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Income Tax Appellate Tribunal, ‘C’ BENCH, KOLKATA
Before: Shri Rajpal Yadav, Vice- & Shri Rajesh Kumar
Per Shri Rajpal Yadav, Vice-President (KZ):- The present appeal is directed at the instance of assessee against the order of ld. Commissioner of Income Tax (Appeals), Asansol dated 4th February, 2020 passed for A.Y. 2006-07.
(A.Y. 2006-2007) Purulia Central Cooperative Bank Limited 2 The appeal was received before the Tribunal on 13th January, 2021. The period consumed by the assessee was a COVID period and, therefore, the appeal is to be treated within time. The Registry has unnecessarily raised an objection that appeal is time-barred by 2809 days. This aspect was considered by us vide our order-sheet dated 16th January, 2023 and we have explained that the appeal is not time-barred, rather the assessee has committed an error by mentioning the date of assessment order in place of date of ld. CIT(Appeals)’s order. Thus we proceed to decide the appeal on merit because the delay has already been explained and condoned.
In the first ground of appeal, the assessee has challenged re-opening of assessment by issuance of a notice under section 148 of the Income Tax Act.
Brief facts as emerging out from the assessment order would reveal that the assesese has filed its return of income on 02.07.2007 in compliance to a notice issued under section 142(1) dated 27.03.2007. Subsequently in order to scrutinize the return, a notice under section 143(2) was issued and served upon the assessee. After verification of the record, ld. Assessing officer has passed the assessment order under section 143(3) on 31.12.2008 at a loss of Rs.1,73,54,450/-. (A.Y. 2006-2007) Purulia Central Cooperative Bank Limited 5. On account of some internal audit objection, the assessment of the assessee has been reopened by issuance of a notice under section 148 on 26.03.2012. The ld. Assessing Officer did not provide the copies of the reasons to the assessee inspite of prayer of the assessee. Ultimately at the end of the intervention of the Tribunal, copies of such reasons has been supplied not only to the assessee but placed on record. The reasons read as under:-
“The assessee has filed return of income for the Asstt. Year 2006-07 on 02/07/2007 showing total loss of Rs. 1,73,91,181.67. Order was passed u/s 143(3) on 31/12/2008 at total loss of Rs.1,73,54,450/-. The material facts of this case is that the assessee is entitled to claim deduction of the entire income U/s 80P(2)(a)(i). So there is no question of carry forward of unabsorbed business loss arrived at after passing of order U/s 143(3). Further examination of accounts and its schedule annexure reveals that the assessee has made a provisions for NPA of Rs.68,06,656.42 before claiming deduction. As the case was assessed at loss, NPA provisions was made is not allowable and hence illegal and out of purview of the IT Act. More so, on examination of the accounts of the co- operative bank - assessee it reveals that interest income of Rs.95,84,258.41 has been shown from Investment & deposits with banks and other institutions. Total such deposits/cash & investment has been shown in the balance sheet as on 31/03/2006 is Rs.19,58,24,668.37. and the same deposits/investments are not related to the business activities of the Co-Operative society (herein called the assessee). As the assesee has not shown details/breakup of such interest income, the shown interest income is taken as interest income from surplus fund invested /deposited in banks or in Govt. Securities. Hon’ble Supreme court in the case of M/s The Totgars’ Co-Operative Sale society Limited -in SLP-C. No.7572 of 2009 held that “Interest income from surplus fund invested in the deposit with banks and in govt. Securities” would come in the category of “income from other source” and such interest income does not qualify for deduction U/s 80P(2)(a)(i) of the I T. Act.
(A.Y. 2006-2007) Purulia Central Cooperative Bank Limited It is not possible to ascertain the exact amount of interest income from such deposits with banks and with other institutions in absence of any details of such income in the audited accounts. As such the interest income as shown by the assessee in its schedule of audited accounts of Rs.95, 84,258.41 is construed as income from surplus fund invested or deposited in banks and in govt, securities which is not exempted U/s 80P(2)(a)(i) of the I T Act and the same amount has escaped assessment. The aforesaid facts lead to formation of reasonable cause to believe that income chargeable to tax on the above reasons has escaped assessment. Accordingly proposal for approval to issue notice U/s 148 of the I T Act is sent to Ld. CIT, Asansol through proper channel”.
