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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
Aforesaid appeal by the Revenue and cross objection by the assessee are directed against order dated 15th January 2014, passed by the learned Commissioner (Appeals)–10, Mumbai, for the assessment year 2005–06.
ITA no.4888/Mum./2014
Grounds raised by the Revenue are as under:– Whether the facts and in the circumstances of the case, the 1. Id. CIT (A) was correct in holding that the re-opening of assessment u/s 147 was incorrect. Whether on the facts and circumstances of the case and in 2. law, the CIT (A) was correct in holding that the re-opening of assessment u/s 147 was incorrect, when the facts on record had led to information of reason to believe that income had escaped assessment.
3. Whether on the facts and circumstances of the case and in law, the CIT (A) was correct in holding that the re-opening of assessment u/s 147 was incorrect, when the assessee had failed to disclose fully and truly all material facts necessary at the time of original assessment. The Appellant prays that the order of the Ld. CIT (A) be 4. set aside on the above grounds and that of the Assessing Officer be restored.
Brief facts are, the assessee a banking company filed its return of income for the impugned assessment year on 31st October 2005, declaring nil income. Assessment in case of assessee was originally
3 DBS Bank Limited completed under section 143(3) of the Act vide order dated 23rd December 2008, determining total income at ` 17,71,38,032. Subsequently, an order of rectification was passed under section 154 of the Act on 6th March 2009. As it appears from record, the Assessing Officer on perusal of the assessment record and more particularly Schedule–17 of the Profit & Loss account noted that assessee had debited expenditure on account of provisions for depreciation on investment at ` 1,53,01,000. The Assessing Officer was of the view that the provisions for depreciation on investment are not allowable expenditure, hence, was required to be added back to the income. As there was an omission to do so while completing the original assessment, the Assessing Officer having formed a belief that income has escaped assessment re–opened the assessment under section 147 of the Act by issuing a notice under section 148 on 27th March 2012. In the course of re–assessment proceedings, though, the assessee vehemently objected to the proposed disallowance of the provisions for depreciation on investment, however, the Assessing Officer rejecting assessee’s claim disallowed the provision for deprecation on investment. Of–course, the Assessing Officer made some other additions with which we are not concerned in the present appeal while completing the assessment under section 143(3) r/w section 147. Being aggrieved of the assessment order, the assessee preferred an 4 DBS Bank Limited appeal before the learned Commissioner (Appeals), inter–alia, challenging the validity of re–opening under section 147.
Before the first appellate authority it was submitted by the assessee that the re–opening of assessment after expiry of four years from the relevant assessment year, that too, without any tangible material is invalid. It was submitted by the assessee that during the original assessment proceedings, the issue relating to provisions of depreciation on investment was specifically enquired into by the Assessing Officer and after examining the issue in detail has allowed assessee’s claim. As far as merits of the issue is concerned, it was submitted by the assessee, it is following a consistent accounting method as per which the investment is recognised as stock–in–trade at the end of the year. It was submitted, as and when the asset has incurred loss, the same has been claimed by the assessee as expenditure, whereas, wherever the assessee has got positive gain on such valuation, the assessee has offered the same for taxation. It was submitted, the assessee had been following the same method of valuation of stock–in–trade consistently. Learned Commissioner (Appeals), after considering the submissions of the assessee as well as the reasons recorded for re–opening of assessment, observed that the information / details on the basis of which the Assessing Officer re– opened the assessment were already available on record when the 5 DBS Bank Limited assessee filed original return of income. He also noted that in respect of provisions for depreciation in valuation of investment, the assessee has followed a consistent approach, therefore, it cannot be held that there is escapement of income leading to re–opening of assessment. Thus, on the aforesaid analysis of facts, the learned Commissioner (Appeals) held that the re–opening of assessment is bad–in–law. Consequently, he annulled the assessment order passed by the Assessing Officer. Since the learned Commissioner (Appeals) declared the assessment order invalid, he did not adjudicate the grounds raised by the assessee on merit.
The learned Departmental Representative submitted, the Assessing Officer on the basis of information on record, having re– opened the assessment on valid reasons, learned Commissioner (Appeals) was not justified in annulling the assessment.
