(Per : Honourable Mr.Justice Akil Kureshi)
1. The petitioner has challenged notice dated 11.03.2015 by which, the respondent-Assessing Officer seeks to re-open the assessment of the petitioner for assessment year 2008-09. For issuing such notice, the Assessing Officer had recorded reasons which read as under:
"In this case, the return of income for A.Y. 2008-09 has been efiled by the assessee on 27.09.2008 declaring total income of Rs. 11,56,221/-.
2. The survey action u/s. 133A of the Act was conducted as on 10.04.2008. During the survey action inventory of stock and cash was taken. As per the impounding order dated 10.04.2008 purchase/sales bills were found. The hard disc of back up was found and impounded. The statement of Shri Sitaram Sharma Vice President of the company was recorded.
3. The assessment was completed u/s 143(3) r.w.s. 147 on 30/12/2010 assessing the total income at Rs. 13,28,190/-.
4. It is seen from the record that the assessee has purchased goods worth
Rs. 80,51,932/- from M/s. Cedar Décor P. Ltd., a sister concern of the assessee. At the same time it is seen that M/s. Cedar Décor P Ltd has purchased the same goods for Rs. 49,01,969/- from another group concern M/s. Durian Industries Ltd. In view of this, the assessee has done over invoicing the purchase of Rs. 31,49,963/-. The assessee could not justify the following:
(i) Reasonableness of the expenditure with respect of the fair market value of the goods.
(ii) Legitimate business need of the business of the assessee.
(iii) The benefit derived or accrued to the assessee from such expenditure.
5. In the circumstances, the over invoicing made by the assessee Rs. 31,49,963/- meet the criteria for disallowance u/s. 40A(2)(b) of the Act.
6. In view of above facts, I have reason to believe that income chargeable to tax to the extent of Rs. 31,49,963/- has escaped assessment for A.Y. 2008-09 by reason of the failure on the part of the assessee to furnish the correct particulars of facts necessary for assessment. Since more than 4 years have elapsed from the end of the relevant assessment year, the cas is covered u/s. 149 r.w.s. 151 of I.T.Act. Therefore, approval to issue notice u/s. 148 may be granted, as required under proviso to Sec. 151(1) of the I.T.Act, 1961."
2. The petitioner raised objections to the process of reopening under communication dated 30.11.2015. Such objections were, however, ofcourse after filing of the petition, rejected.
3. We have heard learned counsel for the parties and perused the documents on record. We may recall that the notice for reopening has been issued beyond the period of four years or the end of the relevant assessment year. In this context, the requirement that the income chargeable to tax has escaped assessment due to the reason of failure on part of the assessee to disclose truly and fully all materials facts would become relevant. The reasons recorded nowhere suggest that there was any failure on part of the assessee to disclose material facts. In fact, in the reasons, the Assessing Officer has mentioned that "It is seen from the record that... ... ...". Thus, all necessary materials were available on record on the basis of which, the Assessing Officer now forms a belief that a certain income of the assessee had escaped assessment during the original scrutiny assessment. Beyond a period of four years, the reopening of assessment order, therefore, simply not permissible.
4. There is yet another strong reason why he must quash the notice for reopening. During the original assessment, the Assessing Officer had examined various claims of the petitioner, one of them being the purchase of goods at Rs. 80.51 lacs (rounded off) from a sister concern which were purchased by the said concern at a cost of Rs. 49.01 lacs. In this context, the Assessing Officer called for an explanation why the over invoicing of the purchase to the extent of Rs. 31.49 lacs should not be taxed in the hands of the assessee. The Assessing Officer under letter dated 15.12.2010, therefore, raised following query in this respect:
"For finalization of your assessment proceedings you are requested to file your reply/explanation as under:
Home Depot P. Ltd is an associate concern of Cedar Décor Pvt Ltd. Cedar Décor Pvt Ltd, is in business of Laminates manufacturing. Home Depot P Ltd has showroom for sale of imported furniture. Investigation revealed that:
Cedar Décor P Ltd. buys furniture from Durian Industries Ltd.
The same is immediately sold to Home Depot Ltd.
Copy of purchase ledger from 1 April 2007 to 31 March 2008 showed that Cedar Décor has purchased goods worth Rs. 49,01,969/- from Durian Industries Ltd. and the same has been sold to Home Depot for Rs. 80,51,932/- immediately. This has resulted in over-invoicing of purchases in Home Depot by the similar amount and thereby understatement profit.
Please Explain why this over invoicing of Purchase of Rs. 31,49,963/- should not be taxed in assessment of Home Depot India Pvt. Ltd. for 2008-09.
Please also provide the Sales & Purchase details & stock statements for A.Y. 2003-04 to 2007-08 to ascertain the over invoicing in Earlier Years.
Your reply in this regard should reach to this office on or before 05/12/08. Please note that, failure to comply with this letter within the given time, the same will be completed on merits on the basis of details available on record."
5. In response to such queries, the petitioner replied on 27.12.2010 as under:
"We would also like to bring to your kind notice that M/s. Cedar Decor Pvt. Ltd. is an Indian company, duly registered in India and assessed to Indian Income Tax Act. The allegation of the department is that M/s. Cedar Decor Pvt Ltd. has sold the goods worth Rs. 49,01,969/- purchased from M/s. Durian Industries Ltd. to M/s. Home Deport Pvt. Ltd. for Rs. 80,51,932/-.
Your showcause suggest that the profit of Rs. 31,49,963/- earned by M/s. Cedar Decor Pvt. Ltd. should be taxed in the hands of purchases. I tis quite evident that both the companies and rather all the three companies are assessed to Indian Income Tax Act. If one has purchased the goods at higher cost (as alleged) the other has made profit out of it. Here in the case of M/s. Cedar Decor Pvt. Ltd. there is an enhanced profit of Rs. 31,49,963/- on which the respective tax has been offered. It is also proved beyond doubt that there is no circular transaction in the said activity. In fact there is no suppression of profit in the case of M/s. Home Depot Pvt. Ltd. by so called over invoicing of purchases.
We hope the above detailed submissions alongwith explanations will be sufficient enough for your honour to conclude the assessment proceeding. The explanations above suffices that the showcause notice issued by your honour is on the basis of assumptions, presumptions and surmises, which will not stand to the test of the Income Tax law prevailing in our nation."
5. The order of assessment dated 30.12.2010 did not make any disallowance or addition on this ground. Thus, the Assessing Officer, of course without citing reasons, accepted the explanation of the assessee regarding the sale and purchase of goods in question.
6. With this background, if we revert back to reasons recorded. It is this very issue which the Assessing Officer now wants to reopen by exercising powers under Section 147 of the Act. In the reasons recorded, he has stated that the assessee purchased goods worth Rs. 80.51 lacs from a sister concern which was purchased by the seller for Rs. 49.01 lacs and, therefore, there was over invoicing of the purchase to the extent of Rs. 31.49 lacs. He, therefore, wanted to disallow such sum of Rs. 31.49 lacs under Section 40A(2)(b) of the Act. The attempt on part of the Assessing Officer is, thus, clearly based on change of opinion, which would simply not be permissible.
7. In the result, petition is allowed. Impugned notice dated 11.03.2015 is quashed.