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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
Aforesaid appeal of the Department and the cross objection by the assessee are against common order dated 1st May 2014, passed by the learned Commissioner (Appeals)–4, Mumbai, for the assessment year 2004–05.
./2014 – Revenue’s Appeal
The grounds raised by the Department are against the decision of the learned Commissioner (Appeals) in holding the re–opening of the assessment under section 147 of the Income Tax Act, 1961 (for short "the Act") as invalid and consequently annulling the assessment order.
Brief facts are, the assessee a Government of India Undertaking engaged in the business of rural infrastructure development and institutional development of the Co–operative Bank and Regional Rural Banks (RRB). The assessee also works as a Nodal Agency on behalf of the Government of India. As stated by the Assessing Officer in the original assessment order, the assessee is an Autonomous Body created in the year 1982 by an Act of Parliament. It was established for providing credit and other support services for promotion and development of agricultural and allied activities, Small Scale Industries, village, cottage and rural industries, industries in de–
3 M/s. National Bank for Agriculture and Rural Development centralized sector, handicrafts, rural crafts, etc. For the assessment year under consideration, the assessee filed its return of income on 30th October 2004, declaring total income of ` 1047,12,43,630. The Assessing Officer in the course of original assessment proceedings, noticed that in the course of carrying out activities of rural development on behalf of Government of India as a Nodal Agency, the assessee apart from having its own income earned from activities of advancing loans to State Government and other entities has also received aid at subsidized rates / grants from various external agencies and Government funds channelized through Government of India. He also noticed that the assessee had incurred administrative and other expenses in this regard, however, such expenses have not been reimbursed either by the Government of India or any of the donor agencies. The Assessing Officer also accepted that development activities carried out by the assessee are for the development of rural sector, however, he was of the view that the development activities carried on by the assessee do not yield any taxable income. He further noted that the assessee has received various donations, gifts, etc. which have been shown in Schedule–4 and 5 to the Balance Sheet. He, therefore, called upon the assessee to explain the nature of such receipts. In response, it was submitted by the assessee that the donations, gifts, etc., received by the assessee are not in the nature of 4 M/s. National Bank for Agriculture and Rural Development income because they are meant for carrying out various tasks assigned to the assessee and also various programs which are to be implemented by the Government of India. The Assessing Officer after considering the submissions of the assessee came to the conclusion that the activities carried out by eh assessee is as a trustee. He, therefore, was of the view that the funds received by the assessee are in the nature of income exempt from tax, hence, proposed to invoke the provisions of section 14A. In this context, the Assessing Officer also asked the assessee to furnish the details of establishment and other operating expenses relating to execution of the projects. Ultimately, the Assessing Officer rejecting the contention of the assessee disallowed an amount of ` 4,70,33,540 under section 14A of the Act. Being aggrieved of such disallowance, assessee preferred appeal before the learned Commissioner (Appeals).
The learned Commissioner (Appeals) after considering the submissions of the assessee observed that in the assessment year 2002–03, he had allowed the expenditures holding that keeping in view the provisions of section 36(1)(xii) and the objects of the assessee, the expenditure incurred for execution of various development schemes and the directions of the Government of India are allowable. Following the said decision in the assessment year 2002–03, the learned Commissioner (Appeals) deleted the addition
5 M/s. National Bank for Agriculture and Rural Development made of ` 4,70,33,540. As it appears, against the aforesaid decision of the learned Commissioner (Appeals), no further appeal was preferred by the Department.
When the matter stood thus the Assessing Officer on 18th 5. February 2009 re–opened the assessment under section 147 of the Act by issuing notice under section 148 on the reasons recorded that on scrutiny of Profit & Loss account, it was observed that assessee has separately shown expenditure on developmental activities amounting to ` 17,40,60,876. He further noted, as per the income and expenditure account for the period ended 31st March 2004, this expenditure has been added back to the profit after being debited to the Profit & Loss account. He, therefore, formed an opinion that income to the extent of ` 17,14,60,876 has escaped assessment. After complying to the notice issued under section 148, the assessee objected to the re–opening of the assessment by stating that no income has escaped assessment. The assessee challenged re–opening of assessment raising various issues one amongst them being, the assessment order passed originally on identical has already merged with the order of the first appellate authority. The Assessing Officer, however, rejecting the objections of the assessee ultimately concluded that the expenditure claimed cannot be allowed under section 36(1)(xii) / 37 r/w section 14A of the Act. Being aggrieved of the 6 M/s. National Bank for Agriculture and Rural Development assessment order so completed, the assessee preferred appeal before the learned Commissioner (Appeals), inter–alia, on the validity of assessment as well as on merits.
