ACIT - 2(3)(1), MUMBAI vs. LORD KRISHNA BANK LTD. (NO MERGED WITH HDFC BANK LTD.), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM AND SHRI OM PRAKASH KANT, AM आयकर अपील सं/ I.T.A. No.6186/Mum/2016 (निर्धारण वर्ा / Assessment Years: 2002-03) ACIT-2(3)(1) बिधम/ M/s. Lord Krishna Bank R. No.552, 5th Floor, Ltd. Vs. Aayakar Bhavan, M. K. (no merged with HDFC Road, Mumbai-400020. Bank Ltd.) HDFC Bank House, Senapati Bapat Marg, Lower Parel, Mumbai- 400013. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AAACL4704F (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) Assessee by: Shri Yogesh Thar/Chaitanya Joshi Revenue by: Shri Ashish Deharia (Sr. AR) सुनवाई की तारीख / Date of Hearing: 08/06/2022 घोषणा की तारीख /Date of Pronouncement: 24/06/2022 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the department against the order of the Ld. Commissioner of Income Tax (Appeals)-06, Mumbai dated 29.07.2016 for the assessment year 2002-03. 2. The first ground of appeal of the revenue is against the action of the Ld. CIT(A) allowing the legal issue raised by the assessee against reopening of assessment u/s 147 of the Income Tax Act, 1961 (hereinafter “the Act”), by relying on the decision of the Hon’ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. (2010) (187 Taxman 312) (SC). 3. Brief facts in respect of the legal issue which was allowed in favour of assessee is that the assessee is a Public Limited Company engaged in banking activities. In this case original assessment u/s

ITA No.6186/Mum/2016 A.Y. 2002-03 M/s. Lord Krishna Bank Ltd. 143(3) of the Act was completed on 09.03.2005. Thereafter, the AO issued notice u/s 148 of the Act conveying his desire to reopen the assessment u/s 147 of the Act and thereafter framed re-assessment and made disallowance of Rs.3,11,02,103/- which was regarding deduction claimed by the assessee u/s 36(1)(viia) of the Act. Aggrieved by the action of AO, the assessee preferred an appeal before the Ld. CIT(A) wherein the assessee challenged the action of the AO to reopen the assessment u/s 147 of the Act. The main plea of the assessee was that the AO while passing the original assessment order on 09.03.2005 u/s 143(3) of the Act had applied his mind and has passed a speaking order wherein he has discussed the very issue which the present AO opined to have escaped assessment. According to Ld. AR, perusal of the “reasons recorded” by AO to justify re-opening of assessment would reveal that it was against the claim made by assessee regarding deduction u/s 36(1)(viia) of the Act to the tune of Rs.3,11,02,103/-. The Ld. AR brought to our notice that the AO in the original assessment order had discussed about it from page no. 35 to 45 of his original assessment order and then only was pleased to allow the deduction claimed u/s 36(1)(viia) of the Act to the tune of Rs.3,11,02,103/-. Therefore, it was the plea of the assessee that the AO’s action of re-opening was on an issue which was already considered in detail by the erst-while AO in the scrutiny assessment and so the impugned action of AO to re-open on the very same issue is nothing but “change of opinion” which is akin to review of earlier AO’s action by the present AO, which he cannot do, because power to

