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C.O. No.113/Mum/2017 (Assessment Year 2006-07) National Bank of Agriculture and DCIT 3(2)(2) Room No. 674, 6th Floor, Rural Development, C-24, G-Block, Bandra Kurla Complex, Vs. Aayakar Bhavan, M.K. Road, Bandra, Mumbai-400051. Mumbai-400020. PAN: AAACT4020G Appellant Respondent Revenue by : Shri Abhijit Patankar (DR) Respondent by : Shri A.V. Sonde (AR) Date of Hearing : 16.08.2018 Date of Pronouncement : 12.09.2018 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by Revenue under section 253 of the I.T. Act is directed against the order of ld. Commissioner of Income-tax (Appeals)-8, Mumbai [ld.
CIT(A)] dated 26.02.2016 for Assessment Year 2006-07, which in turn arises from the assessment order passed under section 143(3) r.w.s. 147 dated 21.03.2014. On service of notice of appeal the assessee filed its cross objection. The revenue in its appeal has raised the following grounds of appeal: M 16 & C.O. No. 313 Mum
17. National Bank of Agriculture and Rural Development
1. "Whether on the facts and circumstances and in law the ld.CIT(A) is right in holding that the reopening of assessment u/s.147 was invalid and bad in law and quashing the same.?" 2. "Whether on the facts and circumstances and in law the ld.CIT(A) is right in holding the reopening of assessment u/s. 147 as invalid and bad in law without appreciating the fact that the reopening of assessment was not on the basis of change of opinion since the issues on which reopening was made were not verified in the original assessment.?" 3. "Whether on the facts and circumstances and in law the ld.CIT(A) is right holding the reopening of assessment u/s.147 as invalid and bad in law without following the decision of the Hon'ble Supreme Court in the case of Kalyanji Mavji & Co. V.CIT (1976) 102 ITR (SC), which was subsequently confirmed in Indian & Eastern Newspaper Society v. CIT(1979) 119 ITR 996 (SC) and A.L.A.Firm v. CIT(1991) 189 ITR 285 (SC).?" 4. "On the facts and circumstances and in law the ld. CIT(A) erred in not adjudicating the issues raised by the assessee in Ground no.2 to 8 of their appeal on merit and therefore it is humbly prayed that the ld. CIT(A) may be directed to decided the issues contained in ground no.2 to 8 on merit.?" 5. "The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored."
Brief facts of the case are that the assessee filed its return of income for Assessment Year 2006-07 on 01.11.2006. The revised return was filed on 04.10.2007 which was again revised on 22.11.2007. The assessment was completed under section 143(3) on 30.11.2007. Subsequently, the assessment was reopened under section 147. The assessee was served notice under section 148 dated 26.03.2013, calling upon the assessee to file return of income within 10 days. The assessee filed its return of income in response to the notice under section 148 on 09.04.2013. The reasons of reopening were provided to the assessee on 23.10.2013. The following reasons of reopening were provided to the assessee:-
Name of the assessee : M/s National Bank for Agricultural and Rural Development (NABARD).
2. Pan : AAACT4020G 3. A.Y. : 2006-07 2 M 16 & C.O. No. 313 Mum 17 National Bank of Agriculture and Rural Development 4. Reasons for initiating proceedings u/s 147 of the I.T. Act.
