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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
Per N.V.Vasudevan, JM
This is an appeal by the assessee against the order dated 11.03.2013 of C.I.T.(A)-XII., Kolkata relating to A.Y.1998-99.
Grounds of appeal raised by the assessee read as follows :- “1. That on the. facts and in circumstances of the case and in law, the Ld. Commissioner of Income tax (Appeals) erred in confirming the action of the Assessing Officer (herein after referred to as the 'AO') and thereby rejecting the ground taken by the appellant in regard to initiation of reassessment proceedings under the provisions of section 147 of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') after a period of four years from the end of the relevant assessment year when none of the conditions specified in the proviso to section 147 of the Act are satisfied. 2. That on the facts and in circumstances of the case and in law, the Ld. Commissioner of Income tax (Appeals) erred in confirming the action of the Assessing Officer and thereby rejecting the ground taken by the appellant in regard to initiation of the reassessment proceedings under the provisions of section 147 of the Act on the basis of change of opinion. 3. That on the facts and in circumstances of the case and in law, the Ld. Commissioner of Income tax (Appeals) erred in confirming the action of the AO in adding the bad debts
2 ITA No.1921/Kol/2013 Epcos India Pvt.Ltd. A.Yr.1998-99 written off while computing the book profit under section 115JA of the Act in the reassessment proceedings on the alleged ground raised by the AO that the aforesaid amount represents provision for doubtful debts when it was clarified before him that the above amounts represents actual write off of bad debts and as such no addition was made by the AO during the course of assessment proceedings after accepting the argument preferred by the appellant. 4. That on the facts and in circumstances of the case and in law, the Ld. Commissioner of Income tax (Appeals) erred in confirming the action of the AO in adding the bad debts written off while computing the book profit under section 115JA of the Act on the alleged ground that the appellant has submitted that it does not intend to press for this ground when the appellant has clearly stated in the submission filed before the Ld. Commissioner of Income tax (Appeals) that no addition should be made for bad debt written off while arriving at the book profit under section 115JA of the Act. 5.That the appellant craves leave to add to and/or amend, alter, modify or rescind the grounds hereinabove before or at the time of hearing of the appeal.”
The assessee is a company. It is a subsidiary company of EPCOS A.G.Germany. It is engaged in the manufacture and sale of soft ferrites components. For A.Y.1998-99 the assessee filed return of income declaring loss of Rs.16,21,04,200/-. An Order of assessment was passed by the AO u/s 143(3) of the Income Tax Act, 1961 (Act) on 06.02.2001. In the aforesaid assessment order the total loss of the assessee was determined by the AO at a sum of Rs.3,66,28,773/-. However, the total income of the assessee was determined on the basis of book profits u/s 115JA of the Act at Rs.23,88,234/-. In the course of assessment proceedings u/s 143(3) of the Act, the AO had raised a specific query with regard to the claim of the deduction made by assessee in the profit and loss account of a sum of Rs.13,99,101/- on account of bad debts. In the course of assessment proceedings the AO noticed that the assessee had claimed the aforesaid sum in the profit and loss account as provision for doubtful debts. However, in the clarification filed by the assessee before AO vide note dated 11.09.2000 the assessee had clarified that the said sum of Rs.13,99,101/- represents actual bad debts written off and gave complete particulars. The following was the note filed by the assessee :-
“Sub : Debts amounting to Rs. 13,99,101/- 2
3 ITA No.1921/Kol/2013 Epcos India Pvt.Ltd. A.Yr.1998-99
In response to the queries raised by the Learned Joint Commissioner of Income Tax, we would like to submit our representation as under :- 1. The particulars of the customer are given below :- Name Country Invoice Invoice Amount Amount Conversion No.&Dt. Value realized unrealized INR Semar Italy 95E0046 USD USD USD 1399101 2-2-96 55972 17736 38236 2. The materials valued USD 38236 are rejected by the customer and debit note dt. 25.2.97 for an equivalent amount was raised.
We have approached Reserve Bank of India through our authorized dealer Citi Bank NA for granting permission to write off the unrealised amount. Citi Bank after getting approval of Reserve Bank of India accepted the reduction in value of exported goods and released the relevant GK Number U/S 6C 13 of Foreign Exchange Mannual,1997.
In view of the submission made above, the same should be considered as irrecoverable and written off but not as provision. The rejected materials cannot be used for any other purpose and cost on returning the same shall be much higher than benefit likely to accrue.
The photocopies of relevant documentary evidence as mentioned below are submitted : a) Debit Note of Semar b) Letter of Citi Bank NA releasing GR Form c) Section 6C 13 of Foreign Exchange Control Mannual, 1997.”
