LAWKIM LTD ( NOW MERGED WITH GODREJ & BOYCE MFG. CO. LTD), MUMBAI V. ITO WD 10(2)(1), MUMBAI

ITA 5092/MUM/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4062 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-03-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 18-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M MURLI
• Keywords: Business income; Rectification of order; Audit objection; Earning of tax free income; Retrospective amendment; Tangible material; Bad and doubtful debts; Difference of opinion; Tax effect; Reason to believe; Change of opinion
• Section: 143(3); 14A; 115JB; 147; 148; 154; 11

Judgement Text

, ,, ,' '' ' INCOME TAX APPELLATE TRIBUNA L,MUMBAI-A,BENCH , , BEFORE S/SHJOGINDER SINGH,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER ./ITA/5092/MUM/2010, / ASSESSMENT YEARS: 2002-03 LAWKIM LTD. (NOW MERGED WITH GODREJ & BOYCE CO.LTD.) C/O. KALYANIWALA & MISTRY, CHARTERED ACCOUNTANTS, KALPATARU HERITAGE, 127, M.G. ROAD,MUMBAI-400 001. PAN:AAACL 2462 N VS. THE INCOME TAX OFFICER WARD-10(2)(1), AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI M.MURLI ASSESSEE BY: MS. SONALI GODBOLE / DATE OF HEARING: 30.03.2016 / DATE OF PRONOUNCEMENT: 22.04.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA A.M. - CHALLENGING THE ORDER,DATED 05.04.2010 OF THE CIT ( A)-21,MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY IS ENGAGED IN THE B USINESS OF MANUFACTURE OF SPECIALIZED ELECTRICAL MOTORS AND ALLIED PRODUCTS.FIRST GROUND OF APPEAL DEALS WITH REOPENING OF THE ASSESSMENT,WHEREAS THE NEXT EFFECTIVE GROUNDS OF AP PEAL ARE ABOUT COMPETITION OF INCOME UNDER MAT PROVISIONS. BRIEF FACTS: 2. THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.20 02,DECLARING TOTAL LOSS OF RS.2,66,23, 590/-INITIALLY,THE RETURN WAS PROCESSED,U/S.143(1) OF THE ACT, ACCEPTING THE INCOME.LATER ON THE AO COMPLETED THE ASSESSMENT ON 28.02.2005,U/S.1 43(3)OF THE ACT,DETERMINING THE INCOME OF THE ASSESSEE AT LOSS OF RS.2.17 CRORES/-.ON 30/0 3/2007,A NOTICE U/S. 148 OF THE ACT WAS ISSUED.IN HIS SHOW CAUSE NOTICE,THE AO ASKED THE AS SESSEE AS TO WHY THE PROVISIONS MADE FOR DOUBTFUL ADVANCES DEPLETION IN VALUE OF INVESTMENTS AND DISALLOWANCE U/S14A SHOULD NOT BE ADDED BACK WHILE COMPUTING BOOK PROFIT FOR THE PURP OSES MAT AND THE INTEREST PAID ON CUSTOMS DUTY AND ON INCOME TAX SHOULD NOT BE DISALL OWED. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, DT.6. 12.08,THE AO HELD THAT WHILE COMPUTING THE BOOK PROFITS PROVISION OF DOUBTFUL ADVANCES (RS.3.56 LAKHS),DEPLETION IN THE VALUE OF INVESTMENT(RS.1.23 LAKHS)WAS NOT ADDED BACK TO NET PROFIT,THAT THE PROVISIONS MADE B Y IT WERE FOR A CONTINGENT LIABILITY,THAT THUS THE PROVISIONS MADE BY IT WAS FOR UNASCERTAINED LI ABILITIES, THAT AS PER EXPLANATION 1 TO SEC. 115JB OF THE ACT,SUCH PROVISIONS WERE REQUIRED TO B E ADDED BACK WHILE COMPUTING THE BOOK PROFIT,THAT AN AMOUNT OF RS.49.05 LAKHS HAD BEEN AT TRIBUTED AS INCURRED TOWARDS EARNING THE DIVIDEND INCOME OF RS.43.87 LAKHS,THAT SAME HAD TO BE DISALLOWED U/S. 14A OF THE ACT, AS PER THE PROVISIONS OF SECTION 115JB EXPENDITURE RELATAB LE TO ANY EXEMPT INCOME WAS TO BE ADDED BACK WHILE COMPUTING THE BOOK PROFIT,THAT THE ASSES SEE HAD PAID AN AMOUNT OF RS.8.64 LAKHS AND RS.58,728/- RESPECTIVELY UNDER THE HEAD INTERES T ON CUSTOMS DUTY AND INCOME TAX WAS IN THE NATURE OF PENALTY, THAT SUCH AMOUNT WAS TO BE D ISALLOWED AND TO BE ADDED BACK WHILE COMPUTING THE TOTAL INCOME.THE ASSESSEE, VIDE ITS L ETTER DT.19.4.2007,REQUESTED THE AO FOR PROVIDING THE REASON RECORDED FOR REOPENING.THE ASS ESSEE OBJECTED TO THE RE-OPENING 5092/M/10-LAWKIMLTD. 2 PROCEEDINGS.HOWEVER,THE AO PASSED AND ORDER U/S.143 (3),R.W.S.147 OF THE ACT,ON 24/ 12/ 2008,DETERMINING THE INCOME OF THE ASSESSEE AT RS.8 2,98,712/-. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,THE ASSESSEE AR GUED THAT DIVIDEND AMOUNT WAS REFLECTED IN ITS P&L A/C. AND THEREFORE,SAME SHOULD BE IGNORED,THAT IT SHOULD NOT BE REDUCED FROM NET PROFIT TO ARRIVE AT TAXABLE BOOK PROFIT FO R MAT.THE ASSESSEE RELIED UPON THE CASE OF APOLLO TYRE LTD.(255 ITR273) AND RAJ SHIPPING AND W EAVING MILLS LTD.(281ITR177).AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER, THE FAA HELD THAT WHILE COMPUTING INCOME DURING ORIGINAL ASSESSMENT PROCEE DINGS A DISALLOWANCE U/S. 14A OF THE ACT WAS MADE UNDER THE NORMAL PROVISIONS OF THE ACT ,THAT WHILE COMPUTING THE BOOK PROFIT OF THE ASSESSEE U/S.115JB SUCH DISALLOWANCE WAS OMITT ED,THAT ASSESSEE HAD RELIED ON THE CASE OF APOLLO TYRES LTD.