The court emphasized the conditions for initiating reassessment proceedings under Section 147 and the importance of ascertained liability and taxable income in determining the book profit under Section 115JA.

(ELIPE DHARMA RAO, J.)

1. The above Tax Case Appeal is filed against the order dated 15.10.2007 passed by the Income Tax Appellate Tribunal, Chennai Bench 'B' in I.T.A. No.1340 (MDS)/2006.

2. The brief facts necessary for the disposal of the case are that the assessee-Company had filed its return of income for the assessment year 1998-1999 on 30.10.1998 admitting 'Nil' income, which was processed under Section 143(1)(a) of the Income-tax Act, 1959 (hereinafter referred to as "the Act") on 10.5.1999. Subsequently, the assessee filed a revised return on 26.11.1999 admitting 'Nil' income by enclosing some more TDS certificates that were omitted to be enclosed along with the original return of income, which were also processed on 29.3.2001. Again a revised order was passed on 27.6.2002 giving credit to some more TDS certificates which resulted in an additional refund of Rs.8,86,226/-.

3. Thereafter, it was noticed that on a perusal of records, the assessee-Company had not computed the income under Section 115 JA of the Act properly. Therefore, on facts, there was a reason to believe that the income assessable to tax has escaped assessment. In view of the same, a proceeding under Section 147 of the Act was initiated by issuing notice under Section 148 of the Act on 23.12.2003. In response to the said notice, the assessee's representative M/s.N.C.Rajagopal & Co. Chartered Accountants vide their letter dated 5.1.2004 informed that the original return filed for the Assessment Year 1998-99 may be treated as the one filed in response to the notice issued under Section 148 of the Act. Further, notice for hearing under Section 143(2) of the Act was issued to the assessee on 16.12.2004. In response to this notice, Shri. R. Niranjan Chawala of M/s. N.C. Rajagopal & Co., Chartered Accountants appeared on behalf of the assessee.

4. After hearing the representative of the assessee, the Assessing Officer has given his reasons for re-opening the assessment for the assessment Year 1998-99 as follows:-

"(A) The assessee Company has not admitted income under section 115JA under the pretext of having unabsorbed depreciation and unabsorbed loss.

(B) The provisions for bad and doubtful debts was omitted to be considered for arriving the book profit u/s. 115JA of the Act.

(c) The assessee company has not credited the Royalty written back in the P & L A/c which were written back by the collaborator which is clearly a taxable income.

Therefore, the aforesaid reasons are the basis leading to the conclusion that income otherwise taxable has escaped assessment and hence, the notice u/s. 148 has been issued to you for the A.Y. 1998-99."

5. The Assessing Officer, on a consideration of the facts and circumstances of the case, held that as per Section 115JA, the assessee did not have any business loss or unabsorbed depreciation to be carried out to Assessment Year 1998-99. Further, the assessee claims that provision for bad and doubtful debts amounting to Rs.3,14,37,439/- is an ascertained liability and hence this is not liable for inclusion in book profit for the purpose of Section 115JA. However, as per the decision of this Court in the case of DEPUTY CIT v. BEARDS SHELL LTD. reported in 244 ITR 256, provision for bad and doubtful debts not written off in the Profit and Loss Account does not represent 'ascertained liability' and this is certainly liable for inclusion in book profit. But for such a claim which is not an ascertained liability the book profit would have been higher. By resorting to such claim, the assessee has clearly tried to suppress its income.

6. Further, the assessee has claimed that an accumulated royalty of Rs.2,61,18,013/-which was debited in the P & L account for the Assessment Years 1991-92 to 1997-98 was written back to the P & L Account for this assessment year since the royalty was waived by their Collaborator M/s. Kone OY Finland. The assessee considered this royalty written back in the 'P & L Account Appropriation Account',