On perusal of the record for the assessment year 2006-07, it is observed that the following issues were-not covered, while passed the order under provisions of section 143(3): i. On going through the schedule 15 being Interest & Financial Charges of your Final Accounts; it is observed that an interest' payment of Rs.6,92,93,84,890/- had been made on Deposit under Rural Infrastructure Development Fund (RIDF) for A.Y.2006-07. This sum has been debited at a flat rate of 6% [irrespective of the rates payable to commercial banks) on RIDF deposits placed by banks, whereas Commercial Banks have actually paid as per rate prescribed by PBI, which are in the range of 3-6%. Thus, the payment made under the Interest head on RIDF deposit is neither the sum paid nor the sum payable, as interest on these deposits. The 6% 'interest is only a notional figure which has been created in order to reach to the effective profit figure of 0.5% which has been offered for taxation. Since the interest of 6% is not paid to the Commercial Banks or: RIDF deposit, the same is allowable only to the extent which is actually paid/payable by NABARD to the Commercial Bank. The balance interest which has not been paid to the Commercial Bank is not even payable as any corresponding liability showing interest payable to Commercial Bank is not reflected in the Balance Sheet. It is further observed that a sum of Rs. 1,32,07,53,434/- has been credited to Watershed Development Fund without routing the same through Profit & Loss Account and therefore has not been offered as income. This sum of Rs. 1,32,07,53,434/- has been shown as liability in the Balance Sheet, however, as per Final Accounts, this sum is neither paid to Commercial Bank nor is payable. As such, this has resulted into under assessment of income of Rs. 1,32,07,53,434 /-. ii. The assessee during the financial year relevant to A.Y. 2006-07 has debited a sum of Rs. 3,77,98,262/- towards establishment expenses on watershed development fund. It was submitted by the Bank that the fund was credited in 1999-00 by NABARD with a Contribution of Rs. 100 crores and matching up front contribution from government of India. Thus the total size of the corpus is Rs. 200 crores. The fund was mainly utilized for the purpose of financing collaborative watershed project on pilot basis and paid through N.G.O's etc. In from 3CD of the audit Report u./s 44AB of the I.T. Act, it has been stated that certain grants received during the year (a reflected in schedule 3,4, & 5 of the balance sheet) are considered as capital in nature and hence not credited to profit and loss account. Total amount of Rs.132,07,53,434/- was received as grant towards watershed development project was capitalized in the above manner. As the grant considered as capital, expenditure on the project shall be considered as capital and grant net of expenses is to be capitalized. The incorrect procedure has resulted in under assessment of income of Rs. 3,77,98,262/-. iii. The assessee being a public financial institution providing finance to agriculture development and its entire advances me towards Govt granted advances and advance to stare Govt which are treated as 'standard assets'. For the A.Y. 2006-07 the balance of standard assets was Rs. 58,087,93,96,722/-. Against this amount the assessee has debited a provision of Rs. 70,70,00,000/- (0.12% of total advances in P&L account). On the above advance the assessee has earned treated 1555.73 crores (i.e. 88.30%) as interest earned by providing long term finance and balance of Rs. 206.22 crores (11.70% of total interest earned) from other advances. On the income covered by 3 M 16 & C.O. No. 313 Mum 17 National Bank of Agriculture and Rural Development providing long term finance the assessee has already claimed a deduction of Rs. 397.88 crores u/s 36(1)(viii). As such if any deduction is to be allowed as per the provisions for standard assets, it should be restricted to advances granted for other purpose. However, all these advances are classified as 'standard assets' as they were granted to Govt. In these circumstances, the deduction claimed is not correct, which has resulted in to under assessment of income of Rs. 70.70 crores. iv. The assessee has claimed deduction of Rs. 397.88 crore u/s 36(1)(viii). As against total interest income of Rs.1762.95 crore, the assessee has incurred establishment expenses of Rs. 320.50 crore. That is 18.18% of the income has been spent towards expenses of the organization. Out of the above interest income, an amount of Rs.1206.67 crore was derived by providing long term finance. Therefore, this amount of Rs.1205.67 crore quality for deduction u/s 36(1)(viii). However, as the assessee has incurred 18.18% of income towards establishment expenses, deduction (by applying this ratio works" out to Rs.219.37 crore), which shall be allowed for working the deduction u/s 36(1)(viii). By applying this figure allowable deduction works out to Rs.394.92 crore (1207 - 219.37 = 987.3, 987.3 *40% = 394.92). Adoption of incorrect figures has therefore resulted in under assessment of income of Rs. 2.96 crore (Rs,397.88-394.92). v. The assessee has derived income-of Rs. 994.69 crores by providing long term finance for agriculture development and claimed deduction of Rs, 397.88 crores under section 36(1)(viii) being 40% of the amount of profits derived from the specified activity i.e. the profit arrived in accordance with the provisions contained u/s 29 of the Act is to be regarded 140% of profits derived from such business. As such, the above amount of Rs. 994.69 crore shall be regarded as 140% and in such case the deduction under this clause works out to Rs. 284.19 crores as against which the department has allowed Rs.397.88 crores. This has resulted in under assessment of income of Rs. 133.69 crores. In view of the above, I have reason to believe that income has escaped assessment in the hands of M/s National Bank for Agricultural and Rural Development (NABARD) for A.Y. 2006-07 within the meaning of section 147 of the I.T. Act.”
