TMI Blog2012 (2) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... tion – Decided in favor of assessee. Validity of re-opening of assessment of A.Y. 06-07 questioned on basis of judegment in A.Y. 03-04 - adjustment to the book profit u/s 115JB not made for provision for NPA and for doubtful debts – return processed u/s 143(1)(a) – Held that:- Firstly, notice issued u/s 148 is within the period of 4 years from the end of relevant A.Y. Secondly, issue whether the provisions in question should be added back in terms of the relevant clause in the Explanation-1 below Section 115JB is debatable but the fact remains that it could not be examined since the return filed by the assessee was merely processed u/s 143(1)(a) and, therefore, no inference or opinion could have been formed by A.O. as to the disallowbility of the provisions. Validity of notice issued u/s 148 upheld – Decided against the assessee. - W.P.(C) 12438/2009, W.P.(C) 12457/2009 - - - Dated:- 15-2-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. Ajay Vohra, Ms. Kavita Jha and Mr. Somnath Shukla, Advs. For Respondents: Ms. Rashmi Chopra, sr. standing counsel R.V. EASWAR, J.: W.P.(C) 12438/2009 M/s Sun Investment Pvt. Ltd. has filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In response to the questionnaire the petitioner submitted a letter dated 25th August, 2005 to the Assessing Officer, a copy of which has been marked as Annexure C to the writ petition. Item No.8 of the letter stated that the details of diminution of the investment were contained at page 19 of the enclosure. The Assessing Officer thereafter passed an order under Section 143(3) of the Act on 26.12.2005 (Annexure D). In the first paragraph of the assessment order it was stated that notice under Section 143(2) dated 11.10.2004 had been served on the assessee and that the authorized representative of the assessee attended the proceedings and filed necessary details as called for . The assessment order also refers to the audited profit and loss account, balance sheet and the annexures filed along with the audit report as required under Section 44AB of the Act. Ultimately, the total income of the assessee company was computed at Rs.Nil after adjusting the brought forward losses from the assessment years 1998-99 and 1999-2000 to the extent of the income of Rs.15,07,36,430/- for the year under consideration. 3. On 19.5.2008, the second respondent issued a notice under Section 148 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings the Assessing Officer had specifically sought clarification of the petitioner on this aspect which was also duly furnished by the assessee, that it was only after seeking clarification and verification in respect of the provision debited to the profit and loss account that the Assessing Officer had, after due application of mind, come to the conclusion that no adjustment to the book profit was necessary as per the Explanation to Section 115JB and that in these circumstances, the assessee had made full and true disclosure of all material particulars at the time of the original assessment proceedings and there was no failure on the part of the petitioner to do so, and therefore, the notice issued under Section 148 of the Act on19.5.2008 after a period of 4 years from the end of the relevant assessment year was without jurisdiction and consequently the reassessment proceedings were invalid. 5. The objections of the petitioner to the reopening of the assessment and the reasons recorded under Section 148(2) of the Act were rejected by the Assessing Officer by order dated 4th September, 2009. The Assessing Officer rejected the objections in the following words : I have perused t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investments. The profit and loss account contained a debit of Rs.15,33,22,500/- towards provision for diminution in the value of unquoted investments. This provision has been made, according to the petitioner, in terms of accounting standards No.13. In the statement of income (Annexure A to the writ petition), the petitioner has first computed the total income under the normal provisions of the Act, that is to say, under the provisions of the Act in Chapter IV-D which provide for computation of profits and gains of business or profession . The provisions of Section 115JB do not fall under this Chapter. While computing the total income under the normal provisions of the Act, the petitioner started the computation from the figure of net loss of Rs.28,58,179/- as per the profit and loss account and, interalia, added back the provision of Rs.15,33,22,500/- made for diminution in the value of investments. This statement of total income undeniably was before the Assessing Officer when he completed the assessment under Section 143(3). In fact, in the assessment order passed on 26.1.2005 under Section 143(3), he has noticed the statement of income enclosed with the return and has adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary for the purpose of its assessment. It does not extend to informing the Assessing Officer as to what decision he should take as to the applicability of the relevant provisions of the statute on the basis of the material facts submitted by the assessee. It is not for the assessee to instruct the Assessing Officer as to what inferences the latter should draw from the full and true material facts submitted by him. Inferences of fact and law from the disclosed facts and the applicability of the relevant provisions of the statute are the domain of the Assessing Officer. The assessee cannot be blamed for not informing or instructing the Assessing Officer as to what inferences the latter should draw or as to what provisions of the statute the latter should apply in making the assessment. All this is, of course, subject to the basic condition that the assessee should have submitted full and true material facts before the Assessing Officer along with the return or in the course of the assessment proceedings. It is necessary and useful to recapitulate what the Supreme Court observed in the case of Calcutta Discount Company Ltd. Vs. ITO, Companies District I, Calcutta and Anr., (1961) 41 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts. If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn? It may be pointed out that the Explanation to the sub-section has nothing to do with "inferences" and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Incometax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose "inferences"-to draw the proper inferences being the duty imposed on the Income-tax Officer. We have, therefore, come to the conclusion that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit in terms of Clause (c) to Explanation 1 below the Section 115JB. That inference or decision was for the Assessing Officer to take. Nothing prevented him from applying the relevant clause of Explanation 1 below Section 115JB and add back the provision on the ground that it had been made for meeting an ascertained liability. It was not for the petitioner to inform the Assessing Officer to take a decision as to whether the provision can be considered as one for meeting an unascertained liability. That question, as it would appear from the later amendment of law, was debatable at the time when the original assessment was completed. There was a view or a school of thought which considered that the provision was not one made for a liability at all since the erosion in the market value of the investment cannot fit into the description of liability as it is understood in accounting or commercial circles. The revenue adopted a different view and interpreted Clause (c) of Explanation 1 below Section 115JB to include the provision made for diminution in the value of the investment or asset. The matter was debated and it had reached the Income Tax Appellate Tribunal in several cases an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of certiorari will issue to quash the notice issued by the Assessing Officer under Section 148 of the Income Tax Act. The writ petition is allowed with no order as to costs. W.P.(C) 12457/2009 In this writ petition the prayer of the petitioner is the same as in WP(C) 12438/2009. It relates to the assessment year 2006-07. The controversy is substantially the same as in WP(C) 12438/2009, but with relevant factual differences. We may note the essential facts and dates for the sake of completeness. For this year the petitioner filed its return of income on 20.10.2006 through e-filing, declaring its total income at Rs.Nil. This return was accompanied by the computation of the income under the normal provisions of the Act, the computation of book profit under Section 115JB supported by the audit certificate in Form No. 29-B, the profit and loss account and the balance sheet along with the Schedules thereto etc. In the computation of income under the normal provisions of the Act, the petitioner disallowed and added back the provision of Rs.3,11,865/- for doubtful debts and the provision of Rs.8,99,15,733/- for non-performing assets. The total income was computed at a negative figure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 143(3) had been framed earlier and the return filed originally was only processed under Section 143(1)(a), still the basic requirements of Section 147 were to be fulfilled and there has to be reason to believe that income chargeable to tax had escaped assessment add this condition was not fulfilled and therefore, the action taken under Section 148 was without jurisdiction. The Assessing Officer, however, rejected the petitioner‟s objections by order dated 24.9.2009. In this order, he stated that as per information available on record no original assessment had been made under Section 143(3) of the Act and the return filed originally by the petitioner had merely been processed under Section 143(1)(a). 4. The contention of the petitioner before us is that the Assessing Officer had no reason to believe that income chargeable to tax had escaped assessment. We are unable to accept the contention. In this year there was no assessment under Section 143(3) of the Act in the first place. The return filed by the petitioner was only processed under Section 143(1)(a), which does not amount to an assessment . The notice issued under Section 148 on 23.5.2008 is within the perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f or opinion is correct even on merits. The merits of the matter will have to be decided in the course of the reassessment proceedings after hearing the assessee and in accordance with law. Since no opinion could have been formed by him when the return was processed under Section 143(1)(a), it cannot also be contended that the reassessment proceedings were prompted by a change of opinion. 5. In WP(C) No.12438/2009 the position was different. In that case for the assessment year 2003-04 the Assessing Officer had made a regular assessment under Section 143(3) of the Act on 26th December, 2005. All the primary facts had been furnished by the assessee in the return including the relevant annexures regarding the provision made for diminution in the value of unquoted investments. There was no failure on the part of the assessee thus to furnish fully and truly all material particulars at the time of the original assessment. It was for the Assessing Officer to draw the appropriate inferences, both factually and legally, from those primary facts. The notice under Section 148 which was issued after 4 years from the end of the assessment year could not be sustained since there was no fail ..... X X X X Extracts X X X X X X X X Extracts X X X X
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