Vinyroyal Plasticoates Pvt.ltd v. The Income Tax Officer 9(3)(3) Mumbai & Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.82/2011 Vinyroyal Plasticoates Pvt.Ltd. PETITIONER VS.The Income Tax Officer 9(3)(3)Mumbai & Ors.RESPONDENTS Mr.Dustoor ,Sr.Counsel a/w Mr.Niraj Seth i/b Mint and Conferers for PetitionerMr.Suresh Kumar for respondent CORAM- J.P.DEVADHAR ,AND MRS.MRIDULA BHATKAR,JJ.DATE - 24[th] JANUARY,2011. P.C. .Heard. Rule. Returnable forthwith. By consent of the parties the petition is taken up for final hearing. 2This petition is filed to challenge the notice dated 25/3/2010 issued under section 148 of the Income Tax Act, 1961 seeking reopening of the assessment for the Assessment Year 2003-2004 and also the order dated 20/12/2010 passed by the Assessing Officer rejecting the objections raised by the petitioner against the reopening of the assessment. 3 In the assessment year in question the assessee had made provision for doubtful creditors for Rs.2,01,41,940/-and provision for doubtful debtors for Rs.1,93,36,079/-. During the course of assessment proceedings the Assessing Officer had called upon the assessee to give the particulars of doubtful debts shown in the balancesheet . On receiving the explanation reliefs claimed by the assessee were allowed and the assessment order was passed accordingly. 4By the impugned notice issued under section 148 of the Income Tax Act, 1961 the assessment was sought to be reopened after four years from the end of the relevant assessment year, by recording the following reasons . “ It is seen from the Notes forming parts of accounts” that the company has made provision for doubtful creditors for Rs.2,01,41,490/-and provision for doubtful debtors for Rs.1,93,36,079/-.The management is of the view that the creditors were not payable and the debt may not be recovered. Net effect of this i.e.the difference between creditors and debtors amount to Rs.8,05,862/- was creditors to the Profit and Loss Account below the line. Similarly, the creditors and debtors were also reduced in the Balance Sheet. From the above note it can be observed that the assessee had taken a decision to write back the outstanding creditors amount of Rs.2,01,41,940/-. As per the provisions of section 41(1) if any assessee obtain any benefit of trading liability by way of remission or cessation by way of writing it off such liability in the books of accounts, such income is taxable u/s 41(1) of the Act. The assessee has claimed the provisions for doubtful debts of Rs.1,93,36,079/- against the creditors. As per the provisions of section 36(1)(vii) of the Act,the provision for bad doubtful debts cannot be allowed as deduction u/s 36(1)(vii) in the light of the Explanation in clause (vii) of sub-section (1) which clarify that any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. As such I have no reason to believe that the income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment to the extent of Rs.2,01,41,940/- within the meaning of Sec.147 of the Income Tax Act,1961. 5 On perusal of the aforesaid reasons recorded by the and doubtful debts made in the accounts of the assessee. As such I have no reason to believe that the income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment to the extent of Rs.2,01,41,940/- within the meaning of Sec.147 of the Income Tax Act,1961. 5 On perusal of the aforesaid reasons recorded by the Assessing Officer it is seen that the assessment is sought to be reopened mainly on the ground that the provision for doubtful debts against the creditors was not allowable under section 36(1)(vii) of the Income Tax Act, 1961. It is not in dispute that the claim was allowed after scrutiny of details furnished by the assessee. Since the assessment is sought to be reopened beyond four years fromt he end of the relevant assessment year, it was incumbent upon the Assessing Officer to establish that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of the assessment. In the present case all the material facts were disclosed in the balancesheet and also during the course of assessment the Assessing Officer has specifically enquired about the allowability of the provisions for doubtful debtors. In these circumstances , in our opinion, it cannot be said that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment . Accordingly the notice dated 25/3/2010 issued under section 148 of the Income Tax Act ,1961 is quashed and set aside. Rule is made absolute accordingly with no order as to costs. (MRS.MRIDULA BHATKAR,J.) (J.P.DEVADHAR,J.)