2001 PLP 3881 (PTD)

After an assessment has been made, in the normal circumstances, there would be no reason for anyone to doubt that the assessment has been made on the basis of all relevant facts. If the Assessing Officer chooses to entertain the belief that the assessment; has been made in the background of the assessee's failure to disclose truly and fully all material facts, it is necessary for him to record that fact, and in the absence of a record to that effect, it cannot be held that a notice issued without recording such a fact is capable of being regarded as a valid notice. As to whether the material facts disclosed by the assessee are full and true is always a question of fact and unless the facts disclosed had been examined in relation to the extent of failure if anyone the part of the assessee, it is not possible to form the opinion that there had been a failure on the assessee's part to truly and fully disclose the material facts. A notice issued without a record of the Assessing Officer's reasonable belief that there was such failure on the part of the assessee would be indicative of a failure on the part of the Assessing Officer to apply his mind to material facts, and on that ground‑ also the notice issue would be vitiated. The reasons actually recorded and as set out by the officer in the counter‑affidavit are such that even after close scrutiny they do not establish even prima facie a failure on the part of the assessee to fully and truly disclose the material facts for the assessment.. The first reason set out in the counter‑affidavits is that excessive deduction had been allowed under section 80HHC. The assessee has placed before the Assessing Officer all statements, a perusal of which clearly shows that all the materials required for calculating the extent of benefits under section 80HHC and the actual calculation has been placed before the officer. The mistake, if any, is solely due to the mistake made by the officer and is not a mistake that is attributable to any failure on the part of the assessee. This fact is not seriously disputed by learned counsel for the. Revenue. The second reason given is‑that there has been excessive allowance under section 32AB of the Act, and, therefore, some part of the income chargeable to tax has 'escaped assessment. Here again the detailed working given to the Assessing ‑Officer, a copy of which has been placed before the Court, shows that the mistake, if any, is a mistake committed by the Assessing Officer and is not a mistake that is attributable to the assessee's failure to place fully and truly the material facts. It is the third and the last reason, which was sought to be sustained by learned counsel for the Revenue as affording sufficient basis for the notice under section

147. This relates to the Modvat adjustment of Rs.157.83 lakhs towards the excise duty paid by the assessee on the products manufactured by it. In the view of the Assessing Officer, the assessee has failed to take into account the corresponding credit for Rs.157,83 lakhs in the profit and loss account, and, therefore, the profits for the year have been understated to that extent. Learned counsel for the Revenue submitted that this failure was a failure an the part of tile assessee, and, therefore, the reopening was justified. According to counsel, the assessee cannot claim any part of the adjustment made by availing of the credit under the Modvat Scheme towards the amount shown as "assets" in the profit and loss account as the amount "paid" as "excise duty". Counsel submitted that it is only the amount paid through the deposit account that can be termed as having been paid, and the adjustment from and out of the Modvat account cannot be described as amount paid towards the excise duty. Learned counsel for the assessee/petitioner rightly pointed out that the assessee's obligation under the Central Excise Act is to pay duty on the goods manufactured by it and all amounts paid as duty can only be described as having been paid and by no other term, as any adjustment made towards that payment will only result in the assessee not having to pay the same once over and the result of the adjustment is the discharge of the assessee's liability for payment of excise duty. The profit and loss account can only show the amount of excise duty paid by it on the products manufactured by it and that is how the amount has been shown in the profit and loss account and the assessee, therefore, has not in any manner failed to disclose any fact necessary for ascertaining the amount paid by it as excise duty. Learned counsel for the Revenue also invited the attention of this Court to two statements filed by the assessee before the Assessing Officer: (1) Total excise duty paid during the year ended March 31, 1989, and (2) Total P.L.A. abstract‑‑Excise duty deposit account. In the statement, the total excise duty paid, the assessee has set out the following: ??????????????????????? Excise Duty paid year ended 31‑3‑1989 ??????????????????????? Assessment year 1989‑90 ??????????????????????????????????? Rs. in lakhs Paid through deposit account??????????????????????????????????????????????????????????????? 1,243.49 Modvat adjustment?????????????????????????????????????????????????????????????????????????????? 157.83 ??????????????????????????????????????????????????????????????????????????????????????????????????????????? 1,401.32 Add: Provision for excise duty (since paid on 13‑4‑1989)???????????????????? 4.09 Duty paid direct to department on 13‑9‑1988?????????????????????????????????????? 1,13 1,406.54 Less: Excise Duty payments/deposit of excise duty, etc., not charged in profit and loss account????????????????????????????????????????????????????????? 74,82 ??????????? 1,331.72." In the statement under the head P.L.A. abstart‑‑‑Excise duty deposit account, the assessee has set out the following: ??????????????????????????????????? Assessment year 1989‑90 Previous year ended 31‑3‑1989 (19 Months period). PLA abstract‑‑‑Excise duty deposit account: Opening balance as on 1‑9‑1987????????????????????????????????????????????????????????? 1,73,065 Amount deposited??????????????????????????????????????????????????????????????????????????????? 12,46,17,916 ??????????? 12,47,90,981 Less: Duty paid???????????????????????????????????????????????????????????????????????? 12,43,49,336 Closing balance as on 31‑3‑1989???????????????????????????????????????????????????????? 4,41,645 Modvat accruals account: Opening balance as on 1‑9‑1987????????????????????????????????????????????????????????? 3,14,168 Modvat credit taken???????????????????????????????????????????????????????????????????????????? 1,71,89,722 .?????????? 1,75,03,890 Less: Utilised??????????????????????????????????????????????????????????????????????????????????????? 1,57,83,004 Closing balance as on 31‑3‑1989???????????????????????????????????????????????????????? 17,20,886". A perusal of this statement shows that the assessee had placed before the Assessing Officer every relevant detail regarding the excise duty paid the manner in which the payment was effected; the amount paid through the deposit account; the amount adjusted from the Modvat account; the opening balance in the Modvat accrual account; the extent of the credit taken from that account; the extent for the amount utilised from that account as also the closing balance as on March 31, 1989. All the information required in relation to the account had been placed before the Assessing Officer. The assessee could not have done anything more. The argument advanced by learned counsel for the Revenue that Modvat adjustment cannot be regarded as payment is wholly fallacious. Section 3 of the Central Excise Act, 1944, provides for the levy of excise duty on all exciseable goods produced or manufactured in India. The duty is to be "levied and collected in such manner as may be prescribed". The manner in which it is to be collected may be by one or more modes. However, after such collection, the result is the discharge of the obligation of the manufacturer to pay the duty which it is required to pay under section

