2015 (2) TMI 491 - AT - Income Tax

Invalid reassessment under sec 147/148; disclosure made, reopening unsustainable. Tribunal overturns AO's disallowance, citing impermissible change of opinion.

The reassessment proceedings initiated under section 147/148 were deemed invalid as the assessee had fully disclosed necessary material facts, rendering ... Reopening of assessment - provision for doubtful debts are written back is an ascertained liability and hence the same should not be allowed as deduction - Held that:- Now the detail in regard to doubtful debts were fully disclosed in the return of income. Assessee has offered to tax provision for doubtful debts debited in the P&L A/c of ₹ 21,57,440/- . The assessee has claimed exclusion of provision for doubtful debts no longer required and written back amounting to ₹ 45,10,941/- and ₹ 21,50,151/- respectively. In the audited accounts, it is duly shown under Schedule-17 'Manufacturing, Selling and other expenses' and Schedule- 14 'Other Income'. From the above it is apparent that assessee has fully and truly disclosed all the materials in this regard. So it cannot be said that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Hence manifestly this reopening is hit by the proviso to section 147 of the Act and in the light thereof reopening is not sustainable. - Decided in favour of assessee. Issues Involved:1. Validity of reopening assessment under section 147/148.2. Merits of the case regarding the addition made by AO on provisions for bad debts and doubtful debts.Issue 1: Validity of Reopening Assessment under Section 147/148:The appeal and cross-objection emanate from the order of the ld. C.I.T.(A)-VIII, Kolkata, pertaining to the Assessment Year 2003-04. The Revenue's appeal challenges the deletion of the addition made by the AO on the ground that provisions for bad debts and doubtful debts are ascertained liabilities. The Cross Objection questions the validity of the reassessment proceedings initiated under section 147/148. The AO reopened the assessment based on the contention that the provisions for doubtful debts written back constitute unascertained liabilities and thus should not be allowed as deductions. However, the assessee had fully disclosed these details in the return of income, including offering to tax provisions for doubtful debts debited in the P&L account and claiming exclusion of provisions no longer required. The reassessment was deemed invalid as there was no failure on the part of the assessee to disclose all necessary material facts, rendering the reopening unsustainable.Issue 2: Merits of the Case Regarding the Addition Made by AO:The AO disallowed deductions claimed by the assessee for provisions of bad debts and doubtful debts, amounting to a total of Rs. 66,61,093, resulting in an underassessment of income. The ld. CIT(A) upheld the AO's action, leading to the appeal. The assessee argued against the reopening of the assessment and challenged the decision of the ld. CIT(A). The Tribunal held that the reassessment was invalid as it was based on a mere change of opinion, which is impermissible under the law. The AO had previously allowed the provisions after examining the details provided by the assessee. The Tribunal referred to relevant case laws supporting the position that reopening assessments solely on a change of opinion is not valid. Consequently, the Tribunal set aside the ld. CIT(A)'s order and declared the reassessment as invalid. As a result, the Revenue's appeal on the merits of the case became academic and was not adjudicated, while the Cross Objection of the assessee was allowed.This detailed analysis of the judgment highlights the issues surrounding the validity of reopening assessments under section 147/148 and the merits of the case concerning additions made by the AO on provisions for bad debts and doubtful debts.