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TMI Blog2013 (12) TMI 897X X X X Extracts X X X X X X X X Extracts X X X X ..... was not required to discover it from examination of book of accounts - There was no failure on part of the assessee to disclose truly and fully all material facts relating to provisions for bad and doubtful debts - Reopening on account of failure to add back the provisions to the book profit cannot be upheld. Deferred tax credit was because of reversal of provision made in earlier year, it was only an accounting entry and there was no real income and, therefore, it was reduced from the profit - The AO has reopened the assessment as per the subsequent amendment by the Finance Act 2008 w.e.f 1.4.2001 - Amount of deferred tax credited to the P&L Account is required to be reduced while computing the book profit in terms of clause (viii) of Explanation 1 to section 115JB(2) - The AO had reopened the assessment in 2010 when this particular provision was already on the statute - There was no escapement of income on this account and reopening based on this reason cannot be justified. Any income which is eligible for reduction u/s 10A is required to be reduced and expenses relating to such income are required to be added - Entire income which is eligible for exemption u/s 10A is requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough no such provision is available u/s 115JB(2) explanation 1 to clause (i) of the Act for such adjustment. Also the profit eligible for exemption u/s 10A was restricted to 49% of the profit of STP unit whereas entire book profit of STP unit was claimed by the assessee as exempt u/s 10A of the Act. Thus the assessee has claimed excess deduction u/s 10A (being 51% of Rs. 2,38,45,216/-) of Rs. 1,21,61,060/- while computing the book profit. Therefore, the book profit of the assessee has been under assessed to the tune of Rs. 7,38,82,465/- 2.2 The assessee objected to the issue of notice u/s 148 and requested the AO to supply the reasons recorded for reopening of the assessment. The AO however asked the assessee to the file the return of income in line with the procedure laid down by the Hon'ble Supreme Court in case of GKN Driveshafts (India) Ltd. v. Income-tax Officer (259 ITR 19). The assessee thereafter filed the return declaring the total loss of Rs. 20,45,57,314/- and computing the book profit u/s 115JB at Rs. 4,21,64,744/-. In the computation of book profit, the assessee had added the provisions for bad and doubtful debts of Rs. 1,09,42,910/- in view of the retrospective ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had neither under stated income nor made excess claim of deduction and true and full declaration had been made and, therefore, reopening of the assessment by the AO was not legally valid. CIT(A) after considering the submissions of the assessee observed that in view of the retrospective amendment made by the Finance Act 2010 w.e.f 1.4.2001, inserting clause (i) in the Explanation 1 to section 115JB(2), any amount set aside as provision for diminution in the value of any asset was required to be added to the book profit. Thus the provisions for bad and doubtful debt were required to be added. The assessee however failed to file revise return and addition was made only in response to return filed u/s 148. In regard to notice u/s 154, issued by AO, CIT(A) observed that the assessee had objected to the issue of notice u/s 154 and the AO on realization that the issue was not covered u/s 154, issued notice u/s 147 which was legally in order. As regards the objection relating to failure on part of the assessee to file truly and fully all material facts, CIT(A) observed that contentions of the assessee that all material facts were disclosed during the proceedings u/s 154, could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court of Bombay in case of Titanor Components v. ACIT (243 CTR 520). The learned AR further made reference to the judgment of Hon'ble High Court of Bombay in case of 3i Infotech Ltd. Vs. ACIT (192 Taxman 133), in which the High Court held that validity of reopening of the assessment had to be determined with reference to reasons which weighed with the AO and those norms could not be added to or supported on a basis which was not present in the mind of the assessing officer when he issued the notice to reopen the assessment. 4.1 The learned AR further argued that the AO had issued notice u/s 154 on the same issues which had been withdrawn by him and, therefore, the reopening of the assessment on the same material u/s 147 was not justified. Reliance was placed on the judgment of Hon'ble High Court of Kolkata in case of Berger Paints India Ltd (322 ITR 369). It was also pointed out that the AO was not correct in stating that in the original assessment book profit had not been determined by the AO. The assessee had filed computation of book profit at Rs 3,12,21,834/-with the return of income which had been accepted by the AO. In fact, the AO himself in the reasons recorded menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However in the return filed u/s 148, the assessee without prejudice had added the provisions for bad and doubtful debts in view of the retrospective amendment made in the Act. It was, therefore, urged that the re-assessment proceedings which were wrongly initiated should be quashed. 7. We have perused the records and considered the rival contentions carefully. The dispute is regarding legal validity of reopening of the assessment made by AO u/s 147 of the IT Act. Under the provisions of said section the AO can reopen tan assessment if he has reason to believe that income chargeable to tax has escaped assessment. Reasonable belief however should be based on some material available on record having nexus with formation of belief. It is a settled legal position that assessment cannot be reopened on the basis of change of opinion. Therefore, if on any issue the AO had taken a view in the assessment, the same cannot be reopened by the assessing officer on the ground that he has different view in the matter. However in case assessment has already been made u/s 143(3) of the IT Act, assessment cannot be reopened after expiry of four years from the end of the relevant assessment year unl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3.2010 which was after lapse of four years from the end of relevant assessment year i.e. assessment year 2002-03. Therefore, in this case in view of the proviso to section 147 the reopening of the assessment can be held valid only if there was failure on part of the assessee to disclose truly and fully all material facts necessary for assessment and because of such failure income chargeable to tax had escaped assessment. The AO in this case had reopened the assessment on three different grounds; (1) failure to add back provisions for bad and doubtful debts of Rs. 1,09,42,910 to the book profit (ii) reduction of deferred tax assets of Rs. 5,07,78,495/- credited to the P L Account from the book profit. (iii) reduction of the entire profit allowable as exemption u/s 10A and not restricting the same to 49% which alone was eligible for exemption u/s 10A. The AO in the reasons recorded which has been reproduced in para 2.1 in this order has not mentioned anywhere regarding any facts being not disclosed truly and fully by the assessee. 8.1 It is clear from the reasons recorded that the AO had reopened the assessment only on account of amendment to the Explanation 1 to section 115JB (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment in 2010 when this particular provision was already on the statute. Therefore, there was no escapement of income on this account and reopening based on this reason cannot be justified. 8.3 The third reason given by the AO is regarding claiming exemption of the entire profit eligible for exemption u/s 10A of the IT Act and not restricting the same to only 49%. We find from perusal of Explanation 1 to section 115JB(2) that expenditure relatable to any income to which section 10A applies is required to be added to the book profit as per clause (f) and income to which section 10A applies is required to be reduced as per clause (ii). Thus any income which is eligible for reduction u/s 10A is required to be reduced and expenses relating to such income are required to be added. Thus in terms of the provisions, entire income which is eligible for exemption u/s 10A is required to be reduced and not only the income which is actually allowable as deduction u/s 10A. In this case we find that the assessee has acted clearly in accordance with provisions. The assessee in the computation of book profit filed along with the return, a copy of which has been placed on record has added the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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