J U D G M E N T

This Writ Appeal has been filed by the revenue challenging the order of the learned Single Judge passed in W.P.No.8620 of 2014 dated 24.03.2021 in and by which it has been held that the impugned proceeding dated 07.03.2014 is vitiated as there was no failure on the part of the writ petitioner/respondent/assessee in truly and fully disclosing the material facts required for assessment.

2. The brief facts of the case are as follows:

(a) The respondent herein/assessee is a Company registered under the provisions of the Indian Companies Act and carries on the business of manufacture and sale of paper and boards. The respondent maintains regular books of account and is an assessee on the file of the appellant under the Income Tax Act, 1961 (hereinafter referred to as "the Act"). It is stated that the respondent/assessee has been filing returns of income regularly and assessed to tax on the said basis.

(b) The present proceedings relates to the assessment year 2006-2007. For the said assessment year, a return of Income Tax was filed by the respondent/assessee on 04.11.2006 declaring a total income of Rs. 1,20,65,500/- under normal computation and Rs. 26,67,21,500/- under Section 115JB of the Act. The assessment was thereafter taken up for scrutiny. Notice under Section 143(2) of the Act was issued on 02.07.2008 calling upon the respondent/assessee to submit particulars that were duly complied with. The respondent/assessee, while computing the income under Section 115JB of the Act excluded the provision created towards bad and doubtful debts from the purview of 'Book Profits'.

(c ) During the course of hearing, the Assessing Officer sought for details relating to computation of income under Section 115JB of the Act, including the provisions towards bad and doubtful debts vide notice under Section 143(2) of the Act dated

02.07.2008. The relevant portion is extracted here under:

''1. Copies of bills for addition to fixed assets.

....

10. Details for Bad Debts- Copies of Ledger Accounts with complete postal address.''

(d) Further, there was a reference as to why the provision for bad and doubtful debts should not be included for computation of book profits as could be seen from the letter dated 12.08.2008 addressed by the respondent/assessee to the Deputy Commissioner of Income Tax, Company Circle, Salem which is extracted here under:

''4. Note as to why provision for Bad and Doubtful Debts should not be included for Computation of Book Profit''.

The respondent-assessee submitted his explanation highlighting the following:

''It is further submitted that the Finance Act, 2008 has made retrospective amendment with effect from 01.04.2001 by inserting Explanation 2 by which income tax shall include tax on distributed profits under section 115O for the purpose of clause (a) of Explanation 1, thus limiting it as income tax for the purposes of section 115 JB only and not for computing income under the normal provisions of the Act.''

(e) The respondent/assessee submitted the following response which is extracted here under:

''Provision for Bad and Doubtful Debts made by the Company does not fall within the adjustments specified in Explanation 1 and, on the other hand, it is required to be made to comply with section 115 JB(2). The profit and loss account has also been certified by the Auditors in Form 29B. Therefore, no further adjustment is required to be made to the book profits in respect of bad and doubtful debts. The ITAT Calcutta Bench has also held that provision for bad and doubtful debts is a diminution in the value of the asset and therefore not a provision to be added back for the purpose of computing the book profits, in JCIT vs. Usha Martin Industries Ltd (2007) 288 ITAT (Cal)(SB).

The Delhi High Court in Commissioner of Income Tax vs. HCL Comnet Systems & Services Ltd. (2007) 292 ITR (Delhi) has held that provision for bad and doubtful debts is not includable in the book profits.''

(f) Thereafter, assessment was made under Section