M/S THE YAMUNA NAGAR CENTRAL CO-OP BANK LTD THRO LOKESH DATT vs. COMMISSIONER OF INCOME TAX AAYAKAR BHAWAN KARNAL

Prayer in this petition filed under Article 226 of the Constitution of India is for quashing the notice dated 24.3.2014, Annexure P.6 under section 148 of the Income Tax Act, 1961 (in short, “the Act”) in view of objections to the reasons recorded dated 5.6.2014 (Annexure P.9) and consequential order dated 30.6.2014, Annexure P.11 rejecting the objections dated 11.6.2014, Annexure P.10 raised by the petitioner.

A few facts relevant for the decision of the controversy involved as narrated in the petition may be noticed. The petitioner is a cooperative society registered under the Societies Registration Act, 1860. It is engaged in the business of banking as Cooperative Bank at Yamuna Nagar. The amount of payment/premium of Group Gratuity Scheme of ` 2,20,18,280/- was infact the balance of the amount of Group Gratuity GURBAX SINGH 2014.08.16 12:16 integrity of this document High Court Chandigarh Payment with LIC. The petitioner bank having taken the said scheme from LIC in the previous year i.e. Assessment year 2008-09, a premium payment of ` 2,85,00,000/- was made to the LIC and an amount of ` 64,81,720/- was paid by the LIC out of group Gratuity Scheme to the retiring employees of the petitioner bank. The amount of ` 2,20,18,280/- being the balance of the premium payment out of ` 2,85,00,000/- paid in assessment year 2008-09 was depicted both on the liability as well as asset side of the balance sheet for the assessment year 2009-10 and thus being a contra entry was neither claimed as expenditure in the assessment year in question nor allowed by the Assessing Officer in the scrutiny assessment under Section 143(3) of the Act. Accordingly, notice under section 148 of the Act was issued to the petitioner bank on the issue of payment of Group Gratuity to LIC to the extent of ` 2,20,18,280/-. The petitioner filed income tax return for the assessment year 2009-2010 on 30.9.2009 declaring income at ` 1,59,93,730/- which was processed under section 143(1) of the Act. Notice under section 143(2) of the Act was issued on 23.8.2010. The assessment under Section 143(3) of the Act was completed on 25.11.2011 wherein the Assessing officer accepted the return of income by duly accepting the issue of retirement benefit and Group gratuity scheme amount. The petitioner received notice dated 24.3.2014 under section 148 of the Act. It filed reply dated 27.3.2014 and requested the Assessing Officer to provide the copy of reasons recorded. The Assessing Officer issued notice under section 142(1) of the Act dated 26.5.2014, Annexure P.7 which was served on the petitioner on 29.5.2014. The petitioner submitted reply to the notice. The Assessing officer provided copy of reasons recorded to the petitioner wherein it was GURBAX SINGH 2014.08.16 12:16 integrity of this document High Court Chandigarh stated that the assessee society had created provision for retiring benefits of ` 14,20,035/- and group gratuity scheme of ` 2,20,18,280/-. Since the provisions of retiring benefits and group gratuity scheme were not deductible under the Income Tax Act, the same were to be disallowed being provisions of unascertained liabilities. Omission to do so resulted in escapement from assessment to the tune of ` 2,34,38,315/- in the hands of 2014.08.16 12:16 integrity of this document in escapement of income amounting to ` 14,20,035/- on account of provisions created for retiring benefits and ` 2,20,18,280/- on account of provisions created for Group Gratuity Scheme. According to the Assessing Officer, the provisions of retiring benefits and Group Gratuity Scheme were not deductible under the Act. The Assessing Officer had recorded the following reasons for reopening the assessment:- “Return of income in this case was filed under section 139(1) of the Income Tax Act, 1961 on 30.9.2009 declaring total income at ` 1,59,93,730/-. Assessment under Section 143(3) of the Income Tax Act, 1961 has been framed vide order dated 25.11.2011 at an Income of ` 1,59,93,730/- making additions under various heads. Scrutiny of other liabilities forming part of the balance sheet revealed that the assessee society had created provisions for retiring benefits of ` 14,20,035/- and for group gratuity scheme of ` 2,20,18,280/-. Since the provisions of retiring benefits and group gratuity scheme are not deductible under the Income Tax Act, the same were to be disallowed being provisions for unascertained liabilities. Omission to do so resulted in escaped from assessment to the tune of ` 2,34,38,315/- in the hands of the assessee. Under the Income Tax Act, provisions made in the accounts for unascertained liabilities are not deductible. GURBAX SINGH 2014.08.16 12:16 integrity of this document High Court Chandigarh Keeping in view the facts narrated above, I am of the opinion that this is a fit case to issue notice under Section 148 in the case. Issue notice under Section 148 of the Income Tax Act, 1961.” Relying upon Explanation 1 to Section 147 of the Act, the objections raised by the assessee for issuance of notice under Section 148 of the Act were rejected.

Explanation I to Section 147 of the Act which is relevant for adjudication of the present petition reads thus:- “Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.”

According to the aforesaid explanation, the mere production of account books or other evidence from which material evidence with due diligence could have been discovered by the Assessing officer, would not amount to disclosure within the meaning of the said section. A perusal of the assessment order shows that there is no such discussion made by the Assessing officer while framing assessment under Section 143 of the Act. Thus, the Assessing Officer while recording reasons for issuing notice under section 148 of the Act had rightly held that there was no true and full disclosure and initiation of proceedings within four years from the end of the assessment year 2009-10 was valid. Further, the plea that reopening was based on audit objection is dispelled from the perusal of the reasons recorded. GURBAX SINGH 2014.08.16 12:16 integrity of this document High Court Chandigarh

In view of the above, we do not find any merit in the contentions of the learned counsel for the appellant. In all fairness, taking notice of the judgments referred to above, those were the cases where Explanation 1 to section 147 of the Act was not subject matter of decision and were based on their own facts involved therein. Therefore, the judgments relied upon by the learned counsel for the petitioner do not advance the case of the petitioner.

Consequently, finding no merit in the petition, the same is hereby dismissed. (Ajay Kumar Mittal) Judge July 23, 2014 (Jaspal Singh) ‘gs’ Judge GURBAX SINGH 2014.08.16 12:16 integrity of this document High Court Chandigarh