ITA No.6186/Mum/2016 A.Y. 2002-03 M/s. Lord Krishna Bank Ltd. review is not vested with an AO; and therefore, the action of re- opening the assessment was bad in law. This plea of the assessee was appreciated by the Ld CIT(A) who found that the AO in the original assessment order dated 09.03.2005 had applied his mind and extensively discussed about the issue before allowing the claim u/s 36(1)(viia) of the Act, which action of his predecessor was again sought to be re-opened by the present AO on the very same issue, therefore he held the action of the AO to reopen as mere “change of opinion” and therefore relying on the decision of the Hon’ble Supreme Court in the case of Kelvinator of India Ltd. (supra) quashed the reopening of the assessment. And the Ld. CIT(A) has allowed the legal issue raised by the assessee by holding as under: - “4.2 I have carefully considered the facts of the case and the submission made by the Ld. AR. I have also gone through the decisions relied on by the Ld. AR. I have also perused the original assessment order, reasons for reopening and the order passed u/s 143(3) r.w.s. 147 of the Act. The Ld. AR has contended that the AO has re-visited the disallowance made by him in his order u/s 143(3) dated 09.03.2005 on the basis of the same existing facts available on record, without any new material facts coming into the possession of the AO. The reasons for re-opening the assessment is reproduced hereunder r ready reference: ‘In the assessment (scrutiny) for A.Y.2003-04, the quantum of deductions u/s.36(1)(vii) and 36(1)(viia) were determined by invoking the provisions of these sections alongwith sections 36(2)(v) and 41(1) of the IT Act, 1961. Accordingly, assessee’s claim of deduction u/s.36(1)(viia) of Rs.6.05 crores was allowed, But the claim made by the assessee u/s.36(1)(vii) to the tune of Rs.11.37 crores as restricted to the amount in excess of Rs.6.05 crores in accordance with the proviso to section 36(1)(vii). Therefore, the claims allowed u/s 36(1)(vii) was Rs.5.31 crores. While doing so, the limitation set by the statute. i.e. ‘limiting the deduction to the extent of the difference between the debt or part thereof written off and credit balance in the provisions for bad and doubt debts accounts made under clause (viia) to section 36(1)” was adhered to which in effect rejected the claim of the assessee that the

ITA No.6186/Mum/2016 A.Y. 2002-03 M/s. Lord Krishna Bank Ltd. restriction (limitation) is w.r.t. the deduction actually allowed in relation to the provisions made for each debt written off. Whereas in A. Y.2002-03, the issue was dealt with, in the lines of arguments/contentions put forward by the assessee, However, refashioning the assessment of A. Y.2002-03 in the lines of assessment made for A. Y.2003-04 on this issue (deduction u/s.36(1)(v) and (viia), would mean an addition of Rs.3.11 crores. Moreover, in determining the deductions u/s.36(vii) and (viia) for AY 2003-04, AO relied on certain judicial pronouncements on Banks, as mentioned in the assessment order dated 09.03.2005 which in fact were pertaining to “Rural Advances’. Whereas, in the instant case, the advances pertain to both Rural and Urban. Therefore, it would be more appropriate to accord the same treatment for this issue as done in A. Y.2003- 04. In the assessment order (A. Y.2002-03), interest u/s.234B was levied at 40.25% instead of 40.5%. There is also a short levy of interest u/s.234D in the assessment order. These issues need to be examined. In the light of the discussion above, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the I T. Act, 1961.” 4.3 It is, therefore clear that the case has been re-opened with a view to disallowing the deduction of Rs.3.11 crores allowed to the appellant u/s.36(1)(viia). In the light of the aforesaid reasons, let us now examine whether the Assessing Officer has examined the impugned issue in the original assessment order u/s.143(3) dated 09.03.2005. It is seen from para 19(d) at page 45 of the order u/s.143(3) that the very same deduction claimed u/s.36(1)(viia) was discussed and thereafter allowed by the AO. For the sake of ready reference and clarity, the same is reproduced hereunder: “d) The deduction u/s.36(1)(vil) In relation to loan written of Rs.29,77,53,864/is therefore, fixed at Rs.17,94,41,587/- as against the claim as per return of Rs.27,19,77,704/-, Deduction 36(1)(viia) of Rs.311,02,103/- is allowed fully as claimed by the assessee because the gross provisions written back of Rs 1787 lakhs was considered for reduction is allowing debts written off u/s 36(1)(vii) instead of the net amount of Rs. 363 Lahs after deduction provision made of Rs.1434 lakhs during the year. The amount written back from the provision account will definitely include provision for which deduction was allowed u/s.36(1)(viia) in earlier years for rural as well as urban advances. That part of Provision written back in relation to the debts written off ere reduced from the debts under the proviso to section 36(1)(vil) and the deduction allowed as bad debt under that section is the net of the opening

ITA No.6186/Mum/2016 A.Y. 2002-03 M/s. Lord Krishna Bank Ltd. credit balance of the relevant provision account, no separate amount is assessed in this year on account of provision written back for which a deduction was allowed in earlier year/years.

