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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI N.K. PRADHAN, HONBLE
2 6021 & 6022/MUM/2016 C.O NOs. 301, 302 & 303/MUM/2017 M/s. Central Bank of India O R D E R PER C.N. PRASAD (JM) 1. These appeals are filed by the Revenue and Cross Objections by the assessee against the orders passed by the Ld. Commissioner of Income Tax (Appeals) – 4, Mumbai dated 27.07.2016 for the Assessment Years 2007-08, 2008-09 & 2009-10 arising out of the Assessment Orders passed u/s. 143(3) r.w.s. 147 of the Act.
In so far as the Revenue’s appeals are concerned they are filed against the Ld.CIT(A) order in deleting the addition/disallowance made in the re-assessment orders passed u/s. 143 r.w.s. 147 of the Act and in so far as the Cross Objections filed by the assessee are concerned the assessee is challenging the order of the Ld.CIT(A) in upholding the reopening of assessment u/s. 147 of the Act.
Regarding reopening of assessment, the Learned Counsel for the assessee submitted that the assessments for the Assessment Years 2007-08 & 2008-09 were reopened beyond four years and the assessment for the Assessment Year 2009-10 is within four years from the end of the Assessment Years. It is also submitted that all the assessments for the Assessment Years 2007-08, 2008-09 & 2009-10 were originally completed u/s. 143(3) of the Act and the assessments
3 6021 & 6022/MUM/2016 C.O NOs. 301, 302 & 303/MUM/2017 M/s. Central Bank of India were reopened merely on a change of opinion observing that the Hon'ble Supreme Court in the case of Vijaya Bank Ltd. v. Addl. C.I.T [187 ITR 541] held that broken period of interest is part of capital outlay for acquisition of securities and is therefore not allowable. Ld.A.O also referred to the C.B.D.T circular No. 665/1993. Ld. Counsel for the assessee further submitted that, when the assessments were completed originally, the decision of the Hon'ble Supreme Court was very much available and is within the knowledge of the Assessing Officer. Ld. Counsel for the assessee further submitted that Assessing Officer considered the claim of the broken period interest paid on purchases of securities in the background of law pronounced by the Hon'ble Supreme Court and allowed the deduction accordingly. He further submitted that reopening of assessment based on the very same judgment which was available as on date of original assessment amounts to a mere change of opinion. Ld. Counsel for the assessee further submitted that the bank submitted all the necessary details and explanations during the scrutiny Assessment Proceedings as and when called for and there has been no failure on its part to disclose fully and truly all material facts on the issue for completion of assessment, therefore, reopening of assessment is bad in law.
4 6021 & 6022/MUM/2016 C.O NOs. 301, 302 & 303/MUM/2017 M/s. Central Bank of India 4. Ld. Counsel for the assessee further submitted that, the assessee furnished all the necessary details and explanations in respect of broken period of interest paid on purchase of government and other approved securities were provided during the scrutiny Assessment Proceedings as and when called for on a timely basis and there has been no failure on its part to disclose fully and truly all material facts with regard to the assessment for the year under consideration. The facts pertaining to the said claim remain the same from year-to-year and there is no fresh or tangible material has come on record suggesting escapement of income and therefore re-assessment proceedings are bad in law. The Ld. DCIT had allowed the said claim at the time of the original assessment in the backdrop of the law laid down by the Hon'ble Supreme Court in the case of Vijaya Bank Ltd. v. Addl. C.I.T (supra) which was available on record well before the original assessment proceedings completed in 2009.
Ld. Counsel for the assessee placed reliance on the following decisions in support of his above contentions: (a) CIT v. Kelvinator of India Ltd [320 ITR 561]. (b) Indian Bank v. DCIT [44 taxmann.com 339 (Madras)]. (c) Purity Techtextile (P) Ltd. v. ACIT & Anr. [325 ITR 459].
Ld. DR vehemently supported the order of the Assessing Officer in reopening of assessment. She further submitted that there is no change
5 6021 & 6022/MUM/2016 C.O NOs. 301, 302 & 303/MUM/2017 M/s. Central Bank of India of opinion as the Assessing Officer did not consider the decision of the Hon'ble Supreme Court in the case of Vijaya Bank Ltd. v. Addl. C.I.T (supra) and without examining the issue allowed the claim of the assessee.
