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Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK
Before: S/SHRI N.S SAINI & PAVAN KUMAR GADALE
Per N.S.Saini, AM
The appeal filed by the Revenue and the cross objection filed by the
assessee against the order of the Id CIT(A)-II, Bhubaneswar dated
20.11.2014, for the assessment year 2008-09.
Ground No.1 of appeal of the revenue reads as under:
"On the facts and in the circumstances of the case, the CIT(A) is not justified in deciding that the action of the AO of reopening the assessment u/s.147 is clearly invalid."
Brief facts of the case are that the assessee is engaged in the
business of retail banking business. It filed the return of income on
27.10.2008 at an income of Rs.12,97,610/-. The same was assessed at
Rs.15,32,790/- u/s. 143(3) of the Act on 23.11.2010.
Subsequently, the Assessing Officer observed from Schedule -18 of
notes on account to the audited statement of account of the assessee that
the assessee's non performance assets (NPS) are as under:
"Provision towards NPAs as on 31.3.2007 : Rs.2906.56 lakhs Provision made during F.Y. 2007-08 towards NPSs : Rs.1128.70 lakhs Provision towards NPAs as on 31.3.2008 :Rs.4034.28 lakhs
The Assessing Officer observed that a fresh provision of Rs.42.14
lakhs was made by the assessee in the financial year 2007-08 under the
head "other liabilities and provision other". He observed that total
provisions made during the financial year 2007-08 was Rs.1128.70 lakhs
plus Rs.42.14 lakhs aggregating to Rs.11,70,84,000/-, which according to
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the Assessing Officer, was not allowable for deduction u/s.36(l)(vii) of the
Act as expenditure. Based on this, the Assessing Officer recorded the
reasons that income chargeable to tax has been under assessed and,
therefore, escaped assessment within the meaning of section 147 of the
Act. Thereafter, the Assessing Officer issued notice u/s.148 of the Act on
10.12.2012 and passed order u/s.144 r.w.s. 147 of the Act on 18.2.2014.
The assessee challenged reopening of assessment before the CIT(A)
and submitted as under:
"(a) The Appellant was a Regional Rural Bank (RRB) and therefore a deemed cooperative society for the purpose of the Act u/s 22 of the RRB Act. Also, the Appellant was entitled to a deduction u/s 80P of the Income-tax Act since it was not a "cooperative bank" as defined in the Explanation to the Section 80P read with Part V of the Bank Regulation Act, 1949 and Section 2(d) and 2(u) of the National Bank for Agricultural and Rural Development (NABARD) Act, 1981 and additionally did not fall under the purview of Section 80P(4) of the Act.
b) The accounts of the Appellant had been statutorily audited by auditors appointed by NABARD and further its activities including the maintenance of records, documents vouchers, etc. were regulated, monitored and inspected by NABARD and the Reserve Bank of India (RBI).
c) The earlier assessment order passed u/s 143(3) of the Act had been passed by the AO after due examination of all particulars and material facts disclosed fully and truly by the Appellant vide and alongside the Return of Income filed and Statements of Accounts audited u/s 44AB of the Act. The material facts and particulars so disclosed included the impugned claim of provisions for bad and doubtful debts. The Appellant implicitly averred through this submission that there was no fresh material on record to reopen the assessment proceedings based on an "audit objection", as the AO had done.
d) Moreover, the Appellant averred that the claim of Rs. 11,70,84,000 made towards provisions for bad and doubtful debts fell within the purview of Section 36(l)(viia)(a) of the Act, and the Tax Audit Report prepared u/s 44AB had reported the amount disallowable under the said Section 36(l)(viia)(a) to be Rs. NIL. [NB: Although there appears to be no specific column in Form 3CD relating to Section 44AB towards the same, the Appellant is presumably referring to the clausel7(k) where against the entry head "Particular of any liability of a contingent nature" the Appellant has
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reported Rs. NIL]. Therefore, once again, the Appellant's implicit position was that there was no fresh material on record mandating and validating the reopening of assessment proceedings. Since the above facts were already available before the AO when he passed the earlier assessment order u/s 143(3) on 23.11.2010.
