M/S.seshasayee Paper And Boards Limited v. The Assistant Commissioner Of Income-Tax,Circle I (1)

M/s.Seshasayee Paper and Boards Limited,Represented by its Director (Finance) & Secretary,V.Pichai,Cauvery R.S.Post,Pallipalayam,Erode – 638 007. ... Petitioner Vs The Assistant Commissioner of Income-tax,Circle I (1), No.3, Gandhi Road,Salem – 636 007. Prayer: Petition filed under Article 226 of the Constitution ofIndia to issue a Writ of Certiorari, calling for the records inPAN:AACCS1192G dated 07.03.2014, relating to Assessment Year2006-07 on the file of the Respondent and quash the same. The petitioner has challenged the impugned speaking orderdated 07.03.2014 in this writ petition. The said orderoverrules the objections of the petitioner for reopening of theassessment for the Assessment Year 2006-2007. 2. In this case, the petitioner had filed returns for theAssessment Year 2006-2007 on 04.11.2006 and filed computation ofBook Profits under Section 115JB of the Income Tax Act, 1961,(hereinafter referred to as the IT Act). The assessment wasalso completed under Section 143(3) of the IT Act by an orderdated 10.12.2008. 3. After the assessment was completed, the Finance Act, 2009was amended, wherein, certain amendments were made to Section https://hcservices.ecourts.gov.in/hcservices/ 115JB of the IT Act with retrospective effect from 01.04.2001.The feeble attempt was made by the Assessing Officer namely theDeputy Commissioner of Income Tax by issuing notice underSection 154 of the IT Act, wherein, it was stated that theassessment order dated 10.12.2008 requires to be amended asthere is a mistake apparent from the records within the meaningof Section 154/155 of the IT Act. 4. The reasons given for proposed rectification was that thepetitioner had debited a sum of Rs.29,35,473/- in their Profitand Loss Account being a provision of bad and doubtful debts andthe same was not added back to book profit under Section 115JBof the Act and therefore this amount was to be added back. Therelevant portion of the notice dated 18.07.2012 issued underSection 154 read with Section 155 of the IT Act is reproducedbelow:- “The company has debited Rs.29,35,473- in P & LA/c being provision of bad and doubtful debts andthe same was not added back to book profit u/s115JB. The amount is required to be added back.” 5. The petitioner thereafter replied to the AssitantCommissioner of Income Tax for the aforesaid notice. After thepetitioner replied with the aforesaid notice, another noticeunder Section 148 of the IT Act on 20.03.2013 was issued to thepetitioner and the reasons given for reopening of the assessmentwas communicated on 06.01.2014. 6. The ostensible reason for reopening of the assessment ascommunicated by a letter/notice dated 06.01.2014, reads asunder:- “As requested by you, I am providing herewiththe reason for re-opening the assessment for theassessment year 2006-07 as under:- “It is seen from the record that the assesseehad debited a sum of Rs.29,35,473/- in the P & L A/cbeing provision for bad and doubtful debts.However, the same was not added to the book profitu/s.115JB based on the Supreme Court in the case ofCIT vs HCL Commet Systems & Services Ltd reported in(305) ITR 409. However, based on the latest amendment to the ITAct by the Finance Act 2008 w.r.e.f. 01.04.01, bookprofit u/s. 115JB requires to be increased by “theamount or amounts set-aside as provision for diminution in the value of any asset”, and hence,the provision for bad and doubtful debts to the tuneof Rs.29,35,473/- debited in the P&L A/c requires tobe added for the purpose of arriving book profit. In view of the above, I have reason to believethat the income chargeable to tax has escapedassessment within the meaning of section 147 of theI.T. Act, 1961.” 7. The petitioner replied to the same which is culminated inthe impugned order. In the impugned order, the respondentordered as follows:- However, based on the latest amendment to the ITAct by the Finance Act 2008 w.r.e.f. 01.04.01, bookprofit u/s. 115JB requires to be increased by “theamount or amounts set-aside as provision for diminution in the value of any asset”, and hence,the provision for bad and doubtful debts to the tuneof Rs.29,35,473/- debited in the P&L A/c requires tobe added for the purpose of arriving book profit. In view of the above, I have reason to believethat the income chargeable to tax has escapedassessment within the meaning of section 147 of theI.T. Act, 1961.” 7. The petitioner replied to the same which is culminated inthe impugned order. In the impugned order, the respondentordered as follows:- “The objections raised by you for the reopeningof assessment u/s.148 is considered and it was notacceptable for the following reasons:- 1. The reasons given to you for reopening theassessment was that “based on the latest amendmentto the IT Act by the Finance Act 2008 w.e.f.01.04.01, book profit u/s. 115JB requires to beincreased by the amount or set-aside as provisionfor diminution in the value of any asset, and hence,the provision for bad and doubtful debts to the tuneof Rs.29,35,473/- debited in the P&L A/c requires tobe added for the purpose of arriving book profit”. Thus, the reopening of the notice is inaccordance with law. The intention of thelegislature is that the provisions should be appliedwith particular date and for giving effect to thatamendment, the re-opening notice was issued. 