Itxa 2392.10 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2392/2010 Yash Raj Films Private Limited PETITIONER VS. The Asstt.Commissioner of Income Tax,Central Circle-29 & Ors. RESPONDENT Mr.F.B.Andhyarujina ,Sr.Counsel a/w Mr.A.K.Jasani for Petitioner Mr.B.M.Chatterjee i/b Mr.P.S.Sahadevan for Respondent CORAM- J.P.DEVADHAR ,AND MRS.MRIDULA BHATKAR,JJ. DATE - 24TH JANUARY,2011. P.C. . Heard, Rule. Returnable forthwith. By consent of the parties the petition is taken up for final hearing. 2 This petition is filed to challenge the notice dated 22.3.2010 issued under section 148 of the Income Tax Act, 1961 . By the said notice the assessment for the assessment Itxa 2392.10 2 year 2004-2005 is sought to be reopened. The objection raised by the petitioner for reopening of the assessment has also been dismissed vide order dated 25/10/2010. 3 In the present case the original assessment order under section 143 (3) of the Income Tax Act,1961 was passed on 19/12/2006 wherein the Assessing Officer interalia had allowed deduction of Rs.94 lacs claimed as bad debt. 4 By notice dated 23/3/2009 issued under section 148 of the Income Tax Act, 1961 the Assessing Officer sought to reopen the assessment within a period of four years from the end of the relevant assessment year by recording reasons which reads thus - The assessee company is engaged in the business of production and distribution of films . The return for AY 2004-05 was filed on 31.10.2004 declaring Income of Rs.4,57,64,160/- .The assessment was completed u/s 143(3) on 19.12.2006 determining total income of Rs. 4,73,63,940/-. In the assessment an addition of Rs. 2,25,000/- was made towards misc.expenses not proved. Further,the deduction u/s 80HHF was restricted to Rs.33,54,913/-as against assessee’s claim of Rs.47,29,694/- . Itxa 2392.10 3 On appeal, the CIT(A) has deleted the additions. The assessee company has debited an amount of Rs.95,41,541/- in P & L account (schedule 14 -administrative expenses) as bad debt written off. As per assessee’s letter dated 13/11/2006, the details of bad debts written off is Rs.95,41,540/- and the major parties are “Aum Creaters Unlimited” (Rs.85,94,516/-) and “Raam Raj Kalmandir”(Rs.5,00,000) .The amount due from “Aum Creaters Unlimited”( Rs.85,94,516/-) relates to advances paid and expenses incurred by the assessee in the FY 2002-03 .The amount due from Raam Raj Kalamandir (Rs. 5,00,000) also related to advances paid. It is noticed that the advances so paid to the above parties by the assessee have not been shown as income and the nature of business of the assessee is not money lending. The expenses incurred by the assessee in the earlier year on behalf of the above parties are also not shown as income in the P & L account. As per section 36(1)(vii) of the I T Act, amount of any debt or part thereof is allowable as deduction subject to the debt has been taken into account in computing the income of the assessee of that previous year or of an earlier previous year, or represents money lent in the ordinary course of business of banking or money lending which is carried on by the assessee. In view of the above, the claim allowed of Rs.95,41,540/- as bad debt written off u/s 36(1) (vii) is not in order . The same is required to be disallowed and added to the income of the assessee . This has resulted in under assessment of income of Rs.95,41,540/-. Hence, I have reason to believe that income chargeable to tax Rs.95,41,540/- has escaped assessment for AY 2004-05 within the meaning of section 147. Issue Notice u/s 148. Itxa 2392.10 4 5 The petitioners by their letter dated 6/8/2009 objected to the reopening of the assessment on the ground that during the course of original assessment , the Assessing Officer had enquired about the allowability of the deduction and on receiving cogent reply allowed the claim of the assessee and therefore no case is made out for reopening the assessment. Admittedly no action has been taken pursuant to the notice dated 23/3/2009 issued under section 148 of the Income Tax Act, 1961. 6 Thereafter by the impugned notice dated 22/3/2010 issued under section 148 of the Income Tax Act the Assessing Officer once again sought to reopen the assessment for the assessment year 2004-2005 by recording reasons as follows :- The assessee company is engaged in the business of production and distribution of films. The return of the A.Y.2004-05 was filed on 31/10/2004 declaring total income of Rs.4,57,64,160/- . The assessment was completed u/s 143(3) on 19/12/2006 determining total income at Rs. 473,63,940/-. Itxa 2392.10 5 Subsequently it was noticed that the assessee company has debited an amount of Rs.95,41,541/- in P & L A/c .