e) The assessment order passed u/s 143(3) was therefore correct to the extent of the impugned claim of deduction made towards provision for bad and doubtful debts and the act of reopening u/s 147 and the issue of notice u/s 148 were arbitrary, unjustified, erroneous and bad in law, and hence ought to have been dropped.
f) The impugned assessment order u/s 144 r.w.s. 147 was passed by the AO without providing reasonable and adequate opportunity to the Appellant and on "mis-appreciation and misconstruing of facts" and on erroneous premises. The provisions of section 36(l)(vii) had been wrongly applied by the AO, even as he had completely ignored and overlooked the applicable provisions of section 36(l)(viia)(a) that clearly allowed the impugned expenditure as a deductible claim. Also, the judicial citations recorded by the AO in his assessment order were averred by the Appellant to be irrelevant to the facts of the case.
During the Appellate proceedings the Appellant also made additional submissions on 14.11.2014 and 19.11.2014 which included the filing of the copies of the Statements of Accounts and the Audit report u/s 44AB of the Act. The text of the detailed submissions made are reproduced verbatim below:
In connection with the above mentioned case, the following submissions are made for your kind consideration and record: Ground No.1 & 3
The assessee. Neelachal Gramya Bank (for short "NGB", is a 'Regional Rural Bank (for short "RRB") under the Regional Rural Banks Act, 1976 (for short "RRB Act") and is a Co-operative Society under the Income Tax Act, 1961 (for short the "I.T.Act" or the "Act") and is a scheduled Bank as in the Second Schedule to the Reserve Bank of India Act, 1934 and is carrying on the business of banking.
It may be noted that;
i. The assessee is a 'Regional Rural Bank' and is deemed to be a co- operative society for purpose of the I.T Act as per section 22 of the Regional Rural Banks Act, ii. The assessee is a Scheduled Bank
iii. The assessee is not a "co-operative bank" as per Explanation to section 80P of the I.T. Act r.w. Part V of the Banking Regulation Act, 1949 and
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section 2(d) & 2 (u) of National Bank for Agricultural and Rural Development Act, 1981.
iv. The assessee does not fall under the purview of section 80P(4) of the I.T.Act
and therefore, the assessee is entitled for deduction u/s.80P of the I.T.Act.
That the accounts of the assessee is statutorily audited by the auditors appointed by National Bank for Agricultural and Rural Development (for short "NABARD") and further its activities including maintenance of records, documents vouchers are regulated/monitored and inspected by (for short "NABARD / Reserve Bank of India("RBI").
That for the Assessment Year 2008-09, the Income Tax return of the assessee was filed, by the due date u/s. 139(1) of the I.T.Act at a total income of Rs.12,97,610/-.
That during the scrutiny assessment proceedings u/s. 143(3) of the Act, the assessee, has produced its books of accounts, filed its Annual Report containing Audited Accounts, Auditors' report etc., Tax Audit Report u/s.44AB of the Act, submissions, various documents, details particulars in compliance to notices issued by the learned Assessing Officer (for short "AO") and it is pertinent to note that the assessee and has disclosed fully and truly all material facts inter alia in respect of its provisions for bad and doubtful debts and in this regard Pg 41 of the audited accounts already filed as ENCLOSURE -1 kindly be referred to.
That the learned Assessing Officer after due examination and scrutiny passed orders dt. 23.11.2010 u/s, 143(3) of the Act wherein certain additions/ disallowances were made and had assessed the total income at Rs.15,32,790/-
In the said Pg 41 of the audited accounts it is reflected that a sum of Rs.11,70,84,000/- has been debited to Profit and Loss Account under "provision for doubtful debts". It may be added that, the assessee being a 'scheduled bank' and a Regional Rural Bank having rural branches, the allowability of the such "provision for doubtful debts" falls under the provisions of section 36(l)(viia)(a) of the I.T.Act.
