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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER Rajendra A.M.- अनुसार Challenging the order,dated 05.04.2010 of the CIT (A)-21,Mumbai the Assessee has filed the present appeal.Assessee-company is engaged in the business of manufacture of specialized electrical motors and allied products.First ground of appeal deals with reopening of the assessment,whereas the next effective grounds of appeal are about competition of income under MAT provisions. Brief Facts: 2.The assessee filed its return of income on 31.10.2002,declaring total loss of Rs.2,66,23, 590/-Initially,the return was processed,u/s.143(1) of the Act, accepting the income.Later on the AO completed the assessment on 28.02.2005,u/s.143(3)of the Act,determining the income of the assessee at Loss of Rs.2.17 Crores/-.On 30/03/2007,a notice u/s. 148 of the Act was issued.In his show cause notice,the AO asked the assessee as to why the provisions made for doubtful advances depletion in value of investments and disallowance u/s14A should not be added back while computing book profit for the purposes MAT and the interest paid on customs duty and on Income tax should not be disallowed. After considering the submission of the assessee, dt.6. 12.08,the AO held that while computing the book profits provision of doubtful advances (Rs.3.56 lakhs),depletion in the value of investment(Rs.1.23 lakhs)was not added back to net profit,that the provisions made by it were for a contingent liability,that thus the provisions made by it was for unascertained liabilities, that as per Explanation 1 to Sec. 115JB of the Act,such provisions were required to be added back while computing the book profit,that an amount of Rs.49.05 lakhs had been attributed as incurred towards earning the dividend income of Rs.43.87 lakhs,that same had to be disallowed u/s. 14A of the Act, as per the provisions of section 115JB expenditure relatable to any exempt income was to be added back while computing the book profit,that the assessee had paid an amount of Rs.8.64 lakhs and Rs.58,728/- respectively under the head interest on customs duty and Income tax was in the nature of penalty, that such amount was to be disallowed and to be added back while computing the total income.The assessee, vide its letter dt.19.4.2007,requested the AO for providing the reason recorded for reopening.The assessee objected to the re-opening 5092/M/10-LawkimLtd.
proceedings.However,the AO passed and order u/s.143(3),r.w.s.147 of the Act,on 24/ 12/ 2008,determining the income of the assessee at Rs.82,98,712/-. 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,the assessee argued that dividend amount was reflected in its P&L A/c. and therefore,same should be ignored,that it should not be reduced from net profit to arrive at taxable book profit for MAT.The assessee relied upon the case of Apollo Tyre Ltd.(255 ITR273) and Raj Shipping and Weaving Mills Ltd.(281ITR177).After considering the submission of the assessee and the assessment order, the FAA held that while computing income during original assessment proceedings a disallowance u/s. 14A of the Act was made under the normal provisions of the Act,that while computing the book profit of the assessee u/s.115JB such disallowance was omitted,that assessee had relied on the case of Apollo Tyres Ltd.(supra),that argument advanced by the assessee was not acceptable,that the AO did not make any adjustment in assessee’s profit as per provisions of Companies Act,that he had increased the net profit,(net profit computed as per Companies Act) as per Clause(f) of Explanation 1 to Section 115JB, that the ratio of Hon'ble Supreme Court decision in case of Apollo Tyres was not applicable.He further held that AO had decided the issue of incurring of expenditure for earning exempt income, that once the AO had decided the issue a different stand could not be taken while computing the income as per provisions of section 115JB of the Act,that the AO had,while computing the income under normal provisions expenditure amounting to Rs.49.09 lakhs,held held that it was incurred for earning exempt income and that book profit was required to be increased by the said amount. Finally,he dismissed the appeal filed by the assessee. 4.Before us,the Authorised Representative (AR)argued that reasons for reopening were vague and did not bring out how the income had escaped assessment,that during the original assessment proceedings the then AO had applied his mind,that it was a case of change of opinion,that provisions of sec. 148 could not be invoked for correcting the mistakes of an AO,that the reasons recorded by the AO prove that reopening was based on audit objections, that the AO issued notice u/s.154 of the Act on 05.12.2005 for rectifying mistakes for the same items.She referred to the cases of Jet Speed Audio(372ITR762),Bedmutha Industries Ltd.