2016 (6) TMI 490 - HC - Income Tax

Reopening of assessment - Eligibility of claim of provisions for bad and doubtful debts under Section 36(1)(viia) - Held that - Clearly the issue of the petitioner s claim for provision for bad or doubtful debt came up for discussion during the original assessment proceedings and the assessee made a detailed explanation why such claim should not be disallowed. The Assessing Officer in the scrutiny assessment made no disallowance and thus accepted the explanation of the assessee. It is a different matter that the Assessing Officer did not make any reference to this aspect in the order of assessment. In case of Gujarat Power Corporation Ltd. vs. Assistant Commissioner of Income Tax reported in 2012 (9) TMI 69 - Gujarat High Court wherein held in a situation where the Assessing Officer during scrutiny assessment notices a claim of exemption deduction or such like made by the assessee having some prima facie doubt raises queries asking the assessee to satisfy him with respect to such a claim and thereafter does not make any addition in the final order of assessment he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition Double claim of brought forward depreciation - Held that - Assessing Officer made no disallowance on the said claim of unabsorbed depreciation of Tapi Bank of 8.28 lacs in the original assessment. Quite apart from this we do not see any material on the basis of which the Assessing Officer asserts that the brought forward loss of 28.58 lacs includes the unabsorbed depreciation of 8.28 lacs. The two are independent separate figures. In fact it was pointed out by the assessee in the communication dated 30.04.2010 it was a sum of 7.98 lacs of loss of Tapi Bank which was included in the brought forward loss of 28.58 lacs and which the assessee upon noticing error surrendered. Additionally we also do not find any failure on part of the petitioner to truly and fully disclose all material facts necessary for assessment principal condition required to be satisfied for reopening of the assessment beyond the period of four years. On all counts thus the petition must succeed

Summary

Issues Involved:
1. Reopening of assessment beyond four years.
2. Disallowance of bad debt provision under Section 36(1)(viia).
3. Double claim of unabsorbed depreciation of merged bank.

Issue-wise Detailed Analysis:

1. Reopening of Assessment Beyond Four Years:

The petitioner, a co-operative bank, challenged the notice dated 31.03.2015, which aimed to reopen the assessment for the year 2008-09. The original assessment was completed on 28.12.2010. The reopening notice was issued beyond four years from the end of the relevant assessment year. The Assessing Officer (AO) provided reasons for reopening, which included the disallowance of bad debt provision and the double claim of unabsorbed depreciation. The petitioner objected, arguing that both claims were examined during the original assessment.

2. Disallowance of Bad Debt Provision under Section 36(1)(viia):

The AO contended that the petitioner claimed a bad debt provision of ?2.80 crores at 7.5% of gross income without making any actual provision in the profit and loss account. The AO relied on a CBDT circular which restricts the deduction to the amount actually provided in the books. However, during the original assessment, the petitioner had provided detailed explanations regarding the bad debt provision, referencing Section 36(1)(viia) and Section 36(1)(vii) r.w.s. 36(2)(v). The AO did not disallow this claim in the original assessment, implicitly accepting the petitioner's explanation. The court referenced the case of Gujarat Power Corporation Ltd. vs. Assistant Commissioner of Income Tax, which held that if an AO scrutinizes a claim and does not reject it, it implies the formation of an opinion, even if not explicitly stated in the assessment order.

3. Double Claim of Unabsorbed Depreciation of Merged Bank:

The AO also argued that the petitioner claimed unabsorbed depreciation of ?8.28 lacs twice, once as part of the brought forward loss of ?28.56 lacs from the merged Tapi Co-operative Bank. The petitioner clarified this in a communication dated 30.04.2010, admitting an error in claiming a loss of ?7.98 lacs twice and requesting its addition to the total income. The AO did not disallow the unabsorbed depreciation claim in the original assessment. The court found no material evidence supporting the AO's assertion that the brought forward loss included the unabsorbed depreciation. The petitioner had fully disclosed all necessary material facts during the original assessment.

Conclusion:

The court concluded that the reopening of the assessment was not justified. The AO had considered both the bad debt provision and the unabsorbed depreciation during the original assessment. There was no failure on the petitioner's part to disclose material facts. The notice dated 31.03.2015 was quashed, and the petition was disposed of accordingly.