Further, as nothing is disallowable u/s.36(1)(viia)(a) of the Act in the Assessment Year 2008-09,, in the Tax Audit Report u/s.44AB of the Act for the said year, the amount disallowable under the said section is accordingly. is stated to be 'Nil'. The aforesaid has been examined by the learned Assessing Officer and accordingly the order u/s.143(3) dated 23.11.2010 has been passed.
That it is reliably learnt that consequent to and based upon 'audit objections', the learned Assessing Officer viz. Asst. Commissioner of Income
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Tax, Circle 2(2), Bhubaneswar (in short "A0'7 "ACIT") has issued notice u/s 148 of the I.T. Act, alleging escapement of income and in compliance thereto the assessee stated that that the Return filed u/s. 139 of the Act be treated as return u/s. 148 of the Act.
Subsequent to the aforesaid return u/s. 148 of the Act, the learned ACTT intimated the reasons for the reopening u/s 147 of the Act and during the course of the reassessment proceedings, the assessee appeared from time to time and also filed:
a. Audited accounts along with Audit Report and b. Tax Audit Report u/s.44AB of the Act for the Assessment Year 2008-09
and explained/submitted to the learned Assessing Officer that since the aforesaid "provision for doubtful debts" Rs. 11,70,84,000/- debited to Profit and Loss Account is not only as per prudential norms of provisioning prescribed by RBl/NABARD but also within the limits as per provisions of section 36(l)(viia)(a) of the I.T. Act and therefore the assessment order passed u/s. 143(3) of the Act is correct to that extent and hence there being no escapement of any income, the issue of notice u/s. 148 is of the Act is arbitrary, unjustified, erroneous and bad in law and hence ought to be dropped.
The learned Assessing Officer has passed re-assessment order dated 18.02.2014 u/s.147/ 144/ of the Act wherein without providing reasonable and adequate opportunity disallowed/added the aforesaid "provision for doubtful debts" of Rs.l 1,70,84,000/- 36(l)(vii) of the I.T.Act and has reassessed the total income at Rs.l 1,86,16,790/-.
The claim of the assessee with regard to the said Rs.11,70,84,000/- under "provision for doubtful debts" is within the limits prescribed under section 36(l)(viia)(a) of the I.T.Act.
It is pertinent to note that the learned Assessing Officer in disallowing /adding the aforesaid "provision for doubtful debts" of Rs.11,70,84,000/- has wrongly applied the provisions of section 36(l)(vii) of the I.T.Act and has completely ignored/overlooked the applicable provisions viz. section 36(l)(viia)(a) of the I.T.Act, which is applicable to the case of the assesses being a 'scheduled bank' as stated above. In this regard the provisions of section 36(l)(vii) and section 36(l)(viia)(a) of the I.T.Act are given hereunder:
"Other deductions.
(I) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28—
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XXX (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year:-------
Provided that in the case of [an assessee] to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause.
Explanation.—For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts the assessee;
(viia) in respect of any provision for bad and doubtful debts made by- a) a scheduled bank not being a bank incorporated by or under the laws of a county outside India] or a nan- scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half per cent of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made the rural branches of such bank computed in the prescribed manner
Provided that a scheduled bank oi a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year:
Provided further that for the relevant assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect if for the words "five per cent", the words "ten per cent" had been substituted.
Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government: Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains of business or profession."
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Explanation. For the purposes this sub-clause, "relevant assessment years" means the five consecutive assessment years commencing on or after the 1st day of April, 2000 and ending before the 1st day of April, 2005;"
(emphasis supplied by us)
From the above, it is very clear that the learned Assessing Officer has wrongly applied Ihe provisions of section 36(l)(vii) of the I.T.Act and has completely ignored the applicable provisions viz. section 36(l)(viia)(a) of the I.T.Act, which is applicable to the case of the assesses being a 'scheduled bank' as stated above and thus the disallowance/ addition of the aforesaid "provision for doubtful debts" of Rs.11,70,84,000/- is a clear error, bad in law and legally untenable.
