Ravindrabhai Shah Vs DCIT (ITAT Ahmedabad)
The Income Tax Appellate Tribunal (ITAT), Ahmedabad, allowed the assessee’s appeal against the order of the Addl./JCIT(A) for Assessment Year 2011-12 arising from reassessment under Sections 143(3) read with 147 of the Income-tax Act, 1961.
The assessee had originally filed a return declaring income of Rs. 26,52,630, and the assessment was completed under Section 143(3). Subsequently, the Assessing Officer issued a notice under Section 148 on 30.03.2018, reopening the assessment to examine the deduction of Rs.20,43,758 claimed as shortage rate difference expenditure. The reassessment resulted in an addition of Rs. 16,16,261 under Section 37 on account of shortage rate difference, which was confirmed by the Addl. CIT(A).
Before the Tribunal, the assessee raised an additional legal ground contending that the reopening beyond four years was based merely on a change of opinion. The assessee submitted that the issue of shortage rate difference had already been specifically examined during the original assessment through a notice issued under Section 142(1) dated 21.08.2013, and a detailed reply dated 30.08.2013 had explained that shortages and rate differences arose in the ordinary course of the transportation business due to factors such as weighbridge differences, theft, pilferage, leakage, valve leakage, evaporation and subsequent debit notes issued by customers. The assessee also stated that similar claims had been consistently allowed in earlier years.
The Revenue contended that the material facts were embedded in the records and could not have been discovered by the Assessing Officer during the original assessment despite production of books of account and other documents.
The Tribunal observed that the reopening was made beyond four years from the end of the relevant assessment year and, therefore, the first proviso to Section 147 applied. It found that the Assessing Officer had specifically examined the shortage rate difference claim during the original assessment proceedings and had accepted the assessee’s explanation. The Tribunal further noted that no additional or third-party information had been received to indicate that the expenditure was inflated or bogus, and that the reassessment was based on a reappraisal of material already available on record. It also found no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
Holding that the reopening was based on a mere change of opinion and that the conditions prescribed in the first proviso to Section 147 were not satisfied, the Tribunal quashed the notice issued under Section 148 and the reassessment order passed under Sections 143(3) read with 147. As relief was granted on the legal ground, the Tribunal did not adjudicate the grounds on the merits of the addition. The appeal of the assessee was accordingly allowed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the assessee against the order of Commissioner of Income Tax, Addl/JCIT (Appeal) – Lucknow, [hereinafter referred to as “Addl. CIT(A)”] dated 09.03.2026 for the Assessment Year (A.Y.) 2011-12 in the proceeding u/s 143(3) r.w.s. 147 of the Income Tax Act [hereinafter referred as “the Act”].
2. The brief facts of the case are that the assessee had filed his return of income for A.Y. 2011-12 on 28.09.2011 declaring total income of Rs.26,52,630/-. The original assessment was completed u/s. 143(3) on 03.12.2013 at total income of Rs.31,06,253/-. Thereafter, the AO had reopened the case by issue of notice u/s. 148 of the Act on 30.03.2018. The case was reopened to examine the deduction of Rs. 20,43,758/-claimed by the assessee on account of shortage rate difference expenditure. According to the AO, the assessee was a mere transporter carrying goods of others and any expenditure on account of material found short at delivery point was required to be borne by the owner of the material. The reassessment was completed u/s. 143(3) r.w.s. 147 of the Act on 26.10.2018 at total income of Rs. 45,10,550/-, wherein an addition of Rs. 16,16,261/- was made on account of shortage rate difference.
3. Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the Ld. Addl. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
4. Now the assessee is in second appeal before us. The following grounds have been taken in this appeal:
Your appellant is aggrieved by the order passed by the Ld. Commissioner of Income Tax (Appeals) (ADDL/JCIT(A)-2 Lucknew uls. 200 of the Income Tax Act, 1961 (the Act) presents this appeal against the same on the following amongst other grounds:
1. The Ld. CIT(A) has erred in passing the impugned order without providing a fair and adequate opportunity of being heard, in violation of the principles of natural justice. The order so passed by the Ld. CIT(A) is liable to be set aside.
2. The Ld. CIT(A) has erred confirming addition of Rs. 16.16.261/- u/s 37 of the Act on account of Shortage Rate difference account without appreciating the fact of the case appellant is engaged in the business of transportation of liquid petroleum products through tanker vehicles wherein such shortages are incidental to the nature of business. It is therefore submitted that the addition so made u/s 37 of the Act amounting to Rs. 16,16,261/- is prayed to be deleted.