The learned Authorised Representative on the other hand strongly supporting the order of the learned Commissioner (Appeals) on this issue submitted, the re–opening of assessment beyond the period of four years is invalid in law as the Assessing Officer has not established on record that there was a failure on the part of the assessee in disclosing fully and truly all material facts necessary for his assessment. The learned Authorised Representative referring to the reasons recorded by the Assessing Officer at the time of re–opening of 6 DBS Bank Limited assessment submitted, there is no tangible new material available before the Assessing Officer on the basis of which he could have formed the belief that there is escapement of income. The learned Authorised Representative submitted, on the basis of material already available on record which were considered at the time of original assessment, the Assessing Officer on a mere change of opinion has re– opened the assessment. The learned Authorised Representative submitted, during the original assessment proceedings the Assessing Officer had examined the very same issue by raising a query and only after considering assessee’s reply the Assessing Officer completed the assessment accepting assessee’s claim of deduction on provision for depreciation on investment. In this context, the learned Authorised Representative drew the attention of the Bench to the notice dated 6th November 2007 issued under section 142(1) by the Assessing Officer during the original assessment proceedings as well as assessee’s reply dated 4th December 2007. The learned Authorised Representative submitted, the Assessing Officer having examined the issue in detail and formed the opinion at the time of original assessment the re– opening of assessment on the basis of very same set of facts and materials on a mere change of opinion is not possible. The learned Authorised Representative submitted, even otherwise also, the issue relating to deduction on account of provision for depreciation on investment was subject matter of dispute in assessee’s own case for 7 DBS Bank Limited assessment year 1999–2000 and when the dispute travelled to the Tribunal, the Tribunal decided the issue in favour of the assessee by following the decision of the Hon'ble Jurisdictional High Court in CIT v/s Band of Baroda. The learned Authorised Representative submitted, the same view has again been expressed by the Hon'ble Jurisdictional High Court in CIT v/s HDFC Bank Ltd., 368 ITR 377. The learned Authorised Representative submitted, the Assessing Officer himself has allowed assessee’s claim in all other assessment years, except, the impugned assessment year. He, therefore, submitted that re–opening of assessment has rightly been held as invalid by the first appellate authority.
We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. Undisputed facts are, assessment in assessee’s case was originally completed under section 143(3) on 23rd December 2008. There is also no dispute that the notice under section 148 of the Act was issued on 27th March 2012, which is beyond four years from the end of impugned assessment year. Thus, the re–opening of assessment under section 147 is subject to fulfillment of conditions mentioned in the first proviso to the said section. As per the first proviso to section 147, in case of an assessee where assessment has already been completed under section 143(3) or section 147, no re–
8 DBS Bank Limited opening of assessment can be made after expiry of four years from the end of relevant assessment year, unless, the escapement of income is due to failure on the part of the assessee to make a return under section 139 or in response to notice issued under section 142(1) / 148 or for the reason of failure to disclose fully and truly all necessary facts necessary for his assessment. Thus, as in the case of assessee, the assessment has been completed under section 143(3) of the Act and re–opening of assessment is beyond the period of four years from the end of relevant assessment year, the conditions imposed under first proviso to section 147 would apply. As noted by us, in the aforesaid proviso two conditions have been imposed. Firstly, there should be a failure on the part of the assessee to file a return of income under section 139 or in response to notices issued under section 142(1) or section 148. As far as the present assessee is concerned, this condition does not apply. The second condition is, the escapement of income is due to failure on the part of the assessee to disclose fully and truly all necessary facts for his assessment. We, therefore, are required to examine whether this condition is satisfied in case of the assessee. For this purpose, it is necessary to look into the reasons recorded for re– opening of the assessment under section 147 of the Act, a copy of which is at Page–22 of the paper book. The reasons for re–opening of the assessment are as under:–
9 DBS Bank Limited “The assessee M/s. DBS Bank Ltd. India filed return on 31.10.05 declaring Nil income and assessment was completed u/s. 143(3) on 23.12.2008 assessing income of Rs. 177138032/- subsequently the assessrTjient was rectified u/s. 154 dtd. 6.3.2009 treating the total assessed income same i.e. 177138032/- only. Perusal of records revealed that in profit and loss account, assessee has debited expenses on account of Provision for depreciation on investments Rs. 15301000/(Sçh. 17 provision and contingencies. As the provision for depreciation and investment is not allowable expenses the same should have been added back to the total income and brought under the ambit of income tax. However the same has not been done. Omission to do so has resulted in under assessment of income to the extent of Rs. 15301000. Therefore, in view of aforementioned facts and circumstance of the case, I have reason to believe that income of the assessee exceeding Rs. 1 lakhs has escaped assessment for A.Y. 2005-06 and such escapement is on account of failure on the part of the assessee to disclose fully and truly all material facts relating to income from the aforementioned transactions. Accordingly for A.Y. 2005-06, the case of the assessee requires to be reopened u/s.147 of the IT. Act.”
On a careful reading of the reasons recorded, it is patent and obvious that at the time of re–opening of assessment the Assessing Officer did not have any tangible material before him to form the belief that income has escaped assessment. On the contrary, as could be seen, the Assessing Officer on examining the Profit & Loss account filed by the assessee along with return of income has formed an opinion that expenditure debited to the Profit & Loss account on account of provisions of depreciation on investment is not an allowable expenditure. Thus, it is very much clear in the reasons recorded the Assessing Officer on the basis of material furnished by the assessee in its audited accounts at the time of filing of return of income as well as 10 DBS Bank Limited in the course of original assessment, has formed the opinion that income has escaped assessment. That being the case, it cannot be said that there is failure on the part of the assessee in disclosing fully and truly all material facts necessary for his assessment, thereby, resulting in escapement of income. Having held so, let us examine whether this particular aspect of alleged escapement of income was examined by the Assessing Officer at the time of original assessment or not. On a perusal of the notice dated 6th November 2007, issued under section 142(1) of the Act by the Assessing Officer during the original assessment, along with its questionnaire reveal that at serial number (xiii), the Assessing Officer has specifically called upon the assessee to furnish the details of depreciation including depreciation on investment with a note on taxability of the same. In response to the query raised by the Assessing Officer, as aforesaid, the assessee in its reply dated 4th December 2007, has replied as under:–
“Depreciation on Fixed Assets (both as per Companies Act and per Income Tax Act) forms a part of the Tax Audit report. Diminution in the value on investments has been claimed as an allowable expense keeping in view the policy consistently followed by the Bank of claiming this as a deductible expense for that year itself. Securities are held as stock-in–trade and as such are entitled to be valued at the lower of cost or market value. It may kindly be noted that such deduction has been upheld by the CIT (Appeals) XXXI, Mumbai in our case for Assessment Year 1999-2000.”