The ld. Counsel for the assessee while impugning the reasons filed a brief note, which reads as under:-
“(1) That reasons for re-opening of the case under section 147 was totally baseless. (2) That in the original assessment order passed by Income Tax Officer Ward 3(2) Purulia under section 143(3) did not mention that the loss assessed will be carried forward. A copy of the order of assessment, the assessee also did not claim carry forward of loss in the I. T. Return for the Assessment year 2007-08 and only shown the loss for assessment year 2007-08. A copy of the return is attached. (3) That the ground that If there is loss, no provision for N.P.A could be made is without any basis. The loss shown by the assessee was after taking the provision for bad debts. (4) That co-op. banks are non-scheduled bank and is entitled to make provision for bad debts under proviso to section 36 (VIIa). (5) That in support that a co-op. bank is non schedule bank the assessee is attaching herewith the decision of ITAT A Bench Chennai is the case o f Vellore District Central Commissioner of Co- Op. Bank Ltd. Vs Income Tax 311 Anna Salai Chennai VIII Office in Chennai.
(A.Y. 2006-2007) Purulia Central Cooperative Bank Limited (6) That ITAT Jaipur also held that Co. Op. Banks are non- scheduled banks. (7) That even many Co-Op. Banks are schedule bank. A list of some of these banks is also attached. (8) That in the circumstances it is totally baseless that a co- op. bank cannot make provision for bad debts. (9) That the Honorable ACIT Circle 3 cited the case M/s Totgar"s Co-Op sale society Ltd case of the Apex Court but never applied the above case in the assessment proceeding. In the above case it was held that income from surplus fund not immediately required for business as income from other source. But the Learned ACIT never applied the above ruling in the whole assessment and only the provision for bad debts was disallowed, which was legally made. So the reason for reopening the above case as per above decision was also failed The bank collected deposit from public on interest and make investment and loans to earn interest. There is no surplus fund. If it does not earn interest how it will be able to pay interest to its deposits. (10) That proviso to section 147 provides that where an assessment under sub-section 3 of section 143 has been made no action shall be taken under section 147 after expiry of four years from the end of the relevant assessment unless any income chargeable to tax has escaped assessment by the reasons of failure on the part of the assessee to make return under section 139 or in response to the notice under section 142 or section 148 or to disclose fully or truly the material facts necessary for assessment. (11) That the assessee voluntarily filed its return disclosing truly all materials facts together with Audited Statements of Accounts land Tax Audit Report and assessment was made under section 143(3). The assessment was re-opened after expiry of 4 years but assessing officer did not point out that any income is escaped assessment due to the failure o f the assessee to fully disclose all material facts. So the re- opening of the case was bad in law and should be aside. (12) That in the case Madanmal International Inc. vs CIT 2004 Taxman 39 the Honorable Uttaranchal High Court held that a case should not re-open u/s 147 after assessment was made under section 143(3) after expiry of four years from assessment year. Here the honorable High court held only permission of Commissioner will not do and 5 (A.Y. 2006-2007) Purulia Central Cooperative Bank Limited assessments can only be re-open after four years only if the escapement of income is happened due to failure on the part of the assessee and can be opened after 4 years of original assessment was completed under section 143(3) to 147. No such fault was pointed put by A.C.I.T. (13) That the above view was well supported by the decision of Allahabad High Court ;in the case of Girdhar Gopal Gualti vs Union of India (2004 Taxman 312. So the re-opening of the case should be set aside”.
The main emphasize of the ld. Counsel for the assessee was that a scrutiny assessment was passed on 31.12.2008. The notice under section 148 has been issued after expiry of four years from the end of the relevant assessment year. Thus according to the ld. Counsel for the assessee, the assessment could only be re-opened, if Revenue is able to lay its hand on an information which can demonstrate that the assessee failed to disclose all material facts fully and truly while income was scrutinized under section 143(3) of the Income Tax Act. In other words, on account of failure of the assessee, income of the assessee has escaped assessment. The ld. Counsel for the assessee thereafter took us through the reasons and his written submissions. He pointed out that the first reasoning assigned by the ld. Assessing Officer for harbouring belief that income has escaped assessment is, that the assessee has claimed carry forward of losses. He submitted that the assessee did not claim carry forward of loss in the income-tax return for the assessment year 2007-08 and only shown the loss for A.Y. 2007-08. He drew our attention towards the copy of the return for A.Y. 2007-08 available on record. Therefore, according to him, the first-fold of (A.Y. 2006-2007) Purulia Central Cooperative Bank Limited reasoning does not survive for the formation of belief that income has escaped assessment.
