Sandvik Mining & Construction Tools ... vs Department Of Income Tax

The Dy. Commissioner of Income Tax, Circle-10, Pune .... Appellant

Vs.

Sandvik Mining & Construction Tools India Ltd., Mumbai Pune Road, Dapodi, Pune - 411012

PAN: AAHCS9249R .... Respondent

Assessee by : Mr. Dhanesh Bafna Department by : Mr. Rajesh Damor Date of hearing : 16-12-2014 Date of pronouncement : 28-01-2015

ORDER

PER G. S. PANNU, AM

The captioned appeal is directed against an order of the Commissioner

of Income Tax(Appeals)-V, Pune, dated 16.04.2013 which in turn has arisen

from the order passed by the Assessing Officer u/s 143(3) r.w.s. 147 of the

Income Tax Act, 1961 (in short "the Act") dated 22.12.2011 pertaining to the

assessment year 2004-05.

2. The Grounds of Appeal raised by the Revenue reads as under:-

1. Whether the on the facts and circumstances of the case and in law, the CIT(A) was justified in holding that the reopening of assessment in this case was not valid when the assessee has not made full and true disclosure of all material facts necessary for its assessment.

2. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in holding that the assessee company has made full and true disclosure of material facts necessary for 2 ITA No.1468/PN/2013

assessment when in the audit report the auditors had clearly mentioned that leave encashment of Rs.18,54,843/- and excise duty payment of Rs.16,35,306/- incurred during F.Y. 2003-04 are remained to be paid before due date of filing of return and inspite of that the assessee has claimed the same as deduction for the A.Y. 2004-05.

3. Whether on the facts and circumstances of the case and in law, the information which was submitted before the assessment in a general manner can be termed as 'full' and 'true' disclosure.

4. Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in allowing Leave Encashment and Excise duty stating that the said expenses were not routed through P&L Account, when in fact the said expenses are clearly disallowable u/s 43B of the IT Act and the Auditor has certified in the Audit Report that these expenses were routed through Profit & Loss Account.

3. The assessee is a company incorporated under the provisions of

Companies Act, 1956 and, inter-alia, is engaged in the business of

manufacturing of mining and construction tools. For the assessment year

2004-05, it filed a return of income on 30.10.2004 declaring a loss of

Rs.4,46,16,530/-. The return of income so filed was subject to scrutiny

assessment under section 143(3) of the Act, dated 06.12.2006, wherein the

Assessing Officer determined the total loss at Rs.4,15,46,800/-.

Subsequently, the Assessing Officer issued a notice under section 148 of the

Act re-opening the assessment originally completed under section 143(3) of

the Act, dated 06.12.2006 on the ground that certain income chargeable to tax

had escaped the assessment. The notice under section 148 of the Act was

issued after recording the following reasons as mandated under section 147 of

the Act:-

"The expenditure in respect of leave encashment and excise duty incurred was not paid before submission of return of income as mentioned u/s43B of the I,T. Act, 1961. It has also been pointed out in Auditors report in form 3CD vide clause 21 by Auditor. The same was not disallowed as assessee stated it is the liability of other companies which are acquired by the assessee on slump sale basis. So it is clear and crystal that on slump basis means all the assets and liabilities becomes the assets and liabilities of purchaser. Failure to do so resulted in escapement of Rs.34,90,149/-. "

3 ITA No.1468/PN/2013 4. The assessee objected to the re-opening of assessment on the ground

that all the material facts necessary for making the assessment were duly

disclosed by the assessee during the course of assessment proceedings

originally carried out under section 143(3) of the Act, and that accordingly,

initiation of proceedings under section 147/148 of the Act was invalid. On

merits, the assessee contended that the liabilities in respect of leave

encashment and Excise duty referred to in the reasons recorded, were

acquired by assessee vide Business Purchase Agreement dated 20.02.2004

in terms of which, it had acquired the Mining & Construction Division of

Kennametal Widia India Limited (KWIL). In terms of the said Business

Purchase Agreement, assessee acquired the Mining & Construction Division

of KWIL for total consideration of Rs.64.40 crores and as a consequence, all

the assets and liabilities of the said Division were taken over by the assessee.

The assessee contended that the liabilities in respect of leave encashment

and Excise duty referred to by Assessing Officer were not debited in its Profit

& Loss Account and therefore, there was no question of disallowing the same

by invoking provisions of section 43B of the Act.

5. The Assessing Officer dis-agreed with the assessee on both the counts

and proceeded to scale down the total assessed loss at Rs.3,80,56,651/-

instead of Rs.4,15,47,800/- determined in the assessment made under section

143(3) of the Act. While determining the total loss at Rs.3,80,56,651/- in the

impugned assessment, the Assessing Officer held that since the liabilities and

assets of KWIL were taken over by the assessee company, it was the

responsibility of the assessee to pay the impugned sums before due date of

filing of the return and in the absence of such payment, such amount

amounting to Rs.34,90,149/- was disallowable under section 43B of the Act. 4 ITA No.1468/PN/2013

Against such an assessment, assessee carried the matter in appeal before the

CIT(A).

