2016 (8) TMI 275 - HC - Income Tax

Reopening of assessment - Possible MAT liability - Held that - The Assessing Officer noted that in the order of assessment, book profit of the assessee was worked out at ₹ 51.85 crores. The MAT liability would work out to ₹ 57.1 crores. Since the tax liability on the assessee as per the normal computations is higher than the tax liability under the MAT provisions, at present there is no tax liability arising. However, if the assessee succeeds in appeal against the order of assessment, the question of applying MAT provisions would arise.Providing the same safeguards as mentioned in the said order, this ground of the Assessing Officer for reopening is turned down. Claim of deduction on account of bad debts - Held that - In the final order of assessment, the Assessing Officer made no disallowance against this claim. In other words, without giving reasons he accepted the petitioner s version of written off of the bad debts of ₹ 11.18 crores. The Assessing Officer having scrutinized the claim in the final order of assessment accepted the claim though without stating the reasons. Any attempt on his part to reopen the issue is based on change of opinion. Claim of expenditure under the head of Professional Services and Legal Fees - Held that - This amount of ₹ 3.15 crores which the Assessing Officer disputes by way of expenditure was never claimed as such in the original return itself. The audited account referred to a larger sum of ₹ 4.38 crores which was amortised and the break up of premium amortised during the period under consideration includes a total of ₹ 3.15 crores which is a total of premium with respect to 5 different investments. This precise figure which the Assessing Officer wants to take into consideration for the purpose of disallowance as capital expenditure. When we find that no such claim of revenue expenditure was made, the essential requirement of income chargeable to tax having escaped assessment on this ground fails.

Summary

Issues Involved:

1. Validity of reopening the assessment based on Minimum Alternate Tax (MAT) liability.
2. Disallowance of bad debts claimed by the petitioner.
3. Disallowance of legal and professional fees claimed by the petitioner.
4. Disallowance of expenditure on premium paid on debentures/bonds.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment Based on MAT Liability:

The petitioner contended that it is not a company and thus not subject to Section 115JB of the Income Tax Act. Moreover, the possibility of MAT provisions applying in the future does not justify reopening the assessment. The court agreed, noting that the Assessing Officer (AO) himself acknowledged no current escapement of income chargeable to tax. The court referenced its earlier judgment in a similar case, concluding that reopening an assessment on the mere possibility of future MAT applicability is not permissible. The court thus turned down this ground for reopening.

2. Disallowance of Bad Debts Claimed by the Petitioner:

The AO argued that the petitioner should have deducted a settlement amount received from the total bad debts claimed. The petitioner countered that the settlement amount was adjusted against the interest, not the principal loan amount, which was fully written off. The court noted that this issue had been scrutinized during the original assessment, with the AO accepting the petitioner's claim without disallowance. Reopening based on the same facts would constitute a change of opinion, which is impermissible. The court thus rejected this ground for reopening.

3. Disallowance of Legal and Professional Fees Claimed by the Petitioner:

The AO contended that certain legal and professional fees were personal or related to other entities and should be disallowed. The petitioner provided detailed explanations and documentation during the original assessment, which the AO had scrutinized and accepted without disallowance. The court held that the AO's attempt to revisit this issue also amounted to a change of opinion. The court emphasized that once an AO scrutinizes and accepts a claim, reopening the assessment without new material evidence is not justified. This ground for reopening was also rejected.

4. Disallowance of Expenditure on Premium Paid on Debentures/Bonds:

The AO argued that the expenditure on premium paid should be capitalized, not claimed as revenue expenditure. The petitioner demonstrated that the premium was amortized and added back to income, not claimed as an expenditure. The court found that the petitioner had not claimed this amount as revenue expenditure in the original return, thus there was no escapement of income on this ground. Consequently, this ground for reopening was also dismissed.

Conclusion:

The court quashed the impugned notice dated 31.3.2014, finding all grounds for reopening the assessment invalid. The petition was allowed and disposed of accordingly.