassessment, is aggrieved against the non-deletion of

additions made by the AO by the CIT(A).

3.   Briefly stated, the facts of the case are that the assessee filed its

original return on 29.11.2006 declaring Nil income. Assessment u/s

143(3) of the Income-tax Act, 1961 (hereinafter also called `the Act')

was completed on 31.12.2008 accepting the returned income. A notice

u/s 147 of the Act was issued on 31.3.2011 after recording certain

reasons. In the final assessment order passed by the AO u/s 143(3) read
                                                                  ITA No.2368/Del/2013
                                                                    CO No.174/Del/2013

with section 147, total income was determined at Rs.2.31 crore by

making an addition on account of provisions for and obsolescence in

stock amounting to Rs.134.47 lac and not accepting the claim of the

assessee of set off of the current year's income amounting to Rs.96.62

lac against the brought forward business loss and depreciation. The

assessee challenged the assessment order before the ld. CIT(A). The ld.

first appellate authority quashed the assessment by holding that it was a

case of mere change of opinion. The Revenue is aggrieved against the

quashing of re-assessment.

4.    We have heard the rival submissions and perused the relevant

material on record. As the ld. CIT(A) has quashed the reassessment by

opining that it was a case of mere change of opinion by the AO, let us

examine the reasons recorded by the AO before issuing notice u/s 148

on 31.3.2011, which are as follows:-

     "It is revealed that as per Schedule-17(4) of the Notes to Accounts, the
     assessee has stated that the closing stock as at the end of the year is
     after adjustment of provisions @ 50% of their cost in accordance with
     the World Wide Policy of Stryker International aggregating to

                                                                   ITA No.2368/Del/2013
                                                                     CO No.174/Del/2013

     Rs.3,84,37,504/- as against Rs.2,49,89,862/- in the immediately
     preceding year. As the provision of Rs.1,34,47,642/- made on account
     of under valuation of closing stock was not an ascertained liability, the
     same should have been disallowed and added to the income of the

     Further, while completing the assessment, set off of loss of
     Rs.96,62,270/- and carried forward losses of Rs.3,87,40,318/- were
     allowed by the AO whereas as per the assessment orders for the A.Y.
     2004-05 & 2005-06 there were no losses with the company to set off
     or carried forward."

5.    Before proceeding further, it is relevant to note that the notice u/s

148 was issued in this case on 31.3.2011, which is well within a period

of four years from the end of the relevant assessment year and as such

the benefit of proviso to section 147 is not available to the assessee. The

ld. CIT(A) has quashed the assessment by holding it to be change of

opinion. In so far as the second reason is concerned, it is observed that

the assessee earned profit for the year amounting to Rs.96.62 lac, which

was set off against the brought forward loss of Rs.3.87 crore for the

immediately preceding two years. On a specific query from the ld. AR

during the course of proceedings before us, it was submitted that the said

                                                           ITA No.2368/Del/2013
                                                             CO No.174/Del/2013

loss of Rs.3.87 crore was computed by the assessee as per the returns of

income filed by the assessee for the earlier two years, but, the

assessment made for such years converted such returned loss into

positive income.    The ld. AR contended that since the assesee had

challenged the assessment for the AYs 2004-05 and 2005-06, it was

necessary for it to continue with the loss of Rs.3.87 crore as declared in

the returns of the earlier years. We are not disputing the fact that the

assessee did return loss of Rs.3.87 crore for the earlier years. The fact of

the matter is that when the assessments were framed by the AO for the

earlier years, such returned loss stood reduced to Nil and was, in fact,

converted into positive income. Notwithstanding the assessee filing

return for the current year claiming set off the current year's income

with such brought forward loss, the AO, was obliged to reject the claim

of the brought forward loss and proceed with the income as determined

by him for the earlier years and eventually discard the set off of the

current year's income with the so called brought forward loss. This led

                                                        ITA No.2368/Del/2013
                                                          CO No.174/Del/2013

to the under-assessment of income of Rs.96.62 lac earned during the

year, by means of allowing excessive relief.

6.    Explanation 2 to section 147 of the Act deems certain cases of

escapement of income.      Clause (c) of this Explanation deals with

situations : `where an assessment has been made, but (i) income

chargeable to tax has been under assessed; .... or (iii) such income has

been made the subject of excessive relief under this Act'.         In our

considered opinion, the case of the assessee is squarely covered within

clause (c) of Explanation 2 to section 147 inasmuch as the action of the

AO in allowing set off of current year's income against the so-called

brought forward loss which was not at all existing, led to the under

assessment of income for the current year.

7.   The ld. AR candidly accepted the above position by stating that

this was a mistake committed by the AO while finalizing the original

assessment. He, however, submitted that this was a computational error

made by the AO in the original assessment proceedings which was

required to be rectified u/s 154 rather than taking recourse to section

                                                         ITA No.2368/Del/2013
                                                           CO No.174/Del/2013

147.    To buttress this contention, he relied on the judgment of the

Hon'ble Bombay High Court in Hindustan Unilever Ltd. vs. DCIT

(2010) 325 ITR 102 (Bom). In the opposition, the ld. DR supported the

stand of the AO in rightly initiating the re-assessment proceedings on

this score.