In the assessment completed u/s 143(3) of the Act the AO did not make any addition on account of Provision for Bad Debts made in the profit and loss account by the Assessee, either in the computation of total income in the normal provision of the Act or in the determination of book profits and computation of tax thereon u/s 115JA of the Act. 5. While the matter stood thus, the AO issued notice u/s 148 of the Act dated 30.06.2014. The reasons recorded by the AO while issuing notice u/s 148 were as follows :- 3
4 ITA No.1921/Kol/2013 Epcos India Pvt.Ltd. A.Yr.1998-99 “Reasons for reopening the assessment
This assessment of the company for assessment year 1998 -1999 was completed u/s 143(3)/115JA on 06.02.2001 at a taxable income of Rs..3,86,234/-.
The net profit as per profit & loss accounts for assessment year 1998-1999 was arrived at after taking into account expenses debited on provision for bad and doubtful debts Amounting to Rs.13,99,000/-.
The Madras High Court in the case of Beard Cell Ltd. Reported in 244 ITR 256 has held that provision for doubtful debts/advance is all unascertained liability and liable to be added in book profit computation u/s. 115JA
Considering the provision of Explanation-c to Section 115JA and the above decision the omission in not taking into the provision for bad and doubtful debts to the tune of Rs.13,99,000/- resulted in underassessment of book profit of Rs.4,19,700/- being 30% of Rs..13,99,000/-. I have therefore reason to believe that income amounting to rs.4,19,700/- has escaped assessment. “
By letter dated 06.10.2005 the assessee specifically brought to the notice of the AO that a sum of Rs.13,99,101/- was in fact bad debts written off and not provision for bad and doubtful debts. It was submitted that even assuming it was bad and doubtful debts the same cannot be added to the book profits determined u/s 115JA of the Act as it cannot be said that it was a provision for unascertained liability within the meaning of Explanation – c to section 115JA(2) of the Act. The AO however, made a reference to the decision of Hon’ble Madras High Court in the case of DCIT vs Beard Cell Ltd. 244 ITR 256 (Mad) wherein it was held that provision for bad and doubtful debts was an unascertained liability and had to be to added to the book profits. The AO thereafter held that provision for bad debts was an unascertained liability and had to be added back to the computation of book profits as per Explanation (c) to section 115JA(2) of the Act. 7. On appeal by the assessee the CIT(A) confirmed the order of AO. Aggrieved by the order of CIT(A) the assessee preferred the present appeal before the Tribunal. 4
5 ITA No.1921/Kol/2013 Epcos India Pvt.Ltd. A.Yr.1998-99 8. We will first consider ground no. 1 raised by the assessee for consideration. One of the contentions on the validity of reassessment proceedings u/s 147 of the Act raised by the Assessee before CIT(A) was that the proceedings u/s 147 of the Act were initiated four years from the end of the relevant Assessment year and in view of the proviso to section 147 of the Act such initiation of re-assessment proceedings can be made only when there is a failure on the part of the assessee fully and truly disclosed material facts. The submissions of the ld. Counsel for the assessee in this regard was that during the course of assessment proceedings the Assessee was asked to provide details of the provision for bad & doubtful debts debited to P&L account in Schedule -11 under the head 'Expenses' amounting to Rs. 13,99,000/- and the particulars of customer whose provision was debited to P&L account. In response to the same the Assessee vide letter dated 11-09-2000 had provided the required details. In the said letter it was submitted that the aforesaid debts were pertaining to an export of materials to M/s. Semar, Italy sold vide invoice dated 02-02-1996 that ultimately became irrecoverable. It was also clarified in the above letter that it was bad debts written off and not the provision for bad debts. It was submitted that materials were sold vide the invoice dated 02-02-1996 by the appellant were rejected by the customer and for which a debit note was issued on 25-02-1997. Subsequently, the Assessee approached the RBI for granting permission to write off the unrealised amount. The Citi Bank after getting approval of RBI accepted the reduction in value of exported goods and released the relevant GR under the Foreign Exchange Manual, 1997. It was submitted that it was only on the basis of the above representation made by the Assessee vide letter dated 11-09- 2000, the claim for bad debts written off was allowed by the AO in the assessment order u/s 143(3) of the Act dated 06-02-2001 for both under the Normal Provisions of the Act as well as under Book Profit u/s 115JA of the Act. It was argued that it would be clear from the above that all the information and details on the basis of which the AO had reasons to believe that income had escaped assessment were duly submitted by the Assessee in the course of the assessment proceedings and were available before the then AO at the time of 5
6 ITA No.1921/Kol/2013 Epcos India Pvt.Ltd. A.Yr.1998-99 completion of assessment proceedings u/s 143(3). The then AO after considering the said documents/information/details filed by the Assessee had chosen not to add back the bad debts written off in computing Book Profit u/s 115JA of the Act.