(87DTR305),GKN Sinter Metals Ltd.(371ITR 225),Indian and Eastern Newspaper Society(119ITR996),Rallis India(323ITR54)and stated that all the relevant information was made available to the AO,during the original assessment proceedings,that it was a case of mere change of opinion.She referred to pg no.88,104,51,54-66, 68,42-43,52-53 of the paper book.It was further argued that the assessee had not specifically any expense which could be attributable to earn exempt dividend income, that the investments were purchased from proprietary funds available to it and no specific borrowings were made,that the books of the assessee were audited as per the provisions of Companies Act,that the auditor had not made any qualification in that regard,that the audited accounts were approved by the share holders,that the AO had no powers to make further adjustment in the audited accounts,that disallowance made u/s.14A in the original assessment proceedings was not to be considered for MAT purposes,that book profit was to be computed as per the audited accounts.The DR supported the order of the FAA and stated that allowance of interest on custom duty and income tax was the reasonable basis for re-opening of the assessment,that there was no change of opinion. 5.We have heard the rival submissions and perused the material before us.We find that in this case return of income was filed in the year 2002 and notice u/s.148 was issued on 06.08. 2008,that while re-opening the assessment,the AO held that certain items had to be added for 5092/M/10-LawkimLtd. computing the income under MAT provisions.We would like to re-produce the reasons recorded by the AO for reopening of the assessment and same read as under: “On verification of the case records, it is seen that while computing book profit for MAT, provision for doubtful advances amounting to Rs.3,05,6000/- and depletion in the value of investments amounting to Rs.1,23, 000/- is not added back in the net profit, for ascertaining the book profit for MAT. Further, vide the assessment order, an amount of Rs.49,05,000/- has been attributed as incurred towards earning the dividend income of Rs.43,87,088/- and hence disallowed u/s. 14A of the Act and as such the said amount should be reduced from the said dividend income, which is exempt u/s. 10(33). Since the dividend income is Rs.43,87,088/- and the expenses attributable are estimated at Rs.49,05,000/- for earning the said dividend, hence dividend amount vide the Profit And Loss Account heads to be ignored and not reduced from the net profit to arrive the taxable book profit for MAT. Further, it is seen from the records that assessee company paid amounts of Rs.8,64,999/- and Rs.58,728/- as interest on customs duty and income tax respectively, resulting into incorrect computation of business income. In view of the above, I have reason to believe that income chargeable to tax for AY. 2002-03 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 AY. 2002-03.” We would also like to reproduce the gist of the notice issued by the AO,while issuing notice for rectification and it reads as follow: “Particulars of mistakes proposed to be rectified (1) Order assessment of book profit by Rs.75,66,088/- (2) the assessee company had paid Rs.8,64,999/- and Rs.58,728/- as against interest paid on custom duty and Income tax respectively, hence under assessment of income by Rs.9,23,726/-” It is also found that the audit party had raised following objections with regard to the assessment: “Tax Effect- Rs.3,29,770/-(M) Sub: - Incorrect computation of business income. The scrutiny assessment of M/s. Lawkim Pvt Ltd for the Assessment Year 2002-03 was done for a loss of Rs.2,17,18,590/- on 28-02-05. Audit scrutiny revealed that the assessee company had paid Rs. 8,64,999/- & Rs. 58,728/- as against interest paid on custom Duty and Income Tax respectively, (Details of interest paid filed with assessee letter dtd. 9-2-04) As per IT Act, these interest are not admissible therefore same should have been disallowed. Omission to do so resulted in underassessment of income by Rs. 9,23,726/- with consequent short levy of tax of Rs.3,29,770/- (Notional). This is brought to your notice to taken necessary action under intimation to audit. In reply it was stated that notice u/s. 154 of the I.T. Act,had been issued to the assessee company and after the compliance of the said notice necessary reply shall be sent to audit. Further compliance from the department is awaited.” “Sub: Incorrect computation of Book profit under special provision. In the case of an assessee, being a company, the income tax payable on the total income is less than 7.5% of its book profit, then such book profit shall be deemed to be total income of the assessee and tax payable by the assessee at the rate of 7.5% of such total income. Book profit means net profit as per profit & loss Account with certain additions and certain deletions. Additions