UNION BANK OF INDIA,MUMBAI vs. DCIT (LTU) 2, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F”, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR, HON'BLE ACCOUNTANT MEMBER ITA NOs. 1801, 1802 & 1803/MUM/2018 (A.Ys: 2007-08, 2007-08 & 2009-10) M/s. Union Bank of India v. DCIT (LTU) – 2 29th Floor, World Trade Centre Central Accounts Department 6th Floor, Union Bank Bhavan Cuffe Parade 239, Vidhan Bhavan Marg Mumbai - 400 005 Nariman Point Mumbai – 400 021 PAN: AAACU 0564 G (Appellant) (Respondent) ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 (A.Ys: 1991-92, 2007-08, 2007-08 & 2009-10) DCIT (LTU) – 2 v. M/s. Union Bank of India 29th Floor, World Trade Centre Central Accounts Department 6th Floor, Union Bank Bhavan Cuffe Parade Mumbai - 400 005 239, Vidhan Bhavan Marg Nariman Point Mumbai – 400 021 PAN: AAACU 0564 G (Appellant) (Respondent) Assessee by : Shri C. Naresh Department by : Shri Sushil Kumar Poddar

Date of Hearing : 11.06.2019 Date of Pronouncement : 12.07.2019

2 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India O R D E R PER C.N. PRASAD (JM) ITA.No. 2231/MUM/2018(A.Y. 1991-92) (Revenue’s appeal) 1. This appeal is filed by the Revenue challenging the order of the Learned Commissioner of Income Tax (Appeals) [hereinafter in short “Ld.CIT(A)”] in holding that refund shall first be adjusted against interest payable and balance, if any, shall be adjusted towards tax payable while computing the interest u/s. 244A of the Act.

3 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India held that the Assessing Officer while computing the interest u/s. 244A

shall adjust the amount of refund already granted first towards the interest

component and balance left, if any, shall be adjusted towards the tax

component. While holding so, it has been observed as under: -

“3.4. We have gone through the facts of this case and submissions made by both sides, provisions of law as well as judgments placed before us. It is noted that the only issue to be decided by us is that while granting the refund in pursuance to the appeal effect order, whether the amount of refund granted earlier should be adjusted first against the interest component of the earlier refund and thereafter the balance amount should be adjusted against the principal component of tax in the refund granted earlier order OR viceversa as has been done by the AO. It is noted that this issue is not coming for the first time before the Tribunal as the same has arisen for A.Ys. 1988-89, 2001-02 & 2005-06. Copies of the orders were placed before us and it was contended by the Ld. Counsel that the Tribunal had already decided this issue in favour of the Tribunal therefore, before proceeding further we find it appropriate to first reproduce and discuss the reasoning given by the Tribunal in earlier years. The relevant part of order dated 23.06.2014 is reproduced hereunder for the sake of ready reference: “4. Undisputedly for A.Y. 1988-89 the assessee is entitled to refund of Rs. 14.07 crores as per assessment order and interest payable thereon works out to Rs. 1.58 crores; thus total refund due is Rs.15.65 crores. The Assessing Officer granted refund of Rs.12.03 crores. The dispute between the Assessing Officer and the assessee is with regard to adjustment of refund; according to the assessee refund should first be adjusted against interest payable and only the balance amount shall be adjusted against tax refundable and in this process the balance refund due would work out to Rs. 3,52,28.442/- on which the assessee is entitled to interest u/s. 244A of the Act whereas the Assessing Officer calculated the balance refund clue at Rs. 2,03,99,541/-(tax component) and Rs. 1,58,28,901/- (interest component). Reason for such calculation was that according to the Assessing Officer no interest is payable on interest due in which event, even if there is substantial delay in interest payable, the assessee can be made to wait unendingly without payment of interest. Though, before the Assessing Officer as well learned CIT(A), the assessee's claim of interest u/s 244A is not properly focused but sum and substance of the assessee's case before us is that in the event of adjustment of refund against interest due to the assessee tax refund due shall work out to Rs. 3.62 crores on which the assessee would be entitled to get interest u/s. 244A of the Act. In this regard the assessee relied upon the order of Hon'ble Delhi High Court in the case of India Trade Promotion Organisation Vs. CIT (361 ITR 646) wherein the Court observed that under Explanation to section 140A(1) of the Act, when an assessee is duty bound to pay the outstanding tax, amount paid by the assessee shall first be adjusted against interest payable and the balance shall be adjusted against tax payable, the same