6. In appeal, the assessee contended that the initiation of proceedings

under section 147/148 were invalid because in the original assessment

proceedings, assessee had submitted all the details pertaining to the leave

encashment and Excise duty and therefore, there was no failure on the part of

assessee to disclose all material facts truly and fully during the course of

assessment proceedings. By referring to the proviso to section 147(1), it was

contended that since the re-opening of the assessment was beyond four years

and where all material facts have been disclosed by the assessee, the

initiation of proceedings was invalid. On merits also, it was contended that the

liabilities on account of leave encashment and Excise duty were not routed

through the Profit & Loss Account and therefore, there was no reason for its

disallowance. The CIT(A) has upheld both the pleas of the assessee. The

CIT(A) observed that having regard to the first proviso to section 147 of the

Act, it was imperative for the Assessing Officer to bring out the failure on the

part of the assessee to disclose fully and truly all material facts necessary for

assessment. The Assessing Officer not having done the same, the CIT(A)

proceeded to hold that initiation of proceedings under section 147/148 was

invalid. In coming to such a conclusion, the CIT(A) took into consideration the

reliance placed by the assessee on the judgments of Hon'ble Bombay High

Court in the cases of Grindwell Norton Ltd. Vs. Jagdish Prasad Jangid, ACIT &

Ors. (2004) 267 ITR 673 (Bom), Hindustan Lever Ltd. R.B. Wadkar (2004) 268

ITR 332 (Bom) and Sound Casting Pvt. Ltd. Vs. DCIT & Ors (2012) 250 CTR

(Bom) 119.

5 ITA No.1468/PN/2013

7. On merits also, the CIT(A) found that there was no justification for

making the impugned disallowance in as-much-as the impugned expenditures

were not routed through Profit & Loss Account of the assessee meaning

thereby that the same were not claimed as deduction while computing the

returned income.

8. Aggrieved with aforesaid decision of CIT(A), Revenue is in appeal

before us.

9. Before us, the learned Departmental Representative has not pointed

out any infirmity in the findings recorded by the CIT(A). It is quite explicit from

the reasons recorded by the Assessing Officer, which we have reproduced

above, that there is no averment to the effect that there is any failure on the

part of assessee to disclose fully and truly all material facts necessary for his

assessment. It is also evident that in the present case, resort to section

147/148 of the Act made by the Assessing Officer to re-open the assessment

is beyond the period of four years from the end of relevant assessment year.

Undoubtedly, the notice under section 148 of the Act was issued on

25.03.2011, which is beyond the expiry of four years from the end of

assessment year under consideration i.e. 2004-05. It is also undisputed that

for assessment year 2004-05, the return of income filed by the assessee was

subject to scrutiny assessment under section 143(3) of the Act, dated

06.12.2006. In this view of the matter, the first proviso to section 147 of the

Act comes into operation. The re-opening of assessment under such

circumstances can be justified only where there is a failure on the part of the

assessee to disclose fully and truly all material facts necessary for his

assessment for that assessment year. In the present case, the finding of the

CIT(A) is that there was no such failure on the part of the assessee. 6 ITA No.1468/PN/2013

Furthermore, the CIT(A) has also observed that in the reasons recorded there

is no averment made by the Assessing Officer that there is a failure on the part

of assessee to disclose fully and truly all material facts necessary for his

assessment. The aforesaid factual position has not been controverted by the

Revenue before us and rather the same is clearly borne out of the record.

10. In the above background, we, therefore, find no error on the part of

CIT(A) in holding that the re-opening of assessment by issuance of notice

under section 147/148 of the Act in the present case is invalid having regard to

the judgments of the Hon'ble Bombay High Court in the case of Grindwell

Norton Ltd. Vs. Jagdish Prasad Jangid, ACIT & Ors. (supra) as well as in the

case of Sound Casting Pvt. Ltd. Vs. DCIT & Ors (supra).

11. Accordingly, the action of CIT(A) is affirmed and Revenue fails on its

Grounds of Appeal Nos.1 to 4.

12. Even on merits, we find that there is no infirmity in the findings of

CIT(A). Undeniably, the expenditure on account of leave encashment

amounting to Rs.18,54,843/- and Excise duty of Rs.16,35,306/-, which are

sought to be disallowed by the Assessing Officer on the ground that the same

remain un-paid by invoking the provisions of section 43B, have not been

routed through the Profit & Loss Account of the assessee company. Factually

speaking, the aforesaid liabilities were taken over by the assessee as a part of

acquisition of Mining & Construction Division of KWIL through a business

purchase agreement dated 20.02.2004. In the absence of assessee having

claimed deduction for such expenditure, there is no justification for invoking

the provisions of section 43B of the Act in disallowing such expenditure. The 7 ITA No.1468/PN/2013

CIT(A), in our view, made no mistake on this aspect also. The order of CIT(A)

is hereby affirmed.

13. In the result, appeal of the Revenue is dismissed.

Order pronounced on 28 th January, 2015.

Sd/- Sd/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 28 th January, 2015.

GCVSR

Copy of the order is forwarded to: - 1) The Department; 2) The Assessee; 3) The CIT(A)-V, Pune; 4) The CIT-V, Pune; 5) The DR "A" Bench, I.T.A.T., Pune; 6) Guard File.

By Order //True Copy//

Assistant Registrar I.T.A.T., Pune