Further, the learned Assessing Officer has erroneously and irrelevantly concluded that the said amount of Rs.11,70,84,000/- is not actual expenditure/bad debt, but contingent liability and is not an eligible expenditure u/s 36(l)(vii) of the Act.
Moreover, the learned Assessing Officer has erroneously and irrelevantly relied upon /applied case laws which are not applicable to the facts of case of the assessee while making the aforesaid addition of the aforesaid Rs.11,70,84,000/- in the re-assessment order dated 18.02.2014.
Thus the disallowance /addition of Rs. 11,70,84,000/- under "provision for doubtful debts" by the learned Assessing Officer by holding that the same is not allowable deduction u/s.36(l)(vii) of the Act arbitrary, unjustified, erroneous, bad in law and legally untenable.
That the claim of the assessee with regard to the said Rs. 11,70,84,000/-under "provision for doubtful debts" being within the limits prescribed under section 36(1 )(viia)(a) of the I.T.Act, the aforesaid addition/ disallowance of Rs.11,70,84,000/- u/s.36(l)(vii) of the Act is arbitrary, unjustified, erroneous and bad in law and legally untenable.
That the learned Assessing Officer has wrongly applied the provisions of section 36(l)(vii) of the I.T.Act and has completely ignored/overlooked the applicable provisions viz. section 36(l)(viia)(a) of the I.T.Act and hence 'the aforesaid addition/ disallowance of Rs.11,70,84,000/- u/s.36(l)(vii) of the Act is arbitrary, unjustified, unwarranted, erroneous and bad in law and legally untenable. 21. In view of the above it is submitted that the aforesaid addition/ disallowance of Rs.l 1,70,84,000/- u/s.36(l)(vii) of the Act be fully deleted.
Ground Nos.1 & 2:
Without prejudice to the paras 1 to 20 above:
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a. As already stated the assessee, during the scrutiny assessment proceedings u/s.143(3) of the Act, has produced its books of accounts, filed its Annual Report containing Audited Accounts, Auditors' report etc., Tax Audit Report u/s.44AB of the Act etc,, and in particular the assessee and has disclosed fully truly all material facts in respect of its provisions for bad and doubtful debts and after considering and after due verification, the learned AO has passed order dt. 23.11.2010 u/s.143(3) of the Act.
b. That it is understood that the notice u/s. 148 is issued after the audit objections on the said assessment order u/s. 143(3) of the Act.
c. That it is pertinent to mention herein that the income as disclosed in the Profit and Loss Account as per the method of accounting under accrual system of accounting, and the provision for bad and doubtful debts which has been accepted by the Id AO after due verification and is legally correct and income as stated by AO.
d. It is pertinent to note that the assessee had disclosed all material facts and has also furnished information asked for by the AO during assessment proceedings u/s. 143(3) of the Act and taking into account the same and after due consideration the Learned AO has passed the assessment order u/s. 143(3) of the Act.
e. Subsequently, the Learned AO, without any new evidence/ materials on record and purportedly on the basis of Audit objections, changed his opinion and has issued notice u/s. 148 of the Act for re-opening the assessments u/s. 147 of the Act. The assessee filed return in compliance to the said notice u/s. 148 of the Act.
f. That the Learned AO had no new material/evidence before him for issuing notice u/s. 148 of the Act for reopening the assessment u/s 147 of the Act.
g. Further, the reasons recorded as stated for the escapement of income in the order of AO is only a mere change of opinion and that too after taking into account the 'audit objections' in this regard.
h. During the reassessment proceedings the Learned AO reexamined the issue and has passed reassessment order dated 18.02.2014 u/s 143(3)/144 of the Act wherein he has not accepted the above said correct position of law and has mis-applied the provisions of sec 36(l)(vii) instead of sec 36(l)(viia) and has disallowed/added "provision for doubtful debts" of Rs. 11,70,84,000/-.
i. In the present case there is no statement in the reasons disclosed by the Assessing Officer that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for assessment year 2008-09.
