TaxTMI 
TaxTMI 
2010 (3) TMI 164
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....ner claimed a deduction of bad debts amounting 1O Rs. 12, 00, 43,394. The petitioner also computed a book loss in the Amount of Rs. 42, 14, 40,497 under section 115JB. The return of income was revised on March 31, 2006, so as to declare a loss of Rs. 53.20 crores. The return was selected for scrutiny assessment by a notice under section 143(2). The Assessing Officer issued two questionnaires during the course of the assessment proceedings, one of them being on September 29, 2006. A specific query was raised in regard to the allowability of the bad debts claimed by the petitioner under section 36(1)(vii) read with section 36(2) and on the computation of book profits under section 115JB. The petitioner responded to the queries by its letters dated December 6, 8, 14 and 27, 2006. The Assessing Officer passed an order of assessment on December 29, 2006, by which the claim in respect of bad debts was disallowed to the extent of Rs. 5.54 crores. The Assessing Officer, however, allowed the claim to the extent of Rs. 6.46 crores. After recomputing the book profits, the Assessing Officer assessed the income of the petitioner under section 115JB at Rs. 41.95 crores. While recomputing the boo....
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.... Income-tax Act, 1961. 4. Hence, I have reason to believe that there is escapement of income of Rs. 36, 21,500 and accordingly it is a fit case for reopening under section 147 of the Income-tax Act, 1961, within the time limit of four years from the end of the relevant assessment year. Hence, the assessment for the assessment year 2004-05 is hereby reopened." The petitioner filed objections to the reopening of the assessment on November 13, 2009. The objections have been disposed of by an order dated November 30, 2009. 5. From the reasons which have been furnished to the petitioner while opening the assessment and the order that has been passed disposing of objections, the basis on which the assessment is sought to be reopened pertains to two items. The first relates to the write off of bad debts in the amount of Rs. 6.46 crores. The second relates to the computation of book under section 115JB. In so far as the write off of the bad debts is concerned, the Assessing Officer has stated that the petitioner had not debited any amount on account of write off of debts/advances to the profit - loss account and that in schedule 17 of the balance-sheet, the sundry recoverabl....
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....evenue for reopening the assessment are extraneous to the provisions of section 36(1)(vii) since the statute does not require that the write off of debts/advances be reflected in the profit and loss account for the assessment year in which the claim for deduction is made. In the present case, it was submitted that a debit was made to the profit and loss account in the initial year against which a credit was reflected in the provision for doubtful debts. No claim was made, however, for a deduction in the year in which a provision for doubtful debts was made by virtue of the Explanation to section 36(1) (vii). However, in the subsequent year when the debts in question were treated as having become bad and irrecoverable, the provision for doubtful debts was duly debited against a corresponding credit to the debtors' accounts. In any event, it was submitted that the reopening of the assessment was not warranted since the Assessing Officer had specifically applied his mind to the issue during the course of the assessment proceedings. Moreover, the assessment is sought to be reopened on a basis which is not contemplated by section 36(1) (vii). 7. In so far as the computation of bo....
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.... bad debts for the year ending March 31, 2004. Consequently, it was submitted that since the assessee had not written off the bad debts in the profit and loss account for the year ending on March 31, 2004, and had in fact shown nil debts under the head of bad debts in schedule 17 dealing with the operating expenses, the assessee would not be entitled to a deduction under section 36(1) (vii). On the second aspect of the matter, namely, the computation of book profits under section 115JB, the submission of counsel F for the Revenue was that the issue was not raised during the course of the assessment proceedings. Consequently, it was submitted that the Assessing Officer was not precluded from reopening the assessment under section 147. Counsel submitted that the judgment of the Supreme Court in Max India Ltd. [2007] 295 ITR 282 on which reliance has been placed must be confined to section 8OHHC of the Income-tax Act, 1961. 9. For convenience of exposition, it would be appropriate to take both the grounds, which have been furnished for reopening the assessment separately. (A) The claim for bad debts: 10. During the course of the assessment proceedings, the assessee claimed a ....
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....f business expediency, the assessee was justified in effecting a write off. Consequently, the entire amount was allowed under section 36(1) (vii). 11. Section 36(1) provides that the deductions provided for in its succeeding clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28. Clause (vii) postulates that subfect to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year is allowable as a deduction. The Explanation to clause (vii), which was inserted by the Finance Act of 2001, provides that for the purposes of the clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. Consequent upon the Explanation, the write off on account of bad debts has not been effected in those years in which a provision for bad and doubtful debts has been made in the accounts of the assessee. In the present case, the narration of facts would show that during the course of the assessment....
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....e Court in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561. The Supreme Court has held thus (page564): "Therefore, post April 1, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of 'change of opinion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an inbuilt test to check abuse of power by the Assessing Officer. Hence, after April 1, 1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of....
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....e company in its general meeting. The Assessing Officer does not have jurisdiction to go beyond the net pro fits as shown in the profit and loss account, save and except to the extent 'which is provided for in the Explanation. The Assessing Officer can increase the net profits as reflected in the profit and loss account prepared tinder Parts II and III of Schedule VI to the Companies Act, 1956, only to the extent that is permissible in theExplanation noted above. Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 (SC) and CIT v. HCL Comnet Systems and Services Ltd. [2008] 305 ITR 409 (SC) Clause (c) of Explanation (1) deals with "the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities". 15. In response to the notice for reopening of the assessment, the assessee, ki the course of its objections pointed out that the view of the Assessing Officer was consistent with the law laid down by this court in CIT v. Echjay Forgings P. Ltd. [2001] 251 ITR 15 (Born) and the judgments of the Delhi High Court in CIT v. Eicher Ltd. [2006] 287 ITR 170 (Delhi) and CIT v. HCL Comnet Systems and Services Ltd. [2007] 292 ITR 299 (Delhi). The hon'....
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....item (c) is not attracted. There are two types of 'debt'. A .debt payable by the assessee is different from a debt receivable by the assessee. A debt is pay able by the assessee where the assessee has to pay the amount to others whereas the debt receivable by the assessee is an amount which the assessee has to receive from others. In the present case, the 'debt' under consideration is a 'debt receivable' by the assessee. The provision for bad and doubtful debts, therefore, is made to cover up the probable diminution in the value of the asset, i.e., debt which is an amount receivable by the assessee. Therefore, such a provision cannot be said to be a provision for a liability, because even if a debt is not recoverable no liability could be fastened upon the assessee. In the present case, the debt is the amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore, in our view, item (c) of the Explanation is not attracted to the facts of the present case". In the present case also, the debts written off were th....
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.... Commissioner passed his order, two views on the word "profit" under section 80HHC were possible and the provision itself had been amended on several occasions. The second ground which weighed with the Supreme Court was that the subsequent amendment in 2005 of the provisions of section 80HHC, even though retrospective, would not attract the provisions of section 263, particularly when the court would have to take into account the position of law as it stood on the date when the Commissioner passed his order in purported exercise of his powers under section 263. 19. In the present case, the principle of law which has been laid down by the Supreme Court in Max India [2007] 295 ITR 282 would be attracted. On the date on which the Assessing Officer purported to exercise his power to reopen the assessment under section 147, the legislative amendment by the insertion of clause (i) to Explanation (1) to section 115JB had not been brought into force on the statute book. Obviously, therefore, the subsequent amendment could not have been and is not a ground which has been taken by the Assessing Officer, while reopening the assessment. The validity of the notice issued by the Assessing Off....