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2010 (5) TMI 688 - AT - Income TaxReopening of assessment beyond the period of 4 years from the end of the relevant assessment year change of opinion - disallowing the claim of bad debt under section 36(1)(vii) Held that - Reopening of the assessment after expiry of 4 years from the end of the relevant assessment year and the conditions of the first proviso to section 147 of the Income-tax Act have not been satisfied by the Assessing Officer in this case - assessee disclosed all primary facts before the Assessing Officer at the time of original assessment under section 143(3) of the Income-tax Act regarding claim of bad debt. The Assessing Officer after examining the issue accepted the claim of the assessee. Therefore, it is clear case of mere change of opinion for reopening of assessment which is bad in law - assessee has written off the bad debt as irrecoverable in its account - initiation of proceedings under section 147 of the Income-tax Act is not in accordance with law - Assessing Officer, therefore, was not justified in initiating the reassessment proceedings - Assessing Officer was not justified in making the disallowance on account of bad debt in favor of assessee
Issues Involved:
1. Reopening of assessment under Section 147 of the Income-tax Act, 1961. 2. Disallowance of bad debt claim under Section 36(1)(vii) of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Reopening of Assessment under Section 147: The appellant challenged the reopening of the assessment by the Assessing Officer (AO) under Section 147 of the Income-tax Act, 1961. The appellant argued that the reopening was invalid as the original assessment under Section 143(3) was completed on February 27, 2004, and the notice under Section 148 was issued beyond the period of four years from the end of the relevant assessment year. The appellant contended that all particulars of income were disclosed during the original assessment, and there was no failure on their part to disclose material facts. The reopening was based on a change of opinion, which is not permissible under the law. The tribunal referred to several judgments, including CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1, which held that mere change of opinion cannot justify reassessment. The tribunal also cited the judgment in Garden Silk Mills (P.) Ltd. v. Dy. CIT [1999] 237 ITR 668, which emphasized that reassessment cannot be based on a change of opinion. The tribunal concluded that the AO was not justified in reopening the assessment on the basis of a change of opinion and that the conditions of the first proviso to Section 147 were not satisfied. 2. Disallowance of Bad Debt Claim under Section 36(1)(vii): The appellant also challenged the disallowance of their bad debt claim of Rs. 11,03,569. The AO had reopened the assessment to disallow the bad debt claim, arguing that the appellant had recovered some amounts during the year, making it premature to treat the outstanding dues as bad debt. The appellant argued that the bad debt was written off as irrecoverable in their accounts, which is sufficient compliance with Section 36(1)(vii) after the amendment. The tribunal referred to the judgment of the Supreme Court in T.R.F. Ltd. v. CIT [2010] 323 ITR 397, which held that it is sufficient if the bad debt is written off as irrecoverable in the accounts of the assessee. The tribunal found that the appellant had written off the bad debt in their accounts, and thus, the AO was not justified in disallowing the claim. The tribunal concluded that the disallowance of the bad debt claim was not warranted. Conclusion: The tribunal quashed the reassessment proceedings initiated under Section 147 and deleted the addition on account of bad debt. The tribunal held that the reopening of the assessment was invalid as it was based on a change of opinion and did not satisfy the conditions of the first proviso to Section 147. The tribunal also held that the disallowance of the bad debt claim was not justified as the appellant had complied with the requirements of Section 36(1)(vii) by writing off the debt as irrecoverable in their accounts. Consequently, the appeal of the assessee was allowed.
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