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j. In view of the above, the issue of notice u/s.148 for re-opening the assessments u/s.147 of the Act is unjustified, erroneous, bad in law, and legally untenable and thereby the order dated 18.02.2014 of the learned AO is erroneous, bad in law. and legally untenable and liable to be quashed. The judgment of the Apex Court in the case of CIT vs. Kelvinator of India Ltd (2010) 320 1TR 561 (SC) is relied upon.
Question which arose for determination in the instant appeals was:
Whether the concept of "change of opinion' stands obliterated with effect from 1-4-1989, i.e., after substitution of section 147 by the Direct Tax Laws (Amendment) Act, 1987.
HELD Prior to the Direct Tux Laws (Amendment) Act, 1987, reopening could be done under two conditions, viz., if (a) the ITO had reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b) the ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. The fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 with effect from 1-4-1989 those conditions are given a go-by and only one condition has remained, viz., where the Assessing Officer has reason to believe that income has escaped assessment, the section confers jurisdiction to reopen the assessment. Therefore, post 1-4- 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe', failing which 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. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review the power to reassess, but the reassessment has to be based on fulfilment of certain pre- condition is 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 cm: of 'change of opinion 'as an in-built test to check abuse of power by the Assessing Officer: Hence, after 1- 4-1989, the Assessing Officer has power to reopen, provided there is 'tangible material' In come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words 'reason to believe' also inserted the word 'opinion' in section 147. However, on receipt of representations from / companies against omission of the words 'reason to believe', the Parliament re-introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer (Para 4)
i. The following judgments arc also relied upon:
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i. D.T.& T.D.C Ltd. vs CIT (2010) 324 1TR 234 (Del) ii. Sadhab Engineering vs DCIT, 2010 9ITI) GJX 378 (Guj) iii. CIT vs. Kelvenator India Ltd. 123 Taxman 433 (Delhi FB) 256 ITR 1 iv. CIT vs Alagendran Finance Ltd (2007) 162 Taxman 465 (SC) v. Asteroids Trading & Investment P.Ltd. Vs. DCIT (2009) 308 ITR 190 (Bom) (No new material brought on records - Re-assemment on change of opinion of officer not valid)
vi. Asian Paints Ltd. Vs. DCIT (2008) 308 ITR 195 (Bom) vii. Aventis Pharma Ltd. Vs. ACIT (2010) 323 ITR 570 (Bom) viii. Bhavesh Developers vs. AO [2010] 188 TAXMAN 123 (Bom) ix. It is well settled that when the assessee had produced all the material and relevant facts and therefore the reassessment proceedings cannot be sustained:.
• Praful Chunilal Patel vs. M.J. Makwana, ACIT (1999) 236 ITR 832 (Guj) • JCIT & Ors vs. George Williamson (Assam) Ltd. (2002) 258 ITR 126 (Guj) MJ. Pharmaceuticals Ltd. vs. CIT (2008) 297 ITR 119 (Bom) • CIT vs. Former Finance (2003) 264 ITR 566 (SC)
Further, it is also well settled audit objection cannot be the basis of issue of notice u/sl48 for reassessment proceedings:
Indian & Eastern Newspaper Society vs. CIT (1979) 119 ITR 996 (SC). Exchange Ahmedabad vs. ACIT (1997) 227 ITR 906 (Guj) CIT vs. Lucuns TVS Ltd. (2001) 249 ITR 306 (SC) Purity Tech Textiles Pvt. Ltd. v. ACIT (2010) 325 ITR 459 (Bom) Adani Exports vs. DCIT (1999) 240 ITR 224 (G uj) Asian Cere Information Services (P)Ltd. v. ITO (2007) 293 ITR 271 (Bom)
That in view of the above, it is therefore submitted that:
i. the issue of the aforesaid notice u/s. 148 of the Act is bad and legally untenable as the conditions provided in section 147 and 148 and as has been judicially interpreted have not been satisfied.
ii. the aforesaid notice u/s. 148 of the Act is lack of/in excess of jurisdiction, arbitrary, erroneous, bad in law, and legally untenable.