3. One of the modes of payment of the excise duty is by way of adjustment of the credit given to the manufacturer of the duty paid by it on exciseable goods used as inputs, towards the duty payable by the manufacturer on the finished product. Rule 57A of the Central Excise Rules, 1944, provides fore allowing credit of any duty of excise or the additional duty under section 3 of the Customs Tariff Act as may be specified in the notification on the goods used in or in relation to the manufacture of final products and for "utilising the credit so allowed towards the payment of duty of excise leviable on the final products .... "The credit allowed is, therefore, a credit which is to be utilised towards the payment of duty. To state the obvious, the utilisation of the Modyal credit results in the payment of the excise duty on the final products to the extent of the credit utilised. The description given by the assessee to the payment so made as excise duty paid is the correct and normal term to describe the payment and no fault can be found with the assessee for using that term and not bifurcating that amount into the amount paid through the deposit account and the amount paid by adjustment of the Modvat credit. Moreover, the assessee had furnished detailed statements, which are extracted above, from which it is clear that all the information that was required, had been placed before the Assessing Officer. The third reason set out by the respondent in his counter‑affidavit as one of the reasons which led to forming a belief that the income had escaped assessment is certainly not a reason which can be said to be in any way the result of any failure on the part of the assessee to disclose truly and fully any faction relation to the Modvat account or the amount of excise duty paid. If there has been any error in computing the extent of the assessee's income, after taking note of the excise duty paid and the extent of accrual in the Modvat account as also the except of the credit utilised, that mistake is only attributable to the Assessing Officer and not to the assessee. It is not the case of the Revenue that it is a requirement of any statute, rule or regulation or requirement of any known accounting practice that the excise duty paid and set out in the balance‑sheet or profit and loss account should show the break‑up of the Modvat adjustment or that the extent of the credit in the Modvat accrual account should be shown as part of the income or of the profit in the profit and. loss account. If the Assessing Officer was of the view that the amount available in the Modvat accrual account was required, to be treated as part of the assessee's income for the year of account, the Assessing Officer should have proceeded to compute the income by taking the same into account. The duty of an assessee is limited to fully and truly disclosing all the material facts. The assessee is not required thereafter to prepare a draft assessment order. If the details placed by the assessee before the Assessing Officer were in conformity with the requirements of all applicable laws and known accounting principles, and material details had been exhibited before the Assessing Officer, it is for the Assessing Officer to reach such conclusions as he considered was warranted from such data and any failure on his part to do so cannot be regarded as the assessee's failure to furnish the material facts truly and fully. Any lack of comprehension on the part of the Assessing Officer in understanding the details placed before him cannot confer a justification for reopening the assessment, long after the period of four years had expired. On the facts of this case, it is clear that the escapement of income, if any, on this account is riot on account of any failure on the assessee's part to disclose the material facts fully and truly. The notice issued by the Assessing Officer in exercise of his power under section 147, therefore, cannot be sustained. As the error here is one of jurisdiction it is not necessary for the assessee to have recourse to the remedies by, way of appeal, revision, etc. It is well‑settled that when a jurisdictional error is brought to the notice of this Court such errors are capable of being corrected by this Court in exercise of the Court's powers under Article 226 of the Constitution of India. The Supreme Court in the case of CIT v. Progressive Engineering (1993) 200 ITR 231 (sic), held that when all the relevant facts were before the Court and the law is clear on the subject, it is the duty of the High Court to interfere. That was also a case where the proceedings were sought to be initiated against the assessee under section 147 of the Act. The impugned notice is, therefore, quashed. The respondent is prohibited from taking any further proceedings, pursuant to that notice. The writ petition is allowed, with cost of Rs.2,

000. Connected W.M.P's. are closed. M.B.A./643/FC?????????????????????????????????????????????????????????????????????????????????? Petition allowed.