ISAGRO (ASIA) AGROCHEMICALS, MUMBAI V. DCIT 8(2), MUMBAI

ITA 1934/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49643 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 31-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 10-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Reopening of assessment; Retrospective amendment; Bad and doubtful debts; Reassessment proceedings
• Section: 143(3); 80HHC; 115JB; 148; 263

Judgement Text

ITA NO. : 1934/MUM/2010 ASSESSMENT YEAR: 2004- 05 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH, MUMBAI BEFORE SHRI R V EASWAR (HONBLE PRESIDENT) AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) ITA NO. : 1934/MUM/2010 ASSESSMENT YEAR: 2004-05 ISAGRO (ASIA) AGROCHEMICALS PVT LTD ...AP PELLANT C/O SHANKARLAL JAIN & ASSOCIATES 12 ENGINEERS BUILDING, 265, PRINCESS STREET, MUMBAI 400 002[PAN : AAAC18341L] VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 8(2), MUMBAI 400 020 RESPONDENT APPELLANT BY : SHRI S L JAIN RESPONDENT BY : SHRI S K SINGH DATE OF HEARING: 31-05- 2011 DATE OF PRONOUNCEMENT: JULY 29 TH , 2011 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF CIT(A)S ORDER DATED 21 ST DECEMBER 2009, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX A CT,1961, FOR THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE HAS FILED AN ADDITIONAL GROUND OF A PPEAL CHALLENGING VALIDITY OF REASSESSMENT PROCEEDINGS. IT CHALLENGES THE REOPENING OF THE ASSESSMENT OF THE APPELLANT , BY ISSUE OF NOTICE UN DER SECTION 148, MERELY ON REVIEW OF PREEXISTING FACTS DULY CONSIDER ED IN THE ORIGINAL ASSESSMENT PROCEEDINGS, AS APPARENT FROM THE REASON S RECORDED . ITA NO. : 1934/MUM/2010 ASSESSMENT YEAR: 2004- 05 PAGE 2 OF 7 3. HAVING HEARD THE RIVAL CONTENTIONS ON ADMISSION OF THIS ADDITIONAL GROUND OF APPEAL, AND PARTICULARLY BEARING IN MIND THE FACT THAT THIS ISSUE IS A PURELY LEGAL ISSUE GOING TO THE ROOT OF THE MATTER, WE ADMIT THIS ADDITIONAL GROUND OF APPEAL AND PROCEED TO ADJUDICATE ON THE S AME ON MERITS. WE WILL TAKE UP THIS ISSUE FIRST. 4. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AGRO CHEMI CAL PRODUCTS. A RETURN OF INCOME, DISCLOSING TAX PAYABLE UNDER SECTION 115 JB ON BOOK PROFIT OF RS 1,29,61,415, WAS FILED ON 28.10.2004, AND ASSESSMEN T UNDER SECTION 143(3) OF THE ACT WAS COMPLETED, ASSESSING BOOK PROFITS AT RS 1,29,61,415, WAS COMPLETED ON 29 TH NOVEMBER, 2006. THE MATTER, HOWEVER, DID NOT REST AT THAT. ON 2 ND JULY 2007, THE ASSESSEE WAS SERVED A NOTICE UNDER SECTION 148 REOPENING THE ASSESSMENT. THE REASONS RECORDED FOR THE SAID REASSESSMENT WERE STATED TO BE AS FOLLOWS: FROM THE PERUSAL OF THE CASE RECORD, IT HAS BEEN OB SERVED THAT THE PROVISION FOR LIABILITIES OF RS 87.89 LAKHS ON AC COUNT OF DEFERRED TAX AND RS 59 LAKHS ON ACCOUNT OF DOUBTFUL DEBTS WERE N OT ADDED BACK, WHILE ARRIVING AT BOOK PROFIT UNDER SECTION 115JB O F THE IT ACT 1961. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE HAS C LAIMED EXCESS DEDUCTION OF PROVISION FOR LIABILITIES OF RS 87.8 9 LAKHS, ON ACCOUNT OF DEFERRED TAX, AND DOUBTFUL DEBTS OF RS 59 LAKHS, WH ILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE INCOME TAX A CT, 1961, WHICH IS NOT ALLOWABLE AS PER THE PROVISIONS OF THE IT ACT, AND FURTHER THE ASSESSEE HAS NOT SUBMITTED ANY SUPPORTING DOCUMENTS TO PROVE THAT THE ASSESSEE IS ENTITLED FOR THE ABOVE CLAIM, AND, THER EFORE, IT IS CLEAR THAT THE ASSESSEE HAS NOT DISCLOSED FULL AND TRUE MATERI AL FACTS NECESSARY FOR THE PURPOSE OF THE ASSESSMENT, AND, THEREFORE, I HA VE REASONS TO BELIEVE THAT RS 146.89 LAKHS CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, IN VIEW OF EXPLANATION 2(C) OF SECTION 147 OF THE IT ACT. A CCORDINGLY, THE ASSESSMENT HAS BEEN REOPENED UNDER SECTION 147 OF T HE IT ACT 1961. 5. THE QUESTION WHICH WE NEED TO ADJUDICATE IS WHET HER THE ASSESSMENT SO REOPENED CAN BE SAID TO HAVE BEEN REOPENED IN AC CORDANCE WITH THE SCHEME OF LAW UNDER THE INCOME TAX ACT, 1961. ITA NO. : 1934/MUM/2010 ASSESSMENT YEAR: 2004- 05 PAGE 3 OF 7 6. WE FIND THAT THE LAW, AS IT STANDS NOW, DOES NOT INDEED PERMIT THE DEDUCTION IN RESPECT OF DEFERRED TAX LIABILITY AND PROVISION FOR DOUBTFUL DEBTS, IN COMPUTATION OF BOOK PROFITS. WHILE THE AM ENDMENT FOR DEFERRED TAX WAS BROUGHT ABOUT BY INSERTING CLAUSE (H) IN EXPLA NATION 1 TO SECTION 115JB(2), BY THE VIRTUE OF FINANCE ACT 2008, THE PR OVISION FOR DOUBTFUL DEBTS WERE COVERED BY THE AMENDMENT MADE BY FINANCE ACT 2 009. THE ASSESSING OFFICER, WHILE REOPENING THE ASSESSMENT DID NOT HAV E THE BENEFIT OF THESE LEGISLATIVE AMENDMENTS, AND IT IS ALSO NOT IN DISP UTE THAT UNTIL THE AMENDMENTS WERE SO MADE, THERE WERE JUDICIAL PRECE DENTS IN FAVOUR OF THE STAND TAKEN BY THE ASSESSEE HONBLE SUPREME COURT S JUDGMENT IN THE CASE OF CIT VS HCL COMMET SYSTEMS & SERVICES LTD (305 ITR 409) SO FAR AS THE PROVISION FOR DOUBTFUL DEBTS IS CONCERNED, AND A CO ORDINATE BENCHS DECISION IN THE CASE OF ACIT VS BALRAM CHINI MILLS LTD (14S OT 372) SO FAR AS THE DEFERRED TAX LIABILITY IS CONCERNED. WE FIND THAT