(SUPRA),THAT ARGUMENT ADVANCED BY THE ASSESSEE WAS NOT ACCEPTABLE,THAT THE AO DID NOT MAKE ANY ADJUSTMENT IN ASSESSEES PROFIT AS PER PROVISIONS OF COMPANIES ACT,THAT HE HAD INCREASED THE NET PROFIT,(NET PROFIT COMPUTE D AS PER COMPANIES ACT) AS PER CLAUSE(F) OF EXPLANATION 1 TO SECTION 115JB, THAT THE RATIO OF H ON'BLE SUPREME COURT DECISION IN CASE OF APOLLO TYRES WAS NOT APPLICABLE.HE FURTHER HELD THA T AO HAD DECIDED THE ISSUE OF INCURRING OF EXPENDITURE FOR EARNING EXEMPT INCOME, THAT ONCE THE AO HAD DECIDED THE ISSUE A DIFFERENT STAND COULD NOT BE TAKEN WHILE COMPUTING THE INCOME AS PER PROVISIONS OF SECTION 115JB OF THE ACT,THAT THE AO HAD,WHILE COMPUTING THE INCOME UNDER NORMAL PROVISIONS EXPENDITURE AMOUNTING TO RS.49.09 LAKHS,HELD HELD THAT IT WAS INCURRED FOR EARNING EXEMPT INCOME AND THAT BOOK PROFIT WAS REQUIRED TO BE INCREASED BY TH E SAID AMOUNT. FINALLY,HE DISMISSED THE APPEAL FILED BY THE ASSESSEE. 4. BEFORE US,THE AUTHORISED REPRESENTATIVE (AR)ARGUED THAT REASONS FOR REOPENING WERE VAGUE AND DID NOT BRING OUT HOW THE INCOME HAD ESCAPED AS SESSMENT,THAT DURING THE ORIGINAL ASSESSMENT PROCEEDINGS THE THEN AO HAD APPLIED HIS MIND,THAT IT WAS A CASE OF CHANGE OF OPINION,THAT PROVISIONS OF SEC. 148 COULD NOT BE IN VOKED FOR CORRECTING THE MISTAKES OF AN AO,THAT THE REASONS RECORDED BY THE AO PROVE THAT R EOPENING WAS BASED ON AUDIT OBJECTIONS, THAT THE AO ISSUED NOTICE U/S.154 OF THE ACT ON 05. 12.2005 FOR RECTIFYING MISTAKES FOR THE SAME ITEMS.SHE REFERRED TO THE CASES OF JET SPEED A UDIO(372ITR762),BEDMUTHA INDUSTRIES LTD.(87DTR305),GKN SINTER METALS LTD.(371ITR 225),I NDIAN AND EASTERN NEWSPAPER SOCIETY(119ITR996),RALLIS INDIA(323ITR54)AND STATED THAT ALL THE RELEVANT INFORMATION WAS MADE AVAILABLE TO THE AO,DURING THE ORIGINAL ASSESS MENT PROCEEDINGS,THAT IT WAS A CASE OF MERE CHANGE OF OPINION.SHE REFERRED TO PG NO.88,104 ,51,54-66, 68,42-43,52-53 OF THE PAPER BOOK.IT WAS FURTHER ARGUED THAT THE ASSESSEE HAD NO T SPECIFICALLY ANY EXPENSE WHICH COULD BE ATTRIBUTABLE TO EARN EXEMPT DIVIDEND INCOME, THAT T HE INVESTMENTS WERE PURCHASED FROM PROPRIETARY FUNDS AVAILABLE TO IT AND NO SPECIFIC B ORROWINGS WERE MADE,THAT THE BOOKS OF THE ASSESSEE WERE AUDITED AS PER THE PROVISIONS OF COMP ANIES ACT,THAT THE AUDITOR HAD NOT MADE ANY QUALIFICATION IN THAT REGARD,THAT THE AUDITED A CCOUNTS WERE APPROVED BY THE SHARE HOLDERS,THAT THE AO HAD NO POWERS TO MAKE FURTHER A DJUSTMENT IN THE AUDITED ACCOUNTS,THAT DISALLOWANCE MADE U/S.14A IN THE ORIGINAL ASSESSMEN T PROCEEDINGS WAS NOT TO BE CONSIDERED FOR MAT PURPOSES,THAT BOOK PROFIT WAS TO BE COMPUTE D AS PER THE AUDITED ACCOUNTS.THE DR SUPPORTED THE ORDER OF THE FAA AND STATED THAT ALLO WANCE OF INTEREST ON CUSTOM DUTY AND INCOME TAX WAS THE REASONABLE BASIS FOR RE-OPENING OF THE ASSESSMENT,THAT THERE WAS NO CHANGE OF OPINION. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT IN THIS CASE RETURN OF INCOME WAS FILED IN THE YEAR 2002 AN D NOTICE U/S.148 WAS ISSUED ON 06.08. 2008,THAT WHILE RE-OPENING THE ASSESSMENT,THE AO HE LD THAT CERTAIN ITEMS HAD TO BE ADDED FOR 5092/M/10-LAWKIMLTD. 3 COMPUTING THE INCOME UNDER MAT PROVISIONS.WE WOULD LIKE TO RE-PRODUCE THE REASONS RECORDED BY THE AO FOR REOPENING OF THE ASSESSMENT AND SAME READ AS UNDER: ON VERIFICATION OF THE CASE RECORDS, IT IS SEEN TH AT WHILE COMPUTING BOOK PROFIT FOR MAT, PROVISION FOR DOUBTFUL ADVANCES AMOUNTING TO RS.3,0 5,6000/- AND DEPLETION IN THE VALUE OF INVESTMENTS AMOUNTING TO RS.1,23, 000/- IS NOT ADDE D BACK IN THE NET PROFIT, FOR ASCERTAINING THE BOOK PROFIT FOR MAT. FURTHER, VIDE THE ASSESSMENT ORDER, AN AMOUNT OF RS .49,05,000/- HAS BEEN ATTRIBUTED AS INCURRED TOWARDS EARNING THE DIVIDEND INCOME OF R S.43,87,088/- AND HENCE DISALLOWED U/S. 14A OF THE ACT AND AS SUCH THE SAID AMOUNT SHOULD BE REDUCED FROM THE SAID DIVIDEND INCOME, WHICH IS EXEMPT U/S. 10(33). SINCE THE DIVIDEND IN COME IS RS.43,87,088/- AND THE EXPENSES ATTRIBUTABLE ARE ESTIMATED AT RS.49,05,000/- FOR EA RNING THE SAID DIVIDEND, HENCE DIVIDEND AMOUNT VIDE THE PROFIT AND LOSS ACCOUNT HEADS TO BE IGNORED AND NOT REDUCED FROM THE NET PROFIT TO ARRIVE THE TAXABLE BOOK PROFIT FOR MAT. FURTHER, IT IS SEEN FROM THE RECORDS THAT ASSESSEE COMPANY PAID AMOUNTS OF RS.8,64,999/- AND RS.58,728/- AS INTEREST ON CUSTOMS DUTY AND INCOM E TAX RESPECTIVELY, RESULTING INTO INCORRECT COMPUTATION OF BUSINESS INCOME. IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX FOR AY. 2002-03 HAS ESCAPED ASSESSMENT FOR FAILURE ON THE PART OF T HE ASSESSEE COMPANY TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS REQUIRING FOR ASSES SMENT,FOR AY. 2002-03. WE WOULD ALSO LIKE TO REPRODUCE THE GIST OF THE NOT ICE ISSUED BY THE AO,WHILE ISSUING NOTICE FOR RECTIFICATION AND IT READS AS FOLLOW: PARTICULARS OF MISTAKES PROPOSED TO BE RECTIFIED (1) ORDER ASSESSMENT OF BOOK PROFIT BY RS.75,66,08 8/- (2) THE ASSESSEE COMPANY HAD PAID RS.8,64,999/- AND RS.58,728/- AS AGAINST INTEREST PAID ON CUSTOM DUTY AND INCOME