The learned Commissioner (Appeals), after considering the submissions of the assessee, in the light of the judicial precedents cited before him, held the re–opening of assessment and the assessment order passed in consequence thereof to be invalid / not maintainable for the following reasons:– i) The Assessing Officer before completing the assessment has not disposed off all the objections raised by the assessee against re–assessment proceedings; ii) The issue of allowability of expenditure on developmental activities was considered in the original assessment proceedings and assessee had preferred appeal before the learned Commissioner (Appeals) and the learned Commissioner (Appeals) after dealing with the issue has allowed assessee’s claim of expenditure. Therefore, the issue having already been considered in the original assessment order and thereafter by the first appellate authority it cannot be subject matter of re–opening. He further observed, during the original assessment
7 M/s. National Bank for Agriculture and Rural Development proceedings, the assessee having disclosed full particulars about the expenditure and all other relevant issues connected therewith, the re–opening of assessment is only on the basis of change of opinion, hence, not valid; and iii) The assessment having been re–opened merely on the basis of an audit objection is not valid.
Learned Departmental Representative relying upon the reasons recorded by the Assessing Officer at the time of re–opening submitted the assessee, though, had debited certain expenditure to the Profit & Loss account, however, it added back the said amount to the income, therefore, the Assessing Officer was justified in assessing the amount.
8. The learned Authorised Representative on the other hand submitted, after receiving the notice under section 148, the assessee complied to the same and while participating in the assessment proceedings, had raised objections against the re–opening of the assessment. He submitted, the Assessing Officer without disposing off the objections raised by the assessee, had proceeded to complete the assessment, therefore, the order passed is invalid. In this context, the learned Authorised Representative relied upon the following decision:–
i) KSS Petron Pvt. Ltd. v/s ACIT, dated 3.10.2016 (Bom.); and 8 M/s. National Bank for Agriculture and Rural Development ii) PCCIT v/s Tupperware India P. Ltd., 165 taxmann.com 17; iii) Abhayam Trading Ltd. v/s DCIT, and 411/Mds./ 2016, dated 15th July 2016.
Learned Authorised Representative submitted, even otherwise also, at the time of original assessment, the assessee had furnished full particulars of its receipts from various activities including the donations / grants received from Government / donor agencies. He submitted, the assessee had also furnished full particulars of expenditure incurred during the original assessment proceedings. The Assessing Officer after verifying the receipts as well as expenditure incurred by the assessee had disallowed an amount of ` 4,70,33,540 under section 14A. He submitted, in proceedings before the first appellate authority, the said addition was deleted by the learned Commissioner (Appeals) while holding that all the expenditures claimed by the assessee are allowable. He, therefore, submitted the entire issue relating to receipt and expenditure having been examined by the Assessing Officer at the time of original assessment proceedings and being subject matter of appeal before the learned Commissioner (Appeals), it cannot be re–opened in a proceeding under section 147. He submitted, after completion of the assessment proceedings, no fresh material has come to the possession of the Assessing Officer indicating escapement of income. Learned Authorised
9 M/s. National Bank for Agriculture and Rural Development Representative referring to the reasons recorded submitted, on re– examination of the audited account of the assessee which were available at the time of original assessment and examined by the Assessing Officer, the Assessing Officer has re–opened the assessment merely on the basis of audited objection and without application of mind, therefore, such re–opening without any fresh material amounts to change of opinion and, therefore, invalid. He, therefore, submitted, the order passed by the learned Commissioner (Appeals) needs no interference.
