Valdiity of Notice if there is No new material with AO to justify reopening of a concluded assessment beyond period of 4 years

Short Overview In the absence of failure on part of assessee to fully and truly disclose all material facts necessary for assessment, reopening of assessment beyond four years was hit by proviso to section 147 and was, therefore, set aside.

AO reopened assessment after expiry of four years from the end of relevant assessment year so as to disallow excess deduction claimed under section 36(1)(viia). 

It is held that  All details regarding deduction claimed under section 36(1)(viia) were available with AO during the course of original assessment proceedings. Also reasons recorded for reopening of assessment suggested that there was no failure on part of assessee to fully and truly disclose all material facts necessary for assessment. Further, reasons recorded revealed that, there had been no new material available with AO which could justify reopening of a concluded assessment beyond period of 4 years. Accordingly, reopening was hit by proviso to section 147 and was, therefore, set aside.

Decision: In assessee s favour.

Followed: CIT v. Kelvinator India Ltd. (2010) 320 ITR 561 (SC) : 2010 TaxPub(DT0 1335 (SC)

 

IN THE ITAT, BANGALORE BENCH

B.R. BASKARAN, A.M. & BEENA PILLAI, J.M.

District Co-Operative Central Bank Ltd. v. Asstt. CIT

ITA No. 551/Bang/2019

30 March, 2021

Appellant by: S. V. Ravishankar, Advocate

Respondent by: Priyadarshi Mishra, Additional Commissioner (Departmental Representative) (ITAT)

ORDER

Beena Pillai, J.M.

Present appeal has been filed by assessee against Order, dated 24-1-2019 passed by the learned Commissioner (Appeals) Gulburg, for assessment year 2010-12 on following grounds of appeal :–

1. The order of the Commissioner (Appeals) and the assessing officer is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant’s case.

2. The appellant denies itself liable to be assessed for the disallowance of Rs. 50,00,000 made by the respondent on the facts and circumstances of the case.

Legal Grounds :–

3. The notice issued under section 148 of the Act, is bad in law.

4. The notice issued under section 148 is defective, which is not a curable defect and thus all consequential proceedings are bad in law.

5. The order of reassessment is bad in law and void ab initio for want of requisite jurisdiction especially the mandatory requirement. to assume jurisdiction under section 148 of the Act did not exist and have not been complied with and consequently the order of reassessment requires to be cancelled in entirety.

6. The order of reassessment is bad in law and void ab initio since the learned assessing officer failed to take mandatory sanction of the competent authority and if obtained, was not in accordance with law.

7. The learned Commissioner (Appeals) was not justified in appreciating that the reasons recorded do not amount to reason to believe nor reason to suspect, on the facts and circumstances of the case.

8. The learned Commissioner (Appeals) was not justified in appreciating that the reasons recorded amounted to a mere change of opinion, since the assessing officer has made enquiries in the order passed under section 143(3) on 18-3-2013, which is impermissible in law, on the facts and circumstances of the case.

9. The learned Commissioner (Appeals) was not justified in appreciating that the reasons recorded are not, reason to believe and that the assessing officer has not formed an independent belief that income has escaped assessment, to warrant reopening and hence the reopening is bad in law.

10. The learned Commissioner (Appeals) was not justified in appreciating that there was no escapement of income due to failure on the part of the appellant to disclose material facts fully and truly, on the facts and circumstances of the case.

Merits of the matter :–

11. The authorities below erred in law in disallowing the deduction in respect of provision made in the books towards standard assets as per prudential norms mandated by the Reserve Bank of India on the facts and circumstance of the case.

12. The learned authorities below failed to appreciate that the appellant has scientifically calculated the provision made in the books based on the risk associated with each category of loan advanced by following the guidelines of the Reserve Bank of India on the facts and circumstance of the case.

13. The authorities below grossly erred in understanding that the nomenclature alone does not prevent the assessee from availing deduction prescribed under the statute.

