Dlf Powr Ltd.,, New Delhi vs Department Of Income Tax

ITA no. 2118/Del/2013 A.Y. 2004-05 DCIT, Circle 11(1), Vs. M/s DLF Power Ltd., New Delhi. (Now known as Eastern India Powertech Ltd.), DLF Galeria, 12th Floor, DLF City, Phase-IV, Gurgaon. PAN: AAACD 0187 C ( Appellant ) ( Respondent )

Appellant by : Mrs. Anuradha Mishra CIT(DR) Respondent by : Shri R.S. Singhvi CA

Date of hearing : 24/03-2015 Date of order : 29-04-2015.

ORDER

PER S.V. MEHROTRA, A.M:-

This appeal, preferred by the revenue, is directed against the order ld ld. CIT(A)-XIII, New Delhi dated 09-01-2013, relating to AY 2004-05. Sole effective ground raised is as under:

1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.

14,25,38,173/- made on account of provision for doubtful debt."

2. Brief fact are that the assessee company in the relevant assessment year was engaged in the business of generation of power and executing trunkey projects. It filed its return of income declaring loss of Rs. 2,72,31,272/- and the book profit 2 ITA 2118/Del/2013 M/s DLF Power Ltd.

was shown u/s 115JB at Rs. 7,03,23,450/-. The assessment u/s 143(3) was completed at NIL income as against the loss returned. The AO has observed that from the verification of record it transpired that assessee debited a provision for bad and doubtful debts to P&L A/c and the same was added back by the assessee in its computation of income under normal provisions. However, while calculating income u/s 115JB, total amount i.e. 14,25,38,173/- was not added back by the assessee for calculation of its book profit. Accordingly notice dated 4-9-2009 u/s 148 was issued after recording following reasons:

"The assessee debited a provision for bad and doubtful debts to its P&L A/c and the same was added back by the assessee in its computation of income under normal provisions. However, while calculating income u/s 115JB, the above amount i.e. Rs. 14,25,38,173/- was not added back by the assessee for calculation of its book profit\. The above amount was required to be added back to income under special provisions since it was for an unascertained liability. The Assessee failed to discharge his duties by not adding back the same into his book profits u/s 115JB of the IT Act.

Thus the income chargeable to tax has escaped assessment and to reassess such income chargeable to tax which has come to notice now and was of the failure on the part of the assessee to make a return filed by him and the assessee company failed to disclose fully and truly the above said material facts necessary for the assessment.

I have therefore reason to believe that the income chargeable to tax has escaped assessment for the AY 2004-05."

2.1. After considering the assessee's submissions, the AO added the provision for bad and doubtful debts for determining the book profits.

3 ITA 2118/Del/2013 M/s DLF Power Ltd.

2.2. Before ld. CIT(A) the assessee had, inter alia, submitted that during the course of assessment proceedings u/s 143(3), the AO vide questionnaire dated 3-6- 2006 at sl. No. 9 had sought explanation/ verification regarding details of provisions made during the year. The assessee had filed detailed note with regard to provision for doubtful debts vis a vis 115JB of the Act. After considering it, the AO did not take any adverse view. Therefore, the reopening after four years was on account of change of opinion on a issue duly examined by AO. Further, it was pointed out that the view taken by the AO was in fact fortified by the decision of the Jurisdictional High Court in the case of CIT Vs. Eicher Ltd. 287 ITR 170 and CIT Vs. Indraprastha Medical Corpn. Ltd. 214 CTR 703 available at the time of the passing of the assessment order dated 11-12-2006, holding that provision for doubtful debts is not required to be added back while computing "book profit" u/s 115JB of the Act. Further, this vie was subsequently confirmed by the Hon'ble Supreme Court in the case of CIT Vs. HCL Comnet 305 ITR 409. The assessee also relied upon following decisions:

- E.I. Dupont India Ltd. 169 Taxman 184 (Del.);

- JCIT Vs. Usha Martin Industries Ltd. & Ors. 288 ITR 63(AT)(Cal.)(SB).

2.3. Thus, in sum and substance the assessee's submission was that since the assessee had fully and truly disclosed all material facts, necessary for assessment, in view of the proviso to section 147, reopening was bad in law. Ld. CIT(A), after elaborate consideration of all the case laws, relied by assessee and after considering the questionnaire dated 3-6-2006, issued by the AO and reply thereto, concluded that the AO had applied his mind and he was satisfied with the term of provision for doubtful debts vis a vis book profit. Accordingly, the reopening of 4 ITA 2118/Del/2013 M/s DLF Power Ltd.

the assessment and re-computation of book profit u/s 115JB was based on mere change of opinion of the AO. He relied on following decisions:

- CIT Vs. Kelvinator of India Ltd. 320 ITR 561;

- Sita World Travels (India) Ltd. Vs. CIT 274 ITR 186 (Del.);

- Asteroids Trading and Investments (P) Ltd. Vs. DCIT (2009) 308 ITR 190 (Bom.)

- Sun Investment Pvt. Ltd. Vs. ACIT 18 Taxmann.com 218 (Delhi).

- CIT Vs. K. Mohan & Co. (Exports) (Regd.) 349 ITR 653.

