Sun Investment (P) Ltd. v. Asstt. CIT & Ors.

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The Tax Publishers2012 TaxPub(DT) 1704 (Del-HC) : (2012) 344 ITR 0001 : (2012) 205 TAXMAN 0424 : (2012) 069 DTR 0011 INCOME TAX ACT, 1961 --Reassessment--Full and true disclosureNotice issued after four years--The petitioner was an investment company registered with the Reserve Bank of India as a non-banking finance company. It deals in shares and securities and also makes investments. On 11-11-2003, it filed a return of income for the assessment year 2003-04 declaring Rs. Nil as its total income computed under the provisions of the Act. The return was accompanied by the computation of the income, the report of the chartered accountants in Form No. 29B and the annexures thereto as well as the annual financial accounts. The schedules forming part of the balance sheet as on 31-3-2003 were also filed along with the annual accounts. On 20-6-2005, the AO, who is the respondent No. 2 herein, issued a questionnaire to the petitioner pursuant to the notice issued under section 143(2) on 11-10-2004. One of the queries raised in the questionnaire required the assessee to furnish the details of investments, value of which has been diminished by Rs. 15,33,22,500 and reasons for the sameÃ¢â‚¬. In response to the questionnaire the petitioner submitted a letter dated 25-8-2005 to the AO, Item No.8 of the letter stated that the details of diminution of the investment were contained at page 19 of the enclosure. The AO thereafter passed an order under section 143(3) on 26-12-2005. In the first paragraph of the assessment order it was stated that notice under section 143(2) dated 11-10-2004 had been served on the assessee and that the authorized representative of the assessee attended the proceedings and filed necessary details as called forÃ¢â‚¬. The assessment order also refers to the audited profit and loss account, balance sheet and the annexures filed along with the audit report as required under section 44AB. Ultimately, the total income of the assessee company was computed at Rs. Nil after adjusting the brought forward losses from the assessment years 1998-99 and 1999-2000 to the extent of the income of Rs. 15,07,36,430 for the year under consideration. On 19-5-2008, the second respondent issued a notice under section 148 reopening the assessment for the assessment year 2003-04 on the ground that he had reason to believe that the petitioner's income had escaped assessment and called upon the petitioner to file the return of income in response to the notice. Accordingly the noticee, the petitioner filed a return of income declaring income as originally returned in the return filed on 11-11-2003 and also requested the first respondent to furnish the reasons recorded for reopening the assessment. The AO, by letter dated 17-7-2009, informed the petitioner of the reasons for reopening the assessment. The reasons recorded were to the effect that the assessee has debited an amount of Rs.15,33,22,500 in the Profit and Loss a/c on account of provision for diminution in value of investment to arrive at net profit. This provision was added back by the assessee for computing the income under normal provisions. However, while arriving at the book profits under section 115JB, the same was not added back by the assessee. This being unascertained liability according to sub section (c) to section 115JB should have been added back while computing the book profits under section 115JB. The same is to be added to the book profits. The petitioner wrote a letter to respondent No.1 objecting to the issue of notice under section 148 and the reopening of the assessment proceedings. It was submitted in the objections that the provision of Rs. 15,33,00,500 debited to the profit and loss account for diminution in the value of investments was an ascertained liability and therefore while computing the book profit under section 115JB, no adjustment was made since it was not postulated/mandated specifically by any of the adjustments stipulated by the Section, that the entry was separately and independently reflected in the profit and loss account and this fact had also been brought to the notice of the AO by Note No. 3 to Schedule H to the annual accounts filed at the time of the original assessment proceedings, that there was thus a full and complete disclosure of the entry as in the books of account, that the return of income was duly accompanied by a report of the chartered accountants in Form No. 29-B as prescribed by the Act in which he had certified the computation of the book profit, that in the course of the original assessment proceedings the AO had specifically sought clarification of the petitioner on this aspect which was also duly furnished by the assessee, that it was only after seeking clarification and verification in respect of the provision debited to the profit and loss account that the AO had, after due application of mind, come to the conclusion that no adjustment to the book profit was necessary as per the Explanation to Section 115JB and that in these circumstances, the assessee had made full and true disclosure of all material particulars at the time of the original assessment proceedings and there was no failure on the part of the petitioner to do so, and therefore, the notice issued under section 148 on19-5-2008 after a period of 4 years from the end of the relevant assessment year was without jurisdiction and consequently the reassessment proceedings were invalid. The objections of the petitioner to the reopening of the assessment and the reasons recorded under section 148(2) were rejected by the AO by order dated 4-9-2000. Held: The primary facts which were disclosed by the petitioner at the time of the original assessment. The AO examined and enquired into the said diminution in value in the original assessment proceedings. It was not for the petitioner to inform the AO that on these facts the legal inference to be drawn is that the provision should be disallowed and added back to the book profit in terms of Clause (c) to Explanation 1 below the Section 115JB. That inference or decision was for the AO to take. Nothing prevented him from applying the relevant clause of Explanation 1 below Section 115JB and add back the provision on the ground that it had been made for meeting an ascertained liability. It was not for the petitioner to inform the AO to take a decision as to whether the provision can be considered as one for meeting an unascertained liability. That question, as it would appear from the later amendment of law, was debatable at the time when the original assessment was completed. Accordingly, a writ of certiorari will issue to quash the notice issued by the AO under section 148. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 1704 (Del-HC) : (2012) 344 ITR 0001 : (2012) 205 TAXMAN 0424 : (2012) 069 DTR 0011

