Case Law Details
NLDK Timbers Pvt. Ltd. Vs ACIT (ITAT Delhi)
Summary: The Income Tax Appellate Tribunal (ITAT), Delhi Bench, allowed the appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), relating to Assessment Year 2011-12. The dispute concerned the validity of reassessment proceedings initiated under Sections 147 and 148 of the Income-tax Act, 1961.
The assessee had originally filed its return of income declaring total income of ₹90.70 lakh. Assessment under Section 143(3) was completed on 28 March 2014 determining total income at ₹91.53 lakh. Subsequently, reassessment proceedings were initiated on the ground that the assessee had claimed bad debts amounting to ₹2.99 crore, including foreign receivables of ₹2.91 crore due from a foreign company. The Assessing Officer (AO) held that the assessee had not produced any communication from the Reserve Bank of India approving the write-off of foreign receivables and consequently disallowed the claim relating to such bad debts.
The Commissioner (Appeals) upheld both the reassessment proceedings and the disallowance. The assessee challenged the order before the Tribunal, contending that all details relating to the bad debt claim had already been furnished during the original assessment proceedings. It was argued that reopening the assessment on the basis of the same material amounted to a mere change of opinion. The assessee further submitted that the reasons recorded for reopening did not allege any failure on its part to disclose fully and truly all material facts necessary for assessment.
The Revenue contended that although the details had been submitted by the assessee, they were furnished only shortly before completion of the original assessment. According to the Revenue, the AO had insufficient opportunity to examine the claim, and therefore, it could not be said that any opinion had been formed on the issue during the original assessment.
After considering the submissions, the Tribunal observed that the assessee had indeed provided details regarding the bad debt claim during the original assessment proceedings. Although these details were submitted close to the completion of the assessment, the Tribunal held that this circumstance could not justify reopening under Section 147. It noted that the Revenue had other remedies available, including revision under Section 263 of the Act.
The Tribunal reiterated that reopening of an assessment requires specific and credible information leading to the formation of a belief that income has escaped assessment. Such belief must be based on tangible material available at the time of reopening and cannot be founded merely on suspicion or borrowed satisfaction.
The Tribunal found that the reassessment proceedings were based entirely on material already available on record and that no new tangible material had been brought on record by the AO. Further, since the notice under Section 148 had been issued after four years from the end of the relevant assessment year, the proviso to Section 147 applied. However, the reasons recorded by the AO did not state that income had escaped assessment due to any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
Holding that the statutory conditions prescribed under the proviso to Section 147 had not been satisfied, the Tribunal declared the notice issued under Section 148 to be invalid and quashed the consequential reassessment order. Since the appeal was allowed on legal grounds, the remaining grounds relating to the merits of the disallowance were treated as academic and were not adjudicated.
Accordingly, the appeal of the assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal is filed by assessee against the order dated 27.05.2025 of Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-6/10321/2-18-19 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 31.12.2018 passed u/s 147 r.w.s. 143(3) of the Act pertaining to Assessment Year 201112.
2. Brief facts of the case are that the assessee has filed its return of income on 30.09.2011 declaring total income of INR 90,70,150/-. The assessment order was passed u/s 143(3) of the Act dated 28.03.2014 at INR 91,53,471/-. Thereafte, based on the information received that he assessee has claimed bad debts of INR 2,99,82,398/-out of which a sum of INR 2,91,40,265/- was with respect to outstanding receivable due to Ulysses Navigation, S.A., a foreign company and the assessee has not fulfilled all the conditions under FEMA for writing off such outstanding, therefore, re-assessment proceedings u/s 147 were initiated by way of issue of notice u/s 148 of the Act on 29.03.2018. The AO observed that the assessee has not filed any communication from Reserve Bank of India regarding approval for writing off of the receivables due from foreign buyers and thus, the corresponding amount of INR 2,91,40,265/- claimed as bad debt of foreign outstanding receivables is added back to the total income of the assessee.