TAX RESPECTIVELY, HENCE UNDE R ASSESSMENT OF INCOME BY RS.9,23,726/- IT IS ALSO FOUND THAT THE AUDIT PARTY HAD RAISED FO LLOWING OBJECTIONS WITH REGARD TO THE ASSESSMENT: TAX EFFECT- RS.3,29,770/-(M) SUB: - INCORRECT COMPUTATION OF BUSINESS INCOME. THE SCRUTINY ASSESSMENT OF M/S. LAWKIM PVT LTD FOR THE ASSESSMENT YEAR 2002-03 WAS DONE FOR A LOSS OF RS.2,17,18,590/- ON 28-02-05. AUDIT S CRUTINY REVEALED THAT THE ASSESSEE COMPANY HAD PAID RS. 8,64,999/- & RS. 58,728/- AS AGAINST I NTEREST PAID ON CUSTOM DUTY AND INCOME TAX RESPECTIVELY, (DETAILS OF INTEREST PAID FILED WITH ASSESSEE LETTER DTD. 9-2-04) AS PER IT ACT, THESE INTEREST ARE NOT ADMISSIBLE THEREFORE SAME SHOULD H AVE BEEN DISALLOWED. OMISSION TO DO SO RESULTED IN UNDERASSESSMENT OF IN COME BY RS. 9,23,726/- WITH CONSEQUENT SHORT LEVY OF TAX OF RS.3,29,770/- (NOTIONAL). THIS IS BROUGHT TO YOUR NOTICE TO TAKEN NECESSARY ACTION UNDER INTIMATION TO AUDIT. IN REPLY IT WAS STATED THAT NOTICE U/S. 154 OF TH E I.T. ACT,HAD BEEN ISSUED TO THE ASSESSEE COMPANY AND AFTER THE COMPLIANCE OF THE SAID NOTICE NECESSARY REPLY SHALL BE SENT TO AUDIT. FURTHER COMPLIANCE FROM THE DEPARTMENT IS AWAITED. SUB: INCORRECT COMPUTATION OF BOOK PROFIT UNDER SP ECIAL PROVISION. IN THE CASE OF AN ASSESSEE, BEING A COMPANY, THE IN COME TAX PAYABLE ON THE TOTAL INCOME IS LESS THAN 7.5% OF ITS BOOK PROFIT, THEN SUCH BOOK PROFIT SHALL BE DEEMED TO BE TOTAL INCOME OF THE ASSESSEE AND TAX PAYABLE BY THE ASSESSEE AT THE RAT E OF 7.5% OF SUCH TOTAL INCOME. BOOK PROFIT MEANS NET PROFIT AS PER PROFIT & LOSS A CCOUNT WITH CERTAIN ADDITIONS AND CERTAIN DELETIONS. ADDITIONS INCLUDES PROVISIONS FOR LIABI LITIES OTHER THAN ASCERTAINED LIABILITIES. TAX EFFECT-RS.5,78,806/- AUDIT SCRUTINY REVEALED THAT WHILE COMPUTING BOOK PROFIT UNDER SPECIAL PROVISION OF IN~OIILC TAX ACT, PROVISION FOR DOUBTFUL ADVANCES A MOUNTING TO RS.30,56,000/- AND PROVISION FOR DEPLETION IN VALUE OF INVESTMENT AMOU NTING TO RS.1,23,000/- (SCHEDULE 11 OF P;&L A/C) WERE NOT ADDED BACK IN NET PROFIT THOUGH THESE WERE ADDED BACK IN THE NORMAL PROVISION. AS THESE ARE NOT ASCERTAINED LIABILITIES , IT SHOULD HAVE BEEN ADDED IN NET PROFIT. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAD ESTI MATED THE EXPENSES FOR EARNING THE EXEMPTED DIVIDEND AT RS.49,05,000/- UNDER SECTION 1 4A OF THE I TAX ACT. IN COMPUTATION THIS AMOUNT HAS BEEN ADDED BACK AND DEDUCTED IT FROM THE DIVIDEND INCOME. ACCORDING TO THE 5092/M/10-LAWKIMLTD. 4 SPECIAL PROVISION OF THE ACT, SUCH EXPENSES WERE RE QUIRED TO BE DEDUCTED FROM THE DIVIDEND INCOME EXEMPTED UNDER SECTION 10(33). SINCE THE D IVIDEND INCOME IS RS.43,87,088/- AND THE EXPENSES ESTIMATED BY THE DEPTT. IS RS.49,05,000/- FOR EARNING THE DIVIDEND, NO DIVIDEND IS ALLOWED TO BE DEDUCTED FROM THE NET. PROFIT TO ARRI VE AT THE TAXABLE BOOK PROFIT. OMISSION TO DO SO RESULTED IN UNDERASSESSMENT OF BOOK PROFIT BY RS.7566088/- WITH SHORT LEVY OF TAX OF RS.5,78,806/-. THIS IS BROUGHT TO YOUR NOTICE TO TAKEN NECESSARY A CTION. IN REPLY IT WAS STATED THAT NOTICE U/S 154 OF THE I. T. ACT, HAD BEEN ISSUED TO THE ASSESSEE COMPANY AND AFTER THE COMPLIANCE OF THE SAID NOTICE NECESSARY REPLY SHALL BE SENT TO AUDIT. FURTHER COMPLIANCE FROM THE DEPARTMENT IS AWAITED. FROM THE ABOVE DISCUSSION,IT IS CLEAR THAT THE SUBJ ECT MATTER OF THE AUDIT OBJECTIONS, PROPOSED RECTIFICATION OF MISTAKES AND THE REASONS FOR RE-OP ENING DEAL WITH THE SAME ISSUES.WE ARE OF THE OPINION THAT RE-OPENING OF ASSESSMENT HAS TO BE INITIATED BY THE AO AFTER ARRIVING AT THE CONCLUSION THAT TAXABLE INCOME HAD ESCAPED ASSESSME NT.FOR REACHING AT THAT CONCLUSION HE SHOULD HAVE TANGIBLE MATERIAL IN HIS POSSESSION.PIE CES OF INFORMATION SUPPLIED BY THE AUDIT PARTY CAN BE A VALID BASIS FOR REOPENING.BUT,OBJECT IONS SHOULD NOT BE ABOUT INTERPRETATION OF LAW.IF AN AUDIT PARTY INTERPRETS SECTIONS OF THE AC T,IT CROSS THE LAXMAN REKHA OF THE MANDATE GIVEN TO IT.THE HONBLE APEX COURT IN THE MATTER OF INDIAN AND EASTERN NEWSPAPER SOCIETY (SUPRA)HAS HELD AS UNDER: THE OPINION OF AN INTERNAL AUDIT PARTY OF THE INCO ME-TAX DEPARTMENT ON A POINT OF LAW CANNOT BE REGARDED AS 'INFORMATION' WITHIN THE MEANING OF S. 147(B) OF THE I.T. ACT, 1961, FOR THE PURPOSE OF REOPENING AN ASSESSMENT. BUT ALTHOUGH AN AUDIT PARTY DOES NOT POSSESS THE POWER TO PRONOUNCE ON THE LAW, IT NEVERTHELESS MAY DRAW T HE ATTENTION OF THE ITO TO IT. LAW IS ONE THING, AND ITS COMMUNICATION ANOTHER. IF THE DISTIN CTION BETWEEN THE SOURCE OF THE LAW AND THE COMMUNICATION OF THE LAW IS CAREFULLY MAINTAINED, T HE CONFUSION WHICH OFTEN RESULTS IN APPLYING S. 147(B) MAY BE AVOIDED. WHILE THE LAW MA Y BE ENACTED OR LAID DOWN ONLY BY A PERSON OR BODY WITH AUTHORITY IN THAT BEHALF, THE K NOWLEDGE OR AWARENESS OF THE LAW MAY BE