O N MATERIALLY IDENTICAL SET OF FACTS, HONBLE BOMBAY HIGH COURT, IN THE CASE OF RA LLIS INDIA LIMITED VS ACIT (323 ITR 54), THEIR LORDSHIPS QUASHED THE REASSESSM ENT PROCEEDINGS BY, INTER ALIA, OBSERVING AS FOLLOWS: (B) COMPUTATION OF BOOK PROFITS : 13. THE AO HAS WHILE REOPENING THE ASSESSMENT STATE D THAT IN THE PROCESS OF COMPUTING THE BOOK PROFITS UNDER S. 115JB THE ASSESS EE HAD NOT CONSIDERED THE FOLLOWING PROVISIONS MADE IN THE BOOKS OF ACCOUNT, NAMELY (I) PROVISIONS FOR DOUBTFUL DEBTS; (II) PROVISIONS FOR DOUBTFUL ADVANCE S; (III) PROVISIONS FOR DOUBTFUL DEBTS BEING INTER-CORPORATE DEPOSITS TO SUBSI DIARIES; AND (IV) PROVISIONS FOR DIMINUTION IN THE VALUE OF INVESTMEN TS. WHILE DISPOSING OF THE OBJECTION OF THE ASSESSEE, THE AO HAS ALSO NOTED TH AT AT THE INITIAL STAGE WHEN THE COMPUTATION OF INCOME UNDER THE PROVISIONS OF S . 115JB WAS MADE, THE AO HAD NOT FORMED ANY OPINION NOR HAD HE CALLED FOR DE TAILS WITH REGARD TO THE PROVISIONS MADE UNDER THE HEADS NOTED ABOVE AND WHIL E NOT ADDING THE SAME TO THE TOTAL INCOME. THE ISSUE WHICH FALLS FOR DETERMI NATION IS, AS TO WHETHER THE REASONS WHICH HAVE BEEN FURNISHED BY THE AO WERE GER MANE TO THE PROVISIONS MADE FOR BOOK PROFITS IN S. 115JB. ITA NO. : 1934/MUM/2010 ASSESSMENT YEAR: 2004- 05 PAGE 4 OF 7 14. FOR THE PURPOSES OF S. 115JB, EXPLN. 1 PROVIDES THAT 'BOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE P&L A/C FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-S. (2), AS INCREASED BY THE CLAUSES THAT IMMEDIATELY FOLLOW. SUB-S. (2) OF S. 115JB PROVIDES THAT EVERY ASSESSEE, BEING A CO MPANY, SHALL, FOR THE PURPOSES OF THE SECTION, PREPARE ITS P&L A/C FOR TH E RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCH. VI TO THE COMPANIES ACT, 1956. NOW, IT IS A SETTLED PRINCIPLE OF LAW TH AT FOR THE COMPUTATION OF BOOK PROFITS UNDER S. 115JB, THE AO HAS TO ACCEPT THE AU THENTICITY OF THE ACCOUNTS MAINTAINED IN ACCORDANCE WITH THE PROVISIONS OF PAR TS II AND III OF SCH. VI OF THE COMPANIES ACT, 1956 WHICH ARE CERTIFIED BY THE AUDI TORS AND PASSED BY THE COMPANY IN ITS GENERAL MEETING. THE AO DOES NOT HAV E JURISDICTION TO GO BEYOND THE NET PROFITS AS SHOWN IN THE P&L A/C, SAVE AND E XCEPT TO THE EXTENT WHICH IS PROVIDED FOR IN THE EXPLANATION. THE AO CAN INCREAS E THE NET PROFITS AS REFLECTED IN THE P&L A/C PREPARED UNDER PARTS II AND III OF S CH. VI TO THE COMPANIES ACT, 1956 ONLY TO THE EXTENT THAT IS PERMISSIBLE IN THE E XPLANATION NOTED ABOVE. [APOLLO TYRES VS. CIT (2002) 174 CTR (SC) 521 : (20 02) 255 ITR 273 (SC) AND CIT VS. HCL COMNET SYSTEMS & SERVICES LTD. (2008) 2 19 CTR (SC) 222 : (2008) 13 DTR (SC) 105 : (2008) 305 ITR 409 (SC)]. CLAUSE (C) OF EXPLN. 