Bombay H.C : Bad debts was specifically raised in original assessment proceedings and on receiving explanation from assessee

High Court Of Bombay

Yash Raj Films (P.) Ltd. Vs. ACIT

Assessment Year : 2004-05

Section : 147, 148

J.P. Devadhar And Mrs. Mridula Bhatkar, JJ.

Writ Petition No. 2392 Of 2010

January 24, 2011

JUDGMENT

1. Heard

2. Rule. Returnable forthwith. By consent of the parties the petition is taken up for final hearing.

3. This petition is filed to challenge the notice dated March 22, 2010, issued under section 148 of the Income-tax Act, 1961. By the said notice the assessment for the assessment year 2004-05 is sought to be reopened. The objection raised by the petitioner for reopening of the assessment has also been dismissed vide order dated October 25, 2010.

4. In the present case the original assessment order under section 143(3) of the Income-tax Act, 1961 was passed on December 19, 2006 wherein the Assessing Officer inter alia had allowed deduction of Rs. 94 lakhs claimed as bad debt.

5. By notice dated March 23, 2009 issued under section 148 of the Income-tax Act, 1961 the Assessing Officer sought to reopen the assessment within a period of four years from the end of the relevant assessment year by recording reasons which reads thus :

“The assessee-company is engaged in the business of production and distribution of films. The return for the assessment year 2004-05 was filed on October 31, 2004 declaring income of Rs. 4,57,64,160. The assessment was completed under section 143(3) on December 19, 2006 determining total income of Rs. 4,73,63,940. In the assessment an addition of Rs. 2,25,000 was made towards miscellaneous expenses not proved. Further, the deduction under section 80HHF was restricted to Rs. 33,54,913 as against the assessee’s claim of Rs.47,29,694. On appeal, the Commissioner of Income-tax (Appeals) has deleted the additions.

The assessee-company has debited an amount of Rs. 95,41,541 in the profit and loss account (Schedule 14 administrative expenses) as bad debt written off. As per the assessee’s letter dated November 13, 2006, the details of bad debts written off is Rs. 95,41,540 and the major parties are ‘Aum Creaters Unlimited’ (Rs. 85,94,516) and ‘Raam Raj Kalamandir’ (Rs. 5,00,000). The amount due from ‘Aum Creaters Unlimited’ (Rs. 85,94,516) relates to advances paid and expenses incurred by the assessee in the financial year 2002-03. The amount due from Raam Raj Kalamandir (Rs. 5,00,000) also related to advances paid. It is noticed that the advances so paid to the above parties by the assessee have not been shown as income and the nature of business of the assessee is not money-lending. The expenses incurred by the assessee in the earlier year on behalf of the above parties are also not shown as income in the profit and loss account.

As per section 36(1)(vii) of the Income-tax Act, amount of any debt or part thereof is allowable as deduction subject to the debt has been taken into account in computing the income of the assessee of that previous year or of an earlier previous year, or represents money lent in the ordinary course of business of banking or money-lending which is carried on by the assessee.

In view of the above, the claim allowed of Rs. 95,41,540 as bad debt written off under section 36(1)(vii) is not in order. The same is required to be disallowed and added to the income of the assessee. This has resulted in underassessment of income of Rs. 95,41,540.

Hence, I have reason to believe that income chargeable to tax Rs.95,41,540 has escaped assessment for the assessment year 2004-05 within the meaning of section 147. Issue notice under section 148.”

6. The petitioners by their letter dated August 6, 2009 objected to the reopening of the assessment on the ground that during the course of original assessment, the Assessing Officer had enquired about the allowability of the deduction and on receiving cogent reply allowed the claim of the assessee and therefore no case is made out for reopening the assessment. Admittedly no action has been taken pursuant to the notice dated March 23, 2009 issued under section 148 of the Income-tax Act, 1961.

7. Thereafter by the impugned notice dated March 22, 2010 issued under section 148 of the Income-tax Act the Assessing Officer once again sought to reopen the assessment for the assessment year 2004-05 by recording reasons as follows :

“The assessee-company is engaged in the business of production and distribution of films. The return of the assessment year 2004-05 was filed on October 31, 2004 declaring total income of Rs.4,57,64,160. The assessment was completed under section 143(3) on December 19, 2006 determining total income at Rs. 473,63,940.