COMMUNICATED BY ANYONE.NO AUTHORITY IS REQUIRED FOR THE PURPOSE. THAT PART ALONE OF THE NOTE OF AN AUDIT PARTY WHICH MENTIONS THE LAW WHICH ESCA PED THE NOTICE OF THE ITO CONSTITUTES 'INFORMATION WITHIN THE MEANING OF S. 147(B); THE P ART WHICH EMBODIES THE OPINION OF THE AUDIT PARTY IN REGARD TO THE APPLICATION OR INTERPR ETATION OF THE LAW CANNOT BE TAKEN INTO ACCOUNT BY THE ITO. IN EVERY CASE, THE ITO MUST DET ERMINE FOR HIMSELF WHAT IS THE EFFECT AND CONSEQUENCE OF THE LAW MENTIONED IN THE AUDIT NOTE AND WHETHER IN CONSEQUENCE OF THE LAW WHICH HAS NOW COME TO HIS NOTICE HE CAN REASONABLY BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. THE BASIS OF HIS BELIEF MUST BE THE LAW OF WHICH HE HAS NOW BECOME AWARE. THE OPINION RENDERED BY THE AUDIT PARTY IN REGARD TO TH E LAW CANNOT, FOR THE PURPOSE OF SUCH BELIEF, ADD TO OR COLOUR THE SIGNIFICANCE OF SUCH L AW. THE TRUE EVALUATION OF THE LAW IN ITS BEARING ON THE ASSESSMENT MUST BE MADE DIRECTLY AND SOLELY BY THE ITO. IN EVERY CASE, A DECLARATION OR EXPOSITION TO BE LA W, MUST BE A CREATION BY A FORMAL SOURCE, EITHER LEGISLATIVE OR JUDICIAL AUTHORITY. A STATEMENT BY A PERSON OR BODY NOT COMPETENT TO CREATE OR DEFINE THE LAW CANNOT BE REGARDED AS LAW. THE SUGGESTED INTERPRETATION OF ENACTED LEGISLATION AND THE ELABORATION OF LEGAL PRINCIPLES IN TEXT BOOKS AND JOURNALS DO NOT ENJOY THE STATUS OF LAW. (EMPHASIS BY US).THEY ARE MERELY OPINIONS AND, AT B EST, EVIDENCE IN REGARD TO THE STATE OF LAW AND IN THEMSELVES POSSESS NO BI NDING EFFECT AS LAW. THE FORENSIC SUBMISSIONS OF PROFESSIONAL LAWYERS AND THE SEMINAL ACTIVITIES OF LEGAL ACADEMICS ENJOY NO HIGHER STATUS. IN LIGHT OF THE ABOVE DISCUSSION,WE HAVE NO HESITAT ION TO HOLD THAT IN THE CASE UNDER CONSIDERATION THE TRIGGER POINT WAS THE OBJECTION R AISED BY THE AUDIT PARTY.INITIALLY,THE AO ISSUED NOTICE U/S.154 OF THE ACT AND LATER ON ISSUE D RE-ASSESSMENT NOTICE.CLEARLY,HE WAS NOT SURE AS TO WHICH SECTION WAS APPLICABLE TO THE FACT S OF THE CASE.IN THE NOTICE,ISSUED U/S.148OF 5092/M/10-LAWKIMLTD. 5 THE ACT HE HAS MENTIONED THAT ON VERIFICATION OF RE CORDS.THUS,HE HAD NO OTHER INFORMATION IN HIS POSSESSION AT THE TIME OF ISSUING THE NOTICE. 5.1. THE CORRESPONDENCE BETWEEN THE ASSESSEE AND THE AO INDICATES THAT EVERY ASPECT OF THE ADDITIONS MADE DURING THE REASSESSMENT WAS NOT ONLY DISCLOSED BY THE ASSESSEE DURING THE ORIGINAL PROCEEDINGS,BUT WAS SPECIFICALLY NOTICED B Y HIM.MORE IMPORTANT IS THE FACT THAT EVERY RELEVANT ASPECT HAD BEEN BROUGHT TO HIS NOTICE NOT MERELY IN THE RETURN FILED BY THE ASSESSEE,BUT IN ANSWER TO THE SPECIFIC QUERIES AND IN RESPONSE TO THE REQUISITIONS OF THE AO DURING THE ASSESSMENT PROCEEDINGS (PGS.48-56 AND 10 5-116 OF THE PB).NEITHER ANY ASPECT OF THE MATTER REMAINED TO BE DISCLOSED NOR ANY ASPECT OF THE MATTER REMAINED TO BE SOUGHT BY THE AO.THE ASSESSEE HAD NOT WITHHELD OR FAILED TO DISCL OSE ANY MATERIAL RELEVANT TO THE ASSESSMENT OF ITS INCOME FOR THE ASSESSMENT YEAR UN DER APPEAL.THE MATTER DOES NOT END THERE. THE ASSESSMENT ORDER PASSED U/S.143(3)OF THE ACT, E LABORATELY DEALS WITH THE ISSUE OF EXEMPT INCOME AND DISALLOWANCE OF PROPORTIONATE EXPENDITUR E FOR EARNING OF SUCH INCOME. WHILE COMPUTING THE INCOME OF THE ASSESSEE(PG.88OF THE PB .)THE AO HAD MADE ADDITIONS UNDER THE HEADS PROVISIONS FOR DOUBTFUL DEBTS,PROVISION FOR D EPLETION IN VALUE OF INVESTMENTS. HE HAD ALSO MADE DISALLOWANCES INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT.WE DO NOT FIND ANYTHING IN THE REASONS RECORDED FOR REOPENING THAT WAS NOT CONSIDERED DURING THE ASSESSMENT PROCEEDINGS.EVERY SINGLE ASPECT REFERRED TO THEREIN WAS CONSIDERED IN THE ORIGINAL ASSESSMENT PASSED U/S.143(3)OF THE ACT.THUS,THERE IS NO DOUBT THAT THE REOPENING WAS BASED ON THE SAME SET OF FACTS/MATERIAL AVAILABLE ON RECORD FOR THE Y EAR UNDER CONSIDERATION AND THAT THE REASONS REFLECTED A MERE CHANGE OF OPINION.BESIDES,A MERE F AILURE TO FURNISH A DOCUMENT WOULD NOT JUSTIFY REOPENING AN ASSESSMENT.IT HAS TO BE ESTABL ISHED BY THE AO THAT THE CONTENTS OF THE DOCUMENTS RELEVANT TO THE ASSESSMENT WERE NOT DISCL OSED BY THE ASSESSEE. IF WE CONSIDER ALL THAT TRANSPIRED DURING THE COURS E OF THE ASSESSMENT PROCEEDINGS,ESPECIALLY THE QUERIES RAISED AND THE INFORMATION SOUGHT BY TH E AO AND THE ASSESSEE'S RESPONSE THERETO,IT BECOMES CLEAR THAT ALL THE MATERIAL FACTS WERE NOT ONLY DISCLOSED BUT WERE BROUGHT TO THE NOTICE OF THE AO AND THE AO HAD CONSIDERED THE SAME .EVEN IF THE ASSESSMENT ORDER DOES NOT BY ITSELF INDICATE THAT THE AO CONSIDERED THE SAME, IT WOULD MAKE NO DIFFERENCE.IN RABO INDIA FINANCE LTD.