IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : G : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM
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.
PAN: AAECS2513F
(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
ORDER
PER R.S. SYAL, AM:
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
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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
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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
assessee.
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
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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
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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
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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
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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.
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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
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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
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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
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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.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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