In view of the above, it is submitted that the order dt. 18.02.2014 passed by the learned AO u/s. 144/147 of the Act is liable to be annulled/quashed. 7. The CIT(A) after considering the submissions of the assessee held
as under:
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" The action of the AO in reopening of the proceedings u/s 147 r.w.s 148 is yet another instance of the AO's actions that fall foul of the statute, as the same was carried out even as no fresh materials different from those available at the time of the original assessment proceedings were brought on record to justify the initiation of the impugned reassessment proceedings. This requirement is the essence of several judicial ratios by the Hon'ble Courts of the land, some which have been cited by the Appellant. The Schedule 18 of the Notes on Accounts to the audited statements of accounts of the Appellant that was employed by the AO as the basis of his reasoning that formed this belief and satisfaction that incomes had escaped assessment was available to him during the original assessment proceedings too. "Not referring to the said correct state of affairs and initiating reassessment proceedings is but unwarranted, misapplied and misdirected trigger happiness by the AO. There is an imputation in the arguments of the- Appellant that the action of the AO was triggered on account of an audit objection. Even so, the AO has not independently considered the merits of such audit objection, or the competence of the audit team to raise such an opinion on a legal-judicial and interpretative issue. The AO has not undependably verified the factual matrix, or applied his mind in considering the Appellant's submissions. The belief or satisfaction of the audit team cannot be held as the belief or satisfaction of the AO within the definition of Section 147 of the Act. This has remained the consistent position in several judicial ratios of the Hon'ble Courts of the land. Any alleged non-verbal or trans-corporeal-transference or other invisible or presumed mechanism that enables such germination and crystallization of belief and satisfaction in the mind of the AO cannot be held as a legally valid position. The action by the AO of reopening the assessment u/s 147 is clearly invalid."
Ld D.R. relied on the order of the Assessing Officer.
9., Ld A.R. on the other hand submitted that after passing of the original
order u/s.143(3) on 23.11.2010, no fresh material came to the knowledge
of the Assessing Officer, which could trigger the proceedings of
reassessment by issue of notice u/s. 148 of the Act. The Assessing Officer
from the audited statement of account, which were filed alongwith return
of income and which was considered by him while passing the order u/s.
143(3) of the Act came to the conclusion that provisions for bad and
doubtful debts of Rs. 11,70,84.000/- was not allowable deduction to
the assessee u/s.36(l)(vii) of the Act. Thus, the reopening of
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assessment has been made by the Assessing Officer on the very same
materials which were examined and considered by him in a
proceedings u/s. 143(3) of the Act, which is not permissible in law in
view of the decision of Hon'ble Supreme Court in the case of CIT vs.
Kelvinator of India Ltd., 320 ITR 561 (SC). He argued that the CIT(A)
has rightly held that reopening of assessment is invalid.