Subsequently it was noticed that the assessee-company has debited an amount of Rs. 95,41,541 in the profit and loss account (schedule 14-Administrative expenses) as bad debt written off. As per assessee’s letter dated November 13, 2006, the details of bad debts written off is Rs. 94,41,540 and the major parties are ‘Aum Creaters Unlimited’ for Rs. 86,94,516 and ‘Raam Raj Kalamandir’ for Rs. 5,00,000. The amount due from Aum Creaters Unlimited of Rs.85,94,516 relates to advances paid and expenses incurred by the assessee in the financial year 2002-03. The amount due from Raam Raj Kalamandir of Rs. 5,00,000 also relates to advance paid to the party. It is noticed that the advances so paid to the above parties by the assessee have not been shown as income and the nature of business of the assessee is not money-lending. The said expenses incurred by the assessee in the earlier year on behalf of the above parties are also not shown as income in the profit and loss account.

As per section 36(1)(vii) of the Income-tax Act, amount of any debt or part thereof is allowable as deduction subject to the debt has been taken into account in computing the income of the assessee of that previous year or of an earlier previous year, or represents money lent in the ordinary course of business of banking or money-lending which is carried on by the assessee.

The assessee-company has deliberately concealed the fact that Rs.94,41,540 was never offered as an income. In this case the provisions of section 147 are clearly applicable as there was failure on the part of the assessee-company to declare fully and truly all material facts necessary for its assessment for the assessment year 2004-05.

In view of the above reason, income chargeable to tax of Rs.95,41,540 has escaped assessment for the assessment year 2004-05 within the meaning of section 147. The assessee’s case is covered within the meaning of section 149(1)(b) of the Income-tax Act, 1961 as the concealed income exceeds Rs. 1,00,000.”

8. On a perusal of the reasons recorded it is seen that the assessment for the assessment year 2004-05 is sought to be reopened mainly on the ground that as per section 36(1)(vii ) of the Income-tax Act amount of any debt or part thereof which has become irrecoverable can be allowed provided the debt has been taken into account in computing the income of the assessee of that previous year or of an earlier previous year, or represents money lent in the ordinary course of business of banking or money lending which is carried on by the assessee. In the present case during the assessment proceedings the Assessing Officer enquired the very same issue and on being satisfied allowed the claim. Thereafter notice under section 148 of the Act was issued on March 23, 2009 within four years from the end of the relevant assessment year and again on receiving explanation from the assessee, no further action was taken on the notice dated March 23, 2009.

9. Once again, by the impugned notice dated March 22, 2010 the assessment is sought to be reopened on the very same grounds after the expiry of four years from the end of the relevant assessment year.

10. As per the proviso to section 147 of the Income-tax Act, 1961 assessment beyond four years from the end of the relevant assessment year can be reopened only if there is failure on the part of the assessee to disclose fully and truly all the material facts. In the present case admittedly the question regarding availability of Rs. 94 lakhs as bad debt was specifically raised in the original assessment proceedings and on receiving explanation from the assessee the claim of the assessee was allowed. In these circumstances it cannot be said that there was failure on the part of the assessee to disclose fully and truly all the material facts necessary for the purpose of assessment.

11. Reliance is placed by the counsel for the Revenue on the decision of this court in the case of Dr. Amin’ s Pathology Laboratory v. P.N. Prasad, Jt. CIT (No. 1) [2001] 252 ITR 673. In that case it was held that mere production of balance-sheet or account books would not amount to disclosure of material facts necessary for assessment. As noted earlier in the present case the very specific issue regarding allowability of the bad debt was raised during the course of assessment proceedings and only after being satisfied the Assessing Officer allowed the claim of the assessee. Therefore, the decision of this court in the case of Dr. Amin’ s Pathology Laboratory (supra) has no relevance in the facts and circumstances of this case.

12. Similarly reliance is placed by the counsel for the Revenue on the decisions in the cases of Smt. Nilofer Hameed v. ITO [1999] 235 ITR 161 /[1998] 101 Taxman 67 (Ker.) and Sukhlal Ice & Cold Storage Co. v. ITO [1993] 199 ITR 129 (All.). These rulings have no relevance to the facts and circumstances of the present case. In both the aforesaid cases, since the first notice issued for reopening of the assessment was held to be invalid, the second notice issued was held to be valid. In the present case, the notice is invalid not because it is the second notice, but because, there was no failure to disclose fully and truly all material facts. Therefore, both the aforesaid decisions relied upon by the counsel for the Revenue have no relevance to the facts of the present case.

13. Once it is held that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment, the impugned notice issued beyond the period of four years from the end of the relevant assessment year cannot be sustained. Accordingly the petition is allowed by making the rule absolute by quashing the notice dated March 22, 2010 issued under section 148 of the Income-tax Act, 1961. No costs.

[Citation : 332 ITR 428]

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