includes “Provisions for liabilities other than ascertained liabilities.” Tax Effect-Rs.5,78,806/- ” “Audit scrutiny revealed that while computing Book profit under special provision of In~OIIlC Tax act, provision for Doubtful Advances amounting to Rs.30,56,000/- and provision for Depletion in value of investment amounting to Rs.1,23,000/- (Schedule 11 of P;&L A/C) were not added back in net profit though these were added back in the normal provision. As these are not ascertained liabilities, it should have been added in net profit. In the assessment order the assessing officer had estimated the expenses for earning the exempted dividend at Rs.49,05,000/- under section 14A of the I Tax Act. In computation this amount has been added back and deducted it from the dividend income. According to the 5092/M/10-LawkimLtd. special provision of the Act, such expenses were required to be deducted from the dividend income exempted under section 10(33). Since the dividend income is Rs.43,87,088/- and the expenses estimated by the deptt. is Rs.49,05,000/- for earning the dividend, no dividend is allowed to be deducted from the net. Profit to arrive at the taxable book profit. Omission to do so resulted in underassessment of book profit by Rs.7566088/- with short levy of tax of Rs.5,78,806/-. This is brought to your notice to taken necessary action. In reply it was stated that notice u/s 154 of the I. T. Act, had been issued to the assessee company and after the compliance of the said notice necessary reply shall be sent to audit. Further compliance from the department is awaited.” From the above discussion,it is clear that the subject matter of the audit objections, proposed rectification of mistakes and the reasons for re-opening deal with the same issues.We are of the opinion that re-opening of assessment has to be initiated by the AO after arriving at the conclusion that taxable income had escaped assessment.For reaching at that conclusion he should have tangible material in his possession.Pieces of information supplied by the audit party can be a valid basis for reopening.But,objections should not be about interpretation of law.If an audit party interprets sections of the Act,it cross the Laxman Rekha of the mandate given to it.The Hon’ble Apex Court in the matter of Indian and Eastern Newspaper Society (supra)has held as under: “The opinion of an internal audit party of the income-tax department on a point of law cannot be regarded as "information" within the meaning of s. 147(b) of the I.T. Act, 1961, for the purpose of reopening an assessment. But although an audit party does not possess the power to pronounce on the law, it nevertheless may draw the attention of the ITO to it. Law is one thing, and its communication another. If the distinction between the source of the law and the communication of the law is carefully maintained, the confusion which often results in applying s. 147(b) may be avoided. While the law may be enacted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone.No authority is required for the purpose. That part alone of the note of an audit party which mentions the law which escaped the notice of the ITO constitutes "information within the meaning of s. 147(b); the part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account by the ITO. In every case, the ITO must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. the basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the ITO. In every case, a declaration or exposition to be law, must be a creation by a formal source, either legislative or judicial authority. A statement by a person or body not competent to create or define the law cannot be regarded as law. The suggested interpretation of enacted legislation and the elaboration of legal principles in text books and journals do not enjoy the status of law.(emphasis by us).They are merely opinions and, at best, evidence in regard to the state of law and in themselves possess no binding effect as law. The forensic submissions of professional lawyers and the seminal activities of legal academics enjoy no higher status.” In light of the above discussion,we have no hesitation to hold that in the case under consideration the trigger point was the objection raised by the audit party.Initially,the AO issued notice u/s.154 of the Act and later on issued re-assessment notice.Clearly,he was not sure as to which section was applicable to the facts of the case.In the notice,issued u/s.148of 5092/M/10-LawkimLtd. the Act he has mentioned that on verification of records.Thus,he had no other information in his possession at the time of issuing the notice. 