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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI RAJESH KUMAR, HONBLE
2 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.
2. Ld. Counsel for the assessee, at the outset submitted that, the issue in appeal is squarely covered by the decision of this Tribunal in assessee’s own case for the A.Y. 2008-09 reported in 72 taxmann.com 348 and the Ld.CIT(A) has followed the said decision and directed the Assessing Officer to adopt the methodology as directed by the ITAT in computing the interest u/s. 244A of the Act. Copy of the order is placed on record.
3. Ld. DR vehemently supported the orders of the Assessing Officer.
We have heard the rival submissions, perused the orders of the authorities below and the decision relied on. The issue of whether refund shall be adjusted against interest payable and balance, if any, shall be adjusted towards tax payable has come up for consideration in assessee’s own case for the A.Y. 2008-09 and the Coordinate Bench of the Tribunal 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 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).
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 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 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 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.
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 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.
In the result, appeal of 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]
In both these appeals of Assessee and Revenue the only issue is in respect of disallowance made u/s. 14A r.w. Rule 8D of I.T. Rules. Assessee has raised the following grounds in its appeal: - “Disallowance u/s. 14A 1.1. The CIT(A) erred in directing the AO to follow the order of the Hon'ble ITAT for the A.Y. 2010-11 without appreciating that Rule 8D was applicable in that year and not in current year. 1.2. The CIT(A) ought to have followed the order of Hon'ble ITAT for A.Y. 2006- 07 wherein on similar facts it was held that no disallowance was warranted in appellant’s case.”
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 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.”
Briefly stated the facts are that, the Assessing Officer while completing the assessment u/s. 143(3) of the Act on 30.12.2009 applying Rule 8D of I.T. Rules made disallowance u/s. 14A of the Act at ₹.12,88,06,598/- comprising of interest under Rule 8D(2)(ii) of I.T. Rules at ₹.11,66,06,598/- and expenses @0.5% amounting to ₹.1,22,00,000/- under Rule 8D(2)(iii) of I.T. Rules. On appeal the Ld.CIT(A) sustained the disallowance made by the Assessing Officer. On further appeal to the Tribunal, the Tribunal in ITA.No. 6631/Mum/2010 dated 18.01.2013 held that Rule 8D cannot be applied for the A.Y.2007-08 in view of the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co.Ltd., [328 ITR 81]. Since provisions of Rule 8D have application prospectively and from A.Y.2008-09 but not for the Assessment Year under appeal i.e. 2007-08. However, the matter was restored back to the file of the Assessing Officer to work out the disallowance on some reasonable basis after calling for the details. We observed that while passing the consequential order giving effect to the Tribunal order the Assessing Officer once again applying Rule 8D of I.T. Rules computed the disallowance u/s. 14A of the Act. The assessee carried the matter before the Ld.CIT(A) and the Ld.CIT(A) following the order of the Tribunal for the A.Y. 2010-11 in ITA.No. 2142/Mum/2014 and
The Ld. Counsel for the assessee before us submits that the Ld.CIT(A) is wrong in following the order of the Tribunal for the A.Y. 2010-11 and directing the Assessing Officer to examine the issue afresh. The Ld. Counsel for the assessee referring to the order passed by the Tribunal for the A.Y. 2010-11 submits that, there the Tribunal held that disallowance computed by the Assessing Officer which was confirmed by the Ld.CIT(A) was not in accordance with the mandate of the law since the Assessing Officer has proceeded to compute the disallowance as per Rule 8D without satisfying himself that the claim of the assessee was not correct having regard to the accounts of the assessee. The Ld. Counsel for the assessee submits that this decision was given for the A.Y. 2010-11 when the provisions of Rule 8D are applicable and no satisfaction was recorded.
Ld. Counsel for the assessee further referring to the decision of the Tribunal for the A.Y. 2005-06 and A.Y. 2006-07 in ITA.No. 6978/Mum/2013 and 6979/Mum/2013 dated 31.07.2015 submits that identical issue when the provisions of Rule 8D have no application, has been considered by the Tribunal in the second round of appeal, when the 11 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.
Ld. Counsel for the assessee further referring to the said orders submits that the Tribunal following the decision of the Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. [313 ITR 340] and CIT v. HDFC Bank Ltd [366 ITR 505] held that since assessee has interest free funds more than the investments and assets earning tax free income, no disallowance is required u/s. 14A of the Act. The Ld. Counsel submits that the said order of the ITAT for A.Y. 2005-06 and 2006-07 be followed and the disallowance be deleted.
Ld. DR vehemently supported the orders of the authorities below.
On hearing both the parties and perusing the orders of the Authorities below and the order of the Tribunal in the first round of litigation, we observe that the Tribunal held that Rule 8D has no application in view of the decision of the Godrej & Boyce Manufacturing Co. Ltd., (supra). However, the Assessing Officer was directed to compute the disallowance on some reasonable basis. The Assessing
12 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
At this stage, we are not inclined to restore the matter once again to the Assessing Officer for determining the reasonable expenditure attributable for earning exempt income. The Mumbai Tribunal in the case of Shakuntaladevi Trade & Investments Pvt. Ltd., v. ITO in ITA.No. 8006/M/2010 dated 06.12.2013 held that disallowance u/s. 14A for the period before the A.Y. 2008-09 should be restricted to 2% of the dividend
13 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.
