CIT v. Living Media India Ltd.

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The Tax Publishers2013 TaxPub(DT) 2041 (Del-HC) : (2013) 359 ITR 0106 : (2013) 089 DTR 0081 Income Tax Act, 1961 --Reassessment--Validity of notice under section 148 Reasons recorded subsequent to issuance of notice--In assessee's case, assessment order was framed on 26-12-2008. On 19-1-2010 a notice under section 148 was issued by assessing officer seeking to reopen assessment. Reasons recorded were to the effect that provision for bad and doubtful debts written off by assessee was not credited to Profit and Loss Account. After issuance of notice under section 148, additional reasons were recorded with respect to reopening of assessment on ground that unabsorbed depreciation was not set off against long-term capital gains and under section 14A. Lesser amount of expenditure was allowed which resulted under assessment of income. *Held:* Was not justified. Additional reasons cannot be provided or recorded subsequent to issuance of notice under section 148. It is, of course, open to assessing officer, if some other information comes within his knowledge he would issue another notice under section 148 for different reasons. But that was not case here. On basis of very same notice issued under section 148, assessing officer had recorded additional reasons subsequent to issuance of notice and this is impermissible in law. Purported reasons recorded on 19-1-2010 only contain the issue with regard to bad debts. It is only subsequently that, sometime in October 2010, additional reasons were recorded with regard to the issue pertaining to unabsorbed depreciation and the disallowance under section 14A. The additional reasons could not have been recorded. The notice under section 148 would stand or fall depending upon the reasons prior to the issuance of the notice. No notice under section 148 has been issued pertaining to the purported additional reasons which were allegedly recorded sometime in October 2010 and served upon the assessee on 29-10-2010. Therefore, the additional reasons cannot be looked into for the purposes of determining the validity of the proceedings initiated under the notice dated 19-1-2010 issued under section 148. [Para 9] That being the position, the only thing that has to be seen is whether the reasons recorded on 19-1-2010 could, at all, form the basis of reopening of an assessment under section 148. So far as the issue of bad debts is concerned the present appeal is not concerned with it and therefore, the deletion of the addition made on account of bad debts has become final. Until and unless, there was an addition on the basis of the original reasons, no other additions could be made in view of the expression 'and also' used in Explanation 3 to section 147. [Para 10] Therefore, no additions in absence of any addition on the issue of bad debts could have been made by the assessing officer. [Para 10] The Tribunal also noted that the respondent/assessee had not claimed the said amount of Rs. 1,87,41,755 inasmuch as the said amount had been written back by the assessee and the total deduction claimed by the respondent/assessee under the head of doubtful debts written off were only to the extent of Rs. 46,37,814 which had not been denied by the in the original assessment framed on 26-12-2008. In fact, the entire issue of the provision for bad debts was discussed by the assessing officer at the time of original assessment and, therefore, the Tribunal was also right in holding that the attempt to re-assess was based on a mere change of opinion. [Para 12] With regard to the additional reasons which were recorded subsequent to the issuance of notice under section 148. This could not have been done by the assessing officer. The validity of the proceedings initiated upon a notice under section 148 would have to be judged from the stand point of the reasons which existed at the point of time when the section 148 notice was issued. Additional reasons cannot be provided or recorded subsequent to the issuance of notice under section 148. It is, of course, open to the assessing officer, if some other information comes within his knowledge to issue another notice under section 148 for different reasons. But, that is not the case here. On the basis of the very same notice issued under section 148, the assessing officer has recorded additional reasons subsequent to the issuance of notice and this is impermissible in law. [Para 13] Before parting with this matter, Court would also like to point out that the assessing officer has not dealt with this matter in the proper manner. In the order rejecting the objections as also in the assessment order under section 147/143(3) dated 8-12-2010 the assessing officer has stated the reasons for reopening the income tax assessment. [Para 14] It will be seen from the extract of reasons that what the assessing officer had done was that he had combined the original recorded reasons and the additional reasons and shown it as one set of reasons. There is no document on record which purports to be the reasons wherein the above-extracted three sub-paragraphs (a), (b) and (c) have been set out together. In fact, the purported recorded reasons dated 19-1-2010 comprise of two paragraphs numbered as '01' and '02'. The purported additional reasons also comprise of two paragraphs '01' and '02'. It is only in the additional reasons, in paragraph '01' that two sub-paragraphs are referred to as '(a)' and '(b)'. It is, therefore, clear that the assessing officer has conjured up a different set of reasons by combining the original reasons and the additional reasons allegedly recorded sometime in October 2010. This is impermissible and does not behave of the assessing officer who is supposed to be fair to the department as also to the assessee and to be honest to the record. [Para 15] The assessing officer was also wrong in stating that the reasons as indicated by him involving three issues had been recorded before issuance of the notice under section 148. To make it clear, the reasons recorded prior to the issuance of the notice under section 148 pertained only to the issue of bad debts. The other purported reasons pertaining to the issues of unabsorbed depreciation and disallowance under section 14A of the said Act were, admittedly, recorded after the issuance of notice under section 148. [Para 16] In view of the foregoing, no interference with the impugned order by the Tribunal is called for as it does not raise any substantial question of law. Court makes it clear that, in view of the fact the Tribunal was right in concluding that the proceedings under section 147/148 were itself bad, court has not examined the merits of the issue with regard to the carry forward unabsorbed depreciation. [Para 17] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 2041 (Del-HC) : (2013) 359 ITR 0106 : (2013) 089 DTR 0081