2. The case laws submitted in support of yourclaim is perused. In my opinion, wherever thelegislature does not want the application of lawretrospectively, the provisions are provided in theAct, as given in section 14A of the I.T.Act. Inthis case, there is no specific provision providedby the legislature in the Act. 3. The contention that the provision fordoubtful debts debited in the Profit & Loss Accountis meeting the requirements for write off of baddebts by applying the principles laid down by theHon'ble Supreme Court in the case of SouthernTechnologies Limited (320 ITR 577) is examined. The Hon'ble Supreme Court had pronounced the order withrelate to Non Banking Finance Companies (NBFCs) andother case law relied were also pronounced in VijayaBank case (323 ITR 166). However, the assesseecompany's business is entirely different frombanking business and thus, these decisions would notbe applicable. It is also specifically brought to the notice ofthe assessee that the provision for doubtful debtswas added back in regular computation. If theassessee company have a belief that “provision fordoubtful debts” had fulfilled the criteria for baddebts to be written off, then the same should havebeen shown under bad debts written off and there isno reason to follow different accounting treatmenthaving same status. I understand that there must be a proper reasonfor classifying certain debts as doubtful debts andbecause of the same, in regular computation ofincome, it was added back. Therefore, it is anattempt to match the principles of Hon'ble SupremeCourt with the facts of this case, which was notproved.In view of the above reasons, there is a failureon the part of the assessee to disclose any trulyall material facts. Hence, I am rejecting theobjections raised and proceeding with the assessmentproceedings.Your case posted for hearing on 14.03.2014.” I understand that there must be a proper reasonfor classifying certain debts as doubtful debts andbecause of the same, in regular computation ofincome, it was added back. Therefore, it is anattempt to match the principles of Hon'ble SupremeCourt with the facts of this case, which was notproved.In view of the above reasons, there is a failureon the part of the assessee to disclose any trulyall material facts. Hence, I am rejecting theobjections raised and proceeding with the assessmentproceedings.Your case posted for hearing on 14.03.2014.” 8. Assailing the impugned order, the learned counsel for thepetitioner submits that the issue is covered by the decision ofthe Delhi High Court in Sun Investment Pvt Ltd Vs AssistantCommissioner of Income Tax and others, (2012) 344 ITR 1 and thedecision of this Court in Commissioner of Income Tax, Chennai VsSaint Gobain Glass India Limited [2020] 269 Taxman 610 (Madras).The learned counsel for the petitioner further submits that onthe date when the petitioner filed the returns under Section 139of the IT Act i.e., on 04.11.2006, there was no provision whichwarranted the amount provisioned as bad and doubtful debts to beadded to the book profits for the proposed computation of incomeunder Section 115JB of the IT Act. https://hcservices.ecourts.gov.in/hcservices/ Hon'ble Supreme Court in Commissioner of Income Tax Vs HCLComnet Systems & Services Ltd, (2008) 305 ITR 409 and it isthereafter in the following financial year vide Finance Act,2009, the explanation to Section 115JB of the IT Act was amendedto give effect to the decision of the Hon'ble Supreme Court. Itis therefore submitted that the assumption of jurisdiction underSection 148 of the IT Act, i.e., after a lapse of four yearsperiod was without jurisdiction notwithstanding the fact thatsection has been amended with effect from 01.04.2001 videFinance Act, 2009. 10. Defending the impugned order, the learned seniorstanding counsel for the respondent submits that the assumptionof jurisdiction cannot be questioned as the law was not onlyamended with retrospective effect but also the decision of theHon'ble Supreme Court cited by the petitioner in SouthernTechnologies Ltd., Vs Joint Commissioner of Income Tax, 320 ITR577 was rendered in the context of business of non-bankingfinancial company. It is submitted that other case cited by thepetitioner in Viyaja Bank Vs Commissioner of Income Tax, 323 ITR166 also cannot be applied and as the petitioner's business wastotally different from the banking business. 11. The learned senior standing counsel for the respondentrelied on the similar decision of this Court also cited by thelearned counsel for the petitioner in Commissioner of Income TaxVs Saint Gobain India Ltd, [2020] 269 Taxman 610 and states thatthe Court has also accepted the view, since the law amended in2009 and therefore submits that cannot be held that theAssessing Officer could not have the power to isssue notice. 12. Heard the learned counsel for the petitioner and thelearned senior standing counsel for the respondent. 