We have heard the rival submissions, perused the orders of the authorities below and the case laws relied upon. The Assessing Officer in the Assessment Orders passed for all these three years recorded the reasons for reopening of assessments which are as under: - "The Hon'ble Supreme Court of India in the case of Vijaya Bank Ltd. Vs. Addl. CIT. (1991) 187 ITR 541 (SC) has clearly stated that broken period interest is part of capital outlay for acquisition of securities and is hence not allowable. Circular No. 665/1993 issued by CBDT also states that broken period interest is not allowable on investments as the same constitutes capital expenditure. In AY 2011-12, disallowance was made in respect of broken period interest in the case of the assessee bank as the same is capital expenditure. It is observed that no disallowance is made for AY 2009-10 with respect to broken period interest in the case of the assessee. Hence, I have reason to believe that income has escaped assessment within the meaning of section 147 of the I.T. Act. The escapement of income / under assessment of income is due to the fact that the assessee did not disclose the correct facts as stated in the above paras for the purpose of assessment. Further the escapement of income / under assessment of income is Rs.50 Crores (approximately; subject to verification). Issue notice under Section 148 of the Income Tax Act, 1961.”
As could be seen from the above reasons recorded for reopening of assessment, the Assessing Officer has reason to believe that income had escaped the assessment within the meaning the section 147 of the Act for the reason that the Hon'ble Supreme Court in the case of Vijaya Bank Ltd.
6 6021 & 6022/MUM/2016 C.O NOs. 301, 302 & 303/MUM/2017 M/s. Central Bank of India v. Addl. C.I.T (supra) has clearly stated that broken period interest is part of capital outlay for acquisition of securities and hence not allowable expenditure. One more reason to believe that income had escaped assessment is that in the Assessment Year 2011-12 disallowance was made in respect of broken period of interest in the case of assessee bank treating it as capital expenditure. This is the reason given by the Assessing Officer for reopening of assessments for all these three years. There is not even a whisper in the reasons about the failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment vis-à-vis the issue of broken period of interest.
On the other hand, we see that the assessee at the time of Assessment Proceedings furnished statements showing reconciliation of income from investments with Profit and Loss Account, statement of depreciation on investments for the Assessment Year 2007-08 and 2009-10 and apart from these the detailed note of allowability of broken period of interest paid on purchases on securities was furnished for the Assessment Year 2008-09. The decision of the Hon'ble Supreme Court in the case of Vijaya Bank Ltd. v. Addl. C.I.T (supra) based on which the Assessments were reopened was already considered and distinguished by the Hon'ble Bombay High Court in the case of American Express broken period interest is deductible as business expenditure. The Hon'ble Bombay High Court affirming the decision of the Appellate Tribunal held as under: “Once the Department sought to assess to tax the interest received by the assessee from the transferees for the broken period under the head “Business”, the Department could not have rejected the adjustment of the amounts paid by the assessee to the transferors for the broken period unless the Department proved that the method adopted by the assessee did not disclose the true and proper income. The Department was not able to show as to why the method adopted by the assessee ought to be rejected; the Department had not shown why the broken period interest received ought to be taxed whereas the interest for the broken period paid by the assessee should be disallowed. Right from the inception the Department had brought to tax such amounts only as business income under section 28. Further, the Tribunal had found that the securities were held by the assessee as trading assets. The assessee’s method of accounting did not result in loss to the Revenue and there was no need to interfere with the method of accounting adopted by the assessee.”
We notice that in assessee’s own case the Hon'ble Bombay High Court for the Assessment Years 1980-81 and 1981-82 in reference No. 137 of 1997 decided similar issue in favour of the assessee bank by order dated 09.10.2002 and while deciding the issue in favour of the assessee the Hon'ble Bombay High Court followed its decision of American Express International Banking Corporation v. CIT (supra) I.T. Reference No. 173 of 1983 alongwith I.T. Reference No. 75 of 1986 and Reference No.346 of 1987. The Hon'ble Bombay High Court in assessee’s own case while deciding the issue in assessee’s favour held as under: “1. This Reference is at the instance of the department under Section 256(1) of the income-tax Act for the assessment year 1980-1981 and 1981-82. 2. The main point which arises for determination in this Reference is as follows. Whether the Tribunal was right in holding that interest paid on broken period should be allowable as Revenue expenditure?
