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TMI Blog2010 (6) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... s purported to reopen the assessment on the ground that the assessee had debited a provision amounting to Rs.1.41 crores on account of diminution in the value of assets. – Held that: As a result of the amendment, clause (i) has been inserted in explanation (1) to the Section which defines the meaning of the expression “book profits”. By the amendment, the amount or amounts set aside as provision for diminution in the value of the assets is to be added to the net profit as shown in the Profit and Loss Account for the relevant previous year, prepared under subsection (2). When the reasons were recorded by the Assessing Officer, this provision was not on the statute book and hence, could not have been referred to and, as a matter of fact, has not been referred to in support of the notice of for reopening the assessment. – decided in favor of assessee - 805 OF 2010 - - - Dated:- 21-6-2010 - Mr.R.Murlidhar with Mr. Atul Jasani for the Petitioner. Mr.Vimal Gupta with Ms.Padma Divakar for Respondent No.1. CORAM: DR.D.Y.CHANDRACHUD AND J.P.DEVADHAR, JJ. ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.): Rule, by consent returnable forthwith. With the consent of Counsel a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an amount of Rs.29.23 lakhs which, according to the assessee, was a "write down in the value of slow/non moving inventory valued at estimated realizable value being considered as not in the nature of capital expenditure". Therefore, a plain reading of Item 17 of the Tax Audit Report shows that the assessee disclosed that an amount of Rs.29.23 lakhs was not in the nature of capital expenditure and represented a write off on account of slow or nonmoving inventory which was valued at its estimated realizable value. The Assessing Officer has purported to reopen the assessment on the ground that the assessee had debited a provision amounting to Rs.1.41 crores on account of diminution in the value of assets. This, according to the Assessing Officer, is not a proper charge on profits as the amount represents a provision made for a fall in the value of capital assets, which is considered to be capital in nature. The assessee filed its objections on 18 March 2010 in which the attention of the Assessing Officer was drawn to the fact that in the statement of total income, under the head "Items disallowed", the amount of Rs.1.12 crores had already been added back in the return of income. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2009 (with retrospective effect from 1 April, 2001) and on the date on which the Assessing Officer recorded his reasons for coming to the conclusion that the income has escaped assessment, these provisions were not on the statute book. Consequently, the validity of the reasons recorded by the Assessing Officer cannot be determined with reference to the provisions as amended. 7. On the other hand, it has been urged on behalf of the Revenue that the assessee had made a provision as revenue expenditure. The assessee could well have reduced the value of closing stock instead of making a provision. The reopening of the assessment has taken place within a period of four years of the end of the relevant Assessment Year and it is open to the Assessing Officer to come to the conclusion that income has escaped assessment. Moreover, the Assessing Officer having failed to consider the issue, a case for reopening had, it is urged, been made out. 8. While considering the rival submissions, it would be necessary to record that the only basis on which the assessment has been sought to be reopened is that the assessee had incorrectly made a provision on account of diminution in the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 44} where the Supreme Court once again considered it to be "a well recognized principle of commercial accounting to enter in the profit and loss account the value of stockintrade at the beginning and at the end of the accounting year at cost or market price, whichever is the lower". The Assessing Officer did not deal with the submission of the assessee while disposing of the objections. 9. We are conscious of the circumstance that the reopening of the assessment has taken place in the present case within a period of four years of the end of the relevant Assessment Year. But, it is now a settled position of law that though, after 1 April 1989, the power to reopen an assessment is much wider than previously, the words "reason to believe" do not confer an arbitrary power upon the Assessing Officer to reopen an assessment merely on the basis of a change of opinion. In CIT vs. Kelvinator of India Ltd., {(2010) 320 ITR 561 (SC)} the Supreme Court held that the Assessing Officer must possess tangible material to come to the conclusion that there is an escapement of income from assessment. Such tangible material is conspicuous by its absence in the present case. As a matter of fact, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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