14. The authorities below failed to appreciate that section 36(1)(viia) is a beneficial legislation and has to be interpreted liberally on the facts and circumstances of the case.

15. The authorities below have taken shelter under hyper-technicalities to disallow the deduction claimed by the assessee on the facts and circumstances of the case.

16. The authorities below failed to appreciate that the total deduction claimed by the assessee on account of provision does not exceed the upper limits prescribed under section 36(1)(viia) of the Act and accordingly has to be allowed in entirety..

17. The appellant denies the liability to pay interest under section 234A, 234B and 234C of the Act in view of the fact that there is no liability to additional tax as determined by the learned assessing officer.

Without prejudice the rate, period and on what quantum the interest has been levied are not in accordance with law and further are not discernable from the order and hence deserves to be cancelled on the facts and circumstances of the case

18. The appellant craves for leave of the Hon’ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal as may be necessary at the time of hearing.

19. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.

2. Brief facts of the case are as under :–

The assessee is a co-operative bank. It filed its return of income for year under consideration on 30-9-2010 declaring total income of Rs,5,74,66,600. The assessment was concluded under section 143(3) of the Act, on 18-3-2013 filed determined taxable income at Rs. 6,67,03,006.

3. Subsequently the assessment was reopened under section 147 of the act on the plea that there is escapement of income inasmuch as the claim for standard assets for a sum of Rs. 50 Lacs was wrongly not considered for disallowance by the assessing officer during the original assessment proceedings, and on 14-3-2016, notice under section 148 of the act was issued to assessee in response to which assessee filed Letter, dated for April 2016 requesting that the return of income filed on 30-9-2010 be treated as return filed in response to notice under section 148. The assessee also requested for reasons recorded to be furnished to assessee.

4. The reasons recorded were communicated to assessee on 5-4-2016 wherein following reasons were recorded :–

“In the return of income filed, he assessee claimed deduction of Rs. 3,50,00,000 under section 36(1)(viia). However, the assessee debited only Rs. 3,00,00,000 to the profit and loss account towards Provision for Bad and Doubtful Debts. The assessee considered Provision for Standard Assets of Rs. 50.00,000 also for claiming deduction under section 36(1)(viia) which is not allowable. Hence, the deduction was excess claimed by Rs. 50,00,000. Therefore, I have reason to believe that the income chargeable to tax-to the extent of Rs. 50,00,000 has escaped assessment within the meaning of section 147. “

5. As per the reasons recorded, the learned assessing officer proposed to disallow sum of Rs. 50 Lacs being excess claimed as deduction under section 36 (1) (viia) of the Act.

6. Assessee filed various its objection on 17-4-2016 in respect of the same is which was disregarded by the learned assessing officer. The learned assessing officer passed order under section 143 (3) read with section 147 of the Act on 26-12-2017 by making the disallowances of Rs. 50 Lacs. The objections raised by assessee was disposed of by the learned assessing officer by Order, dated 10-6-2016 rejecting the contentions.

7. Aggrieved by the order of learned assessing officer, assessee preferred appeal before the learned Commissioner (Appeals) assessee had raised the legal issue challenging the validity of reopening under section 147 of the act as it was after a period of 4 years from the end of the assessment year in which the original assessment order was passed. It was contested that there was no fresh evidence warranting invoking of the said provisions and therefore the reopening is bad in law. On merits assessee filed various submissions challenging the addition. However the learned Commissioner (Appeals) rejected the legal ground raised by assessee by observing as under :–

3.6 Here in the instant case, the assessee has not categorically stated as to what are the assets on which a provision is created to be doubtful or whether they are classified assets as prescribed by the RBI. Further, the provision created is towards Standard Assets which is unascertained and not incurred in the year under reference. The above amount is only a provision created and is not totally written off in the books of accounts after becoming totally really bad. Therefore, the assessing officer has, after making elaborate discussion and taking into settled law position on the issue, correctly disallowed the above claim for the provision made and in my considered opinion there is no interference needed on the issue. Hence, the ground raised on the issue of reopening assessment and disallowance of the claim for doubtful Standard Asset, is dismissed.

