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2023 (10) TMI 1380 - AT - Income TaxReopening of assessment u/s 147 - reasons to believe - reopening beyond period of four years - AO made certain additions by making disallowance of inadmissible items and also recomputed the claim of deduction u/s. 36(1)(viia) - HELD THAT - In the absence of any failure on the part of the assessee to disclose fully and truly all material facts and assessment framed u/s. 143(3) of the Act and now reopening beyond 4 years which is against the provisions of the Act. Hence we find no infirmity in the order of CIT(A) and the same is confirmed. This appeal of the Revenue is dismissed. Power of enhancement of CIT(A) - claim of deduction u/s. 36(1)(viia) - HELD THAT - We noted that the decision of Hon ble Supreme Court in the case of Jute Corporation of India 1990 (9) TMI 6 - SUPREME COURT categorically held that the power of the CIT(A) is co-terminus with that of the AO and enhancement can be made on any issue which was touched upon by the AO in the assessment order. According to Hon ble Supreme Court the CIT(A) cannot go beyond the assessment record and discover a new source of income for enhancement. In the present case before CIT(A) the claim of deduction u/s. 36(1)(viia) of the Act was very much before the AO and he has gone into the claim of deduction and only the issue before CIT(A) is in connection with the correctness of proposal of enhancement of assessment order. We find that the CIT(A) has not adverted to new issue rather this issue is very much under discussion of AO and he has utilized his power of enhancement to correct the assessment order and enhance the income to the extent of claim of deduction u/s. 36(1)(viia) of the Act. The assessee has claimed more than what was provision created in the books of accounts. Hence we confirm the enhancement and dismiss this issue of assessee s appeal. Claim of deduction u/s. 36(1)(viia) - CIT(A) held that the deduction cannot exceed the provision made for bad and doubtful debts in the books of accounts - HELD THAT - The direct decision available on the issue is only one High Court decision i.e. the Hon ble Punjab Haryana High Court in the case of State Bank of Patiala 2004 (5) TMI 12 - PUNJAB AND HARYANA HIGH COURT and that of Hon ble Karnataka High Court in the case of CIT vs. Syndicate Bank 2020 (2) TMI 1020 - KARNATAKA HIGH COURT has explained the provisions and held that the condition precedent for claiming deduction under section 36(1)(viia) is that a provision for bad and doubtful debts should be made in the accounts of the assessee. The language employed in the section is clear and ambiguous. In the absence of any provision the assessee is not entitled to deduction. However the assessee is entitled to deduction to the extent provision is made in the accounts subject to the limit mentioned in section 36(1)(viia) of the Act. Hence this issue decided against the assessee. Validity of notice issued u/s 143(2) as barred by limitation - HELD THAT - We noted that the notice u/s. 143(2) of the Act dated 14.08.2014 and 15.07.2014 was issued after return filed u/s. 148 of the Act. The assessee in response to notice u/s. 148 of the Act dated 20.03.2014 filed an application dated 17.04.2014 asking the AO to treat the return filed on 28.09.2009 as the return filed in response to notice u/s. 148 of the Act. This means that the notice u/s. 143(2) of the Act dated 15.07.2014 is within limitation and hence this issue of assessee does not survive and hence accordingly dismissed. Validity of reopening of assessment - AO detected that there is escapement of income in the claim of deduction u/s. 36(1)(viia) of the Act in regard to amount claimed by assessee is in excess of provision made in the books of accounts in regard to provision for bad and doubtful debts - HELD THAT - There is sufficient material placed on record which shows the existence of income chargeable to tax and which originally ought to have been included in the taxable income while framing assessment but was not so included. Hence it is sufficient and it itself provide a cause or justification for a belief to the AO that such income had escaped assessment and the AO in such cases would be ex-facie justified in initiating the proceedings u/s. 147 of the Act. It is the case of non-assessment of an item on account of claim of deduction u/s. 36(1)(viia) of the Act in regard to the amount for which no provision for bad or doubtful debt have been created in the books of accounts of the assessee. Hence in our view the nonassessment of an item of income chargeable to tax would warrant formation of requisite belief to initiate the proceedings within four years from the end of the relevant assessment year even yet where full disclosure was made and income chargeable to tax had escaped assessment from being included in the final assessment order in which taxable income was worked out. Hence according to us this ground of the assessee does not succeed and hence dismissed. Rectification u/s 154 to rectify the claim of deduction u/s. 36(1)(viia) - According to AO deduction u/s. 36(1)(viia) of the Act is allowable only to the extent of claim made in the books of accounts i.e. provision for bad and doubtful debts made in the books of accounts and it cannot be claimed in the computation simpliciter - HELD THAT - We noted that there is a lot of debate and it is highly debatable issue and it cannot be decided while acting u/s. 154 of the Act as there is a limitation in the provisions of section 154 of the Act that only the mistake apparent from record which can be rectified but where two views are possible or there is a debate available it cannot be rectified u/s. 154 of the Act. Here is the case where the AO has allowed this claim while giving effect to the order of CIT(A) dated 18.07.2017 and that cannot be rectified while acting u/s. 154 of the Act. Hence the very issue on assumption of jurisdiction we allow in favour of assessee and against Revenue. This issue of assessee s appeal is allowed.