INCOME TAX ACT, 1961

--Reassessment--Full and true disclosureNotice issued after four years--The petitioner was an investment company registered with the Reserve Bank of India as a non-banking finance company. It deals in shares and securities and also makes investments. On 11-11-2003, it filed a return of income for the assessment year 2003-04 declaring Rs. Nil as its total income computed under the provisions of the Act. The return was accompanied by the computation of the income, the report of the chartered accountants in Form No. 29B and the annexures thereto as well as the annual financial accounts. The schedules forming part of the balance sheet as on 31-3-2003 were also filed along with the annual accounts. On 20-6-2005, the AO, who is the respondent No. 2 herein, issued a questionnaire to the petitioner pursuant to the notice issued under section 143(2) on 11-10-2004. One of the queries raised in the questionnaire required the assessee to furnish the details of investments, value of which has been diminished by Rs. 15,33,22,500 and reasons for the sameÃ¢â‚¬. In response to the questionnaire the petitioner submitted a letter dated 25-8-2005 to the AO, Item No.8 of the letter stated that the details of diminution of the investment were contained at page 19 of the enclosure. The AO thereafter passed an order under section 143(3) on 26-12-2005. In the first paragraph of the assessment order it was stated that notice under section 143(2) dated 11-10-2004 had been served on the assessee and that the authorized representative of the assessee attended the proceedings and filed necessary details as called forÃ¢â‚¬. The assessment order also refers to the audited profit and loss account, balance sheet and the annexures filed along with the audit report as required under section 44AB. Ultimately, the total income of the assessee company was computed at Rs. Nil after adjusting the brought forward losses from the assessment years 1998-99 and 1999-2000 to the extent of the income of Rs. 15,07,36,430 for the year under consideration. On 19-5-2008, the second respondent issued a notice under section 148 reopening the assessment for the assessment year 2003-04 on the ground that he had reason to believe that the petitioner's income had escaped assessment and called upon the petitioner to file the return of income in response to the notice. Accordingly the noticee, the petitioner filed a return of income declaring income as originally returned in the return filed on 11-11-2003 and also requested the first respondent to furnish the reasons recorded for reopening the assessment. The AO, by letter dated 17-7-2009, informed the petitioner of the reasons for reopening the assessment. The reasons recorded were to the effect that the assessee has debited an amount of Rs.15,33,22,500 in the Profit and Loss a/c on account of provision for diminution in value of investment to arrive at net profit. This provision was added back by the assessee for computing the income under normal provisions. However, while arriving at the book profits under section 115JB, the same was not added back by the assessee. This being unascertained liability according to sub section (c) to section 115JB should have been added back while computing the book profits under section 115JB. The same is to be added to the book profits. The petitioner wrote a letter to respondent No.1 objecting to the issue of notice under section 148 and the reopening of the assessment proceedings. It was submitted in the objections that the provision of Rs. 15,33,00,500 debited to the profit and loss account for diminution in the value of investments was an ascertained liability and therefore while computing the book profit under section 115JB, no adjustment was made since it was not postulated/mandated specifically by any of the adjustments stipulated by the Section, that the entry was separately and independently reflected in the profit and loss account and this fact had also been brought to the notice of the AO by Note No. 3 to Schedule H to the annual accounts filed at the time of the original assessment proceedings, that there was thus a full and complete disclosure of the entry as in the books of account, that the return of income was duly accompanied by a report of the chartered accountants in Form No. 29-B as prescribed by the Act in which he had certified the computation of the book profit, that in the course of the original assessment proceedings the AO had specifically sought clarification of the petitioner on this aspect which was also duly furnished by the assessee, that it was only after seeking clarification and verification in respect of the provision debited to the profit and loss account that the AO had, after due application of mind, come to the conclusion that no adjustment to the book profit was necessary as per the Explanation to Section 115JB and that in these circumstances, the assessee had made full and true disclosure of all material particulars at the time of the original assessment proceedings and there was no failure on the part of the petitioner to do so, and therefore, the notice issued under section 148 on19-5-2008 after a period of 4 years from the end of the relevant assessment year was without jurisdiction and consequently the reassessment proceedings were invalid. The objections of the petitioner to the reopening of the assessment and the reasons recorded under section 148(2) were rejected by the AO by order dated 4-9-2000. Held: The primary facts which were disclosed by the petitioner at the time of the original assessment. The AO examined and enquired into the said diminution in value in the original assessment proceedings. It was not for the petitioner to inform the AO that on these facts the legal inference to be drawn is that the provision should be disallowed and added back to the book profit in terms of Clause (c) to Explanation 1 below the Section 115JB. That inference or decision was for the AO to take. Nothing prevented him from applying the relevant clause of Explanation 1 below Section 115JB and add back the provision on the ground that it had been made for meeting an ascertained liability. It was not for the petitioner to inform the AO to take a decision as to whether the provision can be considered as one for meeting an unascertained liability. That question, as it would appear from the later amendment of law, was debatable at the time when the original assessment was completed. Accordingly, a writ of certiorari will issue to quash the notice issued by the AO under section 148.