DY. COMMISSIONER OF INCOME TAX CIRCLE - 3(3)(1), MUMBAI, MUMBAI vs. SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “G”, MUMBAI BEFORE SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER AND SHRI RATNESH NANDAN SAHAY, ACCOUNTANT MEMBER ITA No.2892/M/2023 Assessment Year: 2016-17 Dy. Commissioner of M/s. Small Industries Income Tax Circle- Development Bank Of 3(3)(1) India Room No. 609, SME Development Centre, Aaykar Bhavan, C-11, G- Block, Vs. M. K. Road, Bandra Kurla Complex, Churchgate, Bandra (East), Mumbai- 400020. PAN: AABCS3480N (Appellant) (Respondent)

Present for : Assessee by : Shri Rakesh Joshi, A.R. Revenue by : Dr. Kishor Dhule- CIT D.R.

Date of Hearing : 10 . 07 . 2024 Date of Pronouncement : 30 . 09 . 2024

O R D E R Per Bench: 1. This appeal has been filed by the appellant against the Order of the Ld. CIT (Appeals) passed u/s. 250 of the Income Tax Act [the ‘Act’ in short] vide

DIN & Order No. ITBA/NFAC/S/250/2023-24/1053796425(1) Dated 19/06/2023 for the Assessment Year 2016-17. 2. Following grounds of appeal have been raised by the appellant: 1. “Whether on the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) was justified in allowing the appeal of the assessee on the issue of claim of deduction u/s.36(1)(viii) without appreciating that deduction has to be calculated on an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head "Profits and gains of business or profession" after making deductions under all other clauses of section 36(1) which includes the claim of deduction u/s.36(1)(viia)(c) also?”

was issued to the assessee vide ITBA/AST/S/148/2020-21/1031805240(1) on 26.03.2021. The reasons for reopening of assessment are as under: 1. “In this case, assessment u/s. 143(3) was completed on 28/12/18 assessing the total income at Rs.1646,52,55,744/-as against the returned income of Rs.15,52,64,02,220 filed on 29- Sep-2016. 2. The provisions of Section 36 (1) (viia) of the Act provides for the deductions to specified entities in respect of any provision for bad and doubtful debts made by a scheduled bank not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VIA). As per Section 36(1) (viii) of the Act, deduction in respect of any special reserve created and maintained by a specified entity an amount not exceeding twenty percent of the profits derived from eligible business computed under the head Profits and gains of business or profession shall be allowed subject to certain conditions. 3. Further, perusal of records revealed that the assessee is also having income under the head Income from other sources and Capital Gains aggregating to Rs.143,07,03,231/-. As per

section 36(1) (viia), the deduction is to be computed before making deduction under this clause and Chapter VIA of the Act. As such 5% of Rs.143,07,03,231/- was also required to be taken in to account while computing the deduction u/s.36(1) (viia). However, this was not done and therefore the same has resulted in underassessment of income and the same has escaped assessment. 4. Considering the above, it is clear that the assessee company has not disclosed the full and true material in the return of income filed and therefore, the condition specified in the proviso to Sec 147 are fulfilled. It is pertinent to mention here that even though the assessee has e-filed the audited P&L Account and Balance Sheet or other details/schedules, the requisite material facts as noted above in the reasons for reopening were embedded in such a manner that material evidence could not be discover by the AO and could not have been discovered with due diligence. For the above reasons, it is not a case of change of opinion. Therefore, I am satisfied that the assessee had failed to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration.