With regard to the second-fold of reasoning assigned by the ld. Assessing Officer, he submitted that ld. Assessing Officer has observed that assessee is a non-scheduled Bank and it has made a provision for NPA of Rs.68,06,656/- before claiming deduction. The ld. Assessing Officer observed that the income of the assessee was assessed at a loss, the NPA could not be made and not allowable, hence illegal. The stand of the assessee is that being a Cooperative Bank, it is eligible to make a provision for bad and doubtful debts under section 36(viia) of the Act and this aspect was already gone into by the ld. Assessing officer in the assessment order passed under section 143(3). Similarly ld. Counsel for the assessee pointed out that all other aspects enumerated in the reasons have been taken into consideration. There was no fresh information available with the ld. Assessing Officer except change of mind.
On the other hand, ld. D.R. contended that not only the audit objection, but the ld. Assessing Officer has taken approval from the ld. CIT. He took us through the note-sheet, which was sent for approval for reopening to the ld. CIT and thereafter he took us through the order of ld. CIT dated 23.03.2012 vide which approval was granted. (A.Y. 2006-2007) Purulia Central Cooperative Bank Limited 10. We have duly considered the rival contentions and gone through the record carefully. A perusal under section 147 would reveal that if the ld. 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 re-assess such income ……….. Thus the ld. Assessing Officer must have information in his possession, which has a direct nexus between the formation of belief demonstrating the escapement of income from taxation. The first proviso appended to this section puts an embargo upon the powers of the ld. Assessing Officer. The interdiction provided in this proviso would contemplate that if an assessment order under sub-section 3 of section 143(3) or under section 147 has been made for the relevant assessment year, then no action shall be taken under this section after expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make return under section 139 or in response to a notice under section 142(1) or 148 or to disclose fully and truly all material facts necessary for assessment for that assessment year. In other words, if an assessee fails to disclose all material facts fully and truly only, then the assessment could be reopened by issuance of a notice under section 148 after the expiry of four years where earlier assessment was made either under section 143(3) or under section 147. In the present case, the earlier assessment has been framed under section 143(3) on 31.12.2008. The ld. Assessing Officer sought to reopen this assessment order after five years, (A.Y. 2006-2007) Purulia Central Cooperative Bank Limited we have extracted the reasons but nowhere in the reasons the ld. Assessing Officer has alleged, which material was not truly and fully declared by the assessee, and such non-disclosure has led to escapement of income. The ld. Counsel for the assessee has demonstrated that two-fold of reasoning assigned by ld. Assessing Officer, namely that assessee has claimed carry forward of losses, i.e. the first-fold of reasoning and the second- fold of reasoning is that a provision for NPA has been made which is not allowable in case loss is concern, the first one is factually incorrect and in the second observation, ld. Assessing Officer has not visualize the provision under section 36(viia) of the Act. He has not pinpointed, which provision has been made illegally. The assessee being a non-scheduled Bank is entitled to make provision. If there were some error that has not been demonstrated in the reason. Therefore, ld. Assessing Officer failed to pinpoint the failure at the end of the assessee to disclose all material facts fully and truly, which led the escapement of income from taxation. Apart from the above, it is further observed that under the original assessment, loss was determined at Rs.1,73,54,450/- In the re-assessment order, this loss has been reduced to Rs.1,05,47,793/-. The only fact is that loss has been reduced. The loss has not claimed as a carry forward. There is no impact on taxation. It is just an academic exercise undertaken by the ld. Assessing Officer. Had the ld. Assessing Officer verified subsequent return, then, he would have dropped the proceedings. On going through all these aspects, we are of the view that reopening is not sustainable. We quash it. Accordingly, (A.Y. 2006-2007) Purulia Central Cooperative Bank Limited the appeal of the assessee is allowed and impugned reassessment order is quashed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on July 11, 2023.