We have heard the rival submissions, perused the orders of
lower authorities and materials available on record. In the instant
case, the original assessment was completed u/s.143(3) of the Act
on 23.11.2010. The Assessing Officer thereafter observed from the
balance sheet of the assessee from Schedule-18 of the notes on
accounts that the assessee has claimed provisions for bad and
doubtful debts of Rs. 11,70,84,000/- which was not allowable to the
assessee u/s.36(l)(vii) of the Act and, therefore, he had reason to
believe that income chargeable to tax has escaped assessment and,
accordingly, he issued notice u/s. 148 of the Act to the assessee and
passed order u/s. 147/144 of the Act on 18.2.2014. On the above
stated facts, the CIT(A) held that reopening of assessment u/s. 147
of the Act was invalid as from Schedule -18 of note on accounts to
the audited account of the assessee that was employed by the
Assessing Officer as the basis of his reasoning that formed this belief
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and satisfaction that income had escaped assessment was available
to him during the original assessment proceedings too. There is an
imputation in the arguments of the assessee that the action of the
Assessing Officer was triggered on account of an audit objection. The
Assessing Officer has not independently considered the merits of such
audit objection nor the competence of the audit team to raise such an objection on a legal judicial and interpretative issue. The Assessing
Officer has not independently verified the factual matrix nor applied
his mind in considering the assessee's submissions. The belief or
satisfaction of the audit team cannot be held as the belief or
satisfaction of the Assessing Officer within the definition of section 47
of the Act. This has remained the consistent position in several
judicial ratios of the Hon'ble Courts of land.
Ld D.R. during the course of hearing, could not bring any
material on record to show that after passing of the original
assessment order u/s. 143(3) of the Act what new material came to
the knowledge of the Assessing Officer, which showed that income
chargeable to tax of the assessee has escaped assessment. We find
that in the impugned assessment order, the Assessing Officer has
stated that from Schedule,-18 on Notes on accounts of the assessee,
he observed that the assessee has claimed provisions for bad debts
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of Rs.11,70,84,000/-, which is not allowable to the assessee. Thus, it
is observed that the Assessing Officer from the very same audited
statement of account, which were available with him at the time of
passing of original assessment order u/s. 143(3) of the Act, came to
the conclusion that provisions for bad and doubtful debts of Rs.
11,70,84,000/- has been allowed as deduction in excess to the
assessee. Thus, in our considered view, on the very same materials
which were available with the Assessing officer during the course of original
assessment proceedings, the Assessing Officer cannot reopen the
assessment u/s.147 of the Act on the ground that income chargeable to tax
has escaped assessment. Our view finds support from the decision of
Hon'ble Supreme Court in the case of Kelvinator of India Ltd (supra),
wherein, it has been held that the concept of "change of opinion" must be
treated 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 an assessment, 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. In this
context, the observations of Hon'ble apex Court at page 564 are very
relevant, which are reproduced as follows:
"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
16 ITA No. 58 /CT K/ 2015 C.O. No. 13/CT K/ 2015 Asse ssment Year:20 08- 09
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. "
Therefore, we hold that the reopening of assessment is bad in law
and consequently, we confirm the order of the CIT(A) in quashing the
reassessment order u/s.147 of the Act and dismiss Ground No.1 of
appeal of the revenue.
In view of our above findings in Ground No.1 of appeal, other
grounds of appeal raised by the revenue have become infructuous
and are not being separately adjudicated by us.
The cross objection filed by the assessee is in support of the
order of the CIT(A). In view of our decision in revenue's appeal, the
cross objection filed by the assessee has become infructuous and
hence dismissed.
17 ITA No. 58 /CT K/ 2015 C.O. No. 13/CT K/ 2015 Asse ssment Year:20 08- 09
In the result, appeal filed by the revenue and cross objection
filed by the assessee are dismissed.
Order pronounced on 12/07/2017.
Sd/- sd/- (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 12 /07/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The appellant: ACIT 2(1), Bhubaneswar 2. The Respondent; M/s. Neelachal Gramya Bank, 190/702, Kokila Residency, Ananta Vihar, Airport Area Post Office, Pokhariput, Bhubaneswar 3. The CIT(A)-II, Bhubaneswar 4. The Pr. CIT-II, Bhubaneswar 5. DR, ITAT, Cuttack BY ORDER, 6. Guard file. //True Copy// SR.PRIVATE SECRETARY ITAT, Cuttack