4.4 It is, therefore, clear that the impugned issued on which the case has been reopened was duly examined by the AO and the same has been accepted by him. Therefore, the action of the AO can be said to be based on change of opinion on the existing facts. There was no new tangible material, which subsequently car to the notice of the AO requiring him to issue a notice u/s.148. The Ld. AR, in this regard, has relied on the decisions of the Hon'ble Supreme Court and High Court in the cases of Kelvinator of India Ltd. (supra), HDFC Bank Ltd. (supra), Calcutta Discount Co. Ltd. (supra), Bhanji Laviji (supra), Nawab Mir Barkat Ali Khan Bahadur (supra) and VXL India Ltd. (supra). 4.5 The Hon'ble Supreme Court in the case of Kelvinator of india Ltd. (supra has held that the concept of change of opinion on the part of the AO to re-open the assessment does not stand obliterated after the substitution of section 147 by the Direct Tax Laws (Amendment) Acts,1987 and 1989. After the amendment, the AO has to have reason to believe that income has escaped assessment, but this does not imply that the AO can reopen an assessment on mere change of opinion. The concept of “change of opinion” must be treated as an in-built test to check the abuse of power by the AO. Hence, after 01.04.1989, the AO has power to re-open an assessment, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. The reasons must have a live link with the formation of belief in the garb of reassessment, the AO is not permitted to review his order which was passed after considering the material facts. The facts of the case have already been discussed earlier. There was no fresh or tangible material to come to the conclusion that income has escaped assessment. In the background of the above facts, it is evident that re-opening is based on the facts which were already considered and on the basis of which, the deduction u/s.36(1)(viia) was granted to the appellant in the original assessment During the original proceedings, the appellant had furnished the working of deduction u/s.36(1)(vil) and 36(1)(viia) alongwith audited accounts. In fact the AO has discussed various issues pertaining to bad debts written off u/s.36(1)(vii) and provision for bad and doubtful debts w/s.36(1)(viia) in para-19 at pages 35 to 46 of the assessment order. The AO allowed the deduction after considering the same. It is, therefore, clear that the AO had applied his mind to the facts relating to the claim of deduction u/s.36(1)(viia). In the above

ITA No.6186/Mum/2016 A.Y. 2002-03 M/s. Lord Krishna Bank Ltd. circumstances, I am of the considered view that the re-opening was based on mere change of opinion. Such an action is not permissible in view of the decision of Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (supra) as well as the other decisions relied on by the Ld. AR. Hence, the ground is allowed.”

ITA No.6186/Mum/2016 A.Y. 2002-03 M/s. Lord Krishna Bank Ltd. …………….(d) “The deduction u/s 36(1)(vii) of the Act in relation to loan written of Rs.29,77,53,864/- is therefore, fixed at Rs.17,94,41,587/- as against the claim as per return of Rs.27,19,77,704/-. Deduction u/s 36(1)(viia) of the Act of Rs.311,02,103/- is allowed fully as claimed by the assessee because the gross provisions written back of Rs.1787 Lakhs was considered for reduction in allowing debts written off u/s 36(1)(vii) of the Act instead of the net amount of Rs.353 Lakhs after deducting provision made of Rs.1434 Lakhs during the year. The amount written back from the provision account will definitely include provision for which deduction was allowed u/s 36(1)(viia) of the Act in earlier years for rural as well as urban advances. That part of provision written back is income in this year. However, since the entire provision written back in relation to the debts written off are reduced from the debts under the proviso to Section 36(1)(vii) of the Act and the deduction allowed as bad debt under that section is the net of the opening credit balance of the relevant provision account is the net of the opening credit balance of the relevant provision account, no separate amount is assessed in this year on account of provision written back for which a deduction was allowed in earlier year/years.” 6. Thus, we note that the issue relating to deduction claimed by assessee u/s 36(1)(viia) of the Act to the tune of Rs.3,11,02,103/- was allowed by the AO in the original assessment order dated 09.03.2005 u/s 143(3) of the Act after applying his mind to the relevant facts on the issue; and from a perusal of the ‘reasons recorded’ which has been

