ICICI Bank Ltd. v. Dy. CIT - Taxpublishers.in

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The Tax Publishers2012 TaxPub(DT) 0726 (Bom-HC) : (2012) 045 (I) ITCL 0117 : (2012) 246 CTR 0292 : (2012) 065 DTR 0249 INCOME TAX ACT, 1961 --Reassessment--Validity of notice under section 148Issue already subject-matter of appeal before CIT(A)--The petitioner filed its return of income for assessment year 2003-04 on 28-11-2003. A revised return of income was thereafter filed on 11-1-2005 and 31-3-2005. The AO issued several questionnaires on 3-8-2005, 6-12-2005 and 30-12-2005. The assessee filed its replies on 18-11-2005, 5-12-2005, 23-12-2005 and 20-1-2006. The AO passed an order of assessment on 28-2-2006. During the course of the assessment proceedings, the assessee made a claim under section 10(23G) in the total amount of Rs. 124.71 crores. The AO allowed the claim to the extent of Rs. 53.80 crores, reducing the deduction as claimed by an amount of Rs. 70.90 crores. The assessee had also claimed a write off on account of bad debts in the total of an amount of Rs. 1503.06 crores under section 36(1)(vii) including a write off on fees of Rs. 62.09 crores. The AO disallowed the write off on account of bad debts to the extent of Rs. 769.75 crores and allowed the claim in the amount of Rs. 672 crores. The assessee had filed an appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee by accepting the claim under section 36(1)(vii) and section 36(1)(viii) and allowed a proportionate deduction under section 10(23G) on the basis of the ratio adopted in the earlier assessment years. The notice under section 148 has been issued admittedly after a period of four years from the end of the relevant assessment year. The issue which falls for determination before the court is as to whether, within the meaning of the first proviso to section 147, there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that assessment year.Ã¢â‚¬ The contention of the assessee which would need to be considered is that the reasons which have been disclosed for re-opening the assessment ex-facie do not contain any reference to a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. On the other hand, according to the revenue, the AO was acting within his jurisdiction in purporting to re-open the assessment after the expiry of four years of the end of the relevant assessment year. *Held:* In the present case, the exercise of the power to re-open the assessment on the first and third ground, both of which relates to the write off of bad debts under section 36(1)(vii) was in excess of jurisdiction, once the write off formed the subjkect-matter of an appeal before the CIT(A) and which resulted in an order of 29-9-2010 of the appellate authority. The power to reopen an assessment cannot be exercised to re-open what formed the subject-matter of an appeal to the CIT(A). The AO had acted in excess of his jurisdiction in purporting to re-open the assessment after the expiry of a period of four years of the end of the assessment year. The jurisdictional condition for the exercise of the power to re-open in such a case had not been fulfilled. In the present case, ex-facie, there is no statement in the reasons disclosed by the AO 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 2003-04. The first and the third reasons both have a bearing on the claim of the assessee to a write off of bad debts under section 36(1)(vii). As noted earlier, the assessee had claimed a total write off in the amount of Rs. 1503.06 crores of which the AO dis allowed the claim to the extent of Rs. 769.75 crores. The ground on which the assessment is sought to be re-opened is that the assessee had claimed bad debts in respect of parties where the income had been exempt under section 10(23G). The case of the revenue is that since the assessee had claimed a benefit of section 10(23G), it could not, to that extent, have claimed a write off under section 36(1)(vii). [Para 16] In this regard, it needs to be noticed that the second proviso to section 147 stipulates that the AO may assess or re-assess such income other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. In the present case, it has emerged from the affidavit in reply of the Revenue that the assessee had filed an appeal to the CIT(A) against the order of assessment. Paragraph 4(v) of the reply states that by his order dated 29-9-2010, the CIT(A) partly allowed the appeal filed by the Petitioner by accepting the claim under section 36(1)(vii) and section 36(1)(viii) and by allowing a proportionate deduction under section 10(23G) on the basis of the ratio adopted in the earlier assessment years. That being the position, in view of the clear provisions of the second proviso to section 147, the AO cannot purport to re-open the assessment in respect of a matter which squarely formed the subject matter of the Appeal before the CIT(A). Under section 251, the powers of the CIT(A) are wide. The CIT(A) is entitled while disposing of an appeal against an order of assessment to confirm, reduce, enhance or annul the assessment. Consequently, it was open to the Revenue in the appeal before the appellate authority to urge that the claim to a write off under section 36(1)(vii) ought to have been dis allowed to the extent to which income had been claimed to be exempt under section 10(23G). The object and purpose underlying the second proviso to section 147 is that upon an assessment being re-opened, the AO is entitled to assess or re-assess such income which is chargeable to tax which has escaped assessment. However, matters which are the subject matter of an appeal, reference or revision, are excepted from the jurisdiction of the AO. In the present case, the exercise of the power to re-open the assessment on the first and third ground, both of which relates to the write off of bad debts under section 36(1)(vii) is in excess of jurisdiction, once the write off formed the subject matter of an appeal before the CIT (A) and which resulted in an order of 29-9-2010 of the appellate authority. The power to reopen an assessment cannot be exercised to re-open what formed the subject matter of an appeal to the CIT(A). [Para 17] The second ground that has weighed with the AO is that according to him, there has been an excessive deduction under section 36(1)(viia). Now, so far as this aspect is concerned, the order of assessment would show that the AO allowed a deduction to the extent of 7.5% of the total business income computed at Rs. 414.07 crores. The total income of the assessee has been computed at Rs. 1241.63 crores. Ex-facie, section 36(1)(viia) allows a deduction in respect of a provision for bad and doubtful debts made by a Scheduled Bank of an amount not exceeding 7.5% of the total income (computed before making any deduction in that clause and Chapter VIA). As a matter of fact, it is the grievance of the assessee, which forms the subject matter of a separate application for rectification that the officer ought to have granted a deduction of an amount of 7.5% of the total income and not of the lesser amount of the business income. Hence, on this aspect of the matter. There was merit in the contention urged on behalf of the assessee that any AO duly informed in law could not possibly come to the conclusion that there was an escapement on this ground. The AO had acted in excess of his jurisdiction in purporting to re-open the assessment after the expiry of a period of four years of the end of the assessment year. The jurisdictional condition for the exercise of the power to re-open in such a case had not been fulfilled. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0726 (Bom-HC) : (2012) 045 (I) ITCL 0117 : (2012) 246 CTR 0292 : (2012) 065 DTR 0249