3. Against the said order, the assessee preferred appeal before Ld. CIT(A) who vide impugned order dated 27.05.2025, confirmed the disallowances made by AO and dismissed the appeal of the assessee.
4. Aggrieved by the order of Ld. CIT(A), assessee filed appeal before the Tribunal by taking following Grounds of appeal:
1. That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in law and on facts in upholding the validity of reassessment proceedings initiated u/s 147, which were without jurisdiction and bad in law.
2. That the learned CIT(A) has erred in upholding the reassessment proceedings without appreciating that the Assessing Officer failed to dispose of the Assessee’s objections to reopening under section 147/ 148 before passing the Assessment Order.
3. That the learned CIT(A) failed to appreciate that reassessment was based on a mere change of opinion, and all primary facts relating to bad debts were duly disclosed during the original assessment proceedings under section 143(3).
4. That the learned CIT(A) erred in confirming the disallowance of X2,91,40,265/- claimed as bad debts written off, ignoring that the same was written off in the books and hence allowable under section 36(1)(vii) read with section 36(2) of the Income-tax Act, 1961.
5. That the learned CIT(A) erred in holding that non-submission of RBI permissions or FE1VIA compliance renders the bad debts inadmissible, without appreciating that such conditions are not mandated under the Income Tax Act.
6. That the learned CIT(A) erred in ignoring binding precedent of the Hon’ble Supreme Court in TRF Ltd. v. CIT [(2010) 323 ITR 397 (SC)] and CBDT Circular No. 12/2016, which clarify that writing off the debt in books is sufficient for deduction under section 36(1)(vii).
7. That the order of the learned CIT(A) is erroneous, arbitrary, and liable to be quashed.
8. The appellant craves leave to add, amend, alter or withdraw any of the grounds of appeal before or at the time of hearing.
5. Ground of appeal Nos. 1 & 2 raised by the assessee are with respect to the re-opening of the assessment.
6. Before us, Ld.AR submits that in the case of assessment u/s 143(3) was completed on 28.03.2014 wherein all the details related to bad debts claimed by the assessee were called for by the AO. The assessee vide replies dated 27.03.2014 86 28.03.2014 filed all the details with respect to the bad debts alongwtih relevant submissions. And after examination the submissions made by the assessee, AO passed the assessment order by making addition of INR 83,317/- and no doubts were raised with respect to the bad debts claimed. Ld.AR submits that once the issue of bad debt was fully examined, reopening of assessment on the basis of same material is nothing but mere change of opinion and thus, the reopening in the present case is bad in law. The ld. AR further submitted that the AO has failed to mention specific failure on the part of the assessee truly and fully disclosing the material / facts. The ld. AR stated that on the perusal of the reasons recorded, it could be seen that there is no whisper by the AO of any failure on the part of the assessee to disclose material / facts. The reasons recorded nowhere notice the applicability of the first proviso of the section 147 of the Act. He therefore prayed that without making any specific charge of failure on the part of the assessee to disclose fully and truly material facts necessary for the assessment, the reassessment proceedings initiated u/s 147 of the act after the expiry of four years from the end of the relevant assessment year is mere change of opinion. In this regard, Ld.AR placed reliance on the judgements of Hon’ble Supreme Court and Hon’ble High Court in following cases
i. CIT vs Kelvinator of India Ltd. 120101320 ITR 561 (SC);
ii. ITO vs Techspan India Pvt.ltd. 120181404 ITR 10 (SC);
iii. S Chand & Co. Ltd. vs ACIT 2017 (9) TMI 238; and
iv. DIT vs Rolls Royce Industrial Power India Ltd. 120171394 ITR 547 (Delhi HC).
