AHMEDNAGAR DISTRICT CENTRAL CO OP BANK LTD vs. UNION OF INDIA and ORS

(1) W.P. No.1923/04 IN THE HIGH COURT OF JUDICATURE OF BOMBAY BENCH AT AURANGABAD WRIT PETITION NO.1923 OF 2004

The Ahmednagar District Central Co-operative Bank Limited, Station Road, Ahmednagar, a co-operative society incorporated under the Maharashtra Co-operative Societies Act, 1960, through its Managing Director Shri Ramsukhdas s/o Shri Damodar Mantri, Age : 58 yrs, r/o Ahmednagar ..PETITIONER VERSUS 1. The Union of India, through it’s Secretary, Ministry of Finance Department of Revenue, North Block, New Delhi 2. The Income Tax Officer, Ward -1, Ahmednagar ..RESPONDENTS Mr Abhay P. Kolte, Advocate for petitioner; Mr Alok Sharma, Asstt. Solicitor General for respondents

CORAM : S.V. GANGAPURWALA & N.W. SAMBRE, JJ.

DATE : 27th March, 2014 ORAL JUDGMENT (Per S.V. Gangapurwala, J.)

(2) W.P. No.1923/04 The petitioner assails the proposed action of re-assessment under sections 147, 148, 142 and 143 of the Income-Tax Act, initiated by respondent no.2 vide notices and orders for the assessment year 1996-97. 2. Mr Kolte, the learned Counsel submits that the original returns for the assessment year 1996-97 were filed on 31.10.1996. The same were accepted and even refund of Rs.3,13,000/- was given vide order dated 23.4.1997. Thereafter, on 11.6.2002 impugned notice was issued on the ground that in the course of scrutiny assessment for the year 1998-99, it has been noticed that the assessee is claiming income received from the MSEB commission, Mula Pravara Electric Supply Co. commission and locker rent as exemption under section 80 P (2) (a) (i) of the Income Tax Act, treating the same as attributable to the business of banking. The learned Counsel submits that the assessment has to be re-opened within a period of four years and the extended period of limitation is available only if the assessee has suppressed the material facts and has not disclosed fully and truly all material facts necessary for assessment of that assessment year. The learned Counsel relies on the judgment of the Division Bench of this Court in the case of Bhor Industries Ltd., Mumbai vs. Assistant Commissioner of Income Tax and ors., reported in 2003 (2) Mh.L.J. 810. The learned Counsel further submits that the amount receivable from MSEB commission and Mula Pravara Electric Supply Co.

(3) W.P. No.1923/04 commission, so also the locker rent, is attributable to the income related to Bank and is entitled for exemption under section 80 P (2) (a) (i) of the Income-Tax Act. According to the learned Counsel, this issue is no longer res integra in view of the judgment of this Court in the case of Commissioner of Income Tax vs. Ahmednagar District Central Co- operative Bank Ltd., reported in (2003) 185 CTR (Bom) 336. 3. According to the learned Counsel, provisions of sections 147 and 148 of the Income-Tax Act will have to be read in harmony and unless there is a suppression of fact on the part of the petitioner, the assessment could not have been re-opened and in the reasons recorded for re- opening of the assessment, no such satisfaction that there is a suppression or there is a non-disclosure of the full or true material facts on the part of the assessee is made out. In the light of that, the learned Counsel submits that the impugned notices be quashed and set aside. 4. Mr Sharma, the learned Asstt. Solicitor General submits that the petitioner has an alternate remedy available and as such this Court may not invoke its writ jurisdiction. The learned Asstt. Solicitor General relies on the judgment of the Apex Court in the case of Commissioner of Income Tax & ors. vs. Chhabil Dass Agarwal, in Civil Appeal No.6704 of 2013.

(4) W.P. No.1923/04 5. Mr Sharma, the learned Asstt. Solicitor General submits that even if some income has escaped assessment, the same may give a ground for re-opening the assessment. The learned Asstt. Solicitor General relies on explanation (1) to section 147, so also section 148 of the Income-Tax Act. The learned Asstt. Solicitor General relies on the judgment of the Apex Court in the case of Assistant Commissioner of Income-Tax vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., reported in 2007 SCALE-8-396. The learned Asstt. Solicitor General further submits that after the notice was issued recording the reasons to believe, subsequently it was found that even the petitioner had invested some amounts from the sale of Government securities, however, the same had escaped assessment and subsequently it can be assessed. According to the learned Asstt. Solicitor General, proper course has been adopted by the respondents and subsequently the assessment order is passed. 6. Mr Kolte, the learned Counsel submits that even income from investments made is entitled for deduction. The learned Counsel relies on the judgment of the Division Bench of this Court, dated 12.8.2011 in Tax Appeal No.96 of 2008 with other connected appeals. 7. This Court, by a speaking order, had admitted the petition and had granted interim relief, so also directed that the respondents shall not give effect to the orders passed pursuant to the impugned notices issued. The