The assessee filed its objection on 23.12.2012 against the re-opening. The objection of the assessee was disposed off on 04.02.2014. After disposing the objection, the Assessing Officer proceeded to pass the re-assessment order. The Assessing Officer while passing the assessment order under section 143(3) r.w.s. 148 made the addition of Rs. 2.96 Crore under section 36(1)(vii), addition of Rs. 132.07 Crore on account of interest paid in Profit & Loss Account on deposit under Rural Infrastructure Development Fund, M 16 & C.O. No. 313 Mum 17 National Bank of Agriculture and Rural Development addition of Rs. 3.77 Crore on account of disallowance of Establishment Expenses, disallowed deduction under section 36(1)(viii) for Rs. 133.69 Crore and addition of Rs. 70.70 Crore on account of provision for Standard Asset. On appeal before the ld. CIT(A), the re-opening was held invalid being change of opinion, thereby all the addition/disallowance were deleted.
Therefore, aggrieved by the order of ld. CIT(A), the Revenue has filed the present appeal before us.
We have heard the ld. Departmental Representative (DR) for the Revenue and ld. Authorized Representative (AR) of the assessee and perused the material available on record carefully. The ld. DR for the Revenue supported the order of Assessing Officer. The ld. DR for the Revenue submits that original assessment order passed by Assessing Officer on 30.11.2007 was without proper examination of the various issues on which assessment was reopened. The assessee was provided reasons of reopening and the objection filed thereto was duly considered and was disposed off. The assessee failed to substantiate the various expenses claimed by assessee, therefore, the Assessing Officer made various additions. The reopening of the assessment was not change of opinion. Original order is absolutely silent on the issues on which reopening was made. The Assessing Officer while passing the assessment order under section 143(3) not appreciated the fact in a proper perspective. In support of his submission, the ld. DR for the Revenue relied upon the following decision: M 16 & C.O. No. 313 Mum 17 National Bank of Agriculture and Rural Development (i) Hon’ble Supreme Court in M/s Larsen & Toubro Ltd. vs. State of Jharkhand and Ors in Civil Appeal No. 5390 of 2007, (ii) CIT vs. P.V.S. Beedies (P.) Ltd. [1999] 103 Taxman 294 (SC), (iii) Claggett Brachi Co.Ltd. vs. CIT [1989] 177 ITR 409 (SC). (iv) Raymond Woollen Mills Ltd. vs. ITO, 236 ITR 34, Kalyanji Mavji & Co. V.CIT (1976) 102 ITR 287 (SC), (v) Allahabad High Court in Commissioner of sales Tax Vs Ambway Machinery (226 CTR 659).
On the other hand, the ld. AR of the assessee submits that the assessee while filing return of income has disclosed all the material facts fully and truly.
The Assessing Officer while passing the assessment order under section 143(3) dated 30.11.2007 examining all the issues on which the assessment was reopened. The reasons recorded by Assessing Officer are not valid reasons. Admittedly, the assessment was reopened after four year from the end of relevant Assessment Year. The Assessing Officer has not mentioned/recorded in the reasons of reopening that there was any failure on the part of assessee in disclosing fully and truly all material facts necessary for his assessment for that Assessment Year. Therefore, first proviso of section 147 is applicable. There is no allegation in the reasons of re-opening about the failure on the part of assessee in disclosing all material fully and truly. The ld. AR of the assessee further invited our attention to the reasons recorded, wherein the Assessing Officer has mentioned that “On perusal of the record for the assessment year 2006-07, it is observed that the following issue were not covered, while passed the order under the provisions of section 143(3): 6 M 16 & C.O. No. 313 Mum 17 National Bank of Agriculture and Rural Development (i) On going through the Schedule-15, being interest and financial charges of final account,---- (ii) The assessee during the financial year --- (iii) The assessee being public financial institution-- (iv) The assessee has claimed deductions of Rs.397.88 Crore---. (v) The assessee has derived income--.
The ld. AR for the assessee submits that the entire assessing officer mentioned all the information from the record. Therefore, all details are available on the record of the assessment. The re-opening was merely a change of opinion and the re-opening on the basis of change of opinion is not permissible under the law. In support of his submission, the ld. AR of the assessee relied upon the following decision: (i) Hindustan Lever Ltd. vs. ACIT (268 ITR 332) (Bombay High Court), (ii) NYK Line (India) Ltd. vs. DCIT (346 ITR 361) (Bombay High Court), (iii) Titanor Components Ltd. vs. ACIT (343 ITR 183(Bombay High Court),Idea Cellular Ltd. vs. DCIT (301 ITR 407 (Bombay High Court) (iv) Mumbai Tribunal in Van Oord Dredging and Marine Contractors BV vs. ADIT in ITA No. 495 & 496/Mum/2016 dated 28.02.2018.
The ld. AR of the assessee further argued that the decision relied by ld. DR are not applicable on the facts of the present case. The ld AR for the assessee while distinguishing the decisions relied by ld DR, shown to us that in all cases the reopening was within four year therefore, submitted that the ratio of all the decisions are not applicable on the facts of the present case. The ld. AR for the assessee further submits that in case the re-opening is held invalid the grounds of cross objections would become infructuous.
On merits of the case the ld. AR for the assessee submits that the assessing officer during the assessment examined all the issue and passed the order after his satisfaction. The ld. AR shown us the copy of the notice under 7 M 16 & C.O. No. 313 Mum 17 National Bank of Agriculture and Rural Development section 142(1) dated 19.10.2007 (page No.207-209 of PB) regarding the specific questions raised by the assessing officer and the reply of the assessee dated 16.11.2007 and 30.11.2007 furnished during the original assessment proceedings.
We have considered the submission of the parties and have gone through the orders of authorities below. The original assessment under section 143(3) was completed on 30 November 2007. The notice under section 148 dated 26 March 2013 was issued to the assessee. The assessee furnished /filed return of income in response to the notice under section 148 on 9th April 2013. Admittedly, the assessment was reopened after four your from the end of relevant assessment year. Therefore, the first proviso section 147 applicable on the facts of the present case. We have noticed that there is no satisfaction of assessing officer that there was any failure on the part of assessee to disclose fully and truly all material facts necessary for assessment. We have further noted that assessing officer revisited the record of the assessment order on the basis of the original assessment order under section 143(3), was passed. There is no reference that assessee has not furnished all facts fully and truly, rather the reasons of reopening itself suggest that it was reopened after perusal of the record. No material is stated to be brought on record regarding failure on the part of assessee for not disclosing the true and full particulars of income, which escaped assessment.
Basically, the assessment was reopened on five issues which consist of issue M 16 & C.O. No. 313 Mum 17 National Bank of Agriculture and Rural Development related with interest paid on Rural Infrastructure Development Fund deposits and debited to the profit and loss is a notional interest not paid to commercial banks, expenditure incurred on promotional activities on water development funds (WDF), provisions of standard assets not allowable deductions, deduction under section 36 (1)(vii) and computation of eligible deductions under section 36(1)(viii).
The Hon’ble Apex Court in CIT Vs Kalvinator of India Ltd [2010] 187 Taxman 312 (SC) held that prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions, viz., if (a) the ITO had reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b ) the ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. The fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 with effect from 1-4-1989 those conditions are given a go-by and only one condition has remained, viz., where the Assessing Officer has reason to believe that income has escaped assessment, the section confers jurisdiction to reopen the assessment. Therefore, post 1- 4-1989, power to re-open is much wider. However, one needs to give a ITA No. 3649 M 16 & C.O. No. 313 Mum 17 National Bank of Agriculture and Rural Development schematic interpretation to the words 'reason to believe', failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfillment of certain pre-conditions 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 1-4-1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment.
Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147. However, on receipt of representations from the companies against omission of the words 'reason to believe', the Parliament re- introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer.
The Hon’ble Bombay High Court in NYK Line (India) Ltd Vs DCIT [2012] 28 taxmann.com 229 (Bom) held that where assessee had disclosed all material facts relating to amount received as container M 16 & C.O. No. 313 Mum 17 National Bank of Agriculture and Rural Development detention charges at time of making assessment, mere fact that Assessing Officer had come to a different conclusion in respect of said income in subsequent assessment year would not justify reopening of assessment.
In Idea Cellular Ltd Vs Deputy Commissioner of Income-tax [2008] 301 ITR 407 (Bom) held that once all material was before Assessing Officer and he chose not to deal with several contentions raised by assessee in his final assessment order, it could not be said that he had not applied his mind; and in such a case reopening of assessment after four years could not be said to be justified.
In Titanor Components Ltd Vs ACIT [2012] 343 ITR 183(Bom) it was held that the Assessing Officer had not recorded the failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment year 1997-98. What was recorded was that the assessee had wrongly claimed certain deductions which he was not entitled to. There is a well known difference between a wrong claim made by an assessee after disclosing all the true and material facts and a wrong claim made by the assessee by withholding the material facts fully and truly. It is only in the latter case that the Assessing Officer would be entitled to proceed under section 147. M 16 & C.O. No. 313 Mum 17 National Bank of Agriculture and Rural Development 14. In Hindustan Liver Ltd Vs R.B. Wadkar (supra) the Hon’ble Bombay High Court held as under :
“ 20. The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self- explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced.
Having recorded our finding that the impugned notice itself is beyond the period of four years from the end of the assessment year 1996-97 and does not comply with the requirements of proviso to section 147 of the Act, the Assessing Officer had no jurisdiction to reopen the assessment proceedings which were concluded on the basis of assessment under section 143(3) of the Act. On this short count alone the impugned notice is liable to be quashed and set aside.
Since we are setting aside the impugned notice only on the first ground of challenge, in our opinion it is not necessary to go to the other question and record our findings in that behalf.”
Considering the above legal position, we find that the assessing officer reopened the assessment on the basis of items which have been undisputedly examined, considered and assessed at the time of original assessment under 12 M 16 & C.O. No. 313 Mum 17 National Bank of Agriculture and Rural Development section 143(3). The assessing officer has not brought on record any new material. The assessing officer has not disclosed that there was any failure on the part of assessee to disclose fully and truly all material facts necessary for the assessment. In our view the reasons recorded for reopening, clearly reflects the there was change of opinion on the part of the assessing officer.
We are also of the view that section 147 does not empower the assessing officer to review the assessment order on same set of facts on which the assessment order which has been framed by assessing officer. Therefore, we do not find any illegality or infirmity in the order passed by ld CIT(A) in holding that the reopening were based on change of opinion. The ld CIT(A) has not decided the merit of the case, hence, we are not discussing the merit of the case. Though, we find that all the issue on which reopening was made was prima facie examined by assessing officer, hence, the assessee is also liable to be succeeded on merit.
The various case laws relied by ld. DR for the revenue is not applicable on the facts of the present case. We have examined all the decisions, in all case the re-opening is within four years from the end of relevant assessment years. The ratio decided by various courts in the case laws is quite different.
In the result, appeal of the Revenue is dismissed.
Cross Objection No. 313/Mum/2017 M 16 & C.O. No. 313 Mum 17 National Bank of Agriculture and Rural Development 18. The ld AR of the assessee while making submission in revenue’s appeal submitted that in case the appeal of the revenue is dismissed, the Cross Objections filed by assessee would become infructuous.
Considering the contentions of ld AR for the assessee the Cross Objections filed by assessee is dismissed as infructuous.
In the result, Cross Objection of the assessee is dismissed as infructuous.