4 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India procedure needs to be followed in respect of refund due to the assessee i.e., the amount shall first be adjusted towards interest payable and balance, if any, shall be adjusted towards lax payable (in the instant case tax refundable to the assessee). 5. Learned counsel, appearing on behalf of the assessee, pleaded accordingly. On the other hand learned Departmental Representative submitted that the assessee is not entitled to interest on interest. However with regard to the plea of the assessee that ii does not amount to payment of interest on interest but only adjustment of the refund from the Revenue against interest component first and thereafter against tax component, in which event u/s. 244A assessee is entitled to interest on the tax component, learned Departmental Representative could not place any decision contrary to the decision of Hon'ble Delhi High Court cited by learned counsel for the assessee 6. We have carefully considered the rival submissions. As rightly pointed out by the assessee Hon'ble Delhi High Court rightly explained that the amount refunded by the Revenue has to be adjusted towards interest payable to the assessee and the balance, if any, shall be adjusted towards tax. On this principle there is no contrary decision placed before us, we therefore agree, with the plea of the assessee and direct the Assessing Officer accordingly.” 3.5. From the perusal of the above, it is noted by us that the Tribunal has relied upon the judgment of Hon’ble Delhi High Court in the case of India Trade Promotion Organisation vs CIT (supra), wherein it was inter-alia held that in a situation where only part amount is refunded by the department, then payment of interest on the balance amount due from the department to the assessee, on a particular date, does not amount to payment of interest on interest. Their lordships, taking support from the judgment of Hon’ble Supreme Court in the case of CIT vs HEG Ltd, observed as under: “.......14. Matter was taken by the Revenue before the Supreme Court in the case of HEG Limited and the SLP was granted and civil appeal was registered. The Supreme Court thereupon answered the question against the Revenue in the following words:- “Therefore, this is not a case where the assessee is claiming compound interest or interest on interest as is sought to be made out in the civil appeals filed by the Department. The next question which we are required to answer is – what is the meaning of the words “refund of any amount becomes due to the assessee” in Section 244A? In the present case, as stated above, there are two components of the tax paid by the assessee for which the assessee was granted refund, namely TDS of Rs.45,73,528 and tax paid after original assessment of Rs.1,71,00,320. The Department contends that the words “any amount” will not include the interest which accrued to the respondent for not refunding Rs.45,73,528 for 57 months. We see no merit in this argument. The interest component will partake of the character of the “amount due” under Section 244A. It becomes an integral

5 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India part of Rs.45,73,528 which is not paid for 57 months after the said amount became due and payable. As can be seen from the facts narrated above, this is the case of short payment by the Department and it is in this way that the assessee claims interest under Section 244A of the Income-Tax Act. Therefore, on both the afore-stated grounds, we are of the view that the assessee was entitled to interest for 57 months on Rs.45,73,528/-. The principal amount of Rs.45,73,528 has been paid on December 31, 1997 but net of interest which, as stated above, partook of the character of “amount due” under Section 244A.” 15. A reading of the aforesaid passage from the decision of the Supreme Court in HEG Limited (supra) indicates that it would be incorrect and improper to regard payment of interest when part payment is made as interest on interest. What has been elucidated and clarified by the Supreme Court is that when refund order is issued, the same should include the interest payable on the amount, which is refunded. If the refund does not include interest due and payable on the amount refunded, the Revenue would be liable to pay interest on the shortfall. This does not amount to payment of interest on interest. An example will clarify the situation and help us to understand what is due and payable under Section 244A of the Act. Suppose Revenue is liable to refund Rs.1 lac to an assessee with effect from 1st April, 2010, the said amount is refunded along with interest due and payable under Section 244A on 31st March, 2013, then no further interest is payable. However, if only Rs.1 lac is refunded by the Revenue on 31st March, 2013 and the interest accrued on Rs.1 lac under Section 244A is not refunded, the Revenue would be liable to pay interest on the amount due and payable but not refunded. Interest will not be due and payable on the amount refunded but only on the amount which remains unpaid, i.e, the interest element, which should have been refunded but is not paid. In another situation where part payment is made, Section 244A would be still applicable in the same manner. For example, if Rs.60,000/- was paid on 31st March, 2013, Revenue would be liable to pay interest on Rs.1 lac from 1st April, 2010 till 31st March, 2013 and thereafter on Rs.40,000/-. Further, interest payable on Rs.60,000/-, which stands paid, will be quantified on 31st March, 2013 and on this amount, i.e., interest amount quantified, Revenue would be liable to pay interest under Section 244A till payment is made....................” 3.6. The facts of the case before us are similar in the sense that here also only part amount was refunded in the first phase by the department and when the balance amount was paid by the department in the second phase, the assessee was entitled for interest on the balance amount of refund due. Thus, from the aforesaid observations of Hon’ble Delhi High Court, we can say that it is not a case of payment of interest on interest. Thus, in view of these facts and aforesaid judgments, Ld Counsel contended that Ld. CIT(A) had wrongly applied the judgment of Hon’ble Supreme Court in the case of CITvs Gujarat Fluoro Chemicals, since it was not applicable on the facts of this case. 3.7. Further, it was also held by Hon’ble High Court that the department ought to follow the same procedure and rules while collecting tax and while issued