3.7 Secondly, apart from the above, the ratio of Bharat Overseas Bank Ltd. v. CIT (2013) 152 TTJ 546/82 DTR 373 (Chennai) (Trib) : 2013 TaxPub(DT) 0174 (Chen-Trib), the ratio laid down by ITAT, Ahmedabad (ITA No. 1252/Ahd/2012) dtd 26-7-2013 in the case of Bharuch Dist. Central Co-operative Bank Ltd. v. ITO, Ward-1, Bharuch also supports the view taken by the assessing officer.

8. On merits the learned Commissioner (Appeals) confirmed the additions made by learned assessing officer.

9. Aggrieved by the order of learned Commissioner (Appeals) assessee is in appeal before us now.

10. At the outset the learned Authorised Representative submitted that Ground No. 3-10 are raised challenging the validity of reopening of assessment beyond the period of 4 years.

11. The learned Authorised Representative submitted that learned assessing officer initiated the proceedings under section 148 of the act, in respect of the items which were considered by the learned assessing officer and the original assessment proceedings.

He submitted that issues being subject matter of reasons recorded for reopening were considered by the learned assessing officer and the original assessment proceedings. Then it was submitted that the details of provisions for doubtful debts of Rs. 3,00,00,000 and provisions for standard assets of Rs. 50,00,000 both totalling to Rs. 3,50,00,000 was very well available with the assessing officer in the paper’s and details submitted by the assessee while completing the original assessment under section 143(3) of the Act.

12. The learned Authorised Representative drew our attention to page 6 of the paper book wherein provision for NPA and others have been recorded at Rs. 8,66,91,403. The breakup of the provision is placed at page 56 of paper book wherein the total provision for NPA constitutes provision for unrealised interest, provision for doubtful assets, provision for standard assets totalling to Rs. 4,41,91,403 which was further added by provision for income tax and provision for pension fund. The learned Authorised Representative mainly argued that the reopening is based only for the reason that assessee deliberately group the provisions for NPA and provisions for standard assets together and rejected it as provision for bad and doubtful debts in the computation filed. And therefore the original assessment passed was based on misrepresentation of facts of the case.

13. He thus submitted that the reopening beyond period of 4 years without there being a satisfaction recorded by the learned assessing officer of failure on behalf of assessee to truly and fully disclose all material facts, is bad in law. In support of his contention the learned Authorised Representative placed reliance on following decisions :–

CIT v. Kelvinator India Ltd. reported in (2010) 320 ITR 561 (SC) : 2010 TaxPub(DT) 1335 (SC)

CIT v. Usha international Ltd. reported in 348 ITR 480 (Delhi full bench) : 2012 TaxPub(DT) 2966 (Del-HC)

Dishman Pharmaceuticals Ltd. v. Dy. CIT reported in 346 ITR 328 (Guj) : 2012 TaxPub(DT) 2518 (Guj-HC)

14. On the contrary the learned Sr. Departmental Representative submitted that the reassessment notice the present case is valid and that the disallowances made by the learned assessing officer could not have been allowed as deduction. He placed reliance on following decisions. :–

Phool Chand Bajrang Lal v. ITO reported in (1993) 69 Taxman 627(SC) : 1993 TaxPub(DT) 1453 (SC) 

Honda Siel Power Products Ltd. v. Dy. CIT reported in (2011) 197 taxman 415(Del.) : 2011 TaxPub(DT) 0904 (Del-HC)

Kalyanji Mavji & Co. v. CIT reported in (1976)102 ITR 287 (SC) : 1976 TaxPub(DT) 0609 (SC)

15. We have perused submissions advanced by both sides in light of records placed before us.

Primarily be observed that the learned Commissioner (Appeals) has recorded that the basis of reopening is certainly the source of information that is already available on record. The learned Commissioner (Appeals) further records that in the original assessment proceedings due to oversight and inadvertence or a mistake committed by the Income Tax Officer, the incumbent assessing officer has jurisdiction to reopen the assessment.

