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2015 (8) TMI 668 - BOMBAY HIGH COURT

2015 (8) TMI 668 - BOMBAY HIGH COURT - [2015] 377 ITR 1 (Bom) - Reopening of assessment - Deduction of depreciation on revalued portion of the assets is only for the purpose of presentation and accretion to reserves did not increase book profit. Therefore, there is no justification in reducing the net profit by the amount of revaluation reserve - Held that:- Identical issue had come up before this Court in Rallis India Ltd. (2010 (3) TMI 164 - BOMBAY HIGH COURT ) wherein a reopening notice was i .....

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d is not a liability. Thus it would not fall under clause (c) of the Explanation to Section 115 JA of the Act. Consequent to the aforesaid decision of the Apex Court, the Parliament has amended Explanation both under Section 115JA as well as 115JB of the Act in 2009 by adding clause (g) and (i) with retrospective effect from 1 April 1998 and 1 April 2001 respectively. This Court held that though the amendment was made with retrospective effect, the critical date is the date on which the Assessin .....

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of 2007 - Dated:- 21-7-2015 - M. S. Sanklecha And N. M. Jamdar, JJ. For the Petitioner : Mr Farrokh Irani a/w Jitendra Jain and Atul Jasani For the Respondent : Mr A R Malhotra a/w N A Kazi ORDER P. C. This petition under Article 226 of the Constitution of India challenges the notice dated 29 March 2007 issued under Section 148 of the Income Tax Act, 1961 (the 'Act'). The impugned notice seeks to reopen the petitioner's assessment for the Assessment Year 2000-01. 2. This petition wa .....

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0% of such book profit under Section 115JA of the Act. The return of income filed by the petitioner was scrutinized under Section 143(3) of the Act and by order dated 28 January 2003, income under Section 115JA of the Act was enhanced from 15.81 crores to ₹ 16.82 crores by the Assessing Officer. 4. Thereafter, the impugned notice dated 29 March 2007 was issued by the Assessing Officer seeking to reopen the assessment for the Assessment Year 2000-01. The reasons in support of the impugned n .....

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of the Act. The assessee company has debited an amount of ₹ 3,82,85,000/- towards provision for Doubtful Debts and ₹ 5,47,32,000/- on account of Provision for Depletion in Long term investments to the Profit and Loss Account. These being uncertain liabilities are required to be added back to the Net Profit for arriving at Book Profit. Further, it is seen from the return of income that an amount of ₹ 2,51,32,918/- representing Revaluation Reserve was deducted from the net profi .....

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here is no justification in reducing the net profit by the amount of revaluation reserve. In view of the above, I have reason to believe that income chargeable to tax of A.Y. 2000-01 has escaped assessment for failure on the part of the assessee company to disclose fully and truly all the material facts requiring for assessment for A.Y. 2000-01." 5. The petitioner by reply dated 2 November 2007, filed its objections to the reasons in support of the impugned notice. In particular, the petiti .....

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assessment was only on account of change of opinion. This was particularly so as all the three issues were a subject matter of consideration during the assessment proceedings leading to the order dated 28 January 2003. 6. On 13 November 2007, the Assessing Officer passed an order rejecting the petitioner's objections to reopening of notice dated 29 March 2007. The order disposing of the objections held that there was a failure to disclose material facts during the relevant assessment procee .....

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ts as under: (a) Impugned notice admittedly issued beyond the period of four years from the end of the relevant assessment year without alleging failure on the part of the petitioners to disclose truly and fully all material facts necessary for assessment. In fact, the reasons itself indicate that the impugned notice is issued on verification of records; (b) At the time when the impugned notice was issued there was no reason to believe that income chargeable to tax has escaped assessment. The am .....

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ng the original assessment proceedings leading to the order dated 28 January 2003. This issue was a subject matter of examination by the CIT(A) and the Tribunal in appeal proceedings for the subject assessment year. Thus the impugned notice on above account was on account of mere change of opinion. Besides there was a full disclosure during the assessment proceedings; (e) Provision for bad and doubtful debts and provision for depletion of long term investment have been fully disclosed in the pet .....

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the Act as they are not liabilities. Thus there could be no reason to believe that income chargeable to tax has escaped assessment. Besides the issue was dealt with by the Assessing Officer while passing the order, consequently the impugned notice is merely on change of opinion; and (f) So far as deduction of revaluation reserves from book profit is concerned, it is pointed out that there was a full disclosure in the computation of income both under the normal provisions of the Act as well as u .....

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according to him the impugned reopening notice is sustainable in law on the second issue viz. provisions for bad and doubtful debts and provision of depletion in long term investment and in support submits as under: (a) The depth of examination by the Court in a challenge to a reopening notice is only to examine whether there is a prima facie satisfaction of the Assessing Officer that income chargeable to tax has escaped assessment. At this stage, the Assessing Officer is not required to establ .....

