issuance of re-assessment notice on the basis of amendment to provision of the income tax act is unjustified
IN THE ITAT CHENNAI BENCH 'C'
Saint Gobain Glass India Ltd.
v.
Assistant Commissioner of Income-tax, Company Circle-VI (1)*
N.S. SAINI, ACCOUNTANT MEMBER
AND V. DURGA RAO, JUDICIAL MEMBER
IT APPEAL NO. 276 (MAD.) OF 2012
[ASSESSMENT YEAR 2003-04]
MAY 18, 2012
-----------------
ORDER
N.S. Saini, Accountant Member - This is an appeal filed by the Assessee against the order of the Commissioner of Income Tax(Appeals) Large Taxpayer Unit, Chennai dated 18.11.2011 for Assessment Year 2003-04.
2. The assessee has taken the following grounds of appeal.
"1. The order of the Commissioner of Income Tax(A) is contrary to law, facts and circumstances of the case.
2.a. The Commissioner of Income Tax(A) erred in confirming the reopening of the assessment.
b. The Commissioner of Income Tax(A) ought to have appreciated that the reasons for reopening the assessment and unsustainable.
c. The Commissioner of Income Tax(A) ought to have appreciated that there is no escapement of income.
d. The Commissioner of Income Tax(A) failed to appreciated that the appellant had furnished fully and truly all the material facts necessary for the assessment and reassessment is merely on the basis of change of opinion.
f. The Commissioner of Income Tax(A) failed to appreciated that for deciding the question under Section 147, whether the assessee had disclosed fully and truly all material facts, the law applicable would be the law as it stood on the date of filing of the return.
g. The Commissioner of Income Tax(A) failed to appreciated that the appellant could not have assumed that a legislative amendment was going to be made in the year 2009 with retrospective from the year 2001.
3.a. The Commissioner of Income Tax(A) erred in disallowing the provision for bad & doubtful debts amounting to Rs. 1,49,46,022/- in the computation of book profits under Section 115JB of the Act.
b. The Commissioner of Income Tax(A) failed to appreciated that the clause (i) to Explanation (1) to Section 115JB of the Act has been inserted vide Finance Act, 2009 and the said provision did not exist while filing the return of income.
4.a. The Commissioner of Income Tax(A) erred in confirming the levy of interest under section 234B of the Act.
b. The Commissioner of Income Tax(A) failed to appreciated that the Appellant could not have assumed that a legislative amendment was going to be made in the year 2009 with retrospective effect from the year 2001 and paid the advance tax.
5. The Appellant craves leave to alter, amend or modify any of the foregoing grounds of appeal or add any additional grounds of appeal on or before or during the course of the hearing."
3. The Authorised Representative of the assessee submitted that in ground No.2 of the appeal of the assessee has challenged the reopening of the assessment on the ground that it was based on merely change of opinion on the very same facts on which the assessment was framed under section 143(3) of the Act on 10.03.06 and therefore, it was bad in law. He argued that in the present case of the assessee, the assessee filed return of income declaring loss of Rs. 16,19,41,536/- and the assessment was completed under Section 143(3) read with section 94C(4) on 10.03.2006 assessing the total loss of Rs. 15,90,36,808/- under normal computation and book profit at Rs. 11,19,72,308/-. It was submitted that in this assessment order, the Assessing Officer examined the issue of provision for bad and doubtful debts of Rs. 1,49,46,022/- charged to the profit and loss account by the assessee by issue of notice under Section 143(2) dated 21.07.08 wherein it was stated "as per provisions of Sec.115JB, the Provision for Bad & Doubtful Debts amounting to Rs. 1,49,46,022/- should have been added back while computing book profit under Section 115 JB". After examining the same, the Assessing Officer allowed the deduction of provision for bad and doubtful debts of Rs. 1,49,46,022/- in computation of book profit under Section 115JB of the Act. Thereafter, the Assessing Officer issued a notice under Section 148 on 09.12.09 repeating the reasons for reopening the assessment by stating as under:-
"2. As requested by you, the reasons for reopening the assessment under Section.147 and issuing notice under Section.148 for the Assessment Year 2003-04 are communicated as under:
Reasons: The assessee made provision of Rs. 1,49,46,022/-towards bad and doubtful debts. While computing book profit under Section.115JB, the above amount should have been added to the net profit as per P&L account and the same was not done by the assessee. Further, it was not considered in the order under Section.143(3) passed on 10.03.2006.
Therefore, I have reason to believe that income to the extent of Rs. 1,49,46,022/- escaped assessment. In view of the above, the assessment for the Assessment Year 2003-03 is reopened under Section.147 and notice under Section.148 issued on 28.03.2008.
3. As you have stated that the return of income already submitted on 28.11.03 for the Assessment Year 2003-04 to be treated as the return in pursuant to the notice under Section.148, notice under Section.143(2) has been issued separately and you are requested to comply with the notice."