The learned counsel drew our attention to the provisions of Sec.147 of the Act, and the proviso thereto which reads thus:
“Sec.147: If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year; concerned .
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year"
It was submitted that as per the proviso to Sec. 147 of the Act, where an assessment u/s 143(3) or 147 has been made for the relevant assessment year, no action can be taken under this section unless any income Chargeable to tax has escaped assessment for the said assessment year by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. It was emphasized that what is failure to fully and truly disclose material facts necessary for assessment of the relevant assessment year, cannot be at the will of the AO. It was submitted that in the case of the Assessee, return of income was filed on 20-11-1998 along with relevant details and/or documents. Further, the audited Accounts and Tax Audit Report had been 6
7 ITA No.1921/Kol/2013 Epcos India Pvt.Ltd. A.Yr.1998-99 filed along with the Return of Income, and the same were available on record at the time of original assessment. On perusal of the same it could be seen that all the information and details on the basis of which the AO has reasons to believe that income has escaped assessment were duly submitted in the course of the assessment proceedings and were available before the then AO at the time of completion of assessment proceedings u/s 143(3). Hence, there is no failure on the part of the Assessee to disclose fully and truly all material facts necessary for assessment. It was reiterated that in a situation where the AO issues notice u/s 148 beyond the period of 4 years from the end of the relevant assessment year, the primary conditions of failure on the part of the assessee as mentioned in the said section needs to be satisfied by the AO even prior to assuming jurisdiction to reopen assessment u/s 147. Since the Assessee has made full and true disclosure of all the material facts for his assessment, the reopening of the assessment by the AO stands barred and in such case notice issued under section 148 of the Act, after expiry of 4 years from the end of relevant year is not sustainable. It was pointed out that in the present case, the AO has issued notice for reopening of the completed assessment for the AY 1998-99 vide notice dated 30-06-2004, i..e beyond the period of 4 years from the end of the relevant assessment year. In such a situation, the said notice is time barred and is bad in law as the same is contrary to the provisions of Sec. 147 of the Act. Reference is invited, to the decision of the Hon'ble Apex Court in the case of CIT -vs.- Foramer France (2003) 264 ITR 566 (SC)wherein the Apex Court dismissed the Departmental appeal against the decision of the Allahabad High Court wherein it was held that where there was no failure on the part of the assessee to disclose fully and truly all material facts, the notice issued under section 148 of the Act beyond a period of 4 years was to be quashed being without jurisdiction. Reliance was placed on the decision in the case of ICICI Bank Ltd. -vS.- DC IT (2004) 268 ITR 203 (Bom.) wherein it was held that u/s 147 concluded assessments can be reopened beyond a period of four years from the end of the relevant assessment years only if there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the 7
8 ITA No.1921/Kol/2013 Epcos India Pvt.Ltd. A.Yr.1998-99 purpose of assessment. Reference was also made to the decision of the Hon'ble Calcutta High Court in the case of Tantia Construction Co Ltd -vs.- DCIT (2002) 257 ITR 84 (Cal) wherein it was held that two primary conditions by which the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year is not fulfilled, therefore the notice u/s 148 cannot be held to be valid as they were issued after the expiry of four years from the last date of the concerned assessment year and there was an assessment under Section 143(3) in respect of the assessee. Further reliance was placed on the decision of the Hon’ble Bombay High Court in the case of Cartini India Ltd. -vs.- ACIT (2007) 291 ITR 355 (Born.) wherein the Hon'ble Bombay High Court has held that assessee having disclosed all the material facts relating to the issues which formed the reasons to believe that the income of the assessee had escaped assessment, reopening of the assessment beyond four years from the end of the relevant assessment year was not sustainable. Reliance was also placed on the decision in the case of 3i Infotech -vs.- ACIT (2010) 329 ITR 257{Bom.)wherein the Hon'ble Bombay High Court has held as under:
"6.The proviso however stipulates that where an assessment has been carried out u/s 143(3), action after the expiry of four years from the end of the relevant assessment year would stand barred unless income chargeable to tax has escaped assessment inter alia by the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that assessment year. Hence, where a reopening of assessment takes place beyond a period of four years from the end of the relevant assessment year, the test which the statute requires to be applied is based on the nature of the disclosure that is made by the assessee. If the assessee has made a full and true disclosure of all the material facts for his assessment, the action of reopening the assessment would stand barred. Contrariwise, where there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, the reopening of the assessment would stand validated even if it takes place beyond the expiry of a period of four years. "
The CIT(A) on the above submissions merely observed in para-7 of the order are as follows :- 8
9 ITA No.1921/Kol/2013 Epcos India Pvt.Ltd. A.Yr.1998-99 “During the appellate proceeding the A.R. has taken four additional rounds. Appeal on additional grounds 1 and 2 are against the reopening of the case u/s. 147 of the I.T. Act, 1961 after a period of four years. I have considered the submission of the assessee. As per the provisions of Sec. 149(lb) of the I.T. Act, 1961 reopening in this case is possible even after the laps of four years but before the end of six years. Accordingly, assessee's appeal on additional grounds no. 1 and 2 are dismissed.”