- Voltas Ltd. Vs. ACIT & Others 349 ITR 656.

2.4. He, accordingly, allowed the assessee's appeal.

2.5. Aggrieved, the revenue is in appeal before us.

3. Ld. DR submitted that AO was following the law for reopening. He relied on the order of AO.

4. On the other hand, ld. counsel for the assessee relied on the order of ld. CIT(A).

5. We have considered the rival submissions have perused the record of the case. Admittedly the reopening has been done after 4 years from the end of assessment year and, therefore, the proviso to section 147 was attracted in assessee's case. In view of the mandate of proviso there has to be failure to disclose all material facts fully and truly on the part of the assessee and then only reassessment proceedings could be justified after 4 years. However, in the reasons recorded, the AO merely stated that though assessee while computing the income 5 ITA 2118/Del/2013 M/s DLF Power Ltd.

under the normal provisions of the Act, added back the provision for bad and doubtful debts but while computing/ calculating income u/s 115JB did not add back the provisions for bad and doubtful debts and, therefore, the income had escaped assessment. Thus, there is no allegation that there was any default on the part of assessee in disclosing fully and truly all material facts. Admittedly, the AO had raised queries in course of original assessment proceedings which were duly replied by assessee vis a vis the provision of section 115JB and, therefore, this was clearly a case of change of opinion, which is impermissible for initiating proceedings u/s 148. We find that this issue is squarely covered by the decision of Hon'ble Delhi High court in the case of Sun Investment Pvt. Ltd. (supra), wherein under identical facts the reassessments were held to be without jurisdiction, observing as under:

"IT : Where reassessment notice issued to assessee for reopening assessment on ground that provisions for diminution in value of investment was not added back while arriving at book profit under section 115JB held to be not justified.

Section 1 J5JB, read with section 147, of the Income-tax Act, 1961 - Minimum alternate tax - Assessment year 2003-04 - Petitioner/assessee had filed return for relevant assessment year declaring nil income - Said return was accompanied by computation of income, report of chartered accountants in Form No. 29B and annexures thereto as well as annual financial accounts - Schedules forming part of balance sheet as on 31-3-2003 were also filed along with annual accounts - Pointed attention of Assessing Officer had been drawn to Note No.3 of Schedule H appended to balance sheet - Said note explained entry made in profit and loss account on account 'of provision for diminution in value of investment - Assessing Officer thereafter passed an order under section 143(3) computing total income at nil - On 19-5-2008, he issued a notice under section 148 to assessee for reopening assessment - Assessing Officer was of view that provision made for 6 ITA 2118/Del/2013 M/s DLF Power Ltd.

diminution in value of investment was added back by assessee for computing income under normal provisions but same was not added back while arriving at book profits; that this being an unascertained liability according to clause (c) of Explanation 1 to section 115JB should have been added back while computing book profits under section 115JB - It was found that at time when original assessment was completed, issue as to whether clause (c) of Explanation 1 to section 115JB would cover cases of amounts set aside for diminution in value of investment was debatable and it was only after clause (i) to Explanation 1 below section 115JB was inserted by Finance (No 2) Act, 2009 with retrospective effect from 1-4.-2001 that said controversy was resolved - Whether-since at time of completing original assessment under section 143(3), Assessing Officer had before him not only profit and loss account and balance sheet along with schedules and notes on account, but also had before him, statement of total income filed by assessee, which contained normal computation of total income as per the Act as also computation of book profit in Annexure A to audit report in Form No. 29B furnished under rule 40B of the Income-tax Rules for purposes of section 115JB, there was thus no failure on part of assessee to furnish full and true particulars necessary for its assessment - Held, yes - Whether assessee could not be expected to anticipate statutory amendments made latter - Held, yes - Whether in absence of any specific provision, i.e., clause (i) of Explanation 1 in section 115JB at time when original assessment was made and having regard to debatable nature of issue as to whether clause (c) of Explanation 1 to section 115JB would cover cases of amounts set aside for diminution in value of investment, it could never be postulated that it was duty of assessee to have instructed or informed Assessing Officer as to legal inference which he should draw from primary facts - Held, yes - Whether, therefore, there was no failure on part of petitioner to disclose full and true primary particulars at time of completion of- original assessment and hence notice issued under section 148 was declared to be without jurisdiction - Held, yes [In favour of assessee]"

7 ITA 2118/Del/2013 M/s DLF Power Ltd.

5.1. The Hon'ble Delhi High Court also considered the insertion by Finance (No.

2) Act, 2009 with retrospective effect from 1-4-2001 and after considering the merit of each amendment held that reassessment proceedings were not justified.

5.2. Similarly we find that in the case of CIT Vs. K. Mohan & Co. (Exports) (Regd.) (supra), it was held that reopening of assessment u/s 147 on the basis of retrospective amendment is not justified.

5.3. In view of above, we see no reason to interfere with the order of ld. CIT(A) and the same is upheld.

6. In the result, revenue's appeal is dismissed.

Order pronounced in open court on 29-04-2015.

Sd/- Sd/- (C.M. GARG ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: _______-04-2015. MP: Copy to : 1. Assessee 2. AO 3. CIT 4. CIT(A) 5. DR