2024 (7) TMI 780 - AT - Income Tax

Validity of the reopening of the assessment - Reason to believe - excess deduction on account of provision for bad and doubtful debts u/s 36(1)(viia) - HELD THAT - The said excess claim of deduction was apparent from the record. It is not the case of the assessee that the assessee was entitled to claim the said deduction as per law. It is a clear-cut case of escapement of income of the assessee on account of excess claim of deduction as per the provisions of section 36(1)(viia). Therefore, in our view, it is not a case of change of opinion at all. It is an apparent case of escapement of income, which was noted by the jurisdictional ACIT when the assessment record was called upon from the ITO. There was tangible material before the AO in the shape of assessment records, which were obtained by him from the ITO and on perusal of which, it was apparent on record that the assessee has claimed excess deduction u/s 36(1)(viia) of the Act and it was a clear-cut case of escapement of income. Therefore, AO has rightly formed the belief of escapement of income in the present case. Even the ld. AR could not point out as to why the said observation of the Assessing Officer was not correct. So far as the reliance of Delta Airlines, INC 2012 (12) TMI 498 - ITAT MUMBAI we find that in the said case, the decision has been given only on the basis of the Third Member decision as discussed above, that there will be a tangible material to form the belief of escapement of income, which condition is duly fulfilled in the case in hand. We find that it is not a case of change of opinion at all as no second opinion could have been formed by any of the authority in view of the express statutory provisions of section 36(1)(viia) of the Act that deduction on account of provision for bad and doubtful debts cannot exceed more than 7.5% of the total income. Neither any second opinion nor two views were possible in this case, only one opinion/one view was possible in this case in view of the statutory provisions. There is no merit in the present appeal of the assessee, thus dismissed.

Summary

Issues:
Validity of reopening of assessment based on excess claim of deduction on account of provision for bad and doubtful debts under section 36(1)(viia) of the Income Tax Act.

Analysis:
The appeal was filed against the order of the Commissioner of Income (Appeal) regarding the validity of the reopening of the assessment due to excess claim of deduction on account of provision for bad and doubtful debts. The Assessing Officer initiated reassessment proceedings under section 147 of the Act for the assessment years 2009-10 and 2010-11 after noting that the assessee had not filed its return despite having taxable income. The ACIT reopened the assessment based on the excess claim of deduction, specifically focusing on the provision for bad and doubtful debts debited by the assessee. The Assessing Officer restricted the deduction to 7.5% of the total income as per section 36(1)(viia) of the Act, leading to additions in the income of the assessee.

The CIT(A) upheld the additions made by the Assessing Officer, leading to the appeal before the ITAT PATNA. The appellant's main contention was that the reopening of the assessment was invalid. The appellant argued that the Assessing Officer did not record satisfaction regarding income escapement and did not dispose of objections raised by the assessee. The appellant claimed that the reopening was a change of opinion as the earlier return was processed under section 143(1) of the Act. The appellant cited legal precedents to support the argument against the validity of the reopening.

The ITAT PATNA analyzed the contentions of both parties and reviewed the record. It concluded that the excess claim of deduction on account of provision for bad and doubtful debts was apparent, leading to income escapement. The ITAT clarified that it was not a case of change of opinion but a clear-cut case of income escapement due to the excess claim of deduction. The ITAT dismissed the appellant's arguments regarding objections raised and discrepancies in the amount claimed, stating that there was tangible material supporting the Assessing Officer's belief of income escapement. The ITAT distinguished the legal precedents cited by the appellant, emphasizing the specific circumstances of the case at hand.

Ultimately, the ITAT upheld the decision of the lower authorities, dismissing the appeal of the assessee. The judgment highlighted that the Assessing Officer had rightfully formed the belief of income escapement based on tangible material, and there was no scope for a different interpretation due to the statutory provisions governing the deduction for bad and doubtful debts. The appeal was thus dismissed, affirming the additions made by the Assessing Officer and the CIT(A).

In conclusion, the ITAT PATNA ruled in favor of the Assessing Officer, upholding the validity of the reopening of the assessment based on the excess claim of deduction on account of provision for bad and doubtful debts under section 36(1)(viia) of the Income Tax Act. The judgment emphasized the necessity of tangible material supporting the belief of income escapement and clarified that the case did not involve a change of opinion but a clear instance of income escapement.