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2019 (12) TMI 1262 - HC - Income TaxReassessment on the basis of the retrospective amendment effected in Explanation-1 to Section 115JB - disallowance of Provision for Bad and Doubtful Debt for the purpose of computing Book Profits under section 115JB - HELD THAT - Provision for Bad and Doubtful Debt was clearly a deductible amount for the purpose of Section 115JA of the Act. This position of law was undone only by the Finance Amendment Act, 2009 with retrospective effect from 1 April 2001. But the fact remains that the said amendment in law was effected in the year 2009 and it was not available on the date when the reassessment notice was issued in the present case on 31 March 2008. Similar issue was dealt with by the Division Bench of the Bombay High Court in the case of Rallis India Ltd. 2019 (5) TMI 572 - ALLAHABAD HIGH COURT held that subsequent to the decision of the Hon ble Supreme Court in HCL Comnet Systems Services Ltd. 2008 (9) TMI 18 - SUPREME COURT the Parliament stepped in to amend Explanation (1) to Section 115JB by the Finance Act, 2009. But that amendment would not be available for the Assessing Authority to exercise the power to reopen the assessment. - Decided in favour of assessee.
Issues Involved:
1. Legality of the reassessment proceedings. 2. Application of the Supreme Court judgment in HCL Comnet Systems and Services Ltd. in light of the retrospective amendment to Explanation (1) to Section 115JB by the Finance (No.2) Act, 2009. 3. Validity of the Tribunal's reasoning in setting aside the impugned order, considering the material indicating income escapement and whether it was a change of opinion. Detailed Analysis: 1. Legality of the Reassessment Proceedings: The High Court examined whether the reassessment proceedings initiated by the Assessing Officer (AO) for the Assessment Year 2003-04 were justified. The reassessment notice under Section 148 was issued on 31 March 2008, prior to the amendment in Explanation-1 to Section 115JB by the Finance Act, 2009, which had retrospective effect from 1 April 2001. The Court noted that the Supreme Court's decision in HCL Comnet Systems & Services Ltd., which was delivered on 23 September 2008, held that the "Provision for Bad and Doubtful Debt" could not be added back to net profit under clause (c) of the Explanation to Section 115JA. Thus, the reassessment notice issued on 31 March 2008 was not justified as the amendment was not in force at that time. 2. Application of the Supreme Court Judgment in HCL Comnet Systems and Services Ltd.: The Court highlighted that the Supreme Court in HCL Comnet Systems & Services Ltd. had clearly stated that the provision for bad and doubtful debts could be added back to the net profit only if clause (c) of the Explanation to Section 115JA was attracted. Since the provision for bad and doubtful debts was made to cover the probable diminution in the value of assets and not for liability, clause (c) was not applicable. The Court emphasized that this legal position was undone only by the Finance Amendment Act, 2009, with retrospective effect from 1 April 2001, but this amendment was not available when the reassessment notice was issued. 3. Validity of the Tribunal's Reasoning: The Court supported the Tribunal's reasoning, stating that the reassessment notice issued on 31 March 2008 could not be justified retrospectively by the 2009 amendment. It reiterated that reassessment cannot be initiated based on a mere change of opinion and that all relevant particulars were available during the original assessment. The Court also referenced the Bombay High Court's decision in Rallis India Ltd., which held that a retrospective amendment does not justify the reopening of an assessment if the amendment was not in existence at the time of issuing the reassessment notice. Conclusion: The Court concluded that the reassessment proceedings were not justified as they were initiated based on a legal position that was subsequently changed by a retrospective amendment. The Tribunal was correct in setting aside the reassessment order. Consequently, the questions of law were answered against the Revenue and in favor of the Assessee, leading to the dismissal of the Revenue's appeal.
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