2014 (2) TMI 1246 - AT - Income Tax

Validity of reopening of the assessment - Held that - In the instant case, we have already noticed that the return of income has been processed only u/s 143(1) of the Act. Hence, in our view, the decision rendered by Hon ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (2007 (5) TMI 197 - SUPREME Court ) squarely applies in the instant case. The Ld A.R placed reliance on the decision of Co-ordinate Mumbai bench in the case of Aipitia Marketing (P) Ltd 2007 (8) TMI 488 - ITAT MUMBAI to contend that the re-opening of assessment is not valid, even if the return had been processed u/s 143(1) of the Ace, if there is no fresh material before the AO. In our view, the said decision is not applicable in the instant case, since the reassessment is warranted due to the retrospective amendment brought in the Act. Hence, we do not find any infirmity in the decision of the ld CIT(A) in upholding the reopening of the assessment. Accordingly, we uphold his order on this issue. MAT computation - Addition of Provision for bad and doubtful debts in computing the Book Profit - Held that - In the instant case, we are concerned with the provisions of sec. 115JB, wherein the book profit is required to be computed from the audited accounts prepared under the provisions of the Companies Act. Under the accounting principles, on the basis of which the accounts are prepared under the Companies Act, the terms Bad debts and the Provision for bad and doubtful debts have distinct meaning and has got different accounting treatment. Hence, in our view, the decision rendered by Hon ble Supreme Court in the case of Vijaya Bank (2010 (4) TMI 46 - SUPREME COURT ) under the normal provisions of Income tax Act, cannot be applied to the provisions of sec. 115JB of the Act. We notice that the Co-ordinate bench in the case of Tainwala Chemicals & Plastics India Ltd. 2011 (4) TMI 840 - ITAT MUMBAI , did not consider the applicability of the Companies Act to the book profit computed under sec. 115JB Act. In view of the foregoing, in our view, the Ld CIT was justified in upholding the addition of Provision for bad and doubtful debts to the book profit. Computation of interest u/s 234B and 234C - Held that - We set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to compute the interest u/s 234B and 234C of the Act by excluding the addition relating to Provision for bad and doubtful debts from the amount of book profit.

Summary

Issues Involved:
1. Validity of reopening of assessment u/s 147 of the Act
2. Validity of adding the "provision for doubtful debts" to the book profit computed u/s 115JB of the Act
3. Correctness of the computation of interest u/s 234B and 234C of the Act

Validity of Reopening of Assessment:
The appeal challenged the reopening of assessment u/s 147 of the Act for AY 2005-06. The AO reopened the assessment due to the assessee's claimed deduction of a specific amount under "Provision for bad and doubtful debts" not added to net profit while computing book profit u/s 115JB. The assessee contended that the retrospective amendment to section 115JB did not apply to their original return filed under section 143(1). However, the Tribunal upheld the reopening, citing the original assessment under section 143(1) and relevant case law. The decision was supported by the Hon'ble Supreme Court and Bombay High Court rulings, leading to the dismissal of the appeal on this issue.

Addition of Provision for Bad and Doubtful Debts to Book Profit:
The next issue involved the addition of "Provision for bad and doubtful debts" to the book profit u/s 115JB. The assessee argued that this provision should be treated as an actual write-off of bad debts, not requiring addition to net profit for book profit computation. Despite relying on relevant case law, the Tribunal disagreed, emphasizing the distinct accounting treatment of bad debts and provisions under the Companies Act. Thus, the Tribunal upheld the addition of the provision to the book profit, aligning with the statutory requirement of sec. 115JB.

Computation of Interest u/s 234B and 234C:
Regarding the computation of interest u/s 234B and 234C, the assessee argued against levying interest due to a shortfall in advance tax payment resulting from a retrospective amendment. Citing precedents, the Tribunal agreed that interest should not be charged for default in payment or deferment due to retrospective amendments. Relying on a Delhi Tribunal decision, the Tribunal directed the AO to exclude the addition related to "Provision for bad and doubtful debts" from book profit for computing interest u/s 234B and 234C. Consequently, the appeal was partly allowed on this issue.

In conclusion, the Tribunal addressed the issues of validity of reopening assessment, addition of provision for doubtful debts to book profit, and computation of interest u/s 234B and 234C comprehensively, providing detailed analysis and legal reasoning for each aspect, ultimately partially allowing the assessee's appeal.