4. The Authorised Representative of the assessee submitted that the amendment to Explanation-1 to section 115JB was brought by the Finance (No.2) Act, 2009 with retrospective effect from 01.04.2001 by substituting the clause (i) as under:
"For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by -
[(i) the amount or amounts set aside as provision for diminution in the value of any asset"
It was the submission of the Authorised Representative of the assessee that notice of reassessment was issued on 31.03.08 and the amendment to Explanation-1 to section 115JB was brought by the Finance (No.2) Act, 2009 with retrospective effect from First April, 2001 after the notice was issued by the Assessing Officer seeking to reopen the assessment. He submitted that the validity of the notice of the Assessing Officer seeking to reopen the assessment would have to be determined on the law as prevailed on the date of notice and for this, he placed reliance on judgement of Hon'ble Supreme Court in the case of CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188. The Authorised Representative of the assessee relied on the decision of Hon'ble Bombay High Court in the case of Rallis India Ltd. v.Asstt. CIT [2010] 323 ITR 54/190 Taxman 1 where on the similar facts and circumstances of the case, the Hon'ble Bombay High Court held that 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. Therefore, it seems, the amendment could not have been and has not the ground, which has been taken by the Assessing Officer while reopening the assessment. The validity of the notice issued by the Assessing Officer in seeking to reopen the assessment must be determined with reference to the reasons which are found in support of the reopening of the assessment. These reasons cannot be allowed to be supplemented on a basis, which was not present to the mind of the officer and could not have been so present on the date on which the power to reopen the assessment was exercised. Consequently, it is evident that the order of the Assessing Officer with reference to computation of book profit under Section.115JB was at least a probable view and as a matter of fact, the correct view to take in view of the decision of Hon'ble Supreme Court in the case of CIT v. HCL Comnet Systems & Services Ltd. [2008] 305 ITR 409/174 Taxman 118. It is well settled that the law laid down by the Supreme Court is declaratory of the position as it always stood. In any event, the view of the Assessing Officer was supported by the interpretation placed even contemporaneously in the judgement of the Bombay High Court in CIT v. Echjay Forgings (P.) Ltd. [2001] 251 ITR 15/116 Taxman 322 and in the judgement of the Delhi High Court in the case of CIT v. Eicher Ltd. [2006] 287 ITR 170/[2007] 159 Taxman 293 and CIT v. HCL Comnet Systems & Services Ltd. [2007] 292 ITR 299/[2008] 172 Taxman 217. In the circumstances, there was no warrant for reopening the assessment in exercise of the power conferred under Section. 147. It was therefore, brought that the order of the Commissioner of Income Tax(A) should beset aside and the reassessment order should be cancelled as being bad in law.
5. On the other hand, the Departmental Representative supported the orders of the lower authorities.
6. After considering the rival submissions and perusing the materials available on record, we find that in the instant case, the assessee was assessed to tax on book profit of Rs. 11,19,72,308/- in an assessment made under Section 143(3) read with section 92C(4) on 31.03.06. The assessee contended that the Assessing Officer after examining the issue of provision for bad and doubtful debts of Rs. 1,49,46,022/- debited in the profit and loss account of the assessee by issue of notice under Section 143(2) dt.21.07.08. Thereafter, the Assessing Officer issued notice under Section.148 on 31.03.08 to reopen the assessment on the very same ground that the provision for bad and doubtful debts of Rs. 1,49,46,022/- should be added back in computing the book profit under Section 115JB of the Act. The Authorised Representative of the assessee has submitted that on the date of issue of notice under Section.148 on 31.03.08 by the Assessing Officer for reopening of the assessment, the earlier view taken by the Assessing Officer in the assessment framed under Section. 143(3) on 31.03.06 was supported by the decision of the Hon'ble Supreme Court in the case of HCL Comnet Systems & Services Ltd. (supra) and the decision of Hon'ble Delhi High Court in the case of Eicher Ltd. (supra). Further, the Authorised Representative of the assessee has also submitted that the amendment to Explanation-1 to section 115JB was brought by the Finance (No.2) Act, 2009 with retrospective effect from First April, 2001. Thus, on the date of issue of notice for reassessment on 31.03.08, there was no amendment to Explanation-1 to section 115JB providing for adding of the amount or amounts set aside as provision for diminution in the value of any asset by way of debiting in the profit and loss account. Therefore, in view of the decisions of Hon'ble Bombay High Court in the case of Rallis India Ltd. (supra), the Assessing Officer could not have reasons to believe on 31.03.08 that the income had escaped assessment on the ground that the provisions for bad and doubtful debts were not added back in computing the book profit under Section 115JB of the Act. The Departmental Representative could not controvert the above submissions of the Authorised Representative of the assessee. Therefore, in our considered opinion as on 31.03.2008 there was no fresh material available with the Assessing Officer on the basis of which he could have justifiable formed reasons to believe that any income chargeable to tax had escaped assessment in the instant case. Therefore, initiation of reassessment proceedings in the instant case was bad in law and consequently the impugned order is liable to be cancelled. We order accordingly. Thus, the grounds of appeal of the assessee are allowed.
7. In view of the above decision, the other grounds of appeal taken in this appeal have become infructuous and academic in nature. Hence, we are not adjudicating the same.
8. In the result, the appeal of assessee is allowed.
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