 G.N. Shavo (Wine) (P) Ltd. vs. ITO & Anr (2003) 206 ITR 513 (Cal)  Sita World Travels (India) Ltd. vs. CIT (2005) 274 ITR 186 (Del)  Gujarat Fluoro chemicals Ltd. vs. DCIT (2008) 15 DTR (Guj)  Universal Subscription Agency (P) Ltd. vs. JCIT (2007) 293 ITR 244 (All)  CIT vs. Tirathram Ahuja (HUF) (2008) 6 DTR 335 (Del)  Haryana Acrylic Manufacturing Co, vs. CIT and Anr (2009) 308 ITR 38 (Del) Thus, the assessee contended that in view of above judicial pronouncements, the reassessment proceedings maybe dropped.” 5. The objections raised as above were disposed of by the AO on 31.01.2022 by holding as under: - “The reasons giving rise to the reopening of assessment have been clearly discussed for each issue and the Ld. AO recorded his satisfaction for reopening of assessment on the basis of these issues. Thus, I am satisfied that the reasons were correctly recorded and the reassessment proceedings would be better able to crystallize the matter. Reliance is placed on the following case laws while disposing of the objections:

Reliance is placed on the following case laws while disposing of the objections: - 1. Raymond Woolen Mills Ltd. vs Income-Tax Officer 236 ITR 34 wherein it has been stated by the Hon'ble Apex Court that where there is prima facie some material is available on which the AO can realize that he can reopen the case. The sufficiency of the material is not a thing to consider at the stage of issuing notice. The relevant portion of the above judicial pronouncement is reproduced as under. “ …….We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. ... The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed. There will be no order as to costs.

satisfies himself that the taxable income has escaped assessment, it would amount to saying that he has reason to believe that such an income has escaped assessment..." 5. It was held by the Hon'ble Jurisdictional Allahabad High court in Pankaj Hospital Ltd. v. CIT (2014) 44taxmann.com 230 that The expression 'reason', as the Supreme Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Broker (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 has held, means a cause or justification. If the Assessing Officer has a cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment The Supreme Court has held that the expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. At that stage what is required is 'reason to believe' and not the establishment of escapement of income. Whether the materials would conclusively prove an escapement of income is not the concern at that stage. Thus, in view of the above decisions, it is not necessary for the AO to come to a conclusive finding that the income has escaped assessment. Such belief at the stage of reopening is obviously a

tentative belief on the basis of material before him to be examined and scrutinized as may be available in the proceedings for reassessment. Thus, the sufficiency of the correctness of the material is not a thing to be considered at this stage and it is only to be seen whether there was prima facie some material on the basis of which the case has been reopened. As per guidelines set by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v ITO (259 ITR19), the reasons for reopening has already been provided to the assessee and the objections are hereby disposed vide a speaking order. Any further information required shall be provided during the course of reassessment proceedings and all the relevant details relied upon by the assessing officer shall be provided before drawing any adverse inference in this regard. In view of these facts, it can be inferred that there is relevant and sufficient material available for forming a reasonable belief that income has escaped assessment and therefore, the initiation of reassessment proceedings u/s 147 of the Income-tax Act, 1961 is in order.

During the course of reassessment proceedings, the assessee will be afforded adequate opportunity to explain its case and resultant order will be passed on an objective appraisal of the evidence available. In view of the abovefacts, the objections raised for reopening of assessment are hereby disposed of accordingly” 6. The AO issued notice u/s 142(1) of the Act to the assessee on 28.02.2022 asking the assessee to explain why the deduction u/s. 36(1)(vii) has not been deducted from the total income before computing the deductions u/s. 36(1) (viia). 7. In response to that the assessee vide its reply filed on 07.03.2022 submitted as under: “As per the letter dated 16.07.2021, wherein you have intimated the reasons recorded it is seen that in the assessment order passed on 28.12.2018 the deduction u/s 36(1)(viia) was allowed at Rs.72,67,53,405/-. Itis pertinent to mention that assessee had claimed deduction u/s 36(1) (viia) to the tune of Rs.81,67,02,587/- and the very fact that the then Assessing Officer reduced it to Rs.72,67,53,405/- clearly show that there was application of mind by the then Assessing Officer and if now the Assessing Officer claims that even this calculation was wrong, then it means the Assessing Officer is reviewing the order of earlier Assessing