6 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India refunds. We have gone through the provisions of section 140A(1); explanation to the aforesaid section provides as under: “Explanation- Where the amount paid by the assessee under this sub- section falls short of the aggregate of the tax and interest as aforesaid, the amount so paid shall first be adjusted towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable.” 3.8. Thus, from the perusal of the above, it is clear that where the amount of tax demanded is paid by the assessee then it shall first be adjusted towards interest payable and balance if any whatever tax payable. Now, if we go through section 244A, we find that no specific provision has been brought on the statute with respect to adjustment of refund issued earlier for computing the amount of interest payable by the revenue to the assessee on the amount of refund due to the assessee. Thus, the law is silent on this issue. Under these circumstances, fairness and justice remands that same principle should be applied while granting the refund as has been applied while collecting amount of tax. The revenue is not expected to follow double standards while dealing with the tax payers. The fundamental principle of fiscal legislation in any civilized society should be that the state should treat its citizens (i.e. tax payers in this case) with the same respect, honesty and fairness as it expects from its citizens. It is further noted by us that Hon’ble Delhi High Court has already decided this issue in clear words which has been followed by the Tribunal in assessee’s own case in the earlier years. It is further noted by us that assessee is not asking for payment for interest on interest. It is simply requesting for proper method of adjustment of refund and for following the same method which was followed by the department while making collection of taxes. Under these circumstances, we find that judgment of Hon’ble Supreme Court in the case of Gujarat Fluoro Chemicals (supra) is not applicable on the facts of the case before us and thus Ld. CIT(A) committed an error in not following the decisions of the Tribunal of earlier years in assessee’s own case as well as judgment of Hon’ble High Court in the case of India Trade Promotion Organisation (supra). 3.9. Before parting with, we are reminded of a recent judgment of Hon’ble Supreme Court in the case of Union of India v. Tata Chemicals Ltd. 363 ITR 658 (SC) wherein Hon’ble Supreme Court has discussed at length about moral and legal obligation of the department to refund the amount of tax collected from the tax payers which was more than the amount actually due as per law, along with interest. Some of the useful observations are reproduced hereunder for the sake of better clarity in deciding the issue before us: “37 A “tax refund” is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/assessee had paid taxes pursuant to a special order passed by the assessing officer/Income Tax Officer. In the appeal filed against the said order the assessee has succeeded and a direction is issued by the appellate authority to refund the tax paid. The amount paid by the resident/ deductor was retained by the Government till a direction was issued by the appellate authority to refund the same. When the said

