2016 (9) TMI 706 - HC - Income Tax

Reopening of assessment - provision for bad debts undisclosed - Held that - The petitioner was asked to furnish details regarding the claim of bad debt written off. It is also found from the record that the same has been cogently explained and replied and therefore, while completing the scrutiny assessment, this issue has been gone into by the Assessing Officer and the perusal of record further indicates that while assessment order came to be passed, the accountant of the petitioner did attend the hearing. The case was discussed at length and submitted by the detailed information as called for from time to time and therefore, considering this material which is available on record, it appears to this Court that the issue pertaining to provision for bad and doubtful debt has been gone into and only thereafter this scrutiny assessment came to be passed. To arrive at such conclusion, we have also gone through the stand taken by the respondent-revenue authority. We have taken note of the contents stated by the deponent on behalf of the revenue contained in additional affidavit submitted before the Court. It was categorically stated by the deponent on additional affidavit that on account of workload and pressure of various files getting time barred asessement of various assessees and on account of corporate assessees being under jurisdiction of that Assessing Officer he had categorically deposed that he could not incorporate the details of bad debts written off furnished by the petitioner assessee. This would clearly indicate that the details have already disclosed before the Assessing Officer and while framing the assesment, the Assessing Officer has considered the same. It is only because of pressure of work he could not incorporate the details in an order under Section 143(3) of the Act and therefore, considering this overall view of the matter we are of the opinion that if the records speak like this it would not be permissible for respondent-authority to reopen the assessment otherwise the same would be based on change of opinion There is no tangible material available to justify the reopening more particularly when the issue has been gone into in detail during the course of regular scrutiny assessment, it is hardly justify for the revenue to reopen the issue which has relied upon, examined and even if it is within a period of four years. The ratio laid down by the aforesaid decision referred to above would clearly clinch the issue and therefore, the action of revenue in reopening the assessment is not justified as it would tantamount to be on the basis of mere change of opinion which is not permissible as the conditions which has been retained under Section 147 is also not satisfied. Thus we are of the opinion that the action on part of the respondent authority is not in consonance with proposition of law laid down and the background of facts would not warrant the Court to allow and precipitate further on account of main action on part of the respondent authority. Hence, the impugned notice dated 16.12.2009 and letter dated 06.08.2010 are hereby quashed and set aside. Rule is made absolute. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality and validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Rejection of objections raised by the petitioner against the reopening of assessment.

Issue-wise Detailed Analysis:

1. Legality and Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:

The petitioner, a private limited company and a non-banking financial corporation, challenged the notice issued under Section 148 of the Income Tax Act, 1961, which indicated that income chargeable to tax had escaped assessment. The petitioner had filed its return for the assessment year 2005-06, which included details about bad debts written off. During the original assessment proceedings, the Assessing Officer (AO) had scrutinized these details and completed the assessment without disallowing the bad debts.

The notice under Section 148 was issued by the Assistant Commissioner of Income Tax on 16.12.2009, stating that there was reason to believe that income had escaped assessment. The petitioner responded by requesting the reasons for reopening, which were provided, indicating that the bad debts were not actually written off but merely credited to the provision for bad and doubtful debts, making them inadmissible under Section 36(1)(vii).

The court referred to the Supreme Court decision in Commissioner of Income Tax vs. Kelvinator of India Ltd., which emphasized that post-1st April 1989, the AO has the power to reopen assessments only if there is tangible material indicating that income has escaped assessment. The concept of "change of opinion" was highlighted as an in-built check against the misuse of this power. The court found that the AO had no new tangible material and was merely changing his opinion on the same set of facts already scrutinized during the original assessment.

2. Rejection of Objections Raised by the Petitioner Against the Reopening of Assessment:

The petitioner raised objections against the reopening of the assessment, arguing that the issue of bad debts had already been thoroughly scrutinized during the original assessment. The petitioner relied on the decision in Commissioner of Income Tax vs. Kelvinator of India Ltd., asserting that reopening the assessment on the same issue amounted to a change of opinion, which is impermissible.

The objections were rejected by the AO, who provided brief reasons for the rejection. The court examined the reasons provided for reopening the assessment and found that the AO had not considered the detailed explanations and replies submitted by the petitioner during the original assessment proceedings. The court noted that the AO had scrutinized the bad debts issue in detail, and the reopening was based on the same material, thus constituting a change of opinion.

The court also referred to the decision in Gujarat Power Corporation Ltd. vs. Assistant Commissioner of Income Tax, which held that reopening an assessment within four years based on the same material amounts to a change of opinion and is not permissible. The court emphasized that the AO's failure to record reasons for not disallowing the claim during the original assessment does not justify reopening the assessment.

Conclusion:

The court concluded that the action of the respondent authority in reopening the assessment was not justified, as it was based on a mere change of opinion without any new tangible material. The impugned notice dated 16.12.2009 and the order rejecting the objections dated 06.08.2010 were quashed and set aside. The rule was made absolute, and the reopening of the assessment was deemed impermissible under the law.