1 DEALS WITH 'THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES'. 15. IN RESPONSE TO THE NOTICE FOR REOPENING OF THE ASSESSMENT, THE ASSESSEE, IN THE COURSE OF ITS OBJECTIONS POINTED OUT THAT THE V IEW OF THE AO WAS CONSISTENT WITH THE LAW LAID DOWN BY THIS COURT IN CIT VS. ECH JAY FORGINGS (P) LTD. (SUPRA) AND THE JUDGMENTS OF THE DELHI HIGH COURT IN CIT VS . EICHER LTD. (SUPRA) AND CIT VS. HCL COMNET SYSTEMS & SERVICES (SUPRA). IN THE D ECISION IN ECHJAY (SUPRA). HON'BLE MR. JUSTICE S.H. KAPADIA (AS HE THEN WAS) SP EAKING FOR A DIVISION BENCH OF THIS COURT NOTED THAT UNDER CL. (C) OF THE EXPLA NATION TO S. 115JB, UNLESS A PROVISION IS MADE FOR ASCERTAINED LIABILITIES, THE P ROVISION HAS TO BE INCLUDED IN THE BOOK PROFITS FOR THE PURPOSE OF TAXATION UNDER S . 115J. THE DELHI HIGH COURT HAD HELD IN EICHER AND IN HCL (SUPRA) THAT UNDER EX PLN. 1(C) THE INCREASE SHALL BE OF THE AMOUNT OR AMOUNTS SET ASIDE FOR MEETING LI ABILITIES OTHER THAN ASCERTAINED LIABILITIES. THE DELHI HIGH COURT HELD T HAT ASCERTAINED LIABILITIES ARE NOT TO BE INCLUDED IN THE BOOK PROFITS AS DEFINED IN THAT SECTION. IN OUR VIEW, THE BASIC QUESTION WHICH WOULD ARISE IS AS TO WHETHER A PROVISION MADE FOR DOUBTFUL DEBTS OR ADVANCES CAN BE REGARDED AT ALL AS A PROVISI ON MADE FOR MEETING LIABILITIES IN THE FIRST PLACE. IN ORDER THAT CL. (C ) SHOULD APPLY, THERE MUST BE A PROVISION; THE PROVISION MUST BE FOR MEETING A LIABIL ITY AND THE LIABILITY IN QUESTION MUST BE OTHER THAN AN ASCERTAINED LIABILITY . 16. THE SUPREME COURT HAD OCCASION TO CONSIDER THE INTERPRETATION OF CL. (C) TO EXPLN. 1 IN ITS JUDGMENT IN HCL COMNET SYSTEMS & SE RVICES LTD. (SUPRA). THE JUDGMENT OF THE SUPREME COURT AROSE IN APPEAL FROM THE JUDGMENT OF THE DELHI HIGH COURT TO WHICH A REFERENCE HAS BEEN MADE EARLIE R. HON'BLE MR. JUSTICE S.H. KAPADIA, SPEAKING FOR A BENCH OF THE SUPREME COURT HELD THAT A DEBT WHICH IS PAYABLE BY THE ASSESSEE MUST BE DISTINGUISHED FROM A DEBT WHICH IS RECEIVABLE ITA NO. : 1934/MUM/2010 ASSESSMENT YEAR: 2004- 05 PAGE 5 OF 7 BY THE ASSESSEE. A PROVISION FOR BAD AND DOUBTFUL DEBT S IS MADE TO COVER UP THE PROBABLE DIMINUTION IN THE VALUE OF THE ASSET NAMELY A DEBT WHICH IS AN AMOUNT RECEIVABLE BY THE ASSESSEE. SUCH A PROVISION, THE SU PREME COURT HELD, CANNOT BE REGARDED AS A PROVISION FOR A LIABILITY BECAUSE