8 6021 & 6022/MUM/2016 C.O NOs. 301, 302 & 303/MUM/2017 M/s. Central Bank of India 3. Mr. Desai learned fairly states that in view of our Judgment dated 25.09.2002 in I.T. Reference 173 of 1983 along with I.T. Reference 75 of 1986 and Reference 346 of 1987, the question may be answered. Accordingly, we answer the above question in the affirmative i.e.in favour of the assesse and against the department. Reference is accordingly disposed of. No order as to costs."
Since the Hon'ble Bombay High Court had already decided the issue in favour of the assessee following its own decision in the case of American Express International Banking Corporation v. CIT (supra) wherein the decision of the Hon'ble Supreme Court in the case of Vijaya Bank Ltd. v. Addl. C.I.T (supra) was also considered, it cannot be said that Assessing Officer has reason to believe that the income escaped the assessment which belief was based on the decision of Vijaya Bank Ltd. v. Addl. C.I.T (supra).
We also find that the Hon'ble Bombay High Court in the case of American Express International Banking Corporation v. CIT (supra) distinguished the decision of the Hon'ble Supreme Court in the case of Vijaya Bank Ltd. v. Addl. C.I.T (supra) as the facts are different and not similar to that of the assessee namely American Express International Banking Corporation v. CIT (supra) and further this decision of American Express International Banking Corporation v. CIT (supra) was applied in the case of the assessee and allowed the claim for deduction in respect of the broken period interest, since the facts in assessee’s case are similar to the facts in the case of American Express International Banking
9 6021 & 6022/MUM/2016 C.O NOs. 301, 302 & 303/MUM/2017 M/s. Central Bank of India Corporation v. CIT (supra). In such situation there cannot be any belief that income had escaped assessment within the meaning of section 147 of the Act.
Further, it is evident from the order of the Hon'ble Bombay High Court that in fact the Ld. Counsel for the Revenue had fairly stated that, the question as to whether the broken period of interest should be allowable as Revenue expenditure or not may be answered in view of the judgment of the Hon'ble Bombay High Court in the case of American Express International Banking Corporation v. CIT (supra).
In view of the above facts and the above discussion we are of the view that the reasons recorded by the Assessing Officer for reopening of assessments are on a mere change of opinion and not based on any change in fact situation. The reason mentioned by the Assessing Officer that the judgment of Vijaya Bank Ltd. v. Addl. C.I.T (supra) is not applied in the case of the assessee and therefore there is escapement of income is misplaced as we have already stated that this decision has been considered by the Hon'ble Bombay High Court in the case of American Express International Banking Corporation v. CIT (supra) which decision has been applied in assessee’s own case and allowed the claim of the be allowed.
In the case of CIT v. Kelvinator of India Ltd (supra) it has been held as under:
“On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re- open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to re-assess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening 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 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove.”
As could be seen from the above decision wherein it has been held that the Assessing Officer has power to reopen provided there should be some tangible materials to come to the conclusion that there is escapement of income from assessment. In this case there are no tangible materials to come to the conclusion that there is escapement of income from assessment. But the reason recorded shows that the decision of the Hon'ble Supreme Court in the case of Vijaya Bank Ltd. v.
Addl. C.I.T (supra) has not been applied in this case and therefore there
11 6021 & 6022/MUM/2016 C.O NOs. 301, 302 & 303/MUM/2017 M/s. Central Bank of India is escapement of income. This reason is a mere change of opinion by the Assessing Officer as we have already pointed out that this decision has been considered in earlier years and allowed the claim of the assessee. In the circumstances, we hold that the assessments for the Assessment Years 2007-08 to 2009-10 were reopened on a mere change of opinion without any tangible materials which is not permissible in law. Hence we quash the re-assessments made by the Assessing Officer u/s. 143(3) r.w.s. 147 of the Act for the Assessment Years 2007-08, 2008-09 and 2009-10.
Sine we have quashed the re-assessments as the reopening of assessment is bad in law the grounds raised by the Revenue on deletion of addition/disallowance made will not survive and becomes infructuous and hence the same are dismissed.
In the result, the cross objections filed by the assessee are allowed and the appeals filed by the Revenue are dismissed as infructuous.
Order pronounced in the open court on the 11th May, 2018.