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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI MAHAVIR SINGH & SHRI JAGADISH
The Joint Commissioner of IDFC Limited, 4th Floor Capitale Tower, 555, Income Tax (OSD), Vs. Corporate Circle-1(1), Anna Salai, Chennai. Thiru Vi Ka Kudiyiruppu, Teynampet, Chennai – 600 018. [PAN: AAACI 2663N] (अपीलाथ"/Appellant) (""यथ"/Respondent) अपीलाथF की ओर से/ Appellant by : Shri M. Murali, CIT HIथF की ओर से /Respondent by : Shri Niraj Sheth, Advocate सुनवाई की तारीख/Date of Hearing : 06.06.2024 घोषणा की तारीख /Date of Pronouncement : 24.07.2024 आदेश / O R D E R PER JAGADISH, A.M : Aforesaid appeal filed by the Revenue is against the order of Learned Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi [hereinafter “CIT(A)”] dated 21.09.2023 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s.143(3) r.w.s 147 of the Income Tax Act, 1961 (hereinafter “the Act”) on 27.03.2014. :- 2 -:
The brief facts of the case are that the assessee-company is engaged in the business of financing of infrastructure projects. The assessee has filed its return of income showing income of Rs.616,80,91,240/- on 29.09.2008. The assessment was completed u/s. 143(3) of the Act at total income of Rs.751,86,72,980/-. During the assessment proceedings, the A.O has allowed the claim of disallowance u/s. 36(1)(viia)(c) of the Act at Rs. 31,13,06,515/- against the claim of Rs. 37,36,87,861/-. Subsequently, the A.O has reopened the assessment regarding following reasons and made addition of the same:
As per the provisions of Sec 36(1)(viia) of IT Act, deduction shall be allowable only to the extent of provision made in the books in respect of bad and doubtful debts. On perusal of P&L a/c Schedule 17 it is seen that only an amount of Rs.21,72,92,955/- has been provided towards bad and doubtful debts. Hence, the deduction u/s 36(1)(viia) should be restricted only to that extent and deduction allowed to the tune of Rs.31,13,06,515/- is not correct. Also, as per sec. 36(1)(viii) assessee is eligible for deduction only on the interest earned on the long term finance provided to infrastructure companies whereas in the instant case the interest earned on debentures to the tune of Rs.37,96,09,723//- had been claimed as deduction. Since the interest on debentures cannot be brought within the definition of interest on long term finance", the above said claim should be disallowed. Further, on perusal it is seen that while calculating the amount of expenses in the ratio of expenses to income, the expenses had been under estimated by an amount of Rs.33,21,08,452/- thereby excess deduction allowed u/s 36(1)(vii)."
The AO in the reopened assessment has restricted the claim u/s. 36(1)(viiia) of the Act to Rs. 21,72,92,955/-. The AO has also not :- 3 -: allowed the deduction u/s. 36(1)(vii) of the Act on interest earned on debentures of Rs. 37,96,09,723/-. The Ld. CIT(A) has held the reopening as change of opinion observing as under:
4.3 I have perused the order u/s. 147, order u/s. 143(3), submissions of the appellant and the facts of the case. It is observed that in all the issues for reopening viz. computation of deduction u/s. 36(1)(viii); computation of deduction u/s. 36(1)(viia) and disallowance u/s. 14A, the facts have been culled out from the mutual accounts, computations and various submissions made by the appellant at the time of 143(3) proceedings. In fact, the A.O at the time of 143(3) proceedings has discussed each of the issues in detail and has made disallowances under the said sections. In the regular assessment order. The submissions made by the appellant as reproduced in para 4.2 above regarding furnishing of the detailed replies at the time of 143(3) is found to be correct. Thus, no new material fact came to the knowledge of the A.O at the time of issuance of notice u/s. 148 which was not available at the time of regular assessment. Since, the case of the appellant was scrutinized under section 143(3) earlier, and the additions as deemed fit by the AO had been made by due application of mind, in my view the reasons recorded for reopening fall in the category of change of opinion on the part of the AO.
The ld. CIT(A) relying on the decision of Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India [2010] 320 ITR 561 (SC), ACIT vs. Rajesh Jhaveri [2006] 291 ITR 500 (SC) and J.
Pharmaceuticals Ltd. vs. CIT [2008] 297 ITR 119 (Bom.) has quashed the assessment order holding the reopening as change of opinion.
The Revenue is in appeal against the quashing of assessment on the ground that the issues considered as reopening were not scrutinized by the A.O and therefore, there was no change of opinion. :- 4 -:
The Ld. D.R relied on the assessment order and argued that there was not change of opinion as the A.O in earlier assessments has neither applied his mind nor formed opinion on the subject matter of reopening assessment and that the Ld. CIT(A) has wrongly relied on the decision of Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India, supra.
The Ld. A.R, on the other hand, took us through the reasons recorded and copy of annual account submitted before the A.O and the details submitted in response to notice u/s. 142(1) of the Act. The Ld. AR has submitted that Apendix-6 of its reply dated 27.01.2014 where explanation for the claim u/s. 36(1)(viia) of the Act was submitted. As per the submission, there is a provision against standard asset of Rs. 57,43,00,000/- and the Tribunal in assessee’s own case for A.Y 2007-08 in has held that provision against standard assets made as per policy and prudential norms of RBI is allowable as deduction u/s. 36(1)(viia)(c) of the Act.
7. As regard to disallowance u/s. 36(1)(viii) of the Act at Rs.37,96,09,723/- on interest debentures, which were issued by the :- 5 -: companies engaged in infrastructure elements fall within the meaning of long term finance and eligible for deduction u/s. 36(1)(vii) of the Act.
We have heard the rival contentions, and perused the materials available on record. The A.O has allowed the claim u/s. 36(1)(viia)(c) of the Act after due verification. The assessee in response to notice u/s. 142(1) of the Act has submitted before the A.O the details of provisions and contingency of Rs.57,43,00,000/- mentioned in the detailed notes and claim of interest on debenture u/s. 36(1)(viii) of the Act. The Tribunal in the assessee’s own case has held that the provisions against standard assets are allowable u/s. 36(1)(viia)(c) of the Act and interest on debenture allowable u/s. 36(1)(viii) of the Act.
Therefore, the A.O has disallowed the claim after due verification. The Hon’ble Apex Court while confirming the decision of Hon’ble Delhi High Court in the case of CIT vs. Kelvinator of India has observed as under:
....., we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment 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 reopen the assessment. Therefore, post-1st April, 1989, power to reopen 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 reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. :- 6 -:
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 reassess. But reassessment has to be based on fulfilment of certain preconditions 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 1st April, 1989, the Assessing Officer has power to reopen, 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. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act. However, on receipt of representations from the companies against omission of the words 17 ITA no.4033/Del./2011 "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer.
8. We quote hereinbelow the relevant portion of Circular No. 549 dated October 31, 1989 ([1990] 182 ITR (St.) 1, 29), which reads as follows:
7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in section 147.-A number of representations were received against the omission of the words `reason to believe' from section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same.
We, therefore concur with the findings of the Ld. CIT(A) that this is a case of change in opinion, which is permissible as per law. In view of the above, the appeal filed by the Revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on 24th July, 2024. (जगदीश) (महावीर िसंह) (Jagadish) (Mahavir Singh) लेखा सद"य लेखा उपा" / Vice President लेखा लेखा सद"य सद"य /Accountant Member सद"य चे"ई/Chennai, "दनांक/Dated: 24th July, 2024. EDN/-