We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. Undisputedly, in assessee’s case, the original assessment was completed under section 143(3). On a perusal of the original assessment order dated 25th October 2005, it is evident that the Assessing Officer has examined in detail the activities carried on by the assessee the nature of receipts available to the assessee as well as the expenditure claimed by the assessee. It is pertinent to observe, the Assessing Officer after examining various details has given a categorical finding that the activities of rural development is carried out by the assessee on behalf of the Government of India as well as donor agencies and are not the activities of the assessee per–se, but, carried out only as a trustee. It is also evident, the Assessing Officer
10 M/s. National Bank for Agriculture and Rural Development after examining in detail the expenditures incurred by the assessee in carrying out such activities including details of establishment and other operating expenditure, though, accepted the genuineness of such expenditure, however, invoking the provisions of section 14A, he disallowed the amount of ` 4,70,33,540. It is also not disputed that against such disallowance, assessee preferred appeal before the learned Commissioner (Appeals) and the learned Commissioner (Appeals) after considering the submissions of the assessee held that all expenses claimed by the assessee are allowable and accordingly deleted the addition. It is evident from the order passed under section 143(3) r/w section 147, during the re–assessment proceedings, the assessee had raised objections against the re–opening of assessment bringing all these facts to the notice of the Assessing Officer. However, it is manifest that the Assessing Officer without disposing of the objection of the assessee had completed the assessment by making the addition. The Hon'ble Jurisdictional High Court in KSS Petron Pvt. Ltd. (supra), after following the decision of the Hon'ble Supreme Court in GKN Drive Shafts India Ltd. v/s ITO & Ors., 259 ITR 019 (SC), held that where the Assessing Officer did not follow the law laid down in the decision of GKN Drive Shafts India Ltd. (supra), the matter need not be restored to the file of the Assessing Officer to pass a further / fresh
11 M/s. National Bank for Agriculture and Rural Development order. The observations of the Hon'ble Supreme Court in this context are extracted hereunder for convenience.
“5. The regular assessment for the assessment year 2003–04 was completed on 10th January 2006 under section 143(3) of the Act, determining the respondent assessee’s income at ` 2.28 crore. Thereafter, on 29th February 2008, a notice under section 148 of the Act was issued, seeking to re–open the assessment for assessment year 2003–04. The reasons recorded in support of the notice dated 28th March 2008 were furnished to the appellant on 8th September 2008. The appellant by letter dated 27th October 2008, objected to the reasons recorded in support of notice dated 28th March 2008. The Assessing Officer without disposing of the objections of the appellant, completed the assessment on 14th December 2009 under section 143(3) read with section 147 of the Act. The order dated 14th December 2009 of the Assessing Officer made addition to the appellant’s income on the basis of the reasons recorded for issuing of re–opening notice dated 28th March 2008.
6. Being aggrieved, the appellant carried the issue in appeal to the learned Commissioner of Income Tax (Appeals) [CIT(A)}. By an order dated 6th July 2011, the CIT(A) dismissed the appeal. Thus, confirming the order dated 14th December 2009 of the Assessing Officer, passed without disposing of the appellant’s objection for re–opening of assessment.
7. On further Appeal, the Tribunal passed the impugned order. By the impugned order it held that the Assessing Officer was not justified in finalizing the assessment, without having first disposed of the objections of the appellant. This impugned order holds the Assessing Officer is obliged to do in terms of the Apex Court’s decision in GKN Driveshafts (India) Ltd. v/s ITO, 259 ITR 19. In the aforesaid circumstances, the order of the CIT(A) and the Assessing Officer were quashed and set aside. However, after having set aside the orders, it restored the assessment to the Assessing Officer to pass fresh order after disposing of the objections to re–opening notice dated 28th March 2008, in accordance with law.
We note that once the impugned order finds the assessment order is without jurisdiction as the law laid down by the Apex Court in GKN Driveshafts (supra) has not been followed, then there is no reason to restore the issue to the Assessing Officer to pass a further / fresh order. If this is permitted, it would give
12 M/s. National Bank for Agriculture and Rural Development a licence to the Assessing Officer to pass orders on re–opening notice, without jurisdiction (without compliance of the law in accordance with the procedure), yet the only consequence, would be that in appeal, it would be restored to the Assessing Officer for fresh adjudication after following the due procedure. This would lead to unnecessary harassment of the assessee by reviving stale / old matters.
The Hon'ble Delhi High Court in Tupperware India Pvt. Ltd. (supra) quashed the re–assessment observing as under:–
Apparently, the Assessee did raise an objection to the order of the AO reopening the assessment. In the order dated 28th January 2011 allowing the Assessee's appeal, the Commissioner of Income Tax (Appeals) ['CIT (A)'] noted that the Assessee had indeed filed objections to the reopening of the assessment by its letter dated 9th August 2006. In the remand report dated 20th December 2010, the AO quoted a paragraph from the order sheet which stated that the aforementioned letter dated 9th August 2006 had been handed over to the AO and that the AO had sought some more information which the Assessee had not filed. The CIT (A) accordingly held that by stating that no objections had been filed, the AO had "very conveniently disregarded the guidelines" laid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19/[2002] 125 Taxman 963. The CIT (A), therefore, agreed with the Assessee that since the procedure laid down by the SC in the aforementioned decision was mandatory, the AO had in fact not disposed of the objections by a speaking order. Nevertheless, the CIT (A) held that the said defect "does not make the assessment order illegal and hence it cannot be quashed. It is a technical mistake which is curable.