EVEN IF A DEBT IS NOT RECOVERABLE, NO LIABILITY COULD BE FASTENED UPON THE ASSESSEE. THE SUPREME COURT HELD THUS : '...... THE ASSESSEE'S CASE WOULD, THEREFORE, FALL WITHIN THE AMBIT OF ITEM (C) ONLY IF THE AMOUNT IS SET ASIDE AS PROVISION; THE PROVISION IS MADE FOR MEETING A LIABILITY; AND THE PROVISION SHOULD BE FOR OTHER THAN AN ASCERTAINED LIABILITY, I.E., IT SHOULD BE FOR AN UNASCERTAINED LIABILITY. IN OTHER WORDS, ALL THE INGREDIENTS SHOULD BE SATISFIED TO ATTRACT ITEM (C) OF THE EXPLA NATION TO S. 115JA. IN OUR VIEW, ITEM (C) IS NOT ATTRACTED. THERE ARE TWO TYPES OF ' DEBTS'. A DEBT PAYABLE BY THE ASSESSEE IS DIFFERENT FROM A DEBT RECEIVABLE BY THE ASSESSEE. A DEBT IS PAYABLE BY THE ASSESSEE WHERE THE ASSESSEE HAS TO PAY THE AMOU NT TO OTHERS WHEREAS THE DEBT RECEIVABLE BY THE ASSESSEE IS AN AMOUNT WHICH T HE ASSESSEE HAS TO RECEIVE FROM OTHERS. IN THE PRESENT CASE, THE 'DEBT' UNDER C ONSIDERATION IS A 'DEBT RECEIVABLE' BY THE ASSESSEE. THE PROVISION FOR BAD AN D DOUBTFUL DEBTS, THEREFORE, IS MADE TO COVER UP THE PROBABLE DIMINUTION IN THE VA LUE OF THE ASSET, I.E., DEBT WHICH IS AN AMOUNT RECEIVABLE BY THE ASSESSEE. THERE FORE, SUCH A PROVISION CANNOT BE SAID TO BE A PROVISION FOR A LIABILITY, BECAU SE EVEN IF A DEBT IS NOT RECOVERABLE NO LIABILITY COULD BE FASTENED UPON THE AS SESSEE. IN THE PRESENT CASE, THE DEBT IS THE AMOUNT RECEIVABLE BY THE ASSESSEE AND NOT ANY LIABILITY PAYABLE BY THE ASSESSEE AND, THEREFORE, ANY PROVISION MADE TOWARDS IRRECOVERABILITY OF THE DEBT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY . THEREFORE, IN OUR VIEW, ITEM (C) OF THE EXPLANATION IS NOT ATTRACTED TO THE FACTS OF THE PRESENT CASE'. IN THE PRESENT CASE ALSO, THE DEBTS WRITTEN OFF WERE THOSE RECEIVABLE BY THE ASSESSEE. THESE ARE NOT LIABILITIES AND DID NOT FALL WITHIN CL. (C) TO EXPLN. 1 AS EXPLAINED BY THE SUPREME COURT. 17. SUBSEQUENT TO THE DECISION OF THE SUPREME COURT IN HCL (SUPRA), PARLIAMENT STEPPED IN TO AMEND EXPLN. 1 TO S. 115JB BY THE FIN ANCE ACT OF 2009. AS A RESULT OF THE AMENDMENT, CL. (I) CAME TO BE INSERTED IN EXP LN. 1 SO AS TO PROVIDE FOR THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINU TION IN THE VALUE OF AN ASSET. THOUGH THE AMENDMENT WAS MADE WITH RETROSPEC TIVE EFFECT FROM 1ST APRIL, 2001, IT WAS ENACTED INTO LAW AFTER THE AO H AD EXERCISED THE POWER TO REOPEN THE ASSESSMENT IN THE PRESENT CASE BY HIS NO TICE DT. 16TH JULY, 2008. CONSEQUENTLY, ON THE DATE ON WHICH THE AO EXERCISED HIS JURISDICTION UNDER S. 148, THE AMENDMENT WHICH WAS BROUGHT IN SUBSEQUENTLY BY THE FINANCE ACT, OF 2009 WAS NOT IN EXISTENCE. 