Officer or it is a case of change of opinion, which is not permissible in law. For this proposition the assessee relies on the jurisdictional High Court of Bombay order in the case of Aventis Pharma Ltd. Vs. Asst. CIT (2010) 323 ITR 570 (Bom), wherein the Hon'ble Court held as under: - "There is merit in the submission which has been urged on behalf of the assessee that there was no tangible material before the Assessing Officer on the basis of which the assessment could have been reopened and what is sought to be done is to propose a re-assessment on the basis of a mere change of opinion. This, in view of the settled position of law it is impermissible. No tangible material is shown on the basis of which the assessment is sought to be reopened. In the absence of tangible material, what the Assessing Officer has done while reopening the assessment is only to change the opinion which was formed earlier on the allowability of the deduction. The power to reopen an assessment is conditional on the formation of a reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power. There is no tangible material in the present case." Therefore, it may be seen that no new material has come to the possession or no new information is available to the Assessing Officer and hence the

reassessment in this case is not permissible as per the ratio-decidendi of the judgment of jurisdictional High Court of Bombay order in the case of Aventis Pharma Ltd. Vs. Asst. CIT (2010) 323 ITR 570 (Bom). Copy of the said judgment is enclosed herewith for your ready reference. Apart from the above, it is also pertinent to mention that in this case; while recording the reasons for reopening you have not even computed the amount of income which is alleged to have escaped assessment. Please find the same in order. We have furnished all the details requisitioned by your goodself. We shall be glad to provide your goodself with any further details that you may require in this regard.” 8. Finally, the AO issued the Draft Assessment Order on 22.03.2022, in response to which, the assessee repeated the same whatever was stated before the AO in response to the notice u/s 142 (1) of the Act. The AO, finally, held that there was tangible material to reopen the case and is also established by the fact that the assessee could not put forward any explanation on the merit of the case. As has already been discussed in reasons recorded for reopening of assessment, that the assessee computed the proportionate profit from long term financing activities on the adjusted profit and gains of business or profession before reducing deduction not related to long term financing activities. Assessee, itself, computed the deduction u/s.

36(1) (viii) of the Act after reducing the income not related to long term financing during A.Y.2014-15. For the sake of consistency, assessee should have followed the same during the relevant year also. Thus, the excess allowance of deduction amounting to Rs.1,43,07,033/- is being disallowed and added to the total income of the assessee. Penalty proceedings u/s 271(1)(c) of the Income-tax Act, 1961, for furnishing inaccurate particulars of income was also initiated. 9. Aggrieved by the order of the Ld. AO, the assessee filed appeal before the Ld. CIT (A). The Ld. CIT(A) vide the impugned order ITBA/NFAC /S/250/2023-24/1053796425(1) Dated 19/06/2023 has decided as under:- “Decision on Ground No. 1 & 2: 1) The Learned Assessing officer has erred in reopening the assessment completed u/s.143(3) of the Income Tax Act, 1961, without considering the facts and circumstances of the case. 2) On the facts and circumstances of the case and in law the Ld. AO has erred in making an addition of Rs.1,43,07,033/- as excess deduction claimed u/s 36(1)(viia), without appreciating the facts and circumstances of the case. The substantive issue in the present appeal is reducing the deduction u/s 36(1) (viia) of the Act before working the deduction u/s 36(1) (viii) of

