• Aug
  • 11
  • 2013

Subsequent reversal of the legal position by judgment of Supreme Court does not authorize the department to reopen the assessment

The Hon’ble Supreme Court in the case of DCIT and others Vs. Simplex Concrete Piles (India Ltd.) (2012) 254 CTR (SC) 221 at para 3 held as follows:-

“the subsequent reversal of the legal position by the judgment of Hon’ble Supreme Court does not authorize the department to reopen the assessement which stood closed on the basis of the law, as it stood at the relevant time.”

The Hon’ble Court was considering the case where, at the relevant time when the assesement order got completed, the law as declared by the jurisdictional High Court was in favour of the assesse. This judgement was subsequently reversed by the Hon’ble Supreme Court. Such reversal of law by the Hon’ble Supreme Court, was held as that which does not authorize the AO to reopen the assessments. This proposition is applicable to the facts of the case.

INCOME TAX APPELLATE TRIBUNAL

BENCHES ‘B’ NEW DELHI

ITA No.4349/Del/2011

Assessment Year: 2005-06

Deputy Commissioner of Income Tax

V/s

DLF Utilities Ltd Successor of DLF Services Ltd

A D Jain, JM and J Sudhakar Reddy, AM

Dated: July 19, 2013

 ORDER

Per: J Sudhakar Reddy:

This is an appeal filed by the Revenue directed against the order of the Ld.CIT(A)-XIII, New Delhi dated 08.05.2012 pertaining to the Assessment Year 2005-06.

2. Facts in brief:- The assessee company is engaged in the business of real estate, development and providing services relating to real estate. In this case the return of income was filed on 31.10.2005 declaring ‘Nil’ income. Under the regular provisions of the Income Tax Act, 1961 and Rs.3,42,10,351/- u/s 115 JB of the Act. The original assessment u/s 143(3) was made on 31.12.2007 and the profit declared u/s 115JB of Rs.3,42,10,351/- was accepted. Thereafter, the assessment was reopened u/s 147 of the Act on the ground that during the course of original assessment, the Assessing Officer did not add back the provision for doubtful debts of Rs.28,39,451/- while computing the profit u/s 115JB of the Act. Therefore, notice u/s 148 was issued on 19.01.2010. The reassessment was passed u/s 143(3) r.w.s. 147 on 28.12.2007 computing the book profit at Rs.3,70,40,800/-, wherein the provision for doubtful debts was added to the book profit u/s 115JB.

3. As stated the original assessment was completed u/s.143(3) on 31.12.2007. During the course of original assessment the Ld.AO sought answers for the following questions from the assessee.

“Questionnaire dt. 10.12.2007 issued by the Assessing Officer 10(2), New Delhi:

Q.No:20:- File copies of reports of actuarial analysis of provision of gratuity and leave encashment as given at Note 7 on accounting. Why the amount of Rs.54,39,526/- minus from 115JB calculation?

Q.No.21: As per schedule 23 item (d) – excess of Rs.2.72 crore has been taken to reserve that has been generated on transfer of capital of transferor company. Give reason why said amount was not added back u/s 115JB?

In response the above queries, the appellant filed its reply dt. 20.12.2007. The replies filed for query no.20 and 21 were as under:

Answer to query no.20: Details of provision for gratuity and leave encashment stand already filed vide item no.7 of our letter dt. 20.11.2007. As regards the amount of Rs.54,39,526/- reduced in the calculation of book profit u/s 115JB of the Act, it is submitted that the same has been reduced as per clause (iii) of s.115JB which is reproduced below for your ready reference:-

(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.

Answer to query no.21:- The assessee has prepared its profit and loss account for the year under assessment in accordance with the provisions of Part II and Part VI to the Companies Act, 1956 and Rs. 2.72 crores taken to the Reserve a/c as per Schedule 23 of item (d) of the Balance Sheet has not been transferred from the profit and loss account. Therefore, the question of adding back of the reserve u/s 115JB does not arise.”

4. The income returned by the assessee was accepted thereafter. The assessment was reopened on the following reasons:-

“Proceedings u/s 147 of the Income Tax Act, 1961 were initiated vide notice dated 19.01.2010 by the ITO, Ward 10(2), New Delhi as per following reasons:-

“The assessment in the case of M/s DLF Services P.Ltd. for the Assessment Year 2005-06 was completed u/s 143(3) of the Act on 31.12.2007 determining ‘Nil’ income after setting off b/f losses/depreciation. Under normal provisions and at an income of Rs. 3,42,10,351/- u/s 115JB of the Act. It has been noticed that the assessee company had debited Rs.28,39,451/- to the profit and loss account as provision for doubtful debts, which was added back in the computation under normal provision. But while calculating the book profit u/s 115JB the same provision was not added back.”