ITA No.6186/Mum/2016 A.Y. 2002-03 M/s. Lord Krishna Bank Ltd. reproduced by the AO at para-4.2 (supra) in the re-assessment order would reveal that the AO based on the action taken in the subsequent assessment year i.e, AY 2003-04 on the very same issue (claim deduction u/s 36(1)(viia) of the Act) has reopened the assessment which we are afraid AO could not have resorted to because AO does not have the power to review his own order. As noted (supra) AO while framing the original assessment order u/s 143(3) of the Act dated 09.03.2005 for AY 2002-03 while allowing the claim of deduction u/s 36(1)(viia) of the Act to the tune of Rs.3.11 crores has passed a speaking order on it, which the AO could not have re-opened u/s 147 of the Act; and the Ld. CIT(A) based on the aforesaid facts, holding that the re-opening action of AO to be an exercise based on “change of opinion” on the same issue is correct and we concur with his impugned action. According to us, the Ld. CIT(A) has rightly taken note of the position of law in this regard and rightly held that in the facts of the case, the AO has reopened the assessment on the basis of “change of opinion”. We note that the Hon’ble Supreme Court in the case of Kelvinator of India Ltd. (supra) while confirming the Full bench decision of the Hon’ble Delhi High Court reported in CIT Vs. Kelvinator of India Ltd. (2002) 123 Taxman 433 (Del) reported (256 ITR 1) held that when a regular order of the assessment is passed in terms of Section 143(3) of the Act, a presumption arises that such an order has been passed after application of mind. It was also held that Section 147 of the Act does not postulate conferment of power upon the AO to initiate reassessment proceedings upon a mere “change of

ITA No.6186/Mum/2016 A.Y. 2002-03 M/s. Lord Krishna Bank Ltd. opinion”. Their Lordship’s observed that “we are, therefore, of the opinion that the Section 147 of the Act does not postulate conferment of power upon the AO to initiate re-assessment proceedings upon his mere “change of opinion”. In the aforesaid case, the Hon’ble Supreme Court have referred to the post 1st April, 1989 amendment in respect of the power of the AO to reopen u/s 147 of the Act and observed as under: - “…….Post-1st April, 1989, power to re-open 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 re-open. 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 re-assess. But re-assessment has to be based on fulfillment 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 reopening 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 Ist April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement SJ income from assessment. Reasons must have a live link with the formation of the belief.” 7. Moreover, it was also brought to our notice that on the issue of claim of deduction u/s 36(1)(viia) of the Act, the assessee has followed the CBDT Instruction No.17/2008 wherein the CBDT held that the AO while considering the deduction claimed u/s 36(1)(vii) of the Act he should allow only such amount of bad debts written off as exceeds the credit balance available in the provision for bad and doubtful debt account created under Section 36(1)(viia) of the Act. And further CBDT clarified that the credit balance for this purpose will be the

ITA No.6186/Mum/2016 A.Y. 2002-03 M/s. Lord Krishna Bank Ltd. opening credit balance i.e. the balance brought forward as on 1st April of the relevant accounting year. It was pointed out by the Ld. AR that the assessee has accordingly made the claim in line with the CBDT instruction (supra) and has made the claim in respect of AY. 2002-03 and the AO in the original assessment (09.03.2005) has allowed the same as per the CBDT Instruction (supra), whereas the present AO in the reasons recorded for reopening the assessment was of the opinion that the credit balance for this purpose would be the closing credit balance and therefore he resorted to re-opening of the assessment, which action itself was against the CBDT instruction, which is binding on him, so his action in any case was bad. However we are not examining this submission, and is left open, since we concur with the impugned action of Ld CIT(A) on legal issue. 8. In the light of the aforesaid discussion, we do not find any infirmity in the impugned action of the Ld. CIT(A) and therefore impugned order of the action of the Ld. CIT(A) is upheld and therefore we dismiss the appeal of the revenue. 9. Coming to the next ground of appeal of revenue which is against the action of the Ld. CIT(A) in not deciding the merits of the addition made in the re-assessment order by the AO. We note that since the action of the AO to reopen the assessment is without jurisdiction, all consequent action of framing of re-assessment is also null in the eyes of law, so the re-assessment order dated 27.09.2006 is non-est. And therefore, the appeal of the revenue stands dismissed.

ITA No.6186/Mum/2016 A.Y. 2002-03 M/s. Lord Krishna Bank Ltd. 10. In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on this 24/06/2022.

Sd/- Sd/- (OM PRAKASH KANT) (ABY T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 24/06/2022. Vijay Pal Singh, (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai