2023 (6) TMI 1269 - AT - Income Tax

Tribunal dismisses Revenue's appeal, upholds quashing of reassessment & disallowance of bad debts as capital expenditure

The Tribunal dismissed the Revenue's appeal, upholding the quashing of reassessment proceedings and the disallowance of bad debts claimed as capital ... Reopening of assessment - bad debts written off disallowed - HELD THAT:- The details of bad debts written off were called for by Ld. AO during the course of original assessment proceedings. The assessee had supplied the requisite details. After considering the assessee’s reply, AO disallowed bad debts to the extent of Rs. 204.26 Lacs and chose not to make any further addition on this account. There is no further discussion whatsoever in the assessment order, in this regard. When the complete details were asked for and the same were duly furnished by the assessee and Ld. AO chose to disallow a part of the same, it could rightly be concluded that the issue was duly considered by AO with due application of mind and a conscious decision was taken in the matter. To reopen the already concluded assessment on the same very issue would be nothing but review of the order and on mere change of opinion which is impermissible as per the decision in the case of CIT vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT]. Therefore, impugned order could not be faulted with and we concur with the same. Issues involved:The issues involved in the judgment are the validity of reassessment proceedings, treatment of bad debts claimed as capital expenditure, and the application of the principle of change of opinion in reopening assessments.Validity of Reassessment Proceedings:The appeal by the Revenue for Assessment Year 2011-12 challenged the order of the Commissioner of Income Tax (Appeals) quashing the reassessment proceedings initiated by the Assessing Officer under section 147. The Revenue contended that reassessment is permissible even if information was obtained after proper investigation from the material on record. The Tribunal noted that the AO reopened the assessment based on the claim of the assessee regarding payment made to a consultancy firm for the purchase of land, claimed as bad debts. The Tribunal upheld the reopening, citing Explanation 2(c)(iii) to Sec. 147, which deals with deemed escapement of income. The Tribunal rejected the assessee's objection and held the write-off of the amount as not allowable as bad debts.Treatment of Bad Debts Claimed as Capital Expenditure:The assessee, a resident corporate entity engaged in windmill assembly and sales, had debited bad debts for Rs. 641.77 Lacs under Administration and Selling expenses. The AO had disallowed a portion of the bad debts claimed as not an admissible loss being capital in nature. The Tribunal observed that the AO had considered the matter during the original assessment, and the action of the AO in reopening the assessment was deemed a mere change of opinion without tangible material to establish escapement of income. Citing the decision in CIT vs. Kelvinator of India Ltd., the Tribunal held the assessment invalid and cancelled it.Application of Change of Opinion Principle:The Tribunal further examined the issue of bad debts written off by the assessee for Rs. 641.77 Lacs in the Profit & Loss Account. The AO had disallowed a portion of the bad debts after considering the details provided by the assessee during the original assessment. The Tribunal concluded that the AO had already considered the issue with due application of mind, and to reopen the assessment on the same issue would amount to impermissible review based on a mere change of opinion. Citing the decision in CIT vs. Kelvinator of India Ltd., the Tribunal upheld the validity of the assessment cancellation and dismissed the appeal by the Revenue.The Tribunal pronounced the order on 27th June 2023, dismissing the appeal by the Revenue challenging the quashing of reassessment proceedings and the treatment of bad debts claimed as capital expenditure.