Income Tax Act, 1961

--Reassessment--Validity of notice under section 148 Reasons recorded subsequent to issuance of notice--In assessee's case, assessment order was framed on 26-12-2008. On 19-1-2010 a notice under section 148 was issued by assessing officer seeking to reopen assessment. Reasons recorded were to the effect that provision for bad and doubtful debts written off by assessee was not credited to Profit and Loss Account. After issuance of notice under section 148, additional reasons were recorded with respect to reopening of assessment on ground that unabsorbed depreciation was not set off against long-term capital gains and under section 14A. Lesser amount of expenditure was allowed which resulted under assessment of income. Held: Was not justified. Additional reasons cannot be provided or recorded subsequent to issuance of notice under section 148. It is, of course, open to assessing officer, if some other information comes within his knowledge he would issue another notice under section 148 for different reasons. But that was not case here. On basis of very same notice issued under section 148, assessing officer had recorded additional reasons subsequent to issuance of notice and this is impermissible in law.

Purported reasons recorded on 19-1-2010 only contain the issue with regard to bad debts. It is only subsequently that, sometime in October 2010, additional reasons were recorded with regard to the issue pertaining to unabsorbed depreciation and the disallowance under section 14A. The additional reasons could not have been recorded. The notice under section 148 would stand or fall depending upon the reasons prior to the issuance of the notice. No notice under section 148 has been issued pertaining to the purported additional reasons which were allegedly recorded sometime in October 2010 and served upon the assessee on 29-10-2010. Therefore, the additional reasons cannot be looked into for the purposes of determining the validity of the proceedings initiated under the notice dated 19-1-2010 issued under section 148. [Para 9] That being the position, the only thing that has to be seen is whether the reasons recorded on 19-1-2010 could, at all, form the basis of reopening of an assessment under section 148. So far as the issue of bad debts is concerned the present appeal is not concerned with it and therefore, the deletion of the addition made on account of bad debts has become final. Until and unless, there was an addition on the basis of the original reasons, no other additions could be made in view of the expression 'and also' used in Explanation 3 to section 147. [Para 10] Therefore, no additions in absence of any addition on the issue of bad debts could have been made by the assessing officer. [Para 10] The Tribunal also noted that the respondent/assessee had not claimed the said amount of Rs. 1,87,41,755 inasmuch as the said amount had been written back by the assessee and the total deduction claimed by the respondent/assessee under the head of doubtful debts written off were only to the extent of Rs. 46,37,814 which had not been denied by the in the original assessment framed on 26-12-2008. In fact, the entire issue of the provision for bad debts was discussed by the assessing officer at the time of original assessment and, therefore, the Tribunal was also right in holding that the attempt to re-assess was based on a mere change of opinion. [Para 12] With regard to the additional reasons which were recorded subsequent to the issuance of notice under section 148. This could not have been done by the assessing officer. The validity of the proceedings initiated upon a notice under section 148 would have to be judged from the stand point of the reasons which existed at the point of time when the section 148 notice was issued. Additional reasons cannot be provided or recorded subsequent to the issuance of notice under section 148. It is, of course, open to the assessing officer, if some other information comes within his knowledge to issue another notice under section 148 for different reasons. But, that is not the case here. On the basis of the very same notice issued under section 148, the assessing officer has recorded additional reasons subsequent to the issuance of notice and this is impermissible in law. [Para 13] Before parting with this matter, Court would also like to point out that the assessing officer has not dealt with this matter in the proper manner. In the order rejecting the objections as also in the assessment order under section 147/143(3) dated 8-12-2010 the assessing officer has stated the reasons for reopening the income tax assessment. [Para 14] It will be seen from the extract of reasons that what the assessing officer had done was that he had combined the original recorded reasons and the additional reasons and shown it as one set of reasons. There is no document on record which purports to be the reasons wherein the above-extracted three sub-paragraphs (a), (b) and (c) have been set out together. In fact, the purported recorded reasons dated 19-1-2010 comprise of two paragraphs numbered as '01' and '02'. The purported additional reasons also comprise of two paragraphs '01' and '02'. It is only in the additional reasons, in paragraph '01' that two sub-paragraphs are referred to as '(a)' and '(b)'. It is, therefore, clear that the assessing officer has conjured up a different set of reasons by combining the original reasons and the additional reasons allegedly recorded sometime in October 2010. This is impermissible and does not behave of the assessing officer who is supposed to be fair to the department as also to the assessee and to be honest to the record. [Para 15] The assessing officer was also wrong in stating that the reasons as indicated by him involving three issues had been recorded before issuance of the notice under section 148. To make it clear, the reasons recorded prior to the issuance of the notice under section 148 pertained only to the issue of bad debts. The other purported reasons pertaining to the issues of unabsorbed depreciation and disallowance under section 14A of the said Act were, admittedly, recorded after the issuance of notice under section 148. [Para 16] In view of the foregoing, no interference with the impugned order by the Tribunal is called for as it does not raise any substantial question of law. Court makes it clear that, in view of the fact the Tribunal was right in concluding that the proceedings under section 147/148 were itself bad, court has not examined the merits of the issue with regard to the carry forward unabsorbed depreciation. [Para 17]