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Income Tax Appellate Tribunal, RAJKOT – RAJKOT BENCH
Before: SHRI MAHAVIR PRASAD & SHRI AMARJIT SINGH
PER AMARJIT SINGH - AM: The appeal filed by the Revenue for A.Y. 2007-08, arise from order of the CIT(A)-3, Rajkot dated 17.10.2016, in proceedings under section 143(3) r.w.s. 147 of the Income Tax Act, 1961; in short “the Act”.
The solitary ground of appeal of the Revenue is against the decision of Ld. CIT(A) in deleting the addition made by the AO on account of disallowance of investment depreciation reserve amounting to Rs. 1,51,16,813/-.
The fact in brief is that return of income declaring income of Rs. 1,38,68,780/- was filed on 07.11.2007. The order u/s. 143(3) of the Act was passed on 09.12.2009 and total income of the assessee was assessed at Rs. 1,38,75,410/-. Subsequently, the case of the assessee was reopened u/s. 147 of the Act by issuing of notice u/s. 148 on 28.03.2014. The assessment in the case of the
ITA No. 12/RJT/2017 A.Y. 2007-08 assessee was reopened on the reason that the assessee has debited an amount of Rs. 1,51,16,816/- to the profit and loss account as investment depreciation reserve and the investment depreciation reserve does not fall under the any head of the category of sec. 30 to 43(D) of the Act and the claim of the assessee was in the nature of capital expenditure which was not allowable. During the course of assessment the assessee has objected the reopening of the assessment stating that original assessment has been completed after duly verifying the issue and there was change of opinion by the AO. Assessee has submitted that assessee bank had disclosed fully and truly all the material fact necessary for the assessment. It was also submitted that during the course of original assessment proceeding complete details of loss on sale of investment amounting to Rs. 1,51,16,816/- along with the investment wise accounts of the securities which was sold during the year and where the assessee had suffered a loss were submitted vide letter dated 24.11.2009. It is further submitted that the loss on sale of investment was on account of banking activity as per the Banking Regulation Act and it is an allowable expenditure. The AO has not agreed with the submission of the assessee and treated the amount of Rs. 1,51,16,816/- debited to profit and loss account as Investment Depreciation Reserve of the nature of capital expenditure and added the total income of the assessee.
Aggrieved assessee has filed appeal before the Ld. CIT(A). Ld. CIT(A) has allowed the appeal of the assessee stating that in the original assessment proceeding the assessee has furnished all supporting information and same were verified by the AO, therefore, the re-assessment made by the AO in the case of assessee was invalid.
On merit also the Ld. CIT(A) has allowed the appeal of the assessee stating that loss on sale of government securities and amortization of premium paid on acquisition of HTM securities by the assessee bank is allowable. The relevant part of the decision of CIT(A) is reproduced as under:-
ITA No. 12/RJT/2017 A.Y. 2007-08
“5.1 I have carefully considered the reasons recorded for reopening of the assessment, contentions of the A.O. in the reassessment order and submissions of the appellant as reproduced hereinbefore. First of all it is apparent that the question of validity of the reassessment proceeding has to be decided first.
5.2 The re-opening notice was issued after four years from the end of the relevant 143(3). The validity of the re-assessment proceeding has to be seen in context of this factual matrix. In this circumstances the initiation of re-assessment proceeding should also satisfy the condition of the first proviso of section 147. Accordingly the appellant has raised the issue of notice being bad in law as I) it is based on change of opinion only and it amounts to review of earlier opinion (of earlier AO) and ii) there is no failure on the part of the assessee in disclosing all material fact and iii) appellant strongly feels that the re-opening was result of audit objection.
5.3 First of all nothing was brought on record to show that the re-opening was only because of audit objection which was not accepted by AO. Therefore this contention does not have any force.