5.1.The correspondence between the assessee and the AO indicates that every aspect of the additions made during the reassessment was not only disclosed by the assessee during the original proceedings,but was specifically noticed by him.More important is the fact that every relevant aspect had been brought to his notice not merely in the return filed by the assessee,but in answer to the specific queries and in response to the requisitions of the AO during the assessment proceedings (Pgs.48-56 and 105-116 of the PB).Neither any aspect of the matter remained to be disclosed nor any aspect of the matter remained to be sought by the AO.The assessee had not withheld or failed to disclose any material relevant to the assessment of its income for the assessment year under appeal.The matter does not end there. The assessment order passed u/s.143(3)of the Act, elaborately deals with the issue of exempt income and disallowance of proportionate expenditure for earning of such income. While computing the income of the assessee(Pg.88of the PB.)the AO had made additions under the heads Provisions for doubtful debts,Provision for depletion in value of investments. He had also made disallowances invoking the provisions of section 14A of the Act.We do not find anything in the reasons recorded for reopening that was not considered during the assessment proceedings.Every single aspect referred to therein was considered in the original assessment passed u/s.143(3)of the Act.Thus,there is no doubt that the reopening was based on the same set of facts/material available on record for the year under consideration and that the reasons reflected a mere change of opinion.Besides,a mere failure to furnish a document would not justify reopening an assessment.It has to be established by the AO that the contents of the documents relevant to the assessment were not disclosed by the assessee. If we consider all that transpired during the course of the assessment proceedings,especially the queries raised and the information sought by the AO and the assessee's response thereto,it becomes clear that all the material facts were not only disclosed but were brought to the notice of the AO and the AO had considered the same.Even if the assessment order does not by itself indicate that the AO considered the same,it would make no difference.In Rabo India Finance Ltd.(346 ITR 528),the Hon’ble Bombay High Court has held as under: "The facts thus far indicate that the respondents were aware not merely of the existence of the transactions between the petitioner and Rabobank International but also the details thereof. They also establish that the Assessing Officer had specifically considered the same.If an Assessing Officer calls for specific information relating to or in connection with the material before him,absent anything else,it is reasonable to presume that he had considered the material filed before him as well as the material called for by him before making the assessment order. Had he not considered the material filed before him originally there would be no question of his seeking further information in relation thereto.It is logical,therefore,to presume that he had considered the material in relation to which he sought further information. It would equally follow that the Assessing Officer would also have considered the information furnished pursuant to such demand. A view to the contrary would presume that the AO had ignored the very information that he specifically sought. We are not inclined to presume negligence or indifference on the part of an Assessing Officer in such circumstances. It is reasonable, therefore, to presume that the Assessing Officer had applied his mind to the agreements and matters connected therewith relating to the agreement." There is nothing on record that indicates that the AO did not consider the material before him.Indeed the nature of the queries raised and the information sought by him indicates that he not only noticed but considered the information supplied by the assessee. In the facts and circumstances of this case,we are of the opinion that there was no justification for issuing notice u/s.148 of the Act.Therefore,reversing the order of the FAA,we hold that order passed by the AO,as per the provisions of section 143(3)r.w.s.147 of the Act,is not valid.First effective ground is decided in favour of the assessee.
5092/M/10-LawkimLtd.
6.The next ground of appeal is about provisions made under the head doubtful debts and depletion in value of investments for computing the book-profit.While completing the original assessment,additions on account of provisions of doubtful advances(Rs.30.56 lakhs) and depletion in the value of investment(Rs.1.22 lakhs )were made by the AO.But,that the said amounts were not added back to the book profit while making computation u/s.115 JB of the Act.The assessee had claimed before AO that the provisions made under both the heads were not for meeting any liability,that clause(c) of 115JB(2) of the Act was not applicable, that both the provisions were in respect of assets and not pertained to any liability,that the debts and investments were doubtful for recovery or realisation,that such provisions had not been made for meeting any liability.It relied upon the case of HCL Comnet Systems and Services Ltd.