We have considered the submissions of the ld. Counsel for the assessee. The ld. DR placed reliance on the decision of Hon’ble Supreme Court in the case of CIT, Delhi vs. Ansal Housing & Construction Ltd. [2014] 51 taxmann.com 376 (SC) and Phool Chand Bajrang Lal [1993] 69 Taxman 627 (SC). 13. We have considered the rival submissions. In the present case, the facts on record and reasons recorded clearly show that all facts were available before the AO when he completed the original assessment proceedings u/s. 143(3) of the Act. From a perusal of the reasons recorded by the AO before issuing notice u/s. 148 of the Act, it is clear that the AO has not, in the reasons recorded, made an allegation that income chargeable to tax has escaped assessment by reason of the assessee’s failure to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year. It is not in dispute that for A.Y. 1998-99, an assessment u/s. 143(3) of the Act had already been made in the case of the assessee by an order of assessment dated 6.2.2001. Admittedly notice u/s. 148 of the Act was issued on 30.6.2004 which is beyond the period of four years from the end of the relevant assessment year (1998-99). The proviso to section 147 was therefore clearly attracted. It is clear from the decisions of the Hon’ble Bombay High Court as well as the Hon’ble Calcutta High Court, referred to by the ld. counsel for the assessee before us, that there should be escapement of income chargeable to tax was by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Such an allegation is admittedly absent in the reasons recorded and on facts there has in fact been no such failure on the part of the Assessee, so as to attract the proviso to Sec.147 of the Act. The law is well settled that validity of initiation of reassessment 9
10 ITA No.1921/Kol/2013 Epcos India Pvt.Ltd. A.Yr.1998-99 proceedings have to be judged on the basis of reasons recorded by the AO and it is not possible to substitute, delete or add anything to such reasons recorded by the AO. It is also not possible to draw any inference based on the reasons not recorded. In the light of the law as laid down in the aforesaid decisions, we are of the view that initiation of reassessment proceedings by the AO in the present case is not in accordance with the law. The order of reassessment is therefore liable to be annulled and the same is hereby annulled. Explanation 1 to Sec.147 of the Act reads as follows:
“Explanation 1.— Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.” We are of the view that Explanation-1 only lays down that production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure. The expression “will not necessarily” in Explanation 1 will only mean that facts and circumstances of each case will have to be seen as to whether production of books of account and other evidence before the AO will amount to full and true disclosure of material facts. In the present case, as we have already seen, evidence was produced before the AO in the course of the original assessment proceedings u/s.143(3) of the Act and the same was perused by the AO and he had not chosen to draw any conclusion that the amount claimed as deduction by the Assessee was in fact in the nature of provision for doubtful debts. In the given circumstances, we are of the view that Explanation 1 cannot also be resorted to by the revenue. Explanation-1 to Sec.147 cannot be read in a manner so as to override Proviso to Sec.147 of the Act. We are, therefore, of the view that in the given facts and circumstances of the case, initiation of reassessment proceedings u/s 147 of the Act is held to be illegal and consequently, order passed u/s. 147 of the Act is cancelled on this ground. In view of the conclusion that the initiation of reassessment proceedings is invalid we are of the view that the others issues raised by
11 ITA No.1921/Kol/2013 Epcos India Pvt.Ltd. A.Yr.1998-99 the assessee in the grounds of appeal do not require any consideration. Accordingly the appeal of the assessee is allowed.
In the result the appeal of the assesee is allowed.
Order pronounced in the Court on 20.07.2016.
Sd/- Sd/- [Waseem Ahmed] [ N.V.Vasudevan ] Accountant Member Judicial Member
Dated : 20.07.2016. [RG PS]
Copy of the order forwarded to:
Epcos India Pvt. Ltd.,Kulia Kanchrapara Road, Kalyani, Kalyani-741251. 2. A.C.I.T., Circle-11, Kolkata 3. CIT-(A)-XII, Kolkata 4. C.I.T.-IV, Kolkata. 5.CIT(DR), Kolkata Benches, Kolkata.