13. The petitioner has filed returns based on theunderstanding of law as it stood at the time of filing ofreturns on 04.11.2006. Therefore, it cannot be said that therewas a failure on the part of the petitioner truly and fullydisclosure all materials that required for assessment. In factthe assessment was also completed based on the understanding oflaw as it prevailed then. At about the same time, when theassessment order was passed 10.12.2008, the Hon'ble SupremeCourt pronounced its judgment on 23.09.2008, wherein, theHon'ble Supreme Court examined the provisions of Section 115JAof the IT Act, held as under:- “9. From the above, it is evident that the AOhas to accept the auathenticity of the accountsmaintained in accordance with the provisions of PartII and Part III of Sch.VI to the Companies Act, “9. From the above, it is evident that the AOhas to accept the auathenticity of the accountsmaintained in accordance with the provisions of PartII and Part III of Sch.VI to the Companies Act, https://hcservices.ecourts.gov.in/hcservices/ which are certified by the auditors and pressed(passed) by the company in the general meeting. TheAO has only the power of examining whether the booksof accounts are duly certified by the authoritiesunder the Companies Act and whethere such books havebeen properly maintained in accordance with theCompanies Act. The AO does not have thejurisdiction to go beyond the net profit shown inthe P&L a/c except to the extent provided in theExplanation. Thereafter, the AO has to makeadjustment permissible under the Explanation givenin Section 115JA of the 1961 Act. It may be noted,that the adjustments required to be made to the netprofit disclosed in the P&L a/c for the purposes ofSection 349 of the Companies Act are quite differentfrom the adjustment required to be made under theExplanation to Section 115JA of the 1961 Act. Forthe purposes of Section 115JA, the AO can increasethe net profit determined as per the P&L a/cprepared as per Parts II and III of Schedule VI tothe Companies Act only to the extent permissibleunder the Explanation thereto. 10. As stated above, the said Explanation hasprovided six items, i.e., item Nos.(a) to (f) whichif debited to the P&L a/c can be added back to thenet profit for computing the book profit. In thiscase, we are concerned with item No.(c) which refersto the provision for bad and doubtful debt. Theprovision for bad and doubtful debt can be addedback to the net profit only if item (c) standsattracted. Item (c) deals with amount(s) set asideas provision made for meeting liabilities, otherthan ascertained liabilities. The assessee's casewould, therefore, fall within the ambit of item(c)only if the amount is set aside as provision; theprovision is made for meeting a liability; and theprovision should be for other than ascertainedliability, i.e., it should be for an unascertainedliability. In other words, all the ingredientsshould be satisfied to attract item (c) of theExplanation to Section 115JA. In our view, item (c)is not attracted. There are two types of “debt”. Adebt payable by the assessee is different from adebt receivable by the assessee. A debt is payableby the assessee where the assessee has to pay theamount to others whereas the debt receivable by theassessee is an amount which the assessee has toreceive from others. In the present case “debt”under consideration is “debt receivable” by the assessee. The provision for bad and doubtful debt,therefore, is made to cover up the probablediminution in the value of asset, i.e., debt whichis an amount receivable by the assessee. Therefore,such a provision cannot be said to be a provisionfor liability, because even if a debt is notrecoverable no liability could be fastened upon theassessee. In the present case, the debt is theamount receivable by the assessee and not anyliability payable by the assessee and, therefore,any provision made towards irrecoverability of thedebt cannot be said to be a provision for liability.Therefore, in our view item (c) of the Explanationis not attracted to the facts of the present case.In the circumstances, the AO was not justified inadding back the provision for doubtful debts ofRs.92,15,187 under clause (c) of the Explanation toSection 115JA of the 1961 Act.” 14. In the light of the aforesaid judgment of the Hon'bleSupreme Court, provisions of Section 115JB of the IT Act wasamended. The amended provision was amended retrospectively andis deemed to have been in force all along during the periodcommencing from 1[st] April of 2017. 14. In the light of the aforesaid judgment of the Hon'bleSupreme Court, provisions of Section 115JB of the IT Act wasamended. The amended provision was amended retrospectively andis deemed to have been in force all along during the periodcommencing from 1[st] April of 2017. 15. Though the provisions stands amended with retrospectiveeffect, it cannot be said that the petitioner had failed trueand full disclosure of all material facts that were required forcompleting the assessment. The petitioner has taken a bonafidestand that the amount debited in Profit and Loss Account towardsprovisions of bad and doubtful debts were not be included underSection 115JB of the IT Act. This was scrutinized and theassessment order came to be passed on 10.12.2008. 16. Therefore, even if, the amended provision as it standsamended, vide Finance Act, 2009 in the Income Tax Act, 1961, itcannot be said that there was a failure on the part of thepetitioner to truly and fully disclose all materialfacts/informations required for assessment. 17. I am therefore of the view, there is no merits in theimpugned order. The writ petition filed by the petitionertherefore deserves to be allowed and is accordingly allowed. Nocosts. Consequently, conneted Miscellaneous Petition is closed. Sd/- Assistant Registrar(CCC) //True Copy// Sub Assistant Registrar https://hcservices.ecourts.gov.in/hcservices/ arb To The Assistant Commissioner of Income-tax,Circle I (1), No.3, Gandhi Road,Salem – 636 007. +cc to M/S.G.Baskar,Advocate Sr.No.19437+cc to M/S.A.p.Srinivas,Advocate Sr.No.19195 W.P. No. 8620 of 2014and M.P. No. 1 of 2014DMK(CO)baf 04/05/2021