7. On the other hand, Ld. Sr. DR for the Revenue vehemently supported the orders of lower authorities and submits that in the case of the assessee though the assessment was completed u/s 143(3) however, it is observed that the assessee has filed the details with respect to bad debts at the fag end of the proceedings vide reply dated 27 86 28.03.2014 and assessment was completed on 28.03.2014 therefore, these details filed by the assessee could not be examined. Under these circumstances, ld. Sr DR requested for the confirmation of the re-opening of the assessment. Regarding change of opinion, Ld. Sr. DR submits that submissions were filed by the assessee only on one day before the completion of the assessment therefore, the AO could not have framed any opinion and therefore, it cannot be said that the issue of bad debts stood examined by the AO in original assessment proceedings. He thus, prayed that reopening of assessment u/s 147 of the Act be uphold.
8. Heard the contentions of both the parties at length and perused the material available on record. In the instant case, the assessee has claimed bad debt of INR 2,99,82,398/- which includes foreign receivables of INR 2,91,40,265/- towards export sales made outside India. The assessee had filed all the details in respect to bad debts before the AO during the course of original assessment proceedings u/s 143(3) of the Act however, it is observed that such replies were filed only one day before the completion of the assessment or on the date of passing of the order thus, they could not be examined by the AO. However, this cannot be the reason for reopening as the Ao has other options such as revision u/s 263 of the Act which has not been done.
9. As per section 147 of the Act, before reopening the assessment, the first and foremost step is that AO should examine the information in his possession which he is going to rely on, for formation of his belief that income of the assessee has escaped assessment. The information should be specific and clear and have live nexus with the material available. Further, the information should be available at the time of reopening of the assessment and not subsequent to the re-opening of the assessment by issuing a notice u/s 148 and such information should be specific and not general in nature. After the examination of the information, the AO has to form a belief that income has escaped assessment. Again, for formation of the belief the information should be credible and should have a live link and nexus with the belief about escapement of income. The belief is to be formed on the basis of the information available with the AO at that time. He cannot go ahead in re-opening of the assessment, issue a notice and then search for the material. It is also important to note that there must be reasons to form a belief and not reasons to suspect, whatsoever strong the suspicion, it may be. One more aspect needs to considered that for formation of the belief of escapement of income, satisfaction should be of AO’s own satisfaction and not the borrowed satisfaction.
10. After formation of belief of escapement of income, AO must record reasons in writing that income has escaped assessment which should be clear and specific and not vague and should not be based on any kind of suspicion, conjunctures and surmises.
11. Now coming to the facts of the present case, the assessment was already completed u/s. 143(3) of I.T. Act by an order dated 28.03.2014 after seeking all the information from the assessee including of bad debts claimed and if the same were filed late, the revenue has the option of revision u/s 263 of the Act however, as could be seen, only on the objection by the audit party, AO proceeded to reopen the assessment. Once the assessment was completed u/s 143(3) of the Act, for reopening such assessment proviso to section 147 of I.T. Act applies as the notice was issued after four years from the end of the relevant assessment year. AS per the said proviso, unless the income has escaped assessment by reason of failure on the part of assessee to disclose fully and truly all material facts necessary for assessment. While recording the reasons, the AO should observe that assessee has failed to disclose full and true material facts. In the present case, entire premise of re-assessment is based on verification of the material already available on record and not even an iota of any new tangible material which the assessee had failed to disclose was brought on record by the AO. It has been held in several decisions of Hon’ble High Courts that, if the reasons recorded for reopening the assessment after expiry of four years from the end of the relevant assessment year do not specify that the income has escaped assessment on account of default on failure on the part of the assessee to disclose material facts, the entire reassessment proceeding and re-assessment order would be invalid.
12. In view of above discussion, we are of the considered view that conditions necessary as envisaged in proviso to section 147 of Act are not fulfilled by the AO thus the notice issued u/s 148 of Act is bad in law and consequent re-assessment order passed is hereby quashed. This being so, Grounds of appeal Nos. 1 86 2 raised by the assessee with respect to re-opening of assessment are allowed.
13. Since we have already allowed assessee’s legal grounds of appeal, the remaining grounds of appeal become academic and thus not adjudicated.
14. In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 29.04.2026.
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