Thus, as could be seen from the material brought on record, not only the assessee disclosed full particulars relating to expenditure
11 DBS Bank Limited claimed on account of provision for depreciation on investment in its return of income as well as subsequently during the original assessment proceedings, but, the Assessing Officer also during the original assessment proceedings, enquired into assessee’s claim and after examining in detail, the explanation of the assessee and material on record completed the assessment under section 143(3) accepting assessee’s claim. That being the case, in our opinion, the pre– conditions imposed under the first proviso of section 147 is not satisfied for re–opening the assessment after expiry of four years from the end of the relevant assessment year. Moreover, undisputedly, at the time of original assessment, the Assessing Officer has enquired into and examined assessee’s claim of deduction on account of provision for depreciation on investment. It is also evident, the re– opening of assessment is not on appreciation of any fresh tangible material coming to the possession of the Assessing Officer post the original assessment. He has re–opened the assessment by re– examining the material already available at the time of original assessment on the basis of which the Assessing Officer had passed the order under section 143(3) of the Act accepting assessee’s claim. Thus, the re–opening of assessment on the basis of very same material considered in original assessment is noting but a mere change of opinion which is not permissible under the Act. That being the case,
12 DBS Bank Limited the re–opening of assessment under section 147 is invalid. The validity of re–opening can also be looked into from another angle.
It has been noted by us that the assessee is consistently following a method of accounting under which shares / securities though are held as stock–in–trade but are disclosed as investment in the balance sheet in accordance with Banking Regulation Act, 1949. However, the investment reflected in the balance sheet are nothing but stock–in–trade for all purpose. Undisputedly, the assessee is following the same accounting policy over the years. It is relevant to observe in assessee’s own case in assessment year 1999–2000, the Assessing Officer had disallowed similar deduction claimed by the assessee on account of diminution in the value of investment. When the Revenue approached the Tribunal against the relief granted by the first appellate authority, the Tribunal allowed assessee’s claim of deduction following the decision of the Hon'ble Jurisdictional High Court in CIT v/s Bank of Baroda (supra), 262 ITR 334 (Bom.) At this stage, we consider it appropriate to reproduce the observations of the Tribunal in ITA no.1787/Mum./2004, etc., dated 20th April 2011.
“5.2 We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of loss arising on account of diminution in the value of investment. We find that the same issue had been considered by the Hon'ble High Court of N'lumbai in case of CIT Vs Bank of Baroda (supra) in which the assessee had been valuing the investment at cost or market whichever is lower and in that particular year the assessee had incurred loss which was claimed as deduction. The High Court
13 DBS Bank Limited allowed the claim. The facts in the case of the assessee are identical. Therefore respectfully following the said judgment we see no infirmity in the order of CIT(A) and confirmed the same.”
In fact, the Hon'ble Jurisdictional High Court following its own decision in Bank of Baroda (supra), reiterated the same view in case of CIT v/s HDFC Bank Ltd. [2014] 368 ITR 377 (Bom.). It is also an uncontroverted fact that except the impugned assessment year, the Assessing Officer has allowed assessee’s claim in all other assessment years. Therefore, considered in the light of the decision of the Tribunal in assessee’s own case in assessment year 1999–2000 as well as the decision of the Hon'ble Jurisdictional High Court referred to above the deduction claimed by the assessee being an allowable deduction there cannot be any escapement of income on account of deduction claimed by the assessee. Thus, for the aforesaid reason also, re–opening of assessment is invalid. In view of the aforesaid, we do not find any infirmity in the decision of the learned Commissioner (Appeals) in annulling the assessment. Accordingly, we uphold the same by dismissing the ground raised by the Department.
In the result, Revenue’s appeal is dismissed.
Cross Objection no.5/Mum./2016
The grounds raised in the cross objection are touching upon the merits of various disallowance made by the Assessing Officer in the 14 DBS Bank Limited re–assessment order. As we have upheld the order of the learned Commissioner (Appeals) annulling the re–assessment, the grounds raised in the cross objection have become infructuous, hence, not required to be adjudicated. Accordingly, they are dismissed.
In the result, Department’s appeal and assessee’s cross objection are dismissed. Order pronounced in the open Court on 26.08.2016