8.     After considering the rival submissions and perusing the relevant

material on record, we find that the Hon'ble Bombay High Court in the

case of Hindustan Unilever Ltd. (supra) has held that the computational

error should be corrected by means of proceedings u/s 154, rather than

the proceedings u/s 147. In that case, the AO, while passing his order of

assessment, adopted the business income of Rs.1815.59 crore, which

was computed by the assessee itself.         However, while allowing

deductions from the business income, the AO deducted a sum of

Rs.10.84 crore as a loss arising from the plantation division which was a

plain computational error on the part of the AO because the figure of

business income at Rs.1815.59 crore was after the adjustment of loss

from plantation division of Rs.10.84 crore. This was the computational

                                                           ITA No.2368/Del/2013
                                                             CO No.174/Del/2013

error committed by the AO in once again deducting the amount of

Rs.10.84 crore which had already been accounted for in the computation

of business income at Rs.1815.59 crore.              It was under such

circumstances that the Hon'ble High Court held that since time limit for

rectification was still available, the AO ought to have corrected the

position by making an amendment u/s 154 rather than making

reassessment. When we advert to the facts of the instant case, we find

that the position is explicitly different. Here is a case in which the AO

during the course of original assessment proceedings failed to note that

the assessee had set off the current year's income against the brought

forward business loss which was, in fact, not existing by means of the

assessment orders passed for the assessment years 2004-05 and 2005-06.

Admittedly, the time limitation for passing of rectification order for the

instant case is now not available. Thus it is manifest that the ratio of the

decision in Hindustan Unilever (supra) is not applicable to the facts

under consideration.

                                                         ITA No.2368/Del/2013
                                                           CO No.174/Del/2013

9.    It is obvious that the action of the AO in erroneously allowing the

benefit of non-existent brought forward business loss against the current

year's income could have been corrected even by the CIT treating the

assessment order erroneous and prejudicial to the interest of the Revenue

to this extent. This mistake could have been corrected by the AO himself

u/s 154 also within the specified time limit. Alternatively, the AO could

have set the things right by taking recourse to the proceedings u/s 147

because there were reasons to believe that income to this extent

chargeable to tax has escaped assessment. We do not find any provision

in section 154 prohibiting the AO from charging to tax the escaped

income by means of proceedings u/s 147. Ordinarily, the rectification

proceedings to correct such mistake were preferable, but the AO cannot

be rendered remedyless in bringing to tax the escaped income, if the

action is taken u/s 147.

10.    The ld. AR submitted that he has no objection if the proceedings

u/s 147 are dropped and the AO is allowed to carry out rectification. On

a query whether now the time limit for rectification was available with

                                                            ITA No.2368/Del/2013
                                                              CO No.174/Del/2013

the AO, he admitted that it was not statutorily available but the assessee

will comply with the direction, if given by the tribunal, to rectify such a

mistake u/s 154. We are unable to accept this contention. Once the time

limit for taking action u/s 154 has expired, the tribunal cannot extend

such time limit by directing the AO to now rectify the order beyond the

time limit, even with the consent of the ld. AR. There can be no

concession contrary to the law. Since the action of the AO in allowing

set off of profits of the current year in the original assessment against the

non-existing brought forward business loss has led to the under-

assessment of income, which is nothing but escapement of income and

the time limit at time of taking action was available u/s 147, we cannot

find any fault with the AO in adopting the route of section 147 rather

than that of section 154. It is more so, because the reassessment

proceedings have not been initiated on this reason along, but also

towards provision for inventory obsolescence.

11.    Insofar as the view point of the ld. CIT(A) about change of the

AO's opinion is concerned, we find that the original assessment order

                                                          ITA No.2368/Del/2013
                                                            CO No.174/Del/2013

dated 31.12.2008, whose copy has been placed on page 25 of the paper

book, is only a half-paged order. The returned income has been accepted

as such. There is no discussion whatsoever on both the issues taken note

of by the AO for initiating reassessment. When the AO has not formed

any opinion, there can be no question of change of opinion. Be that as it

may, the ld. AR has fairly accepted before us that the allowing of set off

of current year's income by the AO against the brought forward business

losses , is not correct and the resultantly the assessee is not entitled to

such set off.

12.    Under such circumstances, we hold that the ld. CIT(A) was not

justified in quashing the assessment by branding it as a change of

opinion. Once the re-assessment order is held to be valid on this count,

the matter requires adjudication by the ld. CIT(A) on the merits of all the

additions which were made by the AO. Since the ld. CIT(A), after

setting aside the assessment order passed u/s 143(3) read with section

147, did not deal with the merits of the additions, we vacate his findings

                                                           ITA No.2368/Del/2013
                                                             CO No.174/Del/2013

of quashing the re-assessment order and restore the matter to his file for

disposal of appeal on merits.

13.       In the result, the appeal filed by the Revenue is allowed and the

CO filed by the assessee is allowed for statistical purposes.

          The order pronounced in the open court on 17.09.2015.

               Sd/-                                       Sd/-

    [C.M. GARG]                                   [R.S. SYAL]
 JUDICIAL MEMBER                              ACCOUNTANT MEMBER
Dated, 17th September, 2015.
Copy forwarded to:
     1.   Appellant
     2.   Respondent
     3.   CIT
     4.   CIT (A)
     5.   DR, ITAT

                                                 AR, ITAT, NEW DELHI.

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