Issues Involved:
1. Limitation and Condonation of Delay 2. Validity of Reopening under Section 147 3. Enhancement of Assessment by CIT(A) 4. Deduction under Section 36(1)(viia) 5. Validity of Notice under Section 143(2) 6. Validity of Reopening of Assessment 7. Addition of Non-Statutory Reserve 8. Rectification under Section 154 Summary: 1. Limitation and Condonation of Delay: The Revenue's appeal was barred by limitation by 37 days due to the pandemic. The Hon'ble Supreme Court had directed that delays during the period from 15.03.2020 to 14.03.2021 be condoned. Respectfully following this, the delay was condoned and the appeal was admitted. 2. Validity of Reopening under Section 147: The CIT(A) quashed the reopening initiated under Section 147 read with Section 148, as the Revenue could not establish the assessee's failure to fully and truly disclose material facts. The Tribunal upheld this decision, noting that the reasons recorded by the AO did not indicate how and why there was an escapement of income, thus making the reopening unsustainable. 3. Enhancement of Assessment by CIT(A): The CIT(A) enhanced the assessment under Section 251(2) by restricting the deduction under Section 36(1)(viia) to the amount of provision for bad and doubtful debts made in the books of accounts. The Tribunal confirmed this enhancement, stating that the CIT(A)'s powers are co-terminus with that of the AO and can enhance the income if the assessment order is found wanting. 4. Deduction under Section 36(1)(viia): The Tribunal held that the deduction under Section 36(1)(viia) cannot exceed the provision made for bad and doubtful debts in the books of accounts. This decision was consistent with the precedent set by the Hon'ble Punjab & Haryana High Court in State Bank of Patiala vs. CIT and the Hon'ble Karnataka High Court in CIT vs. Syndicate Bank. 5. Validity of Notice under Section 143(2): The Tribunal dismissed the assessee's contention that the notice under Section 143(2) was barred by limitation. The notice was issued within the permissible period after the assessee requested the return filed earlier to be treated as the return in response to the notice under Section 148. 6. Validity of Reopening of Assessment: For the assessment years 2009-10, 2010-11, and 2011-12, the Tribunal upheld the validity of reopening under Section 147 within four years, noting that there was an error in the computation of the deduction under Section 36(1)(viia) and that the reopening was not based on a mere change of opinion. 7. Addition of Non-Statutory Reserve: The CIT(A) upheld the addition towards the creation of a non-statutory reserve, as the assessee had agreed to the addition before the AO. The Tribunal dismissed this issue as it was not adjudicated by the CIT(A) and the assessee had agreed to the addition. 8. Rectification under Section 154: The Tribunal allowed the assessee's appeal, holding that the issue of restricting the claim of deduction under Section 36(1)(viia) to the amount of provision made in the books of accounts is highly debatable and cannot be rectified under Section 154. The rectification order was thus set aside. Conclusion: The appeal filed by the Revenue was dismissed. The appeals filed by the assessee in ITA Nos. 2645/CHNY/2019, 854, 855, 856, 857 & 858/CHNY/2020 were dismissed, and the appeal in ITA No. 3154/CHNY/2019 was allowed.
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