the I.T. Act, 1961. In the present case, the assessee company has e-filed its return of income for A.Y.2016-17 on 29.09.2016 declaring total income at Rs.1552,64,02,200/-. The assessee has filed a revised return of income on 31.03.2018, declaring total income at Rs.1551,39,88,720/-. In this case, the original assessment was completed u/s 143(3) on 28-12- 2018 at total income of Rs.1646,52,55,744/-. Thereafter, the case was reopened u/s 147 of the Income Tax Act, 1961 and a notice u/s 148 of the Income Tax Act. 1961, was issued to the assessee vide ITBA/AST/S/148/2020-21/1031805240(1) on 26.03.2021. The Ld. A.O. has recorded the reasons for reopening the case are as under: "In this case, assessment u/s.143(3) was completed on 28/12/18 assessing the total income at Rs.1646,52,55,744/-as against the returned income of Rs.15,52,64,02,220 filed on 29-Sep-2016. 2. The provisions of Section 36 (1) (viia) of the Act provides for the deductions to specified entities in respect of any provision for bad and doubtful debts made by a scheduled bank not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VIA). As per Section 36(1) (viii) of the Act, deduction in respect of any special reserve created and

maintained by a specified entity an amount not exceeding twenty percent of the profits derived from eligible business computed under the head Profits and gains of business or profession shall be allowed subject to certain conditions. Further, perusal of records revealed that the assessee is also having income under the head Income from other sources and Capital Gain aggregating to Rs.143,07,03,231/-. As per section 36(1)(viia), the deduction is to computed before making deduction under this clause and Chapter VIA of the Act. As such 5% of Rs.143,07,03,231/- was also required to be taken into account while computing the deduction u/s.36(1)(viia). However, this was not done and therefore the same has resulted in underassessment of income and the same has escaped assessment." Reason for reopening of this case is that the appellant has income under the head Income from Other Sources and Capital Gain amounting to Rs.143,07,03,231/- and as per section 36(1) (viia), the deduction is to be computed before making deduction under this clause and chapter VIA of the Act and so, Ld. A.O. has reduced the 5% of the said amount as deduction u/s 36(1)(viia) before calculating the deduction available to the assessee u/s 36(1)(viii) of the I.T. Act, 1961.

The Ld. A.O. has calculated the deduction allowable u/s 36(1)(viii) after reducing the deduction u/s 36(1) (viia) from the total income and disallow the sum of Rs.1,43,07,033/- as excess allowance of deduction u/s 36(1)(viii). Since, this issue is already decided in the favour of appellant in the earlier assessment year by Hon'ble Jurisdictional ITAT, Mumbai in the appellant's own case in ITA No. 4045/Mum/2011 in which the Hon'ble Jurisdictional ITAT Mumbai has directed the Assessing Officer to calculate the deduction allowed u/s 36(1) (viii) of the Act on the total income before deduction of the amount u/s 36(1)(viia) of the Act. The operational part of the judgment is as follows: "4. The first substantive issue in this appeal is contained in Ground of appeal no. 2 whereby assessee seeks to assail the action of CIT(A) in upholding the reduction of assessee's claim for deduction u/s 36(1)(viii) of the Act. Notably, assessee was eligible for the benefits u/s 36(1)(viia) (c) as well as Sec. 36(1) (viii) of the Act. In the original assessment finalized u/s 143(3) of the Act dated 28.08.2006, the deduction u/s 36(1) (viii) of the Act was allowed at Rs.95,38,49,717/-, as claimed by the assessee. In the impugned assessment finalized u/s 147/148 r.w.s. 143(3) of the Act, the

Assessing Officer took the stand that deduction u/s 36(1) (viii) of the Act allowed in the original assessment was in excess of the amount permissible in law. Firstly, as per the Assessing Officer, while computing the profits derived from business of long-term finance for the purposes of computing deduction u/s 36(1)(viii) of the Act, the deduction allowable u/s 36(1) (viia) (c) of the Act towards Provision for bad and doubtful debts was liable to be reduced. Secondly, as per the Assessing Officer, the manner of computing deduction u/s 36(1) (viii) of the Act accepted at the time of original assessment was wrong; and, such dispute is manifested in Ground of appeal no. 3 before us. Insofar as the first aspect is concerned, the stand of the assessee is that deduction u/s 36(1) (viia) (c) of the Act is admissible from the total income of the assessee whereas deduction u/s 36(1) (viii) of the Act is allowable with reference to the eligible business only, i.e., income derived from the business of long-term finance computed under the head 'Profits and Gains of Business or Profession'. As the business income of the assessee would include income from long term lending activity, thus, for the purpose of u/s 36(1)(viii) of the Act, only a sub-set of the entire set of business

