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TMI Blog2017 (5) TMI 1092X X X X Extracts X X X X X X X X Extracts X X X X ..... to reopen the assessment under section 147 of the Act and for framing the re-assessment order based be unlawful assumption of jurisdiction. 4. Briefly stated, the assessee-company is engaged in the business of manufacturing of PVC foam profiles. For the relevant AY 2006-07, the AO originally passed order under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") on 20/11/2008. It is the case of the assessee that as per the aforesaid order, the AO passed a specific order as regards carry forward of unabsorbed depreciation for various assessment years from 1998-99 to 2001-02. Thereafter, a notice under section 148 dated 21/02/2011 was issued for the AY 2006-07 seeking to reopen the assessment made earlier. The notice under section 148 was issued for the following two reasons;- (i) Why unabsorbed depreciation of Rs. 58,34,352/- pertaining to AY 2008-09 claimed to be carried forward from AY 2006-07 to AY 2007-08 should not be disallowed. (ii) Why the book profits should not be recalculated after adding bad debt reserve of Rs. 3,40,855/- to Net Profit. 5. The reasons recorded under section 148(2) of the Act as provided to the assessee are reproduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ously revised the book profit determined as per section 115JB(2) of the Act to Rs. 10,23,511/- from Rs. 6,82,656/- on account of non-eligibility of bad debts provision of Rs. 3,40,855/- debited in the Profit & Loss Account (P&L A/c.) for which the book profit was omitted to be increased earlier. The AO noted that with regard to second objection in the recorded reason, the assessee itself has agreed to the adjustment vide letter dated NIL received on 13/06/2011 and revised computation of book profit in prescribed form No.29B was enclosed with the aforesaid letter. In the first appeal, the CIT(A) granted relief to the assessee with reference to first objection on merits and reversed the decision of the AO disallowing the carry forward of unabsorbed depreciation pertaining to AY 1998-99 in reassessment made. For this purpose, reliance was placed upon the judgment of Hon'ble Gujarat High Court in the case of General Motors India (P.) Ltd. vs. Dy.CIT reported at 25 taxmann.com 364 (Guj.). However, adjustment in book profit on account of bad debts provision of Rs. 3,40,855/- was not adjudicated in the absence of ground taken in this regard before the CIT(A). The CIT(A) also abstained fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f jurisdiction under section 147 of the Act. He submitted at the outset that the relevant assessment year is 2006-07 wherein the assessment order was originally passed under section 143(3) of the Act whereby the assessed income was arrived at NIL. 10.1. With reference to the first issue towards carry forward of unabsorbed depreciation, the Ld.AR submitted that the assessee has not claimed actual set off of the aforesaid unabsorbed depreciation from its taxable income during the relevant assessment year. It has merely claimed its entitlement for carry forward of the unabsorbed depreciation of the earlier years to the subsequent year by way of disclosure. The impugned assessment year is 2006-07 only serves as a transit year for rolling over the unabsorbed loss to the next year. Therefore, there is no escapement of income which is chargeable to tax during the year per se in so far as AY 2006-07 is concerned. Thus, section 147 could not have been invoked for merely denying claim of carry forward of unabsorbed depreciation arose in earlier year and eligible for claim for set off of in the next years. The taxable income of this year is not impacted with the aforesaid roll over of unabso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wef 01/04/2002 relating to extended limitation for carry forward is to be applied with prospective effect and thus the relief granted by the CIT(A) on merits is required to be reversed. As regards, adjustment in the book profit under section 115JB, the Ld.DR submitted that the assessee itself has admitted the adjustment in the course of reassessment and therefore does not require any elaboration thereon. 12. We have considered the rival submissions, the orders of the authorities below and the case-laws cited. 13. While the assessee has challenged the assumption of jurisdiction under section 147 of the Act, the Revenue has challenged the relief granted by the CIT(A) on merits in their respective appeals. 13.1. Since the assumption of jurisdiction is in question which goes to the root of the matter, we shall first address the jurisdictional issue. For this purpose, reasons recorded for reopening the assessment under section 148(2) of the Act is reproduced hereunder:- "Annexure REASONS FOR REOPENING OF ASSESSMENT IN THE CASE OF Accura Polytech Pvt. Ltd. AY 2006-07 In this case the return of Income for AY 2006-07 was e-filed by the assessee on 29.12.2006 showing NIL income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year. AY 2006-07 only seeks to disclose the pending entitlement of the assessee in respect of unabsorbed depreciation rightfully or wrongfully. This has no impact on the "chargeable income" of the AY 2006-07 which is alleged to have escaped assessment. Therefore, the precondition for invoking jurisdiction under section 147 in so far as this reason is concerned is untenable in law and cannot be upheld. 14. We shall now advert to the second reason which formed the basis for holding belief towards escapement of income. It is manifest from the recorded reason that the AO has taken shelter of clause (c) of Explanation-1 to section 115JB for alleging that book profit has remained under assessed to the extent of bad debts reserves of Rs. 3,40,855/-. A bare reading of Explaantion-1(c) to section 115JB would suggest that the aforesaid clause is meant to increase the book profit in respect of provisions towards unascertained liabilities. It is apparent that bad debts reserves is not on account of any provision towards any liability far less unascertained liabilities. The provision, as pleaded by the assessee, is in the nature of amounts set aside for diminution in the value of sun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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