2014 (10) TMI 660 - AT - Income Tax

Reopening of assessment u/s 147 r.w section 148 - Held that - Nothing new tangible material was available before the AO for reopening the assessment and consequently, the AO acted on the same material, which was available before him at the time of original assessment following the decision in CIT Vs. Kelvinator India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA - It cannot be accepted that only because in the assessment order, detailed reasons have not been recorded, an analysis of the materials on the record by itself may be justifying the AO to initiate a proceeding u/s. 147 of the Act - When a regular order of assessment is passed in terms of section 143(3) of the Act, a presumption can be raised that such an order has been passed on application of mind - a presumption can also be raised to the effect that in terms of section 114(e) of the Indian Evidence Act, 1872, judicial and official acts have been regularly performed - If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceeding without any thing further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong thus, the reopening u/s. 147 r.w.s. 148 of the Act is bad in law Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated under section 147 read with section 148 of the Income-tax Act, 1961.
2. Disallowance of the claim of bad debts under section 36(1)(vii) of the Act.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The first issue pertains to the validity of reassessment proceedings initiated by the Assessing Officer (AO) under section 147 read with section 148 of the Income-tax Act, 1961. The assessee contested the reassessment on the grounds that the proceedings were invalid. The AO had initially completed the assessment under section 143(3) and later issued a notice under section 148 based on the belief that income had escaped assessment, specifically citing the write-off of bad debts amounting to Rs. 32,38,978/-.

The CIT(A) upheld the AO's action, referencing the Supreme Court's decision in Rajesh Jhaveri Stock Broker (P) Ltd. (291 ITR 500), which allowed reopening of assessments within four years if there was reason to believe that income had escaped assessment. The Tribunal, however, found that all relevant materials were already available to the AO during the original assessment proceedings. The Tribunal noted that the AO had made detailed inquiries and was satisfied with the explanations provided by the assessee regarding the bad debt write-off. Consequently, it was held that there was no new tangible material to justify the reopening, and the AO's action was based on a mere change of opinion, which is not permissible under the law as per the Supreme Court's ruling in CIT Vs. Kelvinator India Ltd. (310 ITR 561).

2. Disallowance of Bad Debts:
The second issue concerns the disallowance of the assessee's claim for bad debts under section 36(1)(vii) of the Act. The AO disallowed the claim on the grounds that the bad debt was previously accounted for as income and that the assessee had already availed of an exemption under section 80HHC for the same amount. The CIT(A) upheld this disallowance, applying the doctrine of estoppel, which prevents the assessee from changing its stance after having already claimed a deduction under section 80HHC.

The Tribunal, however, found that the assessee had indeed written off the bad debt after obtaining necessary approvals from the Reserve Bank of India (RBI) and that the export proceeds were never realized. The Tribunal observed that the AO had already verified these facts during the original assessment proceedings and had allowed the deduction. Therefore, the Tribunal concluded that the AO's disallowance was not justified, and the bad debt was rightly written off by the assessee.

Conclusion:
The Tribunal quashed the reassessment proceedings under section 147 read with section 148, holding them to be invalid due to the absence of new tangible material and the AO's reliance on a mere change of opinion. Additionally, the Tribunal found in favor of the assessee on the merits of the bad debt claim, affirming that the write-off was correctly allowed during the original assessment. Consequently, the appeal of the assessee was allowed.