(346 ITR 528),THE HONBLE BOMBAY HIGH C OURT HAS HELD AS UNDER: 'THE FACTS THUS FAR INDICATE THAT THE RESPONDENTS W ERE AWARE NOT MERELY OF THE EXISTENCE OF THE TRANSACTIONS BETWEEN THE PETITIONER AND RABOBANK IN TERNATIONAL BUT ALSO THE DETAILS THEREOF. THEY ALSO ESTABLISH THAT THE ASSESSING OFFICER HAD SPECI FICALLY CONSIDERED THE SAME.IF AN ASSESSING OFFICER CALLS FOR SPECIFIC INFORMATION RELATING TO OR IN CONNECTION WITH THE MATERIAL BEFORE HIM,ABSENT ANYTHING ELSE,IT IS REASONABLE TO PRESUM E THAT HE HAD CONSIDERED THE MATERIAL FILED BEFORE HIM AS WELL AS THE MATERIAL CALLED FOR BY HI M BEFORE MAKING THE ASSESSMENT ORDER. HAD HE NOT CONSIDERED THE MATERIAL FILED BEFORE HIM ORIGIN ALLY THERE WOULD BE NO QUESTION OF HIS SEEKING FURTHER INFORMATION IN RELATION THERETO.IT IS LOGIC AL,THEREFORE,TO PRESUME THAT HE HAD CONSIDERED THE MATERIAL IN RELATION TO WHICH HE SOUGHT FURTHER INF ORMATION. IT WOULD EQUALLY FOLLOW THAT THE ASSESSING OFFICER WOULD ALSO HAVE CONSIDERED THE IN FORMATION FURNISHED PURSUANT TO SUCH DEMAND. A VIEW TO THE CONTRARY WOULD PRESUME THAT THE AO HA D IGNORED THE VERY INFORMATION THAT HE SPECIFICALLY SOUGHT. WE ARE NOT INCLINED TO PRESUME NEGLIGENCE OR INDIFFERENCE ON THE PART OF AN ASSESSING OFFICER IN SUCH CIRCUMSTANCES. IT IS REAS ONABLE, THEREFORE, TO PRESUME THAT THE ASSESSING OFFICER HAD APPLIED HIS MIND TO THE AGREEMENTS AND MATTERS CONNECTED THEREWITH RELATING TO THE AGREEMENT.' THERE IS NOTHING ON RECORD THAT INDICATES THAT THE AO DID NOT CONSIDER THE MATERIAL BEFORE HIM.INDEED THE NATURE OF THE QUERIES RAISED AND THE INFORMATION SOUGHT BY HIM INDICATES THAT HE NOT ONLY NOTICED BUT CONSIDERED THE INFORMATION SUPPLIED BY THE ASSESSEE. IN THE FACTS AND CIRCUMSTANCES OF THIS CASE,WE ARE OF THE OPINION TH AT THERE WAS NO JUSTIFICATION FOR ISSUING NOTICE U/S.148 OF THE ACT.THEREFORE,REVERSING THE O RDER OF THE FAA,WE HOLD THAT ORDER PASSED BY THE AO,AS PER THE PROVISIONS OF SECTION 143(3)R. W.S.147 OF THE ACT,IS NOT VALID.FIRST EFFECTIVE GROUND IS DECIDED IN FAVOUR OF THE ASSESS EE. 5092/M/10-LAWKIMLTD. 6 6. THE NEXT GROUND OF APPEAL IS ABOUT PROVISIONS MADE UNDER THE HEAD DOUBTFUL DEBTS AND DEPLETION IN VALUE OF INVESTMENTS FOR COMPUTING THE BOOK-PROFIT.WHILE COMPLETING THE ORIGINAL ASSESSMENT,ADDITIONS ON ACCOUNT OF PROVISI ONS OF DOUBTFUL ADVANCES(RS.30.56 LAKHS) AND DEPLETION IN THE VALUE OF INVESTMENT(RS.1.22 LA KHS )WERE MADE BY THE AO.BUT,THAT THE SAID AMOUNTS WERE NOT ADDED BACK TO THE BOOK PROFIT WHILE MAKING COMPUTATION U/S.115 JB OF THE ACT.THE ASSESSEE HAD CLAIMED BEFORE AO THAT TH E PROVISIONS MADE UNDER BOTH THE HEADS WERE NOT FOR MEETING ANY LIABILITY,THAT CLAUSE(C) O F 115JB(2) OF THE ACT WAS NOT APPLICABLE, THAT BOTH THE PROVISIONS WERE IN RESPECT OF ASSETS AND NOT PERTAINED TO ANY LIABILITY,THAT THE DEBTS AND INVESTMENTS WERE DOUBTFUL FOR RECOVERY OR REALISATION,THAT SUCH PROVISIONS HAD NOT BEEN MADE FOR MEETING ANY LIABILITY.IT RELIED UPON THE CASE OF HCL COMNET SYSTEMS AND SERVICES LTD.(309 ITR 409) AND JG VACUUM FLASK PVT . LTD.(82 ITD 242). 7. BEFORE THE FAA,THE ASSESSEE ARGUED THAT IN THE CASE OF RALLIS INDIA LTD.,THE HON'BLE BOMBAY HIGH COURT (323ITR54)HAD HELD THAT THE PROVI SIONS FOR BAD AND DOUBTFUL DEBTS PROBABLE DIMINUTION IN VALUE ASSETS COULD NOT BE RE GARDED AS A PROVISION FOR LIABILITY,THAT EVEN IF A DEBT WAS NOT RECOVERABLE NO LIABILITY COULD BE FASTENED TO THE ASSESSEE, THAT THE HONBLE COURT HELD THAT CLAUSE(I) INSERTED TO EXPLANATION 1 TO SECTION 115JB WAS EFFECTIVE FROM 1.4. 2001, THAT ON THE DATE ON WHICH AO HAD EXERCISED HI S JURISDICTION AND THAT THE AMENDMENT IN QUESTION WAS BROUGHT IN SUBSEQUENTLY BY THE FINANCE ACT OF 2009 WAS NOT IN EXISTENCE AT THAT TIME.THE FAA HELD THAT AS PER THE PROVISIONS OF SEC TION 115JB ADJUSTMENT COULD BE MADE IN THE BOOK PROFIT ON ACCOUNT OF CERTAIN ITEMS EXPRESS LY PROVIDED IN EXPLANATION- 1,THAT IN VIEW OF THE RETROSPECTIVE AMENDMENT TO SECTION 115 JB AD JUSTMENT MADE BY THE AO HAD TO BE UPHELD. 8. BEFORE US,IT WAS ARGUED THAT PROVISIONS MADE BY THE ASSESSEE HAD BEEN IN RESPECT OF DEBTS IN QUESTION ON THE BASIS OF ANALYSIS AND IDENTIFICATIO N OF EACH AND EVERY PARTY WITH REFERENCE TO ITS AGE AND EXPECTED RECOVERY,THAT SAID PROVISIONS WERE MADE AFTER MAKING DILIGENT EFFORT FOR MAKING RECOVERY,THAT SUB-CLAUSE (I)TO EXPL.1 OF SEC TION 115JB WAS INTRODUCED RETROSPECTIVELY, THAT AT THE TIME OF ISSUE OF NOTICE SUB CLAUSE(I) W AS NOT AVAILABLE.SHE REITERATED THE ARGUMENTS ADVANCED BEFORE THE FAA.THE DR SUPPORTED THE ORDER OF THE FAA. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE FAA HAS HELD THAT BECAUSE OF THE RETROSPECTIVE AMEN DMENT THE AO WAS JUSTIFIED IN APPLYING THE PROVISIONS OF SECTION 115JB OF THE ACT.HERE,WE WOULD LIKE TO REFER TO THE CASE OF YOKOGAWA INDIA LTD.(204TAXMAN 305),WHEREIN THE HON BLE KARNATAKA HIGH COURT HAS DEALT THE ISSUE AS UNDER: 7. THE LEARNED COUNSEL FOR THE REVENUE SUBMITTED TH AT CLAUSE (I) STANDS ADDED TO THE SAID EXPLANATION WHICH HAS COME INTO EFFECT FROM 1-4-200 1 AND THEREFORE AS THE SAID AMOUNTS ARE SET ASIDE AS PROVISION FOR DIMINISHING IN THE VALUE OF ASSETS BY VIRTUE OF RETROSPECTIVE OPERATION, THE SAID AMOUNTS HAVE TO BE ADDED ONLY TO ARRIVE AT THE BOOK PROFIT AND THEREFORE THE ORDER PASSED BY THE TRIBUNAL IS ILLEGAL AND REQUIRES TO B E SET ASIDE. IN THAT CONTEXT, HE ALSO RELIED ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF VIJAY A BANK V. CIT [2010)3231TR 166/190 TAXMAN 257 AND CIT V. HCL COMNET SYSTEMS AND SERVIC ES LTD. [200B) 305 ITR 409/174 TAXMAN 11B. AFTER REFERRING TO ITEMS (A) TO (F) AS PROVIDED IN THE EXPLANATION IT WAS HELD THAT EVEN DOUBTFUL DEBTS CAN BE ADDED BACK TO THE NET PR OFIT IF ITEM (C) STANDS ATTRACTED. ITEM (C) DEALS WITH AMOUNTS SET ASIDE AS PROVISIONS MADE FOR MEETING THE LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES, THE ASSESSEE'S CASE, WOULD ; THEREFORE, FALL WITHIN THE AMBIT OF ITEM (C) ONLY IF THE AMOUNT IS SET ASIDE AS PROVISION, THE P ROVISION IS MADE FOR MEETING A LIABILITY AND THE PROVISION SHOULD BE FOR OTHER THAN ASCERTAINED LIAB ILITY, THAT IS, IT SHOULD BE FOR UNASCERTAINED LIABILITY. IN OTHER WORDS, ALL THE INGREDIENTS SHOU LD BE SATISFIED TO ATTRACT ITEM (C) OF EXPLANATION TO SECTION 115JA. IT WAS FURTHER HELD T HAT THERE ARE TWO TYPES OF DEBT. A DEBT PAYABLE BY THE ASSESSEE IS DIFFERENT FROM A DEBT RE CEIVABLE 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 5092/M/10-LAWKIMLTD. 7 THE ASSESSEE IS AN AMOUNT WHICH THE ASSESSEE HAS TO RECEIVE FROM OTHERS. IN THE PRESENT CASE THE DEBT UNDER CONSIDERATION IS DEBT RECEIVABLE BY THE ASSESSEE. THE PROVISION FOR BAD AND DOUBTFUL DEBT, THEREFORE, IS MADE TO COVER UP PROBABLY THE D IMINUTION IN THE VALUE OF ASSETS THAT IS DEBT WHICH IS AN AMOUNT RECEIVABLE BY THE ASSESSEE. THER EFORE, SUCH A PROVISION CANNOT BE SAID TO BE A PROVISION FOR LIABILITY, BECAUSE EVEN IF A DEBT I S NOT RECOVERABLE NO LIABILITY COULD BE FASTENED UPON THE ASSESSEE. B. IN THE PRESENT CASE, THE DEBT IS AN AMOUNT RECEI VABLE BY THE ASSESSEE AND NOT ANY LIABILITY PAYABLE BY THE ASSESSEE AND, THEREFORE, ANY PROVISI ON MADE TOWARDS IRRECOVERABILITY OF THE DEBT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY. THE REFORE IT WAS HELD THAT ITEM (C) OF THE EXPLANATION IS NOT ATTRACTED TO THE FACTS OF THE CA SE. ITEM (C) IN SECTION 115JA AND 115-JB(1) ARE IDENTICAL. IN ORDER TO ATTRACT THE EXPLANATION THE DEBT WHICH IS DOUBTFUL OR BAD SHOULD SATISFY THE REQUIREMENT CONTEMPLATED IN ITEM (C) OF THE EXPLANATION. IT IS THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISIONS MADE FOR MEETING THE LIABIL ITY OTHER THAN THE ASCERTAINED LIABILITIES. IN THE INSTANT CASE ALSO THE BAD AND DOUBTFUL DEBT FOR WHICH A PROVISION IS MADE WHICH IS IN THE NATURE OF DIMINUTION IN THE VALUE OF ANY ASSET WOUL D NOT FALL WITHIN ITEM (C) OF EXPLANATION (I). IT IS IN THAT CONTEXT THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL HAS GRANTED RELIEF TO THE ASSESSEE. REALISING THE FATALITY OF THE SAID ARGUME NT, IT IS CONTENDED NOW THAT ITEM (I) CANNOT AMOUNT TO SATISFACTION AS PROVISION FOR DIMINISHING IN THE VALUE OF ASSETS IS SUBSTITUTED, IN CASE OF THE ASSESSEE FALLS UNDER ITEM (C). IN MEETING TH E AFORESAID CASE, THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE JUDGMENT OF THE APEX COURT IN THE CASE OF VIJAYA BANK (SUPRA) WHERE THE APEX COURT HAD AN OCCASION TO CON SIDER HIS EXPLANATION. IT ACCEPTED THE ARGUMENT ON BEHALF OF THE REVENUE TO THE EFFECT THA T THE EXPLANATION MAKES IT VERY CLEAR THAT THERE IS A DICHOTOMY BETWEEN ACTUAL WRITE OFF ON TH E ONE HAND AND PROVISION FOR BAD AND DOUBTFUL DEBT ON THE OTHER. A MERE DEBIT TO THE PRO FIT AND LOSS ACCOUNT WOULD CONSTITUTE A BAD AND DOUBTFUL DEBT, BUT IT WOULD NOT CONSTITUTE ACTU AL WRITE OFF AND THAT WAS THE VERY REASON WHY THE EXPLANATION STOOD INSERTED. PRIOR TO THE FINANC E ACT, 2001 MANY ASSESSEES USED TO TAKE THE BENEFIT OF DEDUCTION UNDER SECTION 36(1 )(VII) OF T HE 1961 ACT BY MERELY DEBITING THE IMPUGNED BAD DEBT TO THE PROFIT AND LOSS ACCOUNT AND, THEREF ORE, THE PARLIAMENT STEPPED IN BY WAY OF EXPLANATION TO SAY THAT A MERE REDUCTION OF PROFITS BY DEBITING THE AMOUNT TO THE PROFIT AND LOSS ACCOUNT PER SE WOULD NOT CONSTITUTE ACTUAL WRITE OF F. THE APEX COURT ACCEPTED THE SAID LEGAL POSITION. HOWEVER IT WAS CLARIFIED THAT BESIDES DEB ITING THE PROFIT AND LOSS ACCOUNT AND CREATING A PROVISION FOR BAD AND DOUBTFUL DEBT, THE ASSESSEE CORRESPONDINGLY/SIMULTANEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING TH E CORRESPONDING AMOUNT FROM LOANS AND ADVANCES/DEBTORS ON THE ASSETS SIDE OF THE BALANCE SHEET AND, CONSEQUENTIALLY, AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR THE D EBTORS ON THE ASSETS SIDE OF THE BALANCE SHEET WAS SHOWN AS NET OF THE PROVISION FOR THE IMPUGNED BAD DEBT. THEN THE SAID AMOUNT REPRESENTING BAD DEBT OR DOUBTFUL DEBT CANNOT BE AD DED IN ORDER TO COMPUTE BOOK PROFIT. THEREFORE, AFTER THE EXPLANATION THE ASSESSEE IS NO W REQUIRED NOT ONLY TO DEBIT THE PROFIT AND LOSS ACCOUNT BUT SIMULTANEOUSLY ALSO REDUCE THE LOA NS AND ADVANCES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHEET TO THE EXTENT OF T HE CORRESPONDING AMOUNT SO THAT, AT THE END OF THE YEAR, THE AMOUNT OF LOANS AND ADVANCES/DEBTORS IS SHOWN AS NET OF THE PROVISIONS FOR THE IMPUGNED BAD DEBT. THEREFORE, IN THE FIRST PLACE IF THE BAD DEBT OR DOUBTFUL DEBT IS REDUCED FROM THE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSE TS SIDE OF THE BALANCE SHEET THE EXPLANATION TO SECTION 115JA OR JB IS NOT AT ALL ATTRACTED. IN THAT CONTEXT EVEN IF AMENDMENT WHICH IS MADE RETROSPECTIVE THE BENEFIT GIVEN BY THE TRIBUNAL AND THE APPELLATE COMMISSIONER TO THE ASSESSEE IS IN NO WAY AFFECTED. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS APPEAL. IN THE CASE OF RALLIS INDIA LTD.(323ITR54)SIMILAR I SSUE HAD ARISEN.IN THAT MATTER THE ASSESSEE HAD FILED ITS RETURN OF INCOME FOR THE AY. 2004-05 ON 29/10/2004,AND HAD DECLARED A LOSS OF RS.52.87 CRORES.WHILE COMPUTING THIS LOSS, IT CLAIM ED A DEDUCTION OF BAD DEBTS AMOUNTING TO RS.12,00,43,394.IT ALSO COMPUTED A BOOK LOSS IN THE AMOUNT OF RS.42,14,40,497 U/S. 115JB.THE AO ISSUED TWO QUESTIONNAIRES DURING THE C OURSE OF THE ASSESSMENT PROCEEDINGS, ONE OF THEM BEING ON 29/09/2006.A SPECIFIC QUERY WA S RAISED IN REGARD TO THE ALLOWABILITY OF THE BAD DEBTS CLAIMED BY THE PETITIONER UNDER SECTI ON 36(1)(VII) READ WITH SECTION 36(2) AND ON THE COMPUTATION OF BOOK PROFITS UNDER SECTION 11 5JB .THE PETITIONER RESPONDED TO THE 5092/M/10-LAWKIMLTD. 8 QUERIES BY ITS LETTERS.HE PASSED AN ORDER OF ASSESS MENT ON 29/12/2006, BY WHICH THE CLAIM IN RESPECT OF BAD DEBTS WAS DISALLOWED TO THE EXTENT O F RS. 5.54 CRORES.HE,HOWEVER,ALLOWED THE CLAIM TO THE EXTENT OF RS. 6.46 CRORES.AFTER RECOMP UTING THE BOOK PROFITS,HE ASSESSED THE INCOME OF THE PETITIONER UNDER SECTION 115JB AT RS. 41.95 CRORES.THE FAA ALLOWED RELIEF TO THE ASSESSEE IN RESPECT OF THE BAD DEBTS,BUT CONFIR MED THE DISALLOWANCE IN RESPECT OF BOOK PROFITS U/S.115JB.AS A RESULT OF THE ORDER PASSED B Y THE FAA,THE ENTIRE CLAIM ON ACCOUNT OF BAD DEBTS IN THE AMOUNT OF RS.12 CRORES CAME TO BE ALLOWED UNDER SECTION 36(1)(VII) .CROSS- APPEALS WERE FILED BY THE PETITIONER AND BY THE REV ENUE.ON 16/07/2008,A NOTICE UNDER SECTION 148 WAS ISSUED TO THE ASSESSEE BY THE AO.THE ASSESS EE FILED A WRIT PETITION BEFORE THE HONBLE BOMBAY HIGH COURT. DECIDING THE WRIT THE HO NBLE COURT HELD AS UNDER: FOR THE COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB,THE ASSESSING OFFICER HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS MAINTAINED IN ACCO RDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956, WHIC H ARE CERTIFIED BY THE AUDITORS AND PASSED BY THE COMPANY IN ITS GENERAL MEETING. THE ASSESSIN G OFFICER DOES NOT HAVE JURISDICTION TO GO BEYOND THE NET PROFITS AS SHOWN IN THE PROFIT AND L OSS ACCOUNT, SAVE AND EXCEPT TO THE EXTENT WHICH IS PROVIDED FOR IN THE EXPLANATION. UNDER EXP LANATION (1)(C) THE INCREASE SHALL BE OF THE AMOUNT OR AMOUNTS SET ASIDE FOR MEETING LIABILI TIES OTHER THAN ASCERTAINED LIABILITIES. IN ORDER THAT CLAUSE (C) SHOULD APPLY, THERE MUST BE A PROVISION ; THE PROVISION MUST BE FOR MEETING A LIABILITY AND THE LIABILITY IN QUESTION M UST BE OTHER THAN AN ASCERTAINED LIABILITY. THE SUPREME COURT IN HELD THAT A DEBT WHICH IS PAYA BLE BY THE ASSESSEE MUST BE DISTINGUISHED FROM A DEBT WHICH IS RECEIVABLE BY THE ASSESSEE. A PROVISION FOR BAD AND DOUBTFUL DEBTS IS MADE TO COVER UP THE PROBABLE DIMINUTION IN THE VAL UE OF THE ASSET, NAMELY, A DEBT WHICH IS AN AMOUNT RECEIVABLE BY THE ASSESSEE. SUCH A PROVISION 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.SUBSEQUENT TO THE DECISION OF THE SUPREME COURT IN PARLIAMENT AMENDED EXPLANATION(1)TO SECTION 115JB BY THE FINANCE ACT O F 2009 INSERTING CLAUSE (I) IN EXPLANATION(1)SO AS TO PROVIDE FOR THE AMOUNT OR AM OUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF AN ASSET. THE AMENDMENT WAS MADE WITH RETROSPECTIVE EFFECT FROM APRIL 1, 2001. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER BROUGHT HIS MIND TO BEAR UPON THE QUESTION AS TO WHETHER THE AS SESSEE WAS ENTITLED TO CLAIM A DEDUCTION UNDER SECTION 36(1)(VII) , WITH RESPECT TO BAD DEBT S, DETAILS OF WHICH WERE FURNISHED TO THE ASSESSING OFFICER, PURSUANT TO WHICH AN ASSESSMENT ORDER CAME TO BE PASSED UNDER SECTION 143(3) . THE REASON WHICH WEIGHED WITH THE ASSESSIN G OFFICER TO REOPEN THE ASSESSMENT WAS THAT THE ASSESSEE HAD NOT DEBITED ANY AMOUNT TOWARD S THE WRITE OFF OF DEBTS/ADVANCES TO THE PROFIT AND LOSS ACCOUNT. SUCH A REQUIREMENT IS NOT CONTAINED IN SECTION 36(1)(VII) . THERE WAS AN ABSENCE OF TANGIBLE MATERIAL ON THE BASIS OF WHI CH THE ASSESSMENT COULD HAVE BEEN REOPENED. THE REASON WHICH WEIGHED WITH THE ASSESSI NG OFFICER WAS EXTRA-NEOUS TO THE BASIS ON WHICH THE DEDUCTION CAN LEGITIMATELY BE CLAIMED UNDER SECTION 36(1)(VII) . THIS WAS CASE OF A MERE CHANGE OF OPINION WITHOUT ANY TANGIBLE MATER IAL. THE REOPENING OF THE ASSESSMENT ON THIS GROUND WAS HENCE UNSUSTAINABLE. (II) THAT ON THE DATE ON WHICH THE ASSESSING OFFICE R PURPORTED TO EXERCISE HIS POWER TO REOPEN THE ASSESSMENT UNDER SECTION 147 , THE LEGISLATIVE AMENDMENT BY THE INSERTION OF CLAUSE (I) TO EXPLANATION (1) TO SECTION 115JB HAD NOT BEEN BROUG HT INTO FORCE ON THE STATUTE BOOK. THE ORDER OF THE ASSESSING OFFICER WITH REFERENCE TO TH E COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB WAS AT THE LEAST A PROBABLE VIEW AND AS A MAT TER OF FACT THE CORRECT VIEW TO TAKE IN VIEW OF THE DECISION OF THE SUPREME COURT IN . IT IS WEL L-SETTLED THAT THE LAW LAID DOWN BY THE SUPREME COURT IS DECLARATORY OF THE POSITION AS IT ALWAYS STOOD. IN ANY EVENT, THE VIEW OF THE ASSESSING OFFICER WAS SUPPORTED BY THE INTERPRETATI ON PLACED EVEN CONTEMPORANEOUSLY IN THE JUDGMENT OF THE COURT IN AND IN THE JUDGMENTS OF TH E DELHI HIGH COURT IN AND . IN THE CIRCUMSTANCES, THERE WAS NO WARRANT FOR REOPENING T HE ASSESSMENT IN EXERCISE OF THE POWER CONFERRED UNDER SECTION 147. LASTLY,WE WOULD ALSO LIKE TO REFER TO THE JUDGMENT OF KIRLOSKAR SYSTEMS LTD.(220ITR220).IN THAT JUDGMENT THE HONBLE KARNATAKA HIGH COURT HAS HELD AS FOLLOW: 5092/M/10-LAWKIMLTD. 9 2. THE APEX COURT IN THE CASE OF VIJAYA BANK V. CI T[201O] 323 ITR 166/190TAXMAN 257 (SC) HAS HELD THAT THE ASSESSEE IS ENTITLED TO THE BENEF IT OF REJECTION UNDER SECTION 36(1)(VII) OF THE INCOME-TAX ACT, 1961 (FOR SHORT 'THE ACT WHEN THERE IS AN ACTUAL WRITE OFF BY THE ASSESSEE IN ITS BOOK. THIS COURT IN THE CASE OF CIT V. YOKOGAWA IND IA LTD. [2012] 204 TAXMAN 305/17 TAXMANN.COM 15 (KAR.) HAS HELD ADJUSTMENT OF PROVIS ION FOR BAD AND DOUBTFUL DEBTS IS REDUCED FROM THE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHEET, THE EXPLANATION TO SECTION 115JA AND JB IS NOT AT ALL A TTRACTED .THEREFORE, AFTER THE EXPLANATION THE ASSESSEE IS NOW REQUIRED NOT ONLY TO DEBIT THE P AND L ACCOUNT BUT SIMULTANEOUSLY ALSO REDUCE THE LOANS AND ADVANCES OR THE DEBTORS FROM T HE ASSETS SIDE OF THE BALANCE SHEET TO THE EXTENT OF THE CORRESPONDING AMOUNT SO THAT, AT THE END' OF THE YEAR, THE AMOUNT OF LOANS AND ADVANCES / DEBTORS IS SHOWN AS NET OF THE PROVISION S FOR THE IMPUGNED BAD DEBT. THIS COURT IN THE CASE OF CIT V. JUPITER BIO-SCIENCE LTD. [2013] 352 ITR113/[2011] 202 TAXMAN 80/13 TAXMANN.COM 161 (KAR.) HAS HELD THE ASSESSEE IS LIA BLE TO PAY ADVANCE TAX AS PER THE AMENDED PROVISIONS OF SECTION 115JB OF THE ACT FOR THE RELE VANT PERIOD. HOWEVER, HE IS NOT LIABLE TO PAY INTEREST ON THE AMOUNT DUE AS PER THE AMENDED PROVI SIONS. HOWEVER, HE HAS NOT PAID THE ADVANCE TAX AS PER THE PROVISIONS EXISTING PRIOR TO THE AMENDMENT. HENCE, HE IS LIABLE TO PAY INTEREST ON THE SAID AMOUNT DEDUCTING THE DIFFERENC E OF THE TAX PAID. THE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS V. CIT[2000] 245 ITR 428/112 TAXMAN 61 (SC) HAS HELD THAT AN ASSESSEE WHO IS MAINTAINING THE ACCOUNTS ON MERCANT ILE SYSTEM, A LIABILITY ALREADY ACCRUED, THOUGH TO BE DISCHARGED AT A FUTURE DATE, WOULD BE A PROPER DEDUCTION WHILE WORKING OUT THE PROFITS AND GAINS OF HIS BUSINESS, REGARD BEING HAD TO THE ACCEPTED PRINCIPLES OF COMMERCIAL PRACTICE AND ACCOUNTANCY. IT IS NOT AS IF SUCH DEDU CTION IS PERMISSIBLE ONLY IN CASE OF AMOUNTS ACTUALLY EXPENDED OR PAID. THE LIABILITY WOULD BE A N ACCRUED LIABILITY AND WOULD NOT CONVERT INTO A CONDITIONAL ONE MERELY BECAUSE THE LIABILITY WAS TO BE DISCHARGED AT A FUTURE DATE. THEREFORE FOR THAT, REASON IT WAS HELD THAT THE GRA TUITY PAYABLE AND ENCASHMENT OF EARNED LEAVE IS NOT A CONTINGENT LIABILITY AND PROVISION THEREOF IS DEDUCTED. IN THE LIGHT OF THE SETTLED PRINCIPLES LAID DOWN BY THE APEX COURT, NO SUBSTANT IAL QUESTIONS OF LAW ARISE FOR CONSIDERATION IN THIS APPEAL. ACCORDINGLY, THE APPEAL IS DISMISSE D. CONSIDERING THE ABOVE DISCUSSION,WE ARE OF THE OPIN ION THAT THE ORDER OF THE FAA CANNOT BE ENDORSED EVEN ON MERITS.GROUND NO.2 IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALL OWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND APRIL, 2016. 22 , 2016 SD/- S D/- /JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 22.04.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , A , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.