income would be eligible for computation whereas for the purpose of claim u/s 36(1)(viia) (c) of the Act, the total income is required to be considered. In this context, the appellant sought to justify its claim of deduction u/s 36(1)(viii) of the Act on pro rata income from business of long-term financing before reducing the deduction admissible u/s 36(1) (viia) (c) of the Act. In this manner, before the lower authorities, assessee had sought to defend the deduction allowable u/s 36(1) (vii) of the Act as made in the original assessment. The Assessing Officer as well as the CIT(A) have not concurred with the assessee on this aspect as, according to them, the respective provisions were clear and the deduction u/s 36(1) (viii) of the Act has to be calculated after reducing the deduction allowable u/s 36(1)(viia) (c) of the Act from the profits eligible for the benefits of u/s 36(1) (viii) of the Act. In this background, assessee is in appeal before us. Ostensibly, the dispute raised before us stems from the interplay between the provisions of Sec. 36(1)(viia) (c) of the Act vis-a-vis Sec. 36(1) (viii) of the Act. At the time of hearing, the learned representative for the assessee has taken us through the history of assessment on this aspect. Firstly, it is pointed out that similar

issue cropped-up in Assessment Year 2010-11 and the CIT(A) allowed the stand of assessee, which has since been accepted by the Revenue as no appeal was filed before the Tribunal. Subsequently, in Assessment Year 2011-12, when similar issue travelled to the CIT(A),assessee's claim was allowed following the decision of CIT(A) in the earlier Assessment Year of 2010-11. The order passed by the CIT(A) for Assessment Year 2011-12 was carried in appeal before the Tribunal by the Revenue, but no Ground was raised against the decision of the CIT(A) on this point. Insofar as Assessment Years 2014-15 and 2015-16 are concerned, the learned representative pointed out that the stand of the assessee has been accepted at the level of the Assessing Officer itself in assessments finalized u/s 143(3) of the Act dated 30.12.2016 and 09.03.2017 respectively. Therefore, stated factual matrix brought out by the assessee has not been disputed by the Revenue before us. The history of the dispute clearly brings out that the stand of the assessee has been accepted by the Revenue inasmuch as the decisions of the CIT(A) for Assessment Years 2010-11 and 2011-12 have been accepted, and for the two assessment years of 2014-15

and 2015-16, even the assessing authority has accepted the position. Though, the principle of res judicata is not applicable to income-tax proceedings, yet, it is a trite law that consistency and uniformity in approach on an issue which permeates in more than one assessment year deserves to be ensured by the income-tax authorities. In this context, one may gainfully refer to the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Radhasoami Satsang, Saomi vs CIT, 193 ITR 321 (SC). Thus, without dilating further on the rival stands, and with a view to ensuring consistency and uniformity in approach on the same issue for different assessment years, we deem it fit and proper to uphold the stand of the assessee on this aspect. Thus, Ground of appeal no. 2 is hereby allowed. The next Ground of appeal relates to the manner of computing the deduction u/s 36(1)(viii) of the Act. In this context, the grievance of the assessee is that the Assessing Officer erred in allowing the deduction by grossing-up the profit derived from long term financing operations, i.e. after making deduction under the said clause. As per the assessee, deduction u/s 36(1)(viii) of the Act is to be calculated on the eligible business income without

