2012 (11) TMI 10 - AT - Income Tax

Reopening of assessment - escapement of income change of opinion - AO issued notice under Section.148 on 31.03.08 to reopen the assessment - amendment to Explanation-1 to section 115JB was brought by the Finance (No.2) Act, 2009 with retrospective effect from 01.04.2001 - Held that - Assessing Officer could not have reasons to believe on 31.03.08 that the income had escaped assessment on the ground that the provisions for bad and doubtful debts were not added back in computing the book profit under Section 115JB of the Act - on the date of issue of notice for reassessment on 31.03.08, there was no amendment to Explanation-1 to section 115JB - no fresh material available with the Assessing Officer on the basis of which he could have justifiable formed reasons to believe that any income chargeable to tax had escaped assessment in the instant case - initiation of reassessment proceedings in the instant case was bad in law and consequently the impugned order is liable to be cancelled - appeal of assessee is allowed

Summary

Issues:
1. Reopening of assessment based on change of opinion.
2. Disallowance of provision for bad & doubtful debts in book profits under Section 115JB.
3. Levy of interest under section 234B.

Reopening of Assessment:
The appeal was filed against the order of the Commissioner of Income Tax(Appeals) for Assessment Year 2003-04. The Assessee challenged the reopening of the assessment, arguing that it was based on a mere change of opinion. The Assessing Officer had allowed the deduction of provision for bad and doubtful debts in the computation of book profit under Section 115JB of the Act. However, a notice was issued under Section 148 repeating the reasons for reopening the assessment, stating that the provision for bad and doubtful debts should have been added back to the net profit. The Assessee contended that the amendment to Explanation-1 to section 115JB was brought after the notice was issued, and the reassessment was not justified based on the law as it stood on the date of the notice. The Tribunal held that there was no fresh material available for the Assessing Officer to form reasons to believe that income had escaped assessment, declaring the reassessment proceedings as bad in law.

Disallowance of Provision for Bad & Doubtful Debts:
The Assessee contested the disallowance of the provision for bad and doubtful debts amounting to Rs. 1,49,46,022 in the computation of book profits under Section 115JB. The Assessee argued that the amendment to Explanation-1 to section 115JB was made with retrospective effect after the notice for reassessment was issued. The Tribunal upheld the Assessee's argument, stating that the Assessing Officer did not have justifiable reasons to believe that income had escaped assessment based on the provisions for bad and doubtful debts not being added back in computing book profit under Section 115JB. The reassessment proceedings were deemed bad in law, and the appeal was allowed in favor of the Assessee.

Levy of Interest under Section 234B:
The Commissioner of Income Tax(A) confirmed the levy of interest under section 234B of the Act. The Assessee contended that the levy of interest was not justified, especially considering the retrospective effect of the legislative amendment. However, since the reassessment proceedings were deemed bad in law due to lack of fresh material for the Assessing Officer to form reasons to believe that income had escaped assessment, the Tribunal did not delve into the issue of interest under section 234B. The appeal was allowed based on the primary issue of reopening of the assessment.

In conclusion, the Tribunal found that the reassessment proceedings were not supported by fresh material, rendering them bad in law. The Assessee's appeal was allowed, and the other grounds of appeal were deemed infructuous. The decision highlighted the importance of adhering to the law as it stood at the time of issuing notices for reassessment, emphasizing the need for justifiable reasons to believe that income had escaped assessment.