18. A LEGISLATIVE AMENDMENT, THOUGH MADE WITH RETRO SPECTIVE EFFECT HAS BEEN HELD NOT TO JUSTIFY A RECOURSE TO THE REVISIONAL PO WER OF THE CIT UNDER S. 263 OF THE IT ACT IN CIT VS. MAX INDIA LTD. (SUPRA). COUNS EL FOR THE REVENUE SOUGHT TO DISTINGUISH THE JUDGMENT IN MAX INDIA (SUPRA) ON TH E GROUND THAT IT DEALT WITH S. 80HHC AND ONE OF THE GROUNDS WHICH WEIGHED WITH THE SUPREME COURT WAS ITA NO. : 1934/MUM/2010 ASSESSMENT YEAR: 2004- 05 PAGE 6 OF 7 THAT THE SECTION HAD BEEN AMENDED SEVERAL TIMES. THE JUDGMENT OF THE SUPREME COURT CANNOT BE DISTINGUISHED FOR THE REASONS AS SUG GESTED BY THE COUNSEL FOR THE REVENUE. THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN THE JUDGMENT OF THE SUPREME COURT CANNOT BE CONFINED TO S. 80HHC. IN THA T CASE, THE REVISIONAL AUTHORITY HAD SOUGHT TO EXERCISE ITS REVISIONAL JUR ISDICTION UNDER S. 263. THE EXERCISE OF POWER WAS CHALLENGED FIRSTLY ON THE GRO UND THAT TWO VIEWS ON THE INTERPRETATION OF THE PROVISION WERE POSSIBLE AND HE NCE, RECOURSE TO S. 263 WAS NOT PERMISSIBLE. MOREOVER, THE SECOND GROUND WHICH A PPEARS TO HAVE BEEN URGED WAS THAT THE RETROSPECTIVE AMENDMENT TO THE S TATUTORY PROVISION IN QUESTION WOULD NOT HAVE A BEARING ON THE CORRECTNESS OF THE RECOURSE TO S. 263 SINCE ON THE DATE ON WHICH THE POWER WAS EXERCISED BY THE CIT, THE LEGISLATIVE AMENDMENT HAD NOT BEEN BROUGHT INTO FORCE. THE JUDGME NT OF THE SUPREME COURT NOTES FIRSTLY THAT ON THE DATE ON WHICH THE C IT PASSED HIS ORDER, TWO VIEWS ON THE WORD 'PROFIT' UNDER S. 80HHC WERE POSSIBLE AN D THE PROVISION ITSELF HAD BEEN AMENDED ON SEVERAL OCCASIONS. THE SECOND GROUND WHICH WEIGHED WITH THE SUPREME COURT WAS THAT THE SUBSEQUENT AMENDMENT IN 2005 OF THE PROVISIONS OF S. 80HHC, EVEN THOUGH RETROSPECTIVE, WOULD NOT A TTRACT THE PROVISIONS OF S. 263, PARTICULARLY WHEN THE COURT WOULD HAVE TO TAKE INTO ACCOUNT THE POSITION OF LAW AS IT STOOD ON THE DATE WHEN THE CIT PASSED HIS ORDER IN PURPORTED EXERCISE OF HIS POWERS UNDER S. 263. 19. IN THE PRESENT CASE, THE PRINCIPLE OF LAW WHICH HAS BEEN LAID DOWN BY THE SUPREME COURT IN MAX INDIA (SUPRA) WOULD BE ATTRACTE D. ON THE DATE ON WHICH THE AO PURPORTED TO EXERCISE HIS POWER TO REOPEN TH E ASSESSMENT UNDER S. 147, THE LEGISLATIVE AMENDMENT BY THE INSERTION OF CL. ( I) TO EXPLN. 