ALKYL AMINES CHEMICALS LTD,NAVI MUMBAI vs. ASST CIT 10(3), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य द�य,राजे�� राजे�� केकेकेके अनुसार अनुसार -Per Rajendra,AM: लेखा लेखा लेखा द�य द�य राजे�� राजे�� अनुसार अनुसार Challenging the order,dated 12/01/2012 of the CIT(A)-22,Mumbai the assesse has filed the present appeal.Assessee-company is engaged in the business of manufacturing of Amines and its derivatives. In this case,original assessment was completed u/s. 143 (3) of the Act, on 30/11/ 2005 at Rs.(-) 2.53 crores under the normal provisions and at Rs.4.02 crores u/s.115 JB of the Act.Later on, the Assessing Officer(AO)issued a notice u/s. 148 of the Act,after recording the reasons for initiating the re-assessment proceedings. He completed the assessment u/s.143(3) r.w.s.147 of the Act on 25/11/2011.

2256/M/12(04-05) Alkyl Amines Chemicals After considering the available material, the FAA held that the AO had not discussed anything regarding allowablity or otherwise of the provisions for doubtful debts, that no evidences were brought on record by it to prove that the AO had ever called for details of provision for doubtful debts, that the AO had simply accepted the income as per revised return under normal provisions as well as u/s.115 JB, that the AO had dealt with all the objections raised by the assessee about reopening. He referred to the cases of Praful Chunilal Patel (236 ITR 832) Raymond Woollen Mills (236 ITR 34) and Phool Chand (203 ITR 456) and upheld the reopening. About the audit objection, he observed that, in the regions recorded by the AO there is no mention of any such objection, that the disputed amount was covered by clause (c) of explanation to section 115 JB of the Act, that it was not a case of change of opinion, that sufficiency of reasons for reopening did not fall for determination at the stage of a reopening of assessment. With regard to the merit of the case, he held that the assessee had debited and amount of Rs. 13.26 lakhs to the P&L account under the head provision for doubtful debts, that same was added while computing the income under the normal provisions, that same was not added while computing the income as per the MAT provisions,that there was infirmity in the approach of the assessee that under normal provisions the figures of provisions for doubtful debts had been added back, that while computing the income under the provisions of section 115 JB it had not given the same treatment to the disputed amount, that the AO was justified in adding back the provision for doubtful debts u/s.115 JB of the Act. Finally, he dismissed the appeal filed by the assessee.

3.Before us, the Authorised Representative (AR) argued that original assessment was made after detailed scrutiny of records, that the AO had called for details of competition made by the assessee u/s.115 JB including the claim of provision for doubtful debts during the original assessment proceedings, that assessee had vide its letter dated 18/09/2006, furnished the necessity details,that the AO was not in possession of any new material for issuing 148 notice, that reopening could not be made due to retrospective amendments, that the notice u/s.148 was issued beyond the period of four years from the end of the assessment year under consideration without any failure on part of the assessee to disclose to and material facts, that in the balance sheet and the profit and loss account the provision for doubtful debts were duly shown, that there was difference of opinion between the AO and the assessee about treatment to be given to the 2256/M/12(04-05) Alkyl Amines Chemicals provision for doubtful debts, that the prior permission of the competent authority was not obtained, that the AO had invoked the provisions of clause (c)/clause(i) of explanation 1 to section 115 JBfor computing the book profits, that at the time of filing the return or passing the assessment order provisions of section 115 JB were very clear, that in the audited financial statements the assessee had debited the provisions of doubtful debts to the profit and loss account, that the corresponding provision had been reduced from the debtors account on the asset side of the balance sheet and that the net debtors had been reflected in the balance sheet, that the provision of bad debts’s made by it amounted to write off, that same did not fall within the ambit of clause(c) of Explanation 1, that the amount of Rs. 13.26 lakhs was wrongly added by the AO and the FAA to the book profits. He relied upon the order of the Tribunal in the case of the assessee itself for the AY 2003-04.The Departmental Representative (DR) supported the order of the FAA.

4.We have heard the rival submissions and perused the material before us. We would like to reproduce the reasons recorded by the AO for issue of notice u/s.148 of the Act and same reads as under: “In the instant case, assessment was completed u/s.143 (3) of the Act on 30/11/2006. The assessee had computed the book profit u/s.115 JB of the Act at Rs. 4, 02, 44, 769/-. It is notice that provision for doubtful debts amounting to Rs. 13, 26, 000/-was not added by the assessee to the net profit for the purpose of computing book profit is u/s.115 JB whereas the said sum was by clause (c) of Explanation to section 115 JB. Without prejudice, the said sum is also covered by clause (i) of the amended provisions of the said section. Therefore, I have reason to believe that income to the extent of Rs. 13, 26, 000/-has escaped assessment within the meaning of section 147 of the Act due to failure on the part of the assessee to disclose truly and fully all the material facts.” We find that the assessee had filed its return of income declaring total income at Rs. Nil, that later a revised return was filed, that the book profit was computed at Rs. 4.02 crore and the assessee paid taxes accordingly, that the after completion of regular assessment u/s.143 (3) the AO issued a notice u/s.148 as he was of the opinion that certain portion of income had escaped taxation, that he made an addition of Rs. 13.26 lakhs in respect of provision for doubtful debts u/s.115 JB of the Act, he held that the assessee itself had added back the provision for doubtful debts in the competition of income under normal provisions even in the revised return of income filed during the original assessment proceedings and that same was not added while computing the income under the MAT provisions. We find that while deciding the appeal for the AY. 2003 - 2256/M/12(04-05) Alkyl Amines Chemicals 04 (ITA/1134/Mumbai/2010, dated 31/12/2010),the Tribunal has dealt with the identical issue. The grounds of appeal read as under: “"1."the ld. CIT(A) erred in confirming the action of the ACIT in reopening of the assessment u/s.147 of the Act on the alleged ground that the IT A No. 1134/Mum/2010 2 (Assessment Years: 2003-04) original assessme nt order u/s 143(3) was passed without discussion on the issue relating to making adjustment of provisions for doubtful debs u/s 115JB of the Act; 1.1 the CIT(A) also erred in not appreciating the fact t hat the reopening of assessment was based on mere change of opinion and such was valid and bad- in-l aw; 1.2 the appellant prays that it be held that the reopening of assessment was abinitio or otherwise void and bad-in-law; 2. the CIT(A) also erred in confirming the action of the AO in making addition of provision for doubtful debts while comput ng book profit u/s.115JB of the Act;

3. The CIT(A) also erred in not appreciating the fact that to arrive at true realizable profits as also from legal provisions relating to dividends, it is imperative for the assessee to provide for doubtful debts and as such the provisions for doubtful debts would not be added while computing book profit u/s 115JB of the Act " After hearing the rival submissions, the Tribunal decided the matter as follow:

“7. After considering the rival contentions and relevant record, we note that the notice u/s 148 was issued on 28.3.2008 and the amendment to the section 115JB by the Finance Act 2009 with retrospective effect from 1.4.2001 was brought into force on 19.08.2009. Thus, the relevant amendment came into force after the date of issue of notice u/s 148 on 28.3.2008. Therefore, the facts are identical in both the cases. The hon. jurisdictional High Court has decided this issue in paragraphs 13,14 and 22 of the report which read as under : "13. We are conscious of the circumstance that in the present case the opening of assessment is sought to be effected within a period of four years of the expiry of the relevant assessment year. However, it is now a well settled position of aw that a mere change IT A No. 1134/Mum/2010 5 (Assessment Years: 2003-04) of opinion would not justify the Assessing Officer in seeking recourse to the powers under Section 147and 148 and there must be tangible material bef ore the Assessing Officer to prove that i ncome chargeable to tax has escaped assessment. The principle that there must be tangible material on the basis of which an assessment is sought to be reopened even within a period of four years is now established in view of the judgment of the Supreme Court in Commissioner of Income Tax V/s. M/s.Kelvinator of India Limited.The Supreme Court has held thus : ".........Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic i nterpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of "change of opinion" i s removed, as contended on behalf of th e Department, then, in the garb of reopening the assessment, review would take place. Once must treat the concept of "change of opinion" as an inbuilt test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to reopen, provided there is "tangible material " to come to the conclusion that there is escapement of income from assessment. "

2256/M/12(04-05) Alkyl Amines Chemicals 14. In the present case, there was an absence of tangibl e material on the basis of which the assessment could have been reopened. The reason which weighed with the Assessing Officer is extraneous to the basis on which the deduction can legitimately be cl aimed under Section 36(1)(vii). This is a case of a mere change of opinion without any tangible material. The reopening of the assessment on this ground is hence unsustainable.