7 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India amount is refunded it should carry interest in the matter of course. As held by the Courts while awarding interest, it is a kind of compensation of use and retention of the money collected unauthorizedly by the Department. When the collection is illegal, there is corresponding obligation on the revenue to refund such amount with interest in as much as they have retained and enjoyed the money deposited. Even the Department has understood the object behind insertion of Section 244A, as that, an assessee is entitled to payment of interest for money remaining with the Government which would be refunded. There is no reason to restrict the same to an assessee only without extending the similar benefit to a resident/ deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/ foreign company. 38. Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute. Refund due and payable to the assessee is debtowed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex aequo et bono ought to be refunded, the right to interest follows, as a matter of course.” 3.10. It is noted from the observations of the Hon’ble Supreme Court that it has been observed that whatever money has been received by the department, it ought to be refunded ex aequo et bono. It is a Latin phrase which means ‘what is just and fair’ or ‘according to equity and good conscience’. Something to be decided ex aequo et bono is something that is to be decided by principles of what is fair and just. A decision-maker who is authorized to decide ex aequo et bono is not bound by legal rules but may take account of what is just and fair. Thus, if we decide the issue before us ex aequo et bono, then it would be decided by the principles of what is fair and just and not necessarily as per strict rule of law. Thus, since the statute itself has already prescribed a particular method of adjustment in explanation to section 140A(1), then justice, fairness, equity and good conscience demands that same method should be followed while making adjustment for refund of taxes, especially when no contrary provision has been provided. Under these circumstances and aforesaid discussion, we find that the judicial proprietary demands that order of the Tribunal of earlier years must be followed and therefore we direct the AO to re-compute the amount of interest u/s 244A by first adjusting the amount of refund already granted towards the interest component and balance left if any shall be adjusted towards the tax component. Thus, with these directions, the appeal of the assessee is allowed.”

8 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India 5. We find that this decision of the Coordinate Bench has been followed by the Ld.CIT(A) and directed to recompute the interest by first adjusting the refund towards interest and balance, if any, towards tax component. In the circumstances, we do not find any infirmity in the order passed by the Ld.CIT(A) in giving such direction. Thus, the ground raised by the Revenue is dismissed.

ASSESSMENT YEAR 2007-08

ITA.No. 1801/M/2018 [Assessee’s Appeal arising from 143(3) order] ITA.No. 2233/M/2018 [Revenue Appeal arising from 143(3) Order]

Revenue has raised the following grounds in its appeal: - “1. On the facts and in circumstances of the case and in law, the Id. CIT(A) erred in restoring the issue back to the file of A.O regarding the disallowance of Rs.12,50,94,133/-, made by the A.O. u/s 14A r.w.r. 8D of the Act, when the A.O. was not satisfied with the disallowance of mere proportionate expenses of Rs.37,12,465/- made by assessee itself.''

9 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India 2. The appellant prays that the order of the Id. CJT(A) on the above ground be set aside and that of the Assessing Officer restored.”

10 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India 1627/Mum/2014 directed the Assessing Officer to examine the issue afresh.

11 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India Assessing Officer in spite of Tribunal holding that Rule 8D have no application repeated the said disallowance came to be decided in favour of the assessee deleting the disallowance made u/s. 14A of the Act. Copy of the order is placed on record.

12 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India Officer, however, feels that the logical and reasonable basis for computing the disallowance u/s. 14A of the Act is Rule 8D which in our opinion is misplaced, when once the Tribunal holds that Rule 8D has no application the Assessing Officer is not justified in applying the formulae laid down in Rule 8D as most logical and reasonable way to determine the disallowance. Further the decisions relied on by the Ld. Counsel for the assessee for the A.Y. 2005-06 & 2006-07 cannot be applied having held that the provisions of Rule 8D have no application for the A.Y. 2007-08. The other decisions relied on by the Ld. Counsel for the assessee in the case of Punjab National Bank v. ACIT in ITA.No. 5481/Del/2014 dated 03.01.2019 and ACIT v. UCO Bank in ITA.No. 1615/Kol/2016 dated 21.08.2018 also cannot be applied as these decisions have been rendered in the context of disallowance under Rule 8D r.w.s. 14A for the A.Y. 2011-12 and 2012-13 respectively

13 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India income. Further the Hon'ble Bombay High Court in the case of CIT v. M/s. Godrej Agrovet Ltd in Income Tax Appeal No. 934 of 2011 dated 8.1.2013 upheld the order of the Tribunal in estimating the expenditure to the extent of 2% of total exempt income earned by the assessee. In view of what is discussed above, we direct the Assessing Officer to compute the expenditure attributable for earning exempt income at 2% of the exempt income earned by the assessee during the A.Y.2007-08. We further hold that since assessee itself disallowed ₹.37,12,465/- towards expenditure attributable for earning exempt income, to this extent, the expenditure shall be reduced from total disallowance and compute the balance disallowance accordingly.