5. The assessee raised objections. The A.O. disputes the objections by holding as follows:-

a. This is not a case where the case is reopened on the basis of retrospective amendment to the act. Prior to the amendment explanation I (c) of Sec. 115 JB of the IT act clearly provide that the net profit should be increased by the provision made for any unascertained liability.

b. This is not a case where the reopening is on a change of opinion as the Ld.A.O. has not formed any opinion at the time of original assessment.

c. That the claim of the assessee that provision for bad debts is an ascertained liability is incorrect, as this is just a contingent liability.

6. The assessee carried the matter in appeal. The First Appellate Authority upheld the contentions of the assessee that the reopening is bad in law for the reason that :-

a. The reopening was done on a change of opinion which is not permissible in law ;

b. The reopening is also not possible merely by reason of a retrospective amendment to Sec.115 JB of IT Act.

7. Aggrieved the revenue is in appeal before us on the following grounds:-

1. Whether the Ld.Commissioner of Income Tax (Appeals) under the facts and circumstances of the case and in law was justified in quashing the reopening of the assessment u/s 147 of the Act when the Jurisdictional High Court in the case of Bawa Abhai Singh vs. CIT, 117 Taxman 12 and Rakesh Aggarwal vs. ACIT, 87 Taxman 306, has also held that under the amended provisions of s.147 the power to reopen is much wider and can be exercised even after the assessee has disclosed fully and truly all material facts.

2. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of hearing.”

8. We have heard Ms.Shumana Sen, the Ld.Sr.D.R. on behalf of the Revenue and Mr. Pradeep Dinodia, the Ld.Counsel on behalf of the assessee.

9. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record and orders of the authorities below, case laws cited, we hold as follows.

10. A perusal of the questionnaire issued by the AO to the assessee and the replies of the assessee demonstrate that the AO has examined the computation of book profits u/s. 115 JB of the Act. As on the date of completion of original assessment the legal position was in favour of the assessee as regards adjustment of provision for bad debts. Hence it can be safely presumed that the Assessing Officer had not suggested any adjustment to book profits u/s 115 JB on account of diminution in the value of an asset i.e. provision for bad debts.

10.1. The Special Bench of the ITAT (Calcutta) in the case of JCIT vs. Usha Martine Industries Ltd. (2007) 105 TTJ 543 (SB) and the Hon’ble Delhi High Court in the case of CIT Vs. M/s. Eichir Ltd. (2006) 287 ITR 170 (Del) and Hon’ble Supreme Court in the case of CIT vs. HCL Comnet Systems and Services Ltd. (2008) 305 ITR 409 (SC) , Judgment dated 23.09.2008 held the issue in favour of the assessee.

10.2. The assessment order was originally passed u/s. 143(3) on 31.12.2007. By that date the Hon’ble Delhi High Court in the case of CIT Vs. Eichir Ltd. (supra) has held the issue in favour of the assessee. The judgment of the High Court was delivered on 29.08.2006.

11. In view of the binding judgement of the jurisdictional High Court the AO, presumably has not made an adjustment u/s. 115 JB of the Act on the issue of provision for doubtful debts. Thus we are convinced with the order of the Ld.CIT(A) that the reopening was on a mere change of opinion and hence is bad in law.

12. The Hon’ble Supreme Court in the case of DCIT and others Vs. Simplex Concrete Piles (India Ltd.) (2012) 254 CTR (SC) 221 at para 3 held as follows:-

“the subsequent reversal of the legal position by the judgment of Hon’ble Supreme Court does not authorize the department to reopen the assessement which stood closed on the basis of the law, as it stood at the relevant time.”

13. The Hon’ble Court was considering the case where, at the relevant time when the assesement order got completed, the law as declared by the jurisdictional High Court was in favour of the assesse. This judgement was subsequently reversed by the Hon’ble Supreme Court. Such reversal of law by the Hon’ble Supreme Court, was held as that which does not authorize the AO to reopen the assessments. This proposition is applicable to the facts of the case.

14. Thus, for all these reasons we uphold the order of the First Appellate Authority and dismiss this appeal by the revenue.

15. In the result the appeal of the Revenue is dismissed.

(Order pronounced in the Open Court on 19.7.2013.)

Sandeep Kanoi

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