3. The Order passed by the Ld. CIT(A) is bad in law and contrary to the provisions of law and facts. It is submitted that the same be held so now
4. Your appellant craves leave to add, alter, and/or amend all or any of the grounds before the final hearing of the appeal
5. The assessee has taken an additional ground of appeal in the course of hearing, as under:
1. The Ld A.O has erred in reopening the case u/s 147 of the Act on the same grounds which had already been specifically examined and considered by then Ld. AO during the original assessment proceedings completed under section 143(3) of the Act The impugned reopening is therefore based merely on a change of opinion, which is impermissible in law It is therefore prayed that the order so passed may kindly be quashed on this ground alone
6. We will first adjudicate the additional ground taken by the assessee, which is a legal ground.
7. Shri Sunil Talati, the Ld. AR of the assessee submitted that the case of the assessee was reopened beyond four years and, therefore, the condition stipulated in proviso to section 147 of the Act was required to be satisfied in the present case. He explained that the AO had reopened the case to examine the shortage rate difference expenditure claimed by the assessee. The Ld. AR submitted that this issue was duly examined by the Assessing Officer in the course of original assessment and the explanation of the assessee in this regard was duly accepted by the AO. He has drawn our attention to the notice u/s. 142(1) dated 21.08.2013 and reply of the assessee vide letter dated 30.08.2013 wherein this issue was duly explained. The Ld. AR submitted that the reopening done by the assessee was based on mere change of opinion. No material or evidence was received by the assessee from any outside source to the effect that the claim of the assessee was not correct. The Ld. AR strongly contended that in view of these facts, the condition as stipulated in proviso to section 147 of the Act was not satisfied in the present case and the reopening done by the AO was bad in law.
8. Per Contra, Smt. Mamta Singh, the Ld. SR-DR, supported the order of the lower authorities. She explained that merely because the assessee had produced books of account, annual report, audited P&L account and other evidences in the course of original assessment, the material fact as noted by the AO while reopening the case was embedded in such a manner that the material evidence could not be discovered by the AO. Therefore, the AO had rightly reopened the case.
9. We have considered the rival submissions. In the present case, the reopening was done beyond four years. Thus, the first proviso to section 147 of the Act was applicable in the present case, which reads as under:
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure16 on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts16 necessary for his assessment, for that assessment year:
As per this proviso, the AO was required to establish that the income chargeable to tax, which had escaped assessment, was by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. It is found that in the course of original assessment proceeding the AO had raised the query about the shortage rate difference. The specific query made by the AO vide notice u/s. 142(1) of the Act, on 21.08.2013 was as under:
“8. Rs. 4,27,297 and Rs. 16,16,261 is claimed as Shortage-Rate Diff-Kasar (AY 2010-11) & Shortage-Rate Diff-Kasar (AY 2011-12). Kindly provide details of both these accounts and explain why the amount of Rs. 4,27,297 should not be disallowed, as it pertains to AY 2010-11.
10. In response to the query of the AO, the assessee vide letter dated 30.08.2013 had made the following submissions.
“8. In my transport business, the lifted goods when they reach to the destination the receiving party weigh them. If they are found short more than allowable shortage limit, they deduct the value of material short recd. from our transport bill. This is shortage. This may be due to various reasons like weigh-brige difference, theft, pilferage, leakage, valve leakage, evaporation of highly imflamable material etc When co, deduct the amt. from our bill, generally they issue us a D/N & we then argue for any wrong deduction & prove our case. Our representations are then considered by the company’s higher authorities & they give credit if our claim is correct. Then this amt is offered to taxation. Similarly the co. also gives us D/N in the next year or so for such shortage when they collect all data from all their branches/depots etc. & reconcile them. Such debits are claimed in our P/L A/C as & when we receive the D/N from the co Similarly if they have some other transporter also & he has charged less rate then, they ask us to revise the rate & in competition we have to revise it & then such diff, is debited as rate difference. All these are in the course of & for the purpose of my business & as per the custom & usage of our trade. So these are all allowable exps. The copies of a/cs are attached. Hence there is no question of disallowance at all. Corresponding incomes were already offered to taxation in the earlier years when the bills were raised.
And last but not the least, this is consistent. I am under scrutiny asstt. since 1983 & such debits of previous year’s were there in many years and all are allowed.
11. It is thus found that the AO had explained the claim for shortage rate difference, which was examined by the AO in the course of original assessment and the claim of the assessee was accepted. No additional information was received by the AO in respect of this claim alleging that the expenditure claimed by the assessee was either inflated or bogus. The AO had reopened the case on this issue on re-appraisal of information already available on record and duly considered at the time of original assessment. In the absence of any third party information, the contention of the assesse that the reopening was done on the basis of mere change of opinion, is found to be correct. The assessee had explained that identical claim was made by the assessee in all the earlier years and this fact was not controverted by the AO either in the course of original assessment or while recording the reason for reopening. We do not find any failure or omission on the part of the assessee to disclose fully or truly all material facts. Under the circumstances, the condition as stipulated in proviso to section 147 of the Act, was not fulfilled in the present case and the reopening done by AO was bad in law. The notice issued u/s. 148 of the Act by the AO and the consequent assessment order passed u/s. 143(3) r.w.s. 147 of the Act dated 26.10.2018 are, therefore, quashed. The ground taken by the assessee is allowed.
12. Since the assessee gets relief on the legal ground, we do not deem it necessary to adjudicate the grounds taken by the assesse on merits.
13. In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 09/07/2026 at Ahmedabad.