(309 ITR 409) and JG Vacuum Flask Pvt. Ltd.(82 ITD 242). 7.Before the FAA,the assessee argued that in the case of Rallis India Ltd.,the Hon'ble Bombay High Court (323ITR54)had held that the provisions for bad and doubtful debts probable diminution in value assets could not be regarded as a provision for liability,that even if a debt was not recoverable no liability could be fastened to the assessee, that the Hon’ble Court held that clause(i) inserted to Explanation 1to Section 115JB was effective from 1.4. 2001, that on the date on which AO had exercised his jurisdiction and that the amendment in question was brought in subsequently by the Finance Act of 2009 was not in existence at that time.The FAA held that as per the provisions of section 115JB adjustment could be made in the book profit on account of certain items expressly provided in Explanation- 1,that in view of the retrospective amendment to section 115 JB adjustment made by the AO had to be upheld. 8.Before us,it was argued that provisions made by the assessee had been in respect of debts in question on the basis of analysis and identification of each and every party with reference to its age and expected recovery,that said provisions were made after making diligent effort for making recovery,that sub-clause (i)to Expl.1 of section 115JB was introduced retrospectively, that at the time of issue of notice sub clause(i) was not available.She reiterated the arguments advanced before the FAA.The DR supported the order of the FAA. 9.We have heard the rival submissions and perused the material before us.We find that the FAA has held that because of the retrospective amendment the AO was justified in applying the provisions of section 115JB of the Act.Here,we would like to refer to the case of Yokogawa India Ltd.(204Taxman 305),wherein the Hon’ble Karnataka High Court has dealt the issue as under:
7. The learned counsel for the Revenue submitted that Clause (i) stands added to the said Explanation which has come into effect from 1-4-2001 and therefore as the said amounts are set aside as provision for diminishing in the value of assets by virtue of retrospective operation, the said amounts have to be added only to arrive at the book profit and therefore the order passed by the Tribunal is illegal and requires to be set aside. In that context, he also relied on the Judgment of the Apex Court in the case of Vijaya Bank v. CIT [2010)3231TR 166/190 Taxman 257 and CIT v. HCL Comnet Systems and Services Ltd. [200B) 305 ITR 409/174 Taxman 11B. After referring to items (a) to (f) as provided in the Explanation it was held that even doubtful debts can be added back to the net profit if Item (c) stands attracted. Item (c) deals with amounts set aside as provisions made for meeting the liabilities, other than ascertained liabilities, The assessee's case, would; therefore, fall within the ambit of Item (c) only if the amount is set aside as provision, the provision is made for meeting a liability and the provision should be for other than ascertained liability, that is, it should be for unascertained liability. In other words, all the ingredients should be satisfied to attract Item (c) of Explanation to Section 115JA. It was further held that there are two types of debt. A debt payable by the assessee is different from a debt receivable by the assessee. A debt is payable by the assessee where the assessee has to pay the amount to others whereas the debt receivable by 5092/M/10-LawkimLtd. the assessee is an amount which the assessee has to receive from others. In the present case the debt under consideration is debt receivable by the assessee. The provision for bad and doubtful debt, therefore, is made to cover up probably the diminution in the value of assets that is debt which is an amount receivable by the assessee. Therefore, such a provision cannot be said to be a provision for liability, because even if a debt is not recoverable no liability could be fastened upon the assessee. B. In the present case, the debt is an amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore it was held that Item (c) of the Explanation is not attracted to the facts of the case. Item (c) in Section 115JA and 115-JB(1) are identical. In order to attract the Explanation the debt which is doubtful or bad should satisfy the requirement contemplated in Item (c) of the Explanation. It is the amount or amounts set aside as provisions made for meeting the liability other than the ascertained liabilities. In the instant case also the bad and doubtful debt for which a provision Is made which is in the nature of diminution in the value of any asset would not fall within item (c) of Explanation (i). It is in that context the appellate Commissioner as well as the Tribunal has granted relief to the assessee. Realising the fatality of the said argument, it is contended now that item (i) cannot amount to satisfaction as provision for diminishing in the value of assets is substituted, in case of the assessee falls under Item (c). In meeting the aforesaid case, the learned counsel for the assessee brought to our notice the judgment of the Apex Court in the case of Vijaya Bank (supra) where the Apex Court had an occasion to consider his explanation. It accepted the argument on behalf of the Revenue to the effect that the explanation makes it very clear that there is a dichotomy between actual write off on the one hand and provision for bad and doubtful debt on the other. A mere debit to the profit and loss account would constitute a bad and doubtful debt, but it would not constitute actual write off and that was the very reason why the explanation stood inserted. Prior to the Finance Act, 2001 many assessees used to take the benefit of deduction under Section 36(1 )(vii) of the 1961 Act by merely debiting the impugned bad debt to the profit and loss account and, therefore, the Parliament stepped in by way of Explanation to say that a mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. The Apex Court accepted the said legal position. However it was clarified that besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and, consequentially, at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance sheet was shown as net of the provision for the impugned bad debt. Then the said amount representing bad debt or doubtful debt cannot be added in order to compute book profit. Therefore, after the Explanation the assessee is now required not only to debit the profit and loss account but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the Impugned bad debt. Therefore, in the first place if the bad debt or doubtful debt is reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to Section 115JA or JB is not at all attracted. In that context even if amendment which is made retrospective the benefit given by the Tribunal and the appellate Commissioner to the assessee is in no way affected. In that view of the matter, we do not see any merit in this appeal.” In the case of Rallis India Ltd.(323ITR54)similar issue had arisen.In that matter the assessee had filed its return of income for the AY. 2004-05 on 29/10/2004,and had declared a loss of Rs.52.87 crores.While computing this loss, it claimed a deduction of bad debts amounting to Rs.12,00,43,394.It also computed a book loss in the amount of Rs.42,14,40,497 u/s. 115JB.The AO issued two questionnaires during the course of the assessment proceedings, one of them being on 29/09/2006.A specific query was raised in regard to the allowability of the bad debts claimed by the petitioner under section 36(1)(vii) read with section 36(2) and on the computation of book profits under section 115JB .The petitioner responded to the 5092/M/10-LawkimLtd. queries by its letters.He passed an order of assessment on 29/12/2006, by which the claim in respect of bad debts was disallowed to the extent of Rs. 5.54 crores.He,however,allowed the claim to the extent of Rs. 6.46 crores.After recomputing the book profits,he assessed the income of the petitioner under section 115JB at Rs. 41.95 crores.The FAA allowed relief to the assessee in respect of the bad debts,but confirmed the disallowance in respect of book profits u/s.115JB.As a result of the order passed by the FAA,the entire claim on account of bad debts in the amount of Rs.12 crores came to be allowed under section 36(1)(vii) .Cross- appeals were filed by the petitioner and by the Revenue.On 16/07/2008,a notice under section 148 was issued to the assessee by the AO.The assessee filed a writ petition before the Hon’ble Bombay High Court. Deciding the writ the Hon’ble Court held as under: “For the computation of book profits under section 115JB,the Assessing Officer has to accept the authenticity of the accounts maintained in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956, which are certified by the auditors and passed by the company in its general meeting. The Assessing Officer does not have jurisdiction to go beyond the net profits as shown in the profit and loss account, save and except to the extent which is provided for in the Explanation. Under Explanation (1)(c) the increase shall be of the amount or amounts set aside for meeting liabilities other than ascertained liabilities. In order that clause (c) should apply, there must be a provision ; the provision must be for meeting a liability and the liability in question must be other than an ascertained liability. The Supreme Court in held that a debt which is payable by the assessee must be distinguished from a debt which is receivable by the assessee. A provision for bad and doubtful debts is made to cover up the probable diminution in the value of the asset, namely, a debt which is an amount receivable by the assessee. Such a provision cannot be regarded as a provision for a liability because even if a debt is not recoverable, no liability could be fastened upon the assessee.Subsequent to the decision of the Supreme Court in Parliament amended Explanation(1)to section 115JB by the Finance Act of 2009 inserting clause (i) in Explanation(1)so as to provide for the amount or amounts set aside as provision for diminution in the value of an asset. The amendment was made with retrospective effect from April 1, 2001. ………during the course of the assessment proceedings, the Assessing Officer brought his mind to bear upon the question as to whether the assessee was entitled to claim a deduction under section 36(1)(vii) , with respect to bad debts, details of which were furnished to the Assessing Officer, pursuant to which an assessment order came to be passed under section 143(3) . The reason which weighed with the Assessing Officer to reopen the assessment was that the assessee had not debited any amount towards the write off of debts/advances to the profit and loss account. Such a requirement is not contained in section 36(1)(vii) . There was an absence of tangible material on the basis of which the assessment could have been reopened. The reason which weighed with the Assessing Officer was extra-neous to the basis on which the deduction can legitimately be claimed under section 36(1)(vii) . This was case of a mere change of opinion without any tangible material. The reopening of the assessment on this ground was hence unsustainable. (ii) That on the date on which the Assessing Officer purported to exercise his power to reopen the assessment under section 147 , the legislative amendment by the insertion of clause (i) to Explanation (1) to section 115JB had not been brought into force on the statute book. The order of the Assessing Officer with reference to the computation of book profits under section 115JB was at the least a probable view and as a matter of fact the correct view to take in view of the decision of the Supreme Court in . It is well-settled that the law laid down by the Supreme Court is declaratory of the position as it always stood. In any event, the view of the Assessing Officer was supported by the interpretation placed even contemporaneously in the judgment of the court in and in the judgments of the Delhi High Court in and . In the circumstances, there was no warrant for reopening the assessment in exercise of the power conferred under section 147.” Lastly,we would also like to refer to the judgment of Kirloskar Systems Ltd.(220ITR220).In that judgment the Hon’ble Karnataka High Court has held as follow: 8 5092/M/10-LawkimLtd.
“2. The Apex Court in the case of Vijaya Bank v. CIT[201O] 323 ITR 166/190Taxman 257 (SC) has held that the assessee is entitled to the benefit of rejection under Section 36(1)(vii) of the Income-tax Act, 1961 (for short 'the Act when there is an actual write off by the assessee in its book. This Court in the case of CIT v. Yokogawa India Ltd. [2012] 204 Taxman 305/17 taxmann.com 15 (Kar.) has held adjustment of provision for bad and doubtful debts is reduced from the loans and advances or the debtors from the assets side of the balance sheet, the Explanation to Section 115JA and JB is not at all attracted .Therefore, after the Explanation the assessee is now required not only to debit the P and L account but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end" of the year, the amount of loans and advances / debtors is shown as net of the provisions for the impugned bad debt. This Court in the case of CIT v. Jupiter Bio-Science Ltd. [2013] 352 ITR113/[2011] 202 Taxman 80/13 taxmann.com 161 (Kar.) has held the assessee is liable to pay advance tax as per the amended provisions of Section 115JB of the Act for the relevant period. However, he is not liable to pay interest on the amount due as per the amended provisions. However, he has not paid the advance tax as per the provisions existing prior to the amendment. Hence, he is liable to pay interest on the said amount deducting the difference of the tax paid. The Apex Court in the case of Bharat Earth Movers v. CIT[2000] 245 ITR 428/112 Taxman 61 (SC) has held that an assessee who is maintaining the accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid. The liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. Therefore for that, reason it was held that the gratuity payable and encashment of earned leave is not a contingent liability and provision thereof is deducted. In the light of the settled principles laid down by the Apex Court, no substantial questions of law arise for consideration in this appeal. Accordingly, the appeal is dismissed.” Considering the above discussion,we are of the opinion that the order of the FAA cannot be endorsed even on merits.Ground no.2 is also decided in favour of the assessee.