Ferromatik Milacron India P. Ltd. vs Assistant Commissioner of Income Tax

Akil Abdul Hamid Kureshi, J.—Heard learned counsel for the parties for final disposal of the petition. The petitioner has challenged a notice dated February 10, 2012, as at annexure A to the petition issued by the respondent-Assessing Officer u/s 148 of the income tax Act, 1961 ("the Act" for short), seeking to reopen assessment year 2006-07 which was previously framed after scrutiny.

At the request of the petitioner, respondent supplied reasons recorded by him for issuing such notice. Such reasons read as under:

It is noticed that the assessee had claimed bad debts of Rs. 90,879 in its profit and loss account. On verification of the computation of income it was noticed that the assessee had claimed bad debts of Rs. 9,42,126 and reduced its taxable profit. Since the amount of Rs. 9,42,126 was not passed through the books of account, the same is not allowable as expenditure. Thus, the income of the assessee is under assessed by the amount of Rs. 9,42,126. In view of the above, I have reason to believe that the income of the assessee is under assessed by amount of Rs. 9,42,126.

The petitioner thereupon raised objections to the notice for reopening under communication dated February 1, 2013. Such objections were disposed of by the Assessing Officer on February 22, 2013, rejecting the same. Hence the petition.

From the events recorded by the Assessing Officer, his objection for the petitioner''s claim of bad debt of Rs. 9.42 lakhs (rounded off) appears to be that only sum of Rs. 90,879 was during the year under consideration reflected in the profit and loss account. Amount of Rs. 9.42 lakhs (rounded off) had not passed through the books of account, the same is, therefore, not allowable as expenditure. In short, the Assessing Officer''s objection was that such sum claimed did not satisfy the requirement of section 36(1)(vii) of the Act.

Having heard learned counsel for the parties, we recall that the impugned notice has been issued beyond a period of four years from the end of the relevant assessment year. It would, therefore, have to be ascertained whether there was any failure on the part of the assessee to disclose truly and fully all necessary facts for the assessment. In this context, we may recall that in the reasons itself, the Assessing Officer has recorded that "on verification of computation of income it was noticed that...". Thus, the material on the basis of which the reasons are recorded form part of the original record. Further, neither any order rejecting the petitioner''s objection nor before us the Revenue contends that the belief of the Assessing Officer that income chargeable to tax has escaped assessment, is based on any material outside of the record. Additionally, we also notice that during the original scrutiny assessment, the petitioner under its communication dated November 23, 2009, had made following statement in support of the claim for deduction:

The company makes a provision for doubtful debts, where recovery of outstanding debt is doubtful. The provision so made for doubtful debts is disallowed in the return of income. The outstanding debt was scrutinised and the debt which was non-recoverable was only actually written off to the customer''s account by crediting to the customer''s account. The debts so written off to the customer''s account are only claimed as bad debts deduction.

Thus, full facts were there before the Assessing Officer in the form of declarations made in the returns filed as well as through correspondence during the course of scrutiny assessment. This, therefore, is not a case where the assessee is stated to have failed to disclose truly and fully all material facts necessary for assessment. In the result, the impugned notice February 10, 2012, is quashed. The petition is disposed of.