reducing the amount allowable under that section. In this context, it was a common point between the parties that similar issue was before the Hon'ble Supreme Court in the case of CIT vs Kerala State Ind. Development Corporation, 233 ITR 197 (SC) wherein the issue has been decided in favour of the assessee. In terms of the said decision, the Assessing Officer is directed to calculate the deduction allowed u/s 36(1)(viii) of the Act on the total income before deduction of the amount allowable under the section. Thus, on this aspect, assessee succeeds." The Hon'ble Jurisdictional ITAT, Mumbai in the appellant's own case, for the earlier assessment year, has clearly mentioned that consistency and uniformity should be ensured in approach on the same issue for the different assessment year. In the assessment year 2010-11, when a similar issue is decided in the favour of appellant by the Ld. CIT(A) has been accepted by the Revenue as no appeal was filed before Tribunal. In the assessment year 2011-12, when the Ld. CIT(A) has decided the appeal in favour of the Appellant, The Revenue has filed an appeal before Tribunal but no ground was raised against the decision of the Ld. CIT(A). This clearly shows that the Revenue has accepted the decision of the Ld. CIT(A)

in the earlier assessment years on the same issue and it should be followed in the following assessment years. After considering the facts of the case and the decision of the Hon'ble jurisdictional ITAT, Mumbai in the appellant's case for earlier assessment year it has to be held that calculation of deduction allowable u/s 36(1)(viii) of the Act should be done on the total income before deduction of amount u/s 36(1)(viia) of the I.T. Act, 1961. The disallowance of Rs.1,43,07,033/- as excess allowance of deduction u/s 36(1)(viii) is deleted. Ground of appeal No. 2 succeeds and is therefore allowed. In view of the above, this ground of appeal is, accordingly, allowed and the addition made by the Ld. AO on this account is, hereby, deleted. Since appellant has succeeded on the substantive issue raised in ground no. 2, the ground no. 1 challenging the reopening of the case u/s 147/148 of the Act is rendered academic.” 10. Aggrieved by the order of the Ld. CIT (A), the revenue has filed this appeal. We have considered the facts of the case, the reasons for the reopening of the assessment by the Ld. AO and the additions made by him on the issue on claim of deduction u/s. 36(1)(viia) (c) and also the impugned order on this

issue. During the appellant proceedings before us, the assessee submitted that the identical issue has already been decided by the coordinate Bench of ITAT, Mumbai in Assessee’s own case in the A.Y 2015-16 in ITA No.1809/Mum/2023 as under: - “We have thoroughly considered the submissions of both the sides alongwith original assessment order passed u/s. 143(3) of the Act and found that issue under consideration for the purposes of section 148 was discussed and deliberated in length. Further, there was no concealment or escapement of information on the part of the assessee. The AO was well versed and have full access to the information relevant for assessment. Rather, he himself calculated the figure of deduction and certain changes were incorporated in the order. In view of the above, case of the revenue is not sustainable as there is no fault at the end of the assessee and the AO already applied his mind during the assessment proceedings. This action of AO u/s. 147 of the Act will tantamount to change of opinion which is not permissible on the given set of facts. Grounds raised by the revenue are dismissed. “ 11. It was also submitted by the Assessee’s counsel that the order of the Ld. CIT(A) has been accepted by the revenue as no appeal was filed before Tribunal in the assessment year 2010-11 and 2011- 12. Thus, respectfully

following the order of the Coordinate Bench (Supra), we also hold that since the Ld. AO has already applied his mind during the original assessment proceedings u/s. 143(3) and deliberated the issue in detail, the reopening of assessment u/s. 147 of the Income Tax Act on the same issue will tantamount to change of opinion which is not permissible on the given set of facts. 12. Since, the Hon’ble ITAT has already decided the reopening of the case against the department, the ground of appeal raised by the revenue on merit is not sustainable. We hold it accordingly. 13. In the result, the appeal is dismissed. Order pronounced in the open court on 30.09.2024.

Sd/- Sd/- NARENDER KUMAR CHOUDHRY RATNESH NANDAN SAHAY JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 30.09.2024. Snehal C. Ayare, Stenographer Copy to:The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench //True Copy//

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.