ITA.No. 1802/M/2018 [Assessee’s Appeal arising from 143(3) r.w.s. 147 Order] ITA.No. 2232/M/2018 [Revenue’s Appeal arising from 143(3) r.w.s. 147 Order]

14 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India 1.2 The CIT(A) erred in stating that the ground on jurisdiction is academic despite being pointed out that the AO sought to reopen the assessment by overriding the express direction of Hon’ble ITAT to allow the claim.

1.3 The CIT(A) ought not have directed the AO to follow the order of Hon'ble ITAT for the AY 2009-10 in respect of deduction u/s 36(1)(viia) despite the order of Hon’ble ITAT for the same assessment year allowing the claim of the appellant.

On merits assessee raised the following grounds: -

“2.1 Without prejudice to above ground on jurisdiction, the CIT(A)ought to have allowed the claim of the appellant that deduction u/s 36(1)(viia) should be based on eligible amount as computed under the said section and not provision made in books as held by Hon'ble ITAT in ITA no. 6349/Mum/ 2010 dated 18.01.2013 for the same assessment year.

2.2 Without prejudice to the above contention, CIT(A) omitted to consider provision made in respect of debts though classified as standard assets that had arrears up to 90 days as provision for bad and doubtful debts for the purpose of computation of deduction under the said section.

2.3 The Ld. CIT(A) omitted to consider provision made for "restructured assets" as per RBI guidelines as provision for bad and doubtful debts for the purpose of computation under the said section.”

Act was completed on 31.12.2009 determining the income at

₹.1285,86,81,240/- as against income of ₹.32,10,87,162/- determined by

the assessee under normal provisions of the Act. While completing the

assessment the Assessing Officer disallowed deduction claimed

u/s.36(1)(vii) of the Act at ₹.285,84,98,629/- being the bad debts written

off on the ground that this cannot be allowed since the claim for deduction

u/s. 36(1)(viia) of the Act being the provision for bad and doubtful debts

exceeded the bad debts written off to that extent.

15 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India 18. The Assessing Officer further while completing the assessment restricted the deduction in respect of provision for bad and doubtful debts u/s. 36(1)(viia) of the Act to the extent of provision made in the books in respect of the amount eligible for deduction at 7.5% of the total income and 10% of the rural advances. The matter has been carried to Ld.CIT(A) and also to the Tribunal and the Tribunal in ITA.No. 6631/Mum/2010 and 6349/Mum/2010 dated 18.01.2013 concluded that in so far as the disallowance of bad debts is concerned the Tribunal sustained the order of the Ld.CIT(A) in deleting the disallowance as the issue has been decided in favour of the assessee by the Tribunal for the A.Y. 2002-03 to 2006-07 and also by the Hon'ble Supreme Court in the case of Catholic Syrian Bank [262 ITR 579] and CIT v. Karnataka Bank Ltd [349 ITR 705], wherein it has been held that deduction on account of provision for bad and doubtful debts u/s. 36(1)(viia) of the Act is distinct and independent of the provisions of section u/s. 36(1)(vii) of the Act relating to allowance of bad debts and the deductions have to be allowed independently.

16 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India not exceeding 7.5% of the total income and an amount not exceeding 10% of the aggregate average advances of the rural branches of such bank shall be allowed as deduction. The Tribunal also held that allowance u/s.36(1)(viia) of the Act is quantified not with reference to the amount provided in the said account, but with respect to certain percentage of total income and certain percentage of aggregate average advances.

17 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India 21. Ld. Counsel for the assessee submits that the assessment was reopened beyond four years from the end of the Assessment Year, even when there was no failure on the part of the assessee to disclose truly and fully all the information required for completion of assessment. Ld. Counsel for the assessee referring to the Page No. 1 in Para No.2 of the reassessment order submits that it is evident from the reasons recorded for reopening which clearly states that “On perusal of assessment records” it was noticed that provision for standard assets and provision for restructuring of accounts was also taken as provision for doubtful debts.

18 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India Kimplas Trenton Fittings Ltd. v. ACIT [340 ITR 299] and the decision of Hon'ble Gujarat High Court in the case of E-lnfochips Ltd. [99 taxmann.com 84].