In the result, appeal of the assessee and appeal of the Revenue are partly allowed.
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]
The assessee in its appeal challenged the very reopening and validity of reassessment order passed u/s. 143(3) r.w.s. 147 of the Act by raising the following grounds: - “1.1 The CIT(A) ought to have appreciated that AO order for reopening is beyond jurisdiction since the same overrides the order of Hon'ble ITAT on the issue of allowability of deduction u/s 36(1)(viia) for the same assessment year in dated 18.01.2013.
14 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 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.”
Briefly stated the facts are that, the assessment u/s. 143(3) of the 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 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.
Coming to restricting the allowance for deduction u/s. 36(1)(viia) of the Act being the provision made for doubtful debts the Tribunal held that provisions of section 36(1)(viia) of the Act are very clear and provides that in respect of “any provision” made for bad and doubtful debts, an amount
16 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.
Subsequently, the Assessing Officer reopened the assessment by issue of notice u/s. 148 of the Act dated 28.03.2014 and the reassessment was completed on 26.03.2015 by re-computing the allowance for deduction u/s.36(1)(viia) of the Act on the ground that assessee made provision even for the restructuring of assets and standard assets which are not eligible for creating any provision. On appeal the Ld.CIT(A) sustained the action of the Assessing Officer in restricting the disallowance u/s. 36(1)(viia) of the Act by excluding the provision made for restructuring of assets and provision made for standard assets from the provision made for bad and doubtful debts. On reopening, Ld.CIT(A) held that since the appeal was disposed off on merits the relief sought challenging issue of notice u/s. 148 of the Act and reopening of assessment is only academic.
17 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.
Learned Counsel for the assessee submitted that from the reasons given by the Assessing Officer, "it is on perusal of assessment records", it was noticed that provision for standard assets and provision for restructuring of accounts was included in provision for bad and doubtful debts. It is evident that there was no failure on part of the assessee to fully and truly disclose any information. Therefore, he submits that as per proviso to section 147, the reopening is beyond jurisdiction. Reliance is placed on the decision of ITAT Mumbai in the case of Bank of India in and decision of Hon'ble Delhi High Court in the case of Usha International Ltd. [25 taxmann.com 200]. The assessee also relied on the decisions of Titanor Components Ltd. v. ACIT [343 ITR 18],
18 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].
Ld. Counsel for the assessee submits that there was no new tangible material available with the Assessing Officer for reopening the assessment as evident from the reasons of reopening. Hence the reopening is beyond jurisdiction and bad in law. Reliance is placed on Supreme Court judgement in the case of Kelvinator of India Ltd. [320 ITR 561].
Ld. Counsel for the assessee further relied on the decision of Gujarat High Court in the case of Qx Kpo Services (P) Limited wherein it was held that reopening cannot be done to examine another facet of the same claim and SLP filed by the department was rejected by Supreme Court [99 taxmann.com 301].
Coming to merits Ld. Counsel for the assessee further submits that the issue of deduction u/s 36(1) (viia) was a matter of appeal in the order u/s 143(3) by the department before Hon'ble ITAT. Accordingly, it is submitted that an issue which has been agitated in the order u/s 143(3) cannot be a ground for reopening u/s 147 of the Act. He submits that the 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.
Ld. DR vehemently supported the orders of the authorities below.
We have heard the rival submissions, perused the materials 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/-.
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.
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 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 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.
In view of the above discussion, we hold that reopening of assessment. u/s. 147 of the Act is bad in law and accordingly the reassessment order passed u/s. 143(3) r.w.s. 147 of the Act is quashed. Since, we have quashed the reassessment order passed u/s. 143(3) r.w.s. 147 the Revenue’s appeal becomes infructuous and accordingly dismissed.
In the result, appeal of the assessee is allowed on jurisdictional point and appeal of the Revenue is dismissed.
ASSESSMENT YEAR 2009-10 ITA.No. 1803/M/2018 [Assessee’s Appeal] & ITA.No. 2234/M/2018 [Revenue Appeal]
Assessee has raised the following grounds in its appeal: - “Reopening of Assessment 1.1 The CIT(A) failed to appreciate that when the issue of deduction u/s 36(1)(viia) had been decided by Hon'ble ITAT for the same assessment year directing that the deduction be allowed based on provision held, AO should not have reopened the issue overlooking the direction of Hon'ble ITAT.
22 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.”
In so far as the reopening of assessment is concerned, the assessee contends in its grounds of appeal that issue of deduction u/s.36(1)(viia) of the Act had been decided by the Hon'ble ITAT for the Assessment Year directing to allow deduction based on provision, the Assessing Officer should not have reopened the assessment.
The Ld. Counsel for the assessee submits that even in the reasons recorded the Assessing Officer states that “on a perusal of the assessment records” he notices that the provision for standard assets and provision for restructuring of accounts was included in the provision for doubtful debts and in view of this there is understatement of total income, since according to the Assessing Officer the provision for doubtful debts shall not include provision for standard assets and provision for restructuring of accounts.
Learned Counsel for the assessee submits that this issue has been restored by the Tribunal in ITA.No. 6922/Mum/2013 dated 17.12.2015 to the file of the Assessing Officer for the very same Assessment Year in the 23 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.
Ld. DR vehemently supported the orders of the Assessing Officer.
On a perusal of the appeal of the Revenue for A.Y. 2009-10 in ITA.No. 6922/Mum/2013 dated 17.12.2015, we notice that the Tribunal set-aside the issue of as to whether the deduction u/s. 36(1)(viia) of the Act is to be allowed as per provisions of the statute or based on the provision made in the Books of Accounts to the file of the Assessing Officer and directed to decide the issue in the light of the decision of the Tribunal Ahmadabad Bench in the case of DCIT v. Sarvodaya Sahakari Bank Ltd in ITA.No. 779/AHD/2011. We also notice that similar issue had come up before the Tribunal for the A.Y. 2005-06 in ITA.No. 6920/Mum/2013 in Revenue’s appeal and the Tribunal by order dated 31.07.2015 following the decision of the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala [272 ITR 54] upheld the action of the Assessing Officer. This decision of the Tribunal dated 31.07.2015 appears to have not brought to the notice of the Tribunal while disposing
We also find that the issue before the Tribunal in original assessment proceedings for the A.Y. 2009-10 was whether deduction u/s.36(1)(viia) of the Act is to be allowed to the extent of provision made in the books of accounts for bad and doubtful debts or the eligible amount as per the said section and this issue was restored to the file of the Assessing Officer. The issue of as to whether the provision for standard assets and the provision for restructuring of accounts shall form part of provision made for bad and doubtful debts for the computation of allowance for deduction u/s. 36(1)(viia) of the Act was not a subject matter of appeal before the Tribunal in the original assessment proceedings. In the circumstances, the contentions of the assessee that the issue has been decided in the original assessment proceedings by the Tribunal and therefore the assessment should not have been reopened is not correct and has no merit.
38. In this case the assessment was reopened within four years from the end of the Assessment Year as the relevant Assessment Year is 2009-10 and the notice u/s. 148 of the Act was issued on 28.03.2014 and the assessment was completed on 18.03.2015. Since the assessment for the end of the relevant Assessment Year the proviso to section 147 of the Act has no application.
The Ld.CIT(A) considering the submissions of the assessee, 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 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.”
On a perusal of the order of the Ld.CIT(A) and the reasoning given for reopening of assessment, we do not find any infirmity in upholding the order of the Assessing Officer in reopening of assessment. Thus, this ground of appeal of the assessee is dismissed.
Coming to the merits i.e., the deduction u/s. 36(1)(viia) of the Act, we observe that since the decision as to whether the claim for deduction u/s. 36(1)(viia) has to be allowed on the provision made in the Books of Accounts or as per the statute provided in the section itself in the original assessment proceedings has bearing on the issue of allowance u/s. 36(1)(viia) in the reopened assessment, the issue thus in a way became consequential and should go back to the Assessing Officer for fresh adjudication depending upon the decision taken by the Assessing Officer in the original assessment proceedings which were set aside by the Tribunal in ITA.No. 6922/Mum/2013 by order dated 17.12.2015. Thus, we
27 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.
In the result, appeal of the assessee is partly allowed for statistical purpose.
Coming to the Revenue’s appeal, the following grounds were raised in its appeal: - 1 "On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in restoring the issue back to the file of Assessing Officer by following the consolidated order of ITAT in ITA No's 6921/M/2013 for A.Y. 2007-08, ITA No.'s 6980/M/2013 & 6922/M/2013 for A.Y. 2009-10 and ignoring the order of Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala v/s. CIT.
2. "On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in remanding the issue, of deduction u/s 36(1)(viia) of the Act, back to the file of the AO by relying on the decision of Hon'ble Ahmadabad Bench of ITAT dated 30.05.2014 in ITA No. 779/Ahd./2011 ignoring the later decision of the Hon'ble Coordinate Bench in assessee's own case for A. Y. 2005-06 in dated 31.07.2015 wherein the Hon'ble ITAT had decided the issue against the assessee?
3. "On the facts and in the circumstances of the case and in Law, the Id. CIT(A) erred in holding that, refund shall first be adjusted against interest payable and balance, if any, shall be adjusted towards tax pay able, based on the Hon'ble Delhi High Court's decision in the case of India Trade Promotion Organization vs. CIT (361 ITR 646) when the Income Tax Department had not accepted the decision and a review petition had been filed before the Hon'ble High Court."
Ground Nos. 1 & 2 are restored to the file of the Assessing Officer, as the issue of allowability of deduction u/s. 36(1)(viia) of the Act on merits have been restored to the file of the Assessing Officer in assessee’s appeal.
28 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.
In the result, appeal of the Revenue is partly allowed for statistical purpose.
To sum up, the appeals of the Assessee and Revenue are disposed off as under: -
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