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been added to the net profit in the computation of income under the normal provisions of the Act. However, while computing the total income under MAT provisions i.e. Section 115JA of the Act, no disclosure about the provision for doubtful debts and for depletion in long term investment has been made. Both of which according to the revenue had to be added to the book profits for purposes of computing book profit. Thus there was a failure on the part of the petitioner to fully and truly disclose .....

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that failure to notice an item during the regular assessment proceedings will entitle the Assessing Officer to issue a reopening notice even beyond a period of four years. It was further held in the above case that mere filing of Balance Sheet, Profit and Loss Accounts will not amount disclosure under the proviso to Section 147 of the Act. 9. We have considered the rival submissions. The law with regard to reopening of assessment is fairly settled. An assessment can be reopened under Section 14 .....

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have reason to believe that income chargeable to tax has escaped assessment and the same must be recorded/ revealed in his reasons/grounds; (c) The Assessing Officer should not have considered the issue on which the reopening is sought during regular assessment proceedings. In case the issue has been considered even if evidenced by asking questions then such an attempt to reconsider would not be permitted on ground of being a mere change of opinion; (d) The reopening of an assessment must be on .....

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ure on the part of the assessee to truly and fully disclose all material facts necessary for assessment; and (g) Sanction of a superior Officer to the reasons recorded, where required, in terms of Section 151 of the Act, should have been obtained before issuing of the impugned notice; All the above jurisdictional requirements have to be satisfied cumulatively, wherever applicable. Therefore even if one the numerous jurisdictional requirements necessary for the issue of reopening notice is not sa .....

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n is on the revenue to establish that jurisdictional requirement stands satisfied. So far as reason to believe on the part of the assessing Officer is concerned, at the stage of issuing the notice only a prima facie and not a conclusive case of income escaping assessment should be established to turn down a challenge to the reopening notice. 11. Keeping the above broad parameters in view we shall now examine the petitioner's challenge to the impugned notice dated 29 March 2007 seeking to reo .....

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the Profit and Loss Account. These being unascertained liabilities are required to be added back to the net profit for arriving at book profit." This addition is sought in terms of of Explanation to Section 115JA of the Act as otherwise the Assesssing Officer cannot make any change and /or tinker with the accounts maintained in accordance with the provisions of the Companies Act, certified by the auditors and passed by the company in a general meeting of shareholders as laid down in the Ap .....

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as on the issue of reason to believe that income has escaped assessment, the issue appears to be covered in petitioner's favour by a decision of this Court in Rallis India Ltd. vs. Asst. Commissioner of Income Tax 323 ITR 54. Therefore we shall first examine the issue Whether the Assessing Officer had reason to believe that income chargeable to tax has escaped assessment? It is only in case the petitioner fails on the above challenge that the other grounds of challenge taken by the Petition .....

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ion of long term assets are required to be added back to the net profit for arriving at MAT profit. It is undisputed that the provision for doubtful debts and for depletion of long term investment are not liabilities. These provisions are made to take care/cover the likely fall in the value of assets. In fact this was so held by the Apex Court in CIT Vs. HCL Comnet Systems and Services Ltd. 305 ITR 409 wherein the Court held that Item (c) of the Explanation to Section 115JA of the Act would have .....

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o Section 115JA of the Act. 14. The revenue contends that at the time of issuing of the impugned notice on 29 March 2007 the position was not clear. The position became clear only when the Parliament introduced/added clause (g) to the Explanation to Section 115JA of the Act with retrospective effect from 1 April 1998 and which reads as under: "(g) the amount or amounts set aside as provision for diminution in the value of any asset." Thus submits the revenue that the impugned notice is .....

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r the impugned notice had indicated the reasonable belief that income chargeable to tax has escaped assessment on the ground that provision for doubtful debts and diminution of value of assets has to be added to arrive at book profit in terms of Explanation under Section 115JA of the Act. It is only in such cases, that the retrospective amendment by introduction of clause (g) to the Explanation of Section 115 JA of the Act with retrospective effect come to the aid of the revenue. In the present .....

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sue of the notice that determines the validity of the notice. No subsequent event could put life into the Assessing Officer's reason to believe that income chargeable to tax has escaped assessment when the reasons as originally recorded are still born. 15. In fact an identical issue had come up before this Court in Rallis India Ltd. (supra) wherein a reopening notice was inter alia issued on the ground that the book profits have to be increased in view of the Explanation to Section 115JB of .....

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of the Apex Court, the Parliament has amended Explanation both under Section 115JA as well as 115JB of the Act in 2009 by adding clause (g) and (i) with retrospective effect from 1 April 1998 and 1 April 2001 respectively. This Court held that though the amendment was made with retrospective effect, the critical date is the date on which the Assessing Officer exercises jurisdiction under Section 148 of the Act and the subsequent amendment could not have been and is in fact not a ground on which .....

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