5.4 In respect of the other contention it is observed that in the course of original assessment u/s. 143(3), the then A.O. asked for the details of loss on sale of assets/investments vide questionnaire dated 13.11.2009. Vide reply dated 24.11.2009, the appellant furnished the details of loss on sale of investments of Rs.1,51,16,816/- claimed in the P&L account which is the subject matter of present reassessment as per the reasons recorded. Thus, there was a query of the A.O. in respect of amount of Rs.1,51,16,816/-debited in the P&L Account and the appellant also furnished its reply in this regard and thereafter, the A.O. allowed the said amount of Rs. 1.51,16,816/-. Since the query was raised by the A.O. in the course of original assessment proceedings, I am of the view that the opinion has been formed by the A.O. My view is fortified by the Delhi High Court Full Bench judgment in case of Usha International Ltd. (348 ITR 485) wherein the Full Bench held in the context of concept of change of opinion that reassessment proceedings will be invalid in case an issue or query is raised and answered by the, assessee in original assessment proceedings and assessing officer does not make any addition in assessment order. The appellant has also relied upon several judgments of the jurisdictional Gujarat High Court wherein also same view has been taken that if the issue is examined by the A.O. in the course of original assessment by raising query and receiving reply, the subsequent attempt to re-examine the same issue, even if from different angle, would only amount to change of opinion. These judgments squarely apply to the case of the appellant. Respectfully following these judgments, I hold that the reassessment in the case of appellant is based on change of opinion which is not permissible in law. Further, the proviso to Section 147 is also applicable in the appellant's case as original assessment was framed u/s. 143(3) and notice u/s. 148 was issued after the end of 4 years from the assessment year. The mandatory condition in the cases of falling under the purview of proviso to Section 147 is that there should be failure on the part of the assessee in disclosing material facts truly and fully. It is evident from the reasons recorded that the A.O. proposed to disallow the amount of Rs.1,51,16,816/- after verification of the assessment records. In the reasons, the A.O. has mentioned “It was revealed from the assessment records that...” There is no any external material or information referred to in the reasons which came to the possession of the A.O. subsequent to the framing of assessment u/s. 143(3). The reassessment is based on second look at the assessment records. As stated earlier, the assessee furnished submission in respect of amount of 3
ITA No. 12/RJT/2017 A.Y. 2007-08
Rs.1,51,16,816/- claimed in the P & L Account in the original assessment proceedings u/s. 143(3). Thus, from the reading of reasons and records of original assessment proceedings, it is crystal clear that there is no failure on the part of the appellant as envisaged in the proviso to Section 147. The AO was incorrect in claiming in his reason to believe of the failure on the part of the appellant but whereas AO himself has taken the figure of Rs. 1,51,16,816/- i.e. loss on account of sale of investment from appellant's record only filed during the original assessment proceeding. This being the position, I am inclined to accept the submission of the appellant that the reassessment is not permissible in view of proviso to Section 147 in as much as there is no failure on the part of the appellant. The jurisdictional High Court judgments relied upon by the appellant supports my view. I therefore hold that reassessment in the appellant's case is invalid also on the ground of application of proviso to Section 147. 5.5 As the re-assessment proceeding itself has been held as invalid and void-ab- initio there is no need for adjudication on the ground raised on the merit of the disallowance. However I feel even on merit also, the appellant deserves to succeed. It is seen that the amount of Rs.1,51,16,816/- comprises of loss on sale of government securities and amortization of premium paid on acquisition of HTM securities by the appellant bank. The loss on sale of government securities is allowable as business loss in view of Rajkot ITAT decision in case of Surendranagar Mercantile Co- operative Bank Ltd. (in ITA No. 03/Rjt/2012, dtd. 03/08/2012 for Asst. Year 2008-09) and the amortization of premium paid on HTM securities is also allowable in view of Rajkot ITAT and Gujarat High Court judgments in the cases of Rajkot District Co- operative bank Ltd. (Tax Appeal No. 56 of 2013 dated 10/02/2014) and Rajkot Nagrik Sahakari Bank Ltd. (Tax Appeal No. 307 of 2015 dated 24/04/2015) relied upon by the appellant before me. In view of these binding precedents, I hold that the disallowance made by the A.O. is not sustainable. 5.6 In view of the above discussion, the appellant succeed both in respect of challenge to reassessment proceedings and merits. Both the grounds of appeal are accordingly allowed.”
The Ld. CIT(A) has categorically demonstrated in his findings that during the course of original assessment proceedings u/s. 143(3) the assessee has submitted the relevant information in respect of its claim of investment depreciation reserve which were duly considered by the AO. In the light of the above fact we do not find any error in the decision of Ld. CIT(A) in considering the reassessment as invalid. The Ld. CIT(A) has also allowed the appeal of the assessee on merit after following the decision of ITAT and the decision of the Hon’ble jurisdictional High Court as referred in Para 5.5 of his order cited above.
ITA No. 12/RJT/2017 A.Y. 2007-08
The Ld. DR could not controvert the aforesaid findings of the Ld. CIT(A) with any other material or decision, therefore, the appeal of the Revenue is dismissed.
In the result, appeal of the Revenue is dismissed.
[Order pronounced in the Court on 07-08-2019.]
Sd/- Sd/- (MAHAVIR PRASAD) (AMARJIT SINGH) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER Ahmedabad; Dated 07/08/2019 TANMAY आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent. 3. संबं�धतआयकरआयु�त/ Concerned CIT 4. आयकरआयु�त(अपील) / The CIT(A) 5. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण/ DR, ITAT, 6. गाड�फाईल / Guard file. आदेशानुसार/ BY ORDER
उप/सहायकपंजीकार (Dy./Asstt. Registrar) आयकरअपील�यअ�धकरण, अहमदाबाद / ITAT, Rajkot
Date of dictation : 02-08-2019 2. Date on which the typed draft is placed before the : 02-08-2019 Dictating Member. 3. Date on which the approved draft comes to the : 07-08-2019 Sr.P.S./P.S 4. Date on which the fair order is placed before the : 07 -08-2019 Dictating Member for pronouncement. 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the : 07 -08-2019 Sr.P.S./P.S. 7. Date on which the file goes to the Bench Clerk. : 08-08-2019 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant : Registrar for signature on the order. 10. Date of Despatch of the Order :