2021 (12) TMI 1258 - AT - Income Tax

Reopening of assessment u/s 147 - addition on account doubtful debt while computing the book profits u/s 115JB - rectification proceedings u/s 154 initated - HELD THAT - We find that during the original assessment proceedings, vide query letter dated 20.10.2015 at Point No. 23, the Assessing Officer raised a specific query asking the assessee to furnish a detailed note on book profit as per section 115JB of the Act and vide query No. 24, details in respect of exempt income earned, alongwith details of expenses incurred for earning such income and quantify the disallowance u/s 14A r.w.r 8D of the Rules was asked by the AO. Issuing notice u/s 148 of the Act, the Assessing Officer had already initiated rectification proceedings u/s 154 of the Act and the assessee had furnished detailed reply as mentioned elsewhere. We find that no rectification order has been framed by the Assessing Officer u/s 154 of the Act and yet, for the same reasons, reassessment proceedings were initiated. Once rectification proceedings have been initiated, then for identical reasons, reassessment proceedings cannot be initiated unless the rectification proceedings culminate into an order, duly framed as per the provisions of law - there is no evidence brought on record by the Revenue that the proceedings initiated u/s 154 of the Act are concluded or communication to that effect has been sent to the assessee. Therefore, under these circumstances, it cannot be said that the assessment proceedings were completed as the order passed u/s 154 is also an order which can be subjected to appeal and revision and as the proceedings have not been completed on record, it cannot be said that income has escaped assessment. Similar view has been taken by the co-ordinate bench at Mumbai in the case of Jet Speed Audio Pvt Ltd 2012 (8) TMI 332 - ITAT, MUMBAI and Yasmin Texturing Pvt Ltd I 2012 (5) TMI 724 - ITAT MUMBAI - Considering the totality of the facts as mentioned elsewhere, notice u/s 148 of the Act is bad in law and deserves to be quashed.- Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of notice issued under Section 148 of the Income Tax Act, 1961.
2. Justification for the addition of ?1,12,54,637/- on account of provision towards bad and doubtful debt while computing book profits under Section 115JB of the Act.
3. Validity of orders passed by lower authorities.

Detailed Analysis:

1. Validity of Notice Issued Under Section 148:

The assessee challenged the validity of the notice issued under Section 148 on several grounds. Firstly, the reasons recorded for the notice were deemed vague and unsubstantiated, primarily based on audit objections without independent application of mind or investigation, making the reopening mechanical and based on borrowed satisfaction. Secondly, since the original assessment was completed under Section 143(3) after due verification, the notice under Section 148 was argued to be merely a change of opinion, which is impermissible. Thirdly, the objection raised by the audit party was not considered tangible material, and there was no other adverse material on record to justify the reopening under Section 147. Lastly, it was contended that the notice lacked proper approval as per Section 151 of the Act.

2. Justification for Addition of ?1,12,54,637/-:

On the merits, the assessee argued that the addition of ?1,12,54,637/- on account of provision for bad and doubtful debts while computing book profits under Section 115JB was unjustified. The provision was based on past experience and was neither an unascertained liability nor a diminution in the value of assets, making the re-computation of book profits by the Assessing Officer illegal and unsustainable under the provisions of the Act.

3. Validity of Orders Passed by Lower Authorities:

The assessee contended that the orders passed by the lower authorities were not justified on facts and were bad in law.

Findings:

The Tribunal found that during the original assessment proceedings, the Assessing Officer had raised specific queries regarding the computation of book profit under Section 115JB and details of exempt income and related expenses. The assessee had provided detailed replies to these queries. Subsequently, the Assessing Officer proposed to rectify the mistake apparent from the record under Section 154, but no rectification order was framed.

The Tribunal held that once rectification proceedings are initiated, reassessment proceedings for identical reasons cannot be initiated unless the rectification proceedings culminate into an order. Since there was no evidence that the rectification proceedings were concluded, the reassessment proceedings were deemed invalid. The Tribunal quashed the notice under Section 148 and the consequent assessment order.

Conclusion:

The Tribunal allowed the appeal of the assessee, quashing the notice under Section 148 and the consequent assessment order. The merits of the case were not addressed as the assessment itself was quashed. The order was pronounced in the open court on 24.12.2021.