19 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India Hon'ble ITAT in ITA No.6349/Mum/2010 dated 18.01.2013 had dismissed

appeal filed by the department and held that deduction u/s 36(1)(viia) is to

be allowed based on eligible amount calculated at 7.5% of total income

and 10% of aggregate average advances of rural branches irrespective of

the provision made in the books of account.

available on record and the orders placed before us. In so far as the

reopening of assessment is concerned, we find that the Assessing Officer

has recorded the following reasons for reopening the assessment: -

“1. The assessee company filed return of income on declaring total income of ₹.32,10,87,162/-. Order u/s. 143(3) was passed on 31.12.2009 assessing the total income of ₹.1285,86,81,238/-. 2. On perusal of assessment records, it was noticed that a provision for standard assets of ₹.136.00 crore and provision restructuring of accounts of Rs.28.50 crore was made during the year. While calculating the eligible provision for doubtful debt (i.e. 7.5% of total income and 10% of the aggregate rural advances), an amount of Rs.494.50 crores was taken as provision for doubtful debt which included an amount of Rs. 136.00 crores of provision for standard asset and Rs.28.50 crores as provision for restructuring of accounts. The provision u/s. 36(1)(viia) is applicable for provision for provision for doubtful debts only. Thus consideration of provision for standard assets and provision for restructuring of accounts for the computation of deduction u/s.36(1)(viia) resulted in underassessment of total income. 3. As there is a failure on part of assessee to disclose fully and truly all material facts necessary for its assessment, I have reasons to believe that income chargeable to tax has escaped assessment for this assessment year, coining within the meaning of section 147 of the Income Tax Act, 1961. ' 4. In view of the above, notice u/s 148 was issued after Approval of the CIT- LTU, Mumbai as per provisions of section 151 of the LT. Act, 1961.”

20 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India 28. Undoubtedly the assessment in this case was reopened beyond the period of four years from the end of the Assessment Year as the Assessment Year relates to 2007-08 and notice u/s. 148 of the Act was issued on 28.03.2014 and the assessment was completed u/s. 143(3) r.w.s. 147 of the Act on 26.03.2015. On a perusal of the reasons recorded for reopening, we find that the Assessing Officer noticed from the assessment records that the provision for bad and doubtful debts includes provisions for standard assets and provision for restructuring of accounts. It is only from the records the Assessing Officer could collect the information that the provision for doubtful debts is inclusive of provision for standard assets and provision for restructuring of accounts. Nowhere in the reasons recorded, the Assessing Officer stated that any tangible materials/information to show that provision for bad and doubtful debts includes provision for standard assets and provision for restructuring of accounts have come on record subsequent to completion of assessment. In the reasons recorded the Assessing Officer states that there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Except stating that there is a failure of the assessee, he has not pointed out what is the failure of the assessee to disclose fully truly all material facts. Nothing has been brought on record to suggest that there is failure on the part of the assessee to disclose fully

21 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India and truly all material facts necessary for completion of assessment. Therefore, in the absence of any failure on the part of the assessee to disclose fully and truly all material facts for completion of assessment, assessment cannot be reopened beyond four years from the end of the relevant Assessment Year in view of proviso to section 147 of the Act.

ASSESSMENT YEAR 2009-10

ITA.No. 1803/M/2018 [Assessee’s Appeal] & ITA.No. 2234/M/2018 [Revenue Appeal]

22 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India Deduction u/s 36(1) (viia) 2.1 Without prejudice to the above ground on jurisdiction, the CIT(A) ought to have decided and allowed the claim of appellant that provision made in respect of debts though classified as standard assets that had arrears up to 90 days is provision for bad and doubtful debts eligible for deduction under the said section. 2.3 The Ld. CIT(A) omitted to consider and allow provision made for "restructured assets" as per RBI guidelines as provision for bad and doubtful debts under the said section.”

23 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India original assessment proceedings and therefore assessment should not have been reopened. He also submits that there are no tangible materials came on record suggesting escapement of income, therefore reopening should not have been made.

24 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India off the Revenue’s appeal for the A.Y. 2009-10 in ITA.No. 6299/Mum/2013 dated 17.12.2015.