1 TO S. 115JB HAD NOT BEEN BROUGHT INTO FORCE ON THE STATUTE BOOK. OBVIOU SLY, THEREFORE, THE SUBSEQUENT AMENDMENT COULD NOT HAVE BEEN AND IS NOT A GROUND WHICH HAS BEEN TAKEN BY THE AO, WHILE REOPENING THE ASSESSMENT . THE VALIDITY OF THE NOTICE ISSUED BY THE AO IN SEEKING TO REOPEN THE ASSESSMEN T MUST BE DETERMINED WITH REFERENCE TO THE REASONS WHICH ARE FOUND IN SUPPORT OF THE REOPENING OF THE ASSESSMENT. THESE REASONS CANNOT BE ALLOWED TO BE SUP PLEMENTED ON A BASIS WHICH WAS NOT PRESENT TO THE MIND OF THE OFFICER AN D COULD NOT HAVE BEEN SO PRESENT ON THE DATE ON WHICH THE POWER TO REOPEN TH E ASSESSMENT WAS EXERCISED. WE, THEREFORE, HOLD THAT THE PRINCIPLE L AID DOWN BY THE SUPREME COURT IN MAX INDIA (SUPRA) WOULD BE ATTRACTED TO THE PRESENT CASE. CONSEQUENTLY, IT IS EVIDENT THAT THE ORDER OF THE A O WITH REFERENCE TO THE COMPUTATION OF BOOK PROFITS UNDER S. 115JB WAS AT TH E LEAST A PROBABLE VIEW AND AS A MATTER OF FACT THE CORRECT VIEW TO TAKE IN VIEW OF THE DECISION OF THE SUPREME COURT IN HCL (SUPRA). IT IS WELL-SETTLED TH AT THE LAW LAID DOWN BY THE SUPREME COURT IS DECLARATORY OF THE POSITION AS IT ALWAYS STOOD. IN ANY EVENT, AS WE HAVE NOTED, THE VIEW OF THE AO WAS SUPPORTED BY THE INTERPRETATION PLACED EVEN CONTEMPORANEOUSLY IN THE JUDGMENT OF THIS COUR T IN ECHJAY (SUPRA) AND IN THE JUDGMENTS OF THE DELHI HIGH COURT IN EICHER AND HCL (SUPRA). IN THE CIRCUMSTANCES, THERE WAS NO WARRANT FOR REOPENING T HE ASSESSMENT IN EXERCISE OF THE POWER CONFERRED UNDER S. 147. ITA NO. : 1934/MUM/2010 ASSESSMENT YEAR: 2004- 05 PAGE 7 OF 7 7. IN VIEW OF THE LAW SO LAID DOWN BY THEIR LORDSHI PS, AND HAVING NOTED THAT THE ASSESSING OFFICER, AS ON THE TIME OF REOPE NING THE ASSESSMENT, DID NOT HAVE THE BENEFIT OF LEGISLATIVE AMENDMENTS MADE TO SECTION 115JB IN THE ABSENCE OF WHICH JUDICIAL PRECEDENTS SUPPORTED THE CASE OF THE ASSESSE, WE ARE OF THE CONSIDERED VIEW THAT THE REOPENING PROCE EDINGS WERE INDEED VITIATED IN LAW. WE, THEREFORE, QUASH THE REASSESSM ENT ITSELF. 8. AS WE HAVE UPHELD THE GRIEVANCE OF THE ASSESSEE ON THE ISSUE OF VALIDITY OF REOPENING OF ASSESSMENT, ASSESSEES GRI EVANCE ON MERITS ARE RENDERED ACADEMIC AND DONOT CALL FOR ANY ADJUDICATI ON BY US. 9. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON 29 TH DAY OF JULY, 2011. SD/- SD/- (R V EASWAR) (PRAMOD KU MAR) HONBLE PRESIDENT ACCOUNTANT MEMBER MUMBAI; 29 TH _ DAY OF JUNE , 2011 . PARIDA COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER- 8 , MUMBAI 4. COMMISSIONER (APPEALS) 17 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, I BENCH, MUMB AI 6. GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI