Case Law Details
Section 148 re-opening based on mere change of opinion not valid- ITAT Ahmedabad held in Gujarat Paguthan Energy Corporation P Ltd Vs ITO that AO could only reopen the assessment if he had reasons to believe that income had escaped assessment, he could not reopen the same only on the basis of mere change in opinion. He should have strong reasons to believe which should be filed.
If the amount of debtors were shown as after deducting provision in the balance sheet then the same should be treated as a bad debt and should be allowed as an expense in calculation of MAT as provision for bad and doubtful debts cannot be termed as a provision for liability but is in the nature of diminution in the value of asset.
For allowing any income based deduction to the assessee, if the assessee had not claimed depreciation and claimed the deduction without claiming depreciation then AO could not forcefully deduct the depreciation from profit & Loss Account.
Facts of the case:
- The AO had made addition of Rs 21,80,58,244/-on account of provision of bad debts;
- AO had re-opened the assessment by merely change in opinion;
- AO had allowed the depreciation which was not claimed by the assessee while calculating the income.
Contention of the assessee:
Assessee was of the view that as AO was re-opening the assessment just on the basis of the note which the assessee had mentioned in the return of the income that he had not added the provision for doubtful debts while calculating the book profits. AO was not having reasons to believe that the income has escaped assessment, AO just on the basis of change in opinion regarding the note mentioned under the computation of income had opened the assessment which was against the law.
As the assessee had shown the debtors amount in the balance sheet as a net amount which meant that the debtors were not receivable so the same should be allowed.
The assessee had claimed the income based deduction without claiming depreciation, the same should not be forcefully allowed to the assessee.
Contention of the revenue:
Revenue was of the view that as the full facts were not considered during the regular assessment so the same had been reopened for the re-assessment.
As the provision for doubtful debt was not allowed to be reduced while calculating MAT, so the same should had been added back for calculating book profits for MAT .
As the assessee had not claimed the depreciation which was also the part of profit & Loss Account so the same should also be deducted for calculating the income of the assessee.
Held by ITAT:
ITAT relied on the decision given by Hon’ble Gujarat High Court in the case of Parixit Industries (P.)Ltd. vs. ACIT in which it was held that if the assessee had disclosed all the material facts regarding his its activities and had not suppressed anything then it could not be said that any income had escaped assessment, notice for re-assessment could only be given by the AO only and only if the AO was having reasons to believe that the assessee had escaped some income which should be recorded and be produced .It was just a second thought of the AO regarding the treatment of provision of doubtful debts that he had re-opened the assessment. Mere change in opinion would not amount to escaping the assessment.
ITAT relied on the decision given by Hon’ble Karnataka High Court in the case(s) of CIT vs. Yokogawa India Ltd. and CIT vs. Kirloskar Systems Ltd that if the assessee had shown the debtors net of doubtful debts, this means that the assessee had reduced his asset which was not recoverable, so provision for doubtful debts debited to profit & Loss account could not be disallowed as a provision, it was an expense which had been debited to the profit & Loss Account so should not be added back for the calculation of MAT.
ITAT relied on the decision given by Hon’ble Supreme Court in CIT vs. HCL Comnet Systems & Services Ltd. reported at (2008) 305 ITR 409(SC) that It was not necessary to claim the depreciation, it was at the discretion of the assessee whether to claim or not. If the assesse had not claimed then the same should not be forcefully deducted from the profit of the assessee for calculation of any book profit or any deduction.