25 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India this Assessment Year i.e 2009-10 was reopened within four years from

the end of the relevant Assessment Year the proviso to section 147 of the

Act has no application.

sustained the reopening of assessment observing as under: -

“3.1.3.4 These aspects have been examined. The statutes as well as various judicial pronouncements are also analysed. For the purpose of clarity Section 147 is reproduced as under:- "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 section 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 recomputed 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."

3.1.3.5. The section merely says that the AO has to have reason to believe that any income chargeable to tax has escaped assessment. Reason to believe can be on the basis of any information which comes to his possession or knowledge. This information is more than enough for any reasonable person to form a reason to believe that income has escaped assessment. In the instant case, the appellant after going through various documents of the appellant, previous records and factual data had come to a conclusion that the income has escaped assessment. The AO or any reasonable person in his place would not ignore or over look any factual or legal information which comes to its knowledge. If the AO is not satisfied with the reason, he would not have issued notice u/s.148. The very fact that reasons are recorded and notice u/s.148 is issued goes to show that the AO has applied his mind and satisfied himself about the reopening of the case. The reasons recorded are not vague and scanty but precise and concrete. In this case, the information has come on analysis of the factual data. There is no reason or occasion to disbelieve this information. Besides, what the Act envisages is that the AO should only have a reason to believe to reopen a case. He need not establish beyond doubt that there is escapement before issuing the notice. This can be done at the time of assessment but not at the time of issue of notice. Reliance is placed on the following judgements: 1) Rohilkhand Educational Charitable Trust vs. CCIT and Others ITR 233(All.) wherein the Hon’ble High Court held AO should have relevant and credible material with him to form requisite reason to believe that income of assessee has escaped assessment. Material available on record has rational connection and relevant bearing on such formation of belief for issuing valid notices for re-assessment.-sufficiency or correctness of material was not to be considered at this stage.

26 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India 2) Sun Pharmaceuticals Industries Ltd. Vs. DCIT 353 ITR 474 (Guj.) where the Hon'ble High Court held formation by belief by AO is essentially within his subjective satisfaction - at the stage of issue of notice, only question is whether there was relevant material on which reasonable person could have formed requisite belief. 3) N.K. Industries Ltd. vs. ITO 362 ITR 542 (Guj.) where the Hon’ble HC held if a particular issue is brought to the notice of the AO by audit party and AO of his/her application of mind finds this ground "as valid, reopening of assessment cannot be quashed merely because such ground was brought to the notice of AO by the audit party.

3.1.3.6. In view of the above, the reassessment proceedings initiated u/s. 147 of the I.T. Act are held to be perfectly legal and valid., Therefore, this ground of appeal is dismissed.”

27 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India restore this issue on merits i.e. allowability u/s. 36(1)(viia) of the Act in the reassessment proceedings to the file of the Assessing Officer to decide afresh in view of our above observations. This ground is allowed for statistical purpose.

28 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India 45. Coming to the Ground No. 3, identical issue has been decided for the A.Y. 1991-92 in ITA.No. 2231/Mum/2018 in Para Nos. 4 & 5 above. Facts being identical, the decision rendered therein shall apply mutatis mutandis to the appeal for this year. Accordingly, we uphold the order of the Ld.CIT(A) and reject the ground raised by the Revenue.

Sl.No. ITA.No. Result ITA.No. 2231/MUM/2018 (A.Y. 1991-92) 1. Dismissed 2. ITA.No. 1801/MUM/2018 (A.Y. 2007-08) Partly allowed 3. ITA.No. 2233/MUM/2018 (A.Y. 2007-08) Partly allowed 4. ITA.No. 1802/MUM//2018 (A.Y. 2007-08) Allowed 5. ITA.No. 2232/MUM/2018 (A.Y. 2007-08) Dismissed 6. ITA.No. 1803/MUM/2018 (A.Y. 2009-10) Partly Allowed for statistical purpose 7. ITA.No. 2234/MUM/2018 (A.Y. 2009-10) Partly allowed for statistical purpose

Order pronounced in the open court on the 12th July, 2019 Sd/- Sd/- (RAJESH KUMAR) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai / Dated 12/07/2019 Giridhar, Sr.PS

29 ITA NOs. 1801, 1802 & 1803/MUM/2018 ITA NOs. 2231, 2232, 2233 & 2234/MUM/2018 M/s. Union Bank of India Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER

(Asstt. Registrar) ITAT, Mum