(Schedule 14 Administrative Expenses) as bad debt written of. As per Assessee’s letter dated 13/11/2006 ,the details of bad debts written of is Rs.94,41,540/- and the major parties are “ Aum Creaters Unlimited ” for Rs.86,94,516/-and “Raam Raj Kalamandir” for Rs. 500,000/-.The amount due from Amu Creaters Unlimited of Rs.85,94,516/-relates to advances paid and expenses incurred by the assessee in the F.Y.2002-03 .The amount due from Raam Raj Kalamandir of Rs.500,000/- also relates to advance paid to the party. It is noticed that the advances so paid to the above parties by the assessee have not been shown as income and the nature of business of the assessee is not money lending. The said expenses incurred by the assessee in the earlier year on behalf of the above parties are also not shown as income in the P & L A./c. As per section 36(1)(vii) of the I.T.Act Amount of any debt or part thereof is allowable as deduction subject to the debt has been taken into account in computing the income of the assessee of the previous year or of an earlier previous years, or represents money lent in the ordinary course of business of banking or money lending which is carried on by the assessee. The assessee company has deliberately concealed the fact that Rs.94,41,540/-was never offered as an income. In this case provisions to section 147 is clearly applicable as there was failure on the part of the assessee company to declare fully and truly all material facts necessary for its assessment for the A.Y.2004-05. In view of the above reason, income chargeable to tax of Rs.95,41,540/- has escaped assessment for A.Y.2004-05 within the meaning of section 147. The assessee’s case is covered within the meaning of Section 149(1)(b) of the I.T.Act ,1961 as the concealed income Itxa 2392.10 6 exceeds Rs.1,00,000/-. 7 On perusal of the reasons recorded it is seen that the assessment for the assessment year 2004-2005 is sought to be reopened mainly on the ground that as per section 36(1)(vii) of the I.T.Act amount of any debt or part thereof which has become irrecoverable can be allowed provided the debt has been taken into account in computing the income of the assessee of that previous year or of an earlier previous year, or represents money lent in the ordinary course of business of banking or money lending which is carried on by the assessee. In the present case during the assessment proceedings the assessing officer enquired the very same issue and on being satisfied allowed the claim. Thereafter notice under section 148 of the Act was issued on 23/3/2009 within four years from the end of the relevant assessment year and again on receiving explanation from the assessee, no further action was taken on the notice dated 23/3/2009 8 Once again, by the impugned notice dated Itxa 2392.10 7 22/3/2010 the assessment is sought to be reopened on the very same grounds after the expiry four years from the end of the relevant assessment year. 9 As per the proviso to section 147 of the Income Tax Act, 1961 assessment beyond four years from the end of the relevant assessment year can be reopened only if there is failure on the part of the assessee to disclose fully and truly the material facts. In the present case admittedly the question regarding availability of Rs.94 lacs as bad debt was specifically raised in the original assessment proceedings and on receiving explanation from the assessee the claim of the assessee was allowed. In these circumstances it cannot be said that there was failure on the part of the assessee to disclose fully and truly all the material facts necessary for the purpose of assessment. 10 Reliance is placed by the counsel for the Revenue on the decision of this Court in the case of Dr. Amin's Pathology Laboratory Vs. P.N.Prasad, Joint Itxa 2392.10 8 Commissioner of Income Tax and others (No.1) ,252 ITR , 673(Bom.) In that case it was held that mere production of balance sheet or account books would not amount to disclosure of material facts necessary for assessment . As noted earlier in the present case the very specific issue regarding allowability of the bad debt was raised during the course of assessment proceedings and only after being satisfied the Assessment Officer allowed the claim of the assessee. Therefore, the decision of this Court in the case of Dr.Amin Pathology Laboratory has no relevance in the facts and circumstances of this case. 11 Similarly reliance is placed by the counsel for the Revenue on the decisions in the case of Smt.Nilofer Hameed And Another Vs.Income Tax Officer, 235 ITR -161(Kerala) and Sukhlal Ice and Cold Storage Company V. Income Tax Officer and Another 1993 ITR 129 (Allahabad High Court) . These rulings have no relevance to the facts and circumstances of the present case.In both the aforesaid cases, since the first notice issued for reopening of Itxa 2392.10 9 the assessment was held to be invalid , the second notice issued was held to be valid . In the present case, the notice is invalid not because it is the second notice, but because, there was no failure to disclose fully and truly all material facts. Therefore, both the aforesaid decisions relied upon by the counsel for the revenue have no relevance to the facts of the present case. 12 Once it is held that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment, the impugned notice issued beyond the period of four years from the end of the relevant assessment year cannot be sustained . Accordingly the petition is allowed by making the Rule absolute by quashing notice dated 22/3/2010 issued under section 148 of the Income Tax Act,1961. No costs. (MRS.MRIDULA BHATKAR,J.) (J.P.DEVADHAR,J.) Itxa 2392.10 10