6. The Court is of the considered view that after having correctly understood the decision of the Supreme Court in GKN Driveshafts (India) Ltd. (supra) as mandatorily requiring the AO to comply with the procedure laid down therein and to dispose of the objections to the reopening order with a speaking order, the CIT (A) committed an error in not quashing the reopening order and the consequent assessment. 9. Consequently, for both the aforementioned reasons, viz., that there was a failure by the AO to comply with the mandatory requirement of disposing of the objections of the Assessee to the reopening in terms of the law explained by the Supreme Court in GKN Driveshafts (India) Ltd. (supra) as well as on account of the 13 M/s. National Bank for Agriculture and Rural Development failure of the Revenue to challenge before the ITAT the order of the CIT (A) deleting on merits the disallowance made by the AO of the management service fee consequent upon reopening of the assessment, there appears to be no need to examine the issue projected by the Revenue in this appeal viz., the justification for re- opening the assessment under Section 147/148 of the Act.”
The Tribunal, Chennai Bench, in Abhayam Trading Ltd. v/s DCIT, & 411/Mds./2016, order dated 15th July 2016, also expressed similar view following the decision of the Hon'ble Supreme Court in GKN Drive Shafts India Ltd. (supra). Therefore, the Assessing Officer before completing the assessment having not disposed off the objections of the assessee, the impugned assessment order is invalid. Moreover, we have noted that during the original assessment proceedings, the assessee in response to the query raised by the Assessing Officer had furnished full particulars of not only the receipts but also the expenditure incurred. The Assessing Officer after verifying the same had passed the assessment order disallowing expenditure of ` 4,70,33,540 under section 14A / 37. However, in appeal proceedings the learned Commissioner (Appeals) deleted the addition by holding that all expenditure incurred by the assessee are allowable. While doing so, the learned Commissioner (Appeals) followed his decision in the case of same assessee for the assessment year 2002–03. Undisputedly, the aforesaid decision of the learned Commissioner (Appeals) on the issue has attained finality. Thus, as could be seen, the issue relating to claim of expenditure was not only examined by 14 M/s. National Bank for Agriculture and Rural Development the Assessing Officer during the original assessment proceedings, but also by the learned Commissioner (Appeals) and the learned Commissioner (Appeals) categorically held that all expenditures claimed by the assessee are allowable. That being the case, the quantum of expenditure whether ` 4,70,33,540 or ` 17,40,60,876 is irrelevant. Moreover, this issue having already merged with the order of the learned Commissioner (Appeals) cannot be a subject matter of re–opening. Further, it is evident from the reasons recorded that the re–opening of assessment is on the basis of audited account of the assessee which were not only available at the time of original assessment but the Assessing Officer in the course of original assessment proceedings, had examined the accounts of the assessee and the nature of receipts and expenditure also. Therefore, the issue having already been examined at the time of original assessment and there being no fresh material before the Assessing Officer the re– opening of assessment on re–appreciation / reappraisal of the very same material considered at the time of original assessment amounts to re–opening on a mere change of opinion, hence, invalid. Further, from the office note available in the assessment order it appears that the assessment was re–opened only due to the revenue audit objection. Therefore, there is also lack of application of mind by the Assessing Officer while recording reasons for re–opening of 15 M/s. National Bank for Agriculture and Rural Development assessment and on this count also, the re–assessment is invalid. Thus, in view of the aforesaid, we do not find any reason to interfere with the order of the learned Commissioner (Appeals) on the issue. Accordingly, upholding the same, we dismiss the grounds raised by the Department.
In the result, Revenue’s appeal is dismissed.
Cross Objection no.17/Mum./2016 – By Assessee
In view of our above decision upholding the order of the learned Commissioner (Appeals), the cross objection filed by the assessee has become infructuous, hence, dismissed.
In the result, Revenue’s appeal and assessee’s cross objection are dismissed. Order pronounced in the open Court on 28.10.2016