Reopening of Assessment merely on the basis of change in opinion is invalid

Brief of the case:

The ITAT Ahmedabad in the case of Waves Food Private Limited vs. DCIT held that reopening of assessment to disallow provision for damaged goods returned is not valid as the issue had been specifically dealt by AO during the course of regular assessment and such disallowance by reopening the assessment is nothing but mere change opinion which cannot be reason for reopening the assessment.

 Facts of the case:

• The assessee company filed its return on 31.10.2005 declaring nil income and the regular assessment of the assessee was framed after making one disallowance regarding non-deduction of tax at source.
• Subsequently, the case of assessee was reopened by issuing notice dated 23.12.2008.The reasons recorded for reopening assessment was that assessee had made provision on claiming D.G.R. in profit and loss account of Rs.1,00,59,941/- as contingent liability which had been disallowed by ITAT Ahmedabad in the case of Rasna Ltd. which is sister concern of the assessee group.
• The assessee made an appeal challenging validity of re-opening as well as disallowance of provision in respect of damaged goods liability.
• The appeal of the assessee was dismissed by CIT(A) , aggrieved by the same assessee filed an appeal before ITAT.

 Contention of the Assessee:

• The learned counsel for the assessee challenged reopening proceedings on the ground that the issue was specifically dealt with by the AO in the assessment proceedings and at that time AO accepted the treatment made by the assessee. As such reopening the assessment to disallow the same is a merely change in opinion.
• It was also submitted that an identical provision in case of Rasna Limited case (assessee’s group co.) was decided by the tribunal assessee’s favour.

 Contention of the Revenue:

• Revenue supported the reasons recorded by the AO forming basis of the reassessment that assessee had made as provision in respect of contingent liabilities and not in respect of actual liabilities incurred. Therefore, the action of AO to disallow the same cannot be said a change in opinion infact the action was to rectify the mistake caused so as to do follow the provisions of the Act.

 Held by ITAT Ahmedabad:

• In questionnaire prepared by AO during the course of regular assessment he specifically queried seeking details and rationale of liability for damaged goods of Rs.1,00,59,941/-.The assessee in response to the query filed its reply that the goods sold receivable in damaged condition in subsequent years out of those sold during the year is made in accounts of the year corresponding to its sales on estimation basis as determined by the management. Further, any short provision or excess provision is adjusted by debiting/crediting P&L in the year of actual returns of damaged goods. The same was accepted by the AO.
• Further, in Rasna Ltd. case, coordinate bench held that the assessee’s claim therein to the extent of the write backs was not justifiable and dis not held that such a provision could not be made at all.
• In view of these reasons, issue of damaged goods liability is mere change of opinion formed in course of the original regular assessment not resulting in any disallowance.
• Therefore, relying on Supreme Court’s judgment in the case of CIT vs. Kelvinator of India Pvt. Ltd. 320 ITR 561 (SC) the reopening being based merely on change in opinion to be quashed.
• In result the appeal filed by assessee was allowed.