16. This itself makes it clear that there was no fresh materials available on record for initiating the reassessment proceedings. The reopening of assessment beyond a period of 4 years have been proceeded with by the learned assessing officer based on the material is already available on record.

17. Before us the learned Sr. Departmental Representative placed reliance on to decision by Hon’ble Supreme Court in case of Phool Chand Bajrang Lal v. ITO reported in (1993) 69 Taxman 627(SC) : 1993 TaxPub(DT) 1453 (SC)  in support of the initiation of reassessment proceedings in the present facts. In our view this decision does not help the argument of revenue as Hon’ble Supreme Court categorically observed that;

Acquiring fresh information, specific in nature and reliable in character, relating to concluded assessment which goes to expose the Falsity of the statement made by assessee at the time of original assessment is different from drawing afresh inference in the same facts and material which was available with the Income Tax Officer at the time of original assessment proceedings.”

18. Another decision relied by the learned senior Departmental Representative is of Hon’ble Delhi High Court in case of Honda Siel Power Products Ltd. v. Dy. CIT reported in (2011) 197 taxman 415(Del.) : 2011 TaxPub(DT) 0904 (Del-HC). He placed reliance on paragraph 14-15 of the decision wherein, Hon’ble Court observed that petitioners therein had not stated anything or given factual metrics to justify and state that the materials facts had been fully and truly disclose in the original assessment proceedings and there was no omission or failure on part of assessee. In fact from the reply filed by assessee placed at page 54 of paper book which was addressed to the learned assessing officer during the scrutiny assessment proceedings reveals that assessee on a query being raised by the learned assessing officer, assessee filed details of provisions which shows the inclusion of provision for standard assets is which formed part of the claim under section 36 (1) (viia) of the Act.

19. The learned Sr. Departmental Representative also placed reliance on the decision of Hon’ble Supreme Court in case of Kalyanji Mavji & Co. v. CIT reported in (1976)102 ITR 287 (SC) : 1976 TaxPub(DT) 0609 (SC). We note that in the facts before Hon’ble Supreme Court in this case reopening was initiated on the basis of information which came to the knowledge of assessing officer after original assessment by way of fresh facts revealed in the assessment for year 1958-59. The learned Sr. Departmental Representative submitted that in the present facts of the case the reopening of the assessment is because of the disallowance made by the learned assessing officer in the subsequent assessment year. He thus argued that the ratio by Hon’ble Supreme Court Kalyanji Mavji & Co. v. CIT (supra) is applicable to the present facts of the case.

20. The ratio of Hon’ble Supreme Court Kalyanji Mavji & Co. v. CIT (supra) is a good law to the cases prior to the amendment to section 147 of the Act. After the amendment, the law has been considered by Hon’ble Supreme Court in case of CIT v. Kelvinator India Ltd. reported in (2010) 187 Taxmann 132 : (2010) 320 ITR 561 (SC) : 2010 TaxPub(DT) 1335 (SC) that reads as under :–

“3. To answer the above question, we need to note the changes undergone by section 147 of the Income Tax Act, 1961 (for short, “the Act”). Prior to Direct Tax Laws (Amendment) Act, 1987, section 147 reads as under :–

“147. Income escaping assessment.–

If–

(a) the Income Tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income Tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or

(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income Tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year,

he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).”

3.1 After enactment of Direct Tax Laws (Amendment) Act, 1987, i.e., prior to 1-4-1989, section 147 of the Act, reads as under :–

“147. Income escaping assessment.–If the assessing officer, for reasons to be recorded by him in writing, is of the opinion that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).”

3.2 After the Amending Act, 1989, section 147 reads as under :–

“147. Income escaping assessment.–If the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).”

4. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in section 147 of the Act (with effect from 1-4-1989), they are given a go-by and only one condition has remained, viz., that where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post 1-4-1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, section 147 would give arbitrary powers to the assessing officer to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to re-assess. The assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the assessing officer. Hence, after 1-4-1989, assessing officer has power to reopen, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in section 147 of the Act. However, on receipt of representations from the Companies against omission of the words “reason to believe”, Parliament re-introduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the assessing officer. We quote herein below the relevant portion of Circular No. 549, dated 31-10-1989, which reads as follows :–

“7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ‘reason to believe’ in section 147. A number of representations were received against the omission of the words ‘reason to believe’ from section 147 and their substitution by the ‘opinion’ of the assessing officer. It was pointed out that the meaning of the expression, ‘reason to believe’ had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the assessing officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression ‘has reason to believe’ in place of the words ‘for reasons to be recorded by him in writing, is of the opinion’. Other provisions of the new section 147, however, remain the same.”

21. In the present facts of the case all the details available for identifying the details of deduction claimed under section 36(1)(viia) of the act was available with the learned assessing officer during the course of original assessment proceedings.

22. The learned Authorised Representative drew our attention to page 54 of paper book which is reply to notice, dated 13-11-2012 during the scrutiny assessment for year under consideration filed by assessee wherein para 6 shows the aggregate average advances for deduction claimed under section 36(1)(viia) of the Act, along with the computation enclosed which is page 56 showing the details of various types of provisions. We therefore reject the observation of the learned assessing officer that assessee deliberately grouped the 2 provisions together, and there was misrepresentation of facts.

23. From the replies furnished by assessee during the original assessment proceedings placed in the paper book relied by the learned Authorised Representative, against queries raised by the learned assessing officer, we are satisfied that assessee had filed submissions in respect of the issues considered for reopening the assessment.

24. Further the reasons recorded reproduced hereinabove suggests that there was no failure on behalf of assessee to fully and truly disclose all material facts necessary for assessment, which is a necessary condition for reopening an assessment beyond a period of 4 years as stipulated under the act.

The reasons recorded also reveal that, there has been no new material available with the learned assessing officer which could justify the reopening of a concluded assessment beyond a period of 4 years.

25. Learned Authorised Representative placed reliance on the decision of Hon’ble Supreme Court in case of Chhugamal Rajpal v. SP Chalihan reported in (1971) 79 ITR 603 (SC) : 1971 TaxPub(DT) 0314 (SC) and decision of Hon’ble Karnataka High Court in case of CIT v. Chaitanya Properties (P) Ltd. reported in (2016) 67 Taxmann.com 201 : 2016 TaxPub(DT) 1447 (Karn-HC)  in support of his claim that the reasons recorded by learned assessing officer do not spell out the escapement of income was due to the failure on part of assessee to fully and truly disclose all material facts necessary for completion of assessment for the relevant year and therefore the reopening of assessment is bad in law. These decision emphasise on the principle that if after expiry of 4 years from the end of the relevant assessment year and actual is sought to be taken under section 147 of the act, such action can in cases where the income chargeable to tax has escaped assessment is by reason of failure on part of assessee to disclose truly and fully all material facts necessary for the assessment for that assessment year.

26. Respectfully following the ratio laid down by various decisions cited hereinabove, more particularly the decision of Hon’ble Supreme Court in case of Hon’ble Supreme Court in case of CIT v. Kelvinator India Ltd. (supra), we set aside and quash the notice, dated 17-5-2016 seeking to reopen concluded assessment to be bad in law. As we have set aside and quash the notice of reopening, consequential assessment order passed by the learned assessing officer stands to be quashed and set-aside.

27. As we have quashed the assessment order passed by the learned assessing officer, we do not find it necessary to adjudicate the issues on merits alleged here.

28. Accordingly, appeal filed by assessee is allowed in terms of Ground 8-10.

29. In the result appeal filed by assessee stands allowed.