(5) W.P. No.1923/04 aspect of alternate remedy could have been considered by this Court at the time of admission of petition. This Court, after considering various judgments of the Division Bench of this Court and the provisions has admitted the petition. At this stage, i.e. final hearing of the petition and after lapse of ten years, the petitioner cannot be asked to avail the alternate remedy. 8. The aspect that the income from MSEB commission and Mula Pravara Electric Supply Co. commission, so also the locker rent is exempt under section 80 P (2) (a) (i) of the Income-Tax Act, is no longer res integra in view of the judgment of the Division Bench of this Court in the case of Commissioner of Income Tax vs. Ahmednagar District Central Co- op. Bank Ltd (referred supra). In fact, it was the case between the present parties. 9. The reasons given by the authority for escaped assessment for the assessment year 1996-97 for re-opening the assessment are as under :- “During the course of scrutiny assessment for the Assessment Year 1998-99, it has been noticed that the assessee has been claiming income from MSEB Commission and Mula Pravara Electric Supply Co. commission and Locker rent as exempt u/s. 80P (2) (a) (i) treating the same as attributable to the business of banking. However, the income from the said activity has been held as not

(6) W.P. No.1923/04 attributable to the business of banking. The Return of income for A.Y. 96-97 has been filed on 31.10.96 declaring total income at Rs. 77940/- and the same has been accepted u/s 143 (1) (a) on 31.3.97. Since the assessee has claimed excess deduction u/s. 80 P (2) (a) (i), the taxable income as worked out at Rs.36,28,814/- has escaped assessment.” 10. Perusal of the said reasons, it is manifest that the only ground which is considered is that the income from the Locker rent and the income from the MSEB commission and Mula Pravara Electric Supply Co. commission is not entitled to be deducted. The assessment year was 1996-97. The same was sought to be re-opened in the year 2002-03, on the basis of the reasons as detailed supra. Section 147 of the Income-Tax Act 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) :

(7) W.P. No.1923/04 Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the 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 a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: [Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject-matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.] Explanation 1.—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. Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :— (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income

(8) W.P. No.1923/04 or has claimed excessive loss, deduction, allowance or relief in the return ; (c) where an assessment has been made, but— (i) income chargeable to tax has been underassessed ; or

(ii) such income has been assessed at too low a rate ; or

(iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.] [Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.] " 11. Perusal of the said provision, it is manifest that the assessment can be re-opened within a period of four years and no action can 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 a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for

(9) W.P. No.1923/04 that assessment year. At the time of issuing notice of re-opening of the assessment, it is not the case of the respondents that the petitioner had failed in his duty to disclose fully and truely all material facts necessary for his assessment for that assessment year. The only reason given is that the said income, of which deduction is claimed, is not entitled for deduction. The Division Bench of this Court in the case of Bhor Industries Ltd. (referred supra) has observed as under :- “........By virtue of the proviso to section 147, no action can be taken for reopening after four years unless the AO has reason to believe that income had escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts. Explanation 2 to section 147 is required to be read with section 147 in its entirety including the proviso. That, if one reads Explanation 2 to section 147 including the proviso then it is clear that in cases where the Department reopens the assessment within a period of four years, it can do so on the ground of income having escaped assessment. However, in cases of reopening after four years, the AO must have reason to believe that income has escaped assessment by reason of failure on the part of the aswsessee to disclose fully and truly all material facts. Explanation 2 (c) has to be read with section 147 including the proviso and, if so read, the above dichotomy would be clearly spelt out. In the present case, the assessee had filed its Annual Report before the AO indicating spread over of Rs.10,02,23,735/- over a period of 60 months. The AO acted on that report by granting deduction to the extent of Rs.33,40,818/- for the year ending 31st March, 1996. In the circumstances, there was no failure on the part of the assessee

(10) W.P. No.1923/04 to disclose fully and truly the material facts. In our view the judgment of this Court in Ipca Laboratoies case (supra) squarely applies to the facts of the present case. “ 12. The Court has also considered the explanation to section 147 in the said case. 13. The respondent is entitled to re-open the assessment if it satisfies the ingredients as are laid down in section 147 of the Act. As the reasons recorded for re-opening of the assessment after lapse of four years are not in accordance with the provisions of section 147, the impugned notice cannot be sustained and deserves to be set aside. 14. In the light of that, Rule is made absolute in terms of prayer clause (B) and (C). So also, the subsequent actions after issuance of impugned notice stand quashed and set aside. 15. Needless to state that this judgment would not be an impediment for the respondents to re-open the assessment, in case it has reason to believe that the income chargeable to the tax has escaped assessment by reason of the failure on the part of of the assessee to make return under section 139 or in response to the notice issued under sub-section (1) of section 142, or section 148, or to disclose fully or truly all material facts necessary for his assessment, for that assessment year.

(11) W.P. No.1923/04 16. Rule accordingly made absolute in aforesaid terms, however, with no order as to costs.

(N.W. SAMBRE, J.) (S.V. GANGAPURWALA, J.) amj/wp1923.04