INCOME TAX ACT, 1961

--Reassessment--Validity of notice under section 148Issue already subject-matter of appeal before CIT(A)--The petitioner filed its return of income for assessment year 2003-04 on 28-11-2003. A revised return of income was thereafter filed on 11-1-2005 and 31-3-2005. The AO issued several questionnaires on 3-8-2005, 6-12-2005 and 30-12-2005. The assessee filed its replies on 18-11-2005, 5-12-2005, 23-12-2005 and 20-1-2006. The AO passed an order of assessment on 28-2-2006. During the course of the assessment proceedings, the assessee made a claim under section 10(23G) in the total amount of Rs. 124.71 crores. The AO allowed the claim to the extent of Rs. 53.80 crores, reducing the deduction as claimed by an amount of Rs. 70.90 crores. The assessee had also claimed a write off on account of bad debts in the total of an amount of Rs. 1503.06 crores under section 36(1)(vii) including a write off on fees of Rs. 62.09 crores. The AO disallowed the write off on account of bad debts to the extent of Rs. 769.75 crores and allowed the claim in the amount of Rs. 672 crores. The assessee had filed an appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee by accepting the claim under section 36(1)(vii) and section 36(1)(viii) and allowed a proportionate deduction under section 10(23G) on the basis of the ratio adopted in the earlier assessment years. The notice under section 148 has been issued admittedly after a period of four years from the end of the relevant assessment year. The issue which falls for determination before the court is as to whether, within the meaning of the first proviso to section 147, there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that assessment year.Ã¢â‚¬ The contention of the assessee which would need to be considered is that the reasons which have been disclosed for re-opening the assessment ex-facie do not contain any reference to a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. On the other hand, according to the revenue, the AO was acting within his jurisdiction in purporting to re-open the assessment after the expiry of four years of the end of the relevant assessment year. Held: In the present case, the exercise of the power to re-open the assessment on the first and third ground, both of which relates to the write off of bad debts under section 36(1)(vii) was in excess of jurisdiction, once the write off formed the subjkect-matter of an appeal before the CIT(A) and which resulted in an order of 29-9-2010 of the appellate authority. The power to reopen an assessment cannot be exercised to re-open what formed the subject-matter of an appeal to the CIT(A). The AO had acted in excess of his jurisdiction in purporting to re-open the assessment after the expiry of a period of four years of the end of the assessment year. The jurisdictional condition for the exercise of the power to re-open in such a case had not been fulfilled.

In the present case, ex-facie, there is no statement in the reasons disclosed by the AO 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 2003-04. The first and the third reasons both have a bearing on the claim of the assessee to a write off of bad debts under section 36(1)(vii). As noted earlier, the assessee had claimed a total write off in the amount of Rs. 1503.06 crores of which the AO dis allowed the claim to the extent of Rs. 769.75 crores. The ground on which the assessment is sought to be re-opened is that the assessee had claimed bad debts in respect of parties where the income had been exempt under section 10(23G). The case of the revenue is that since the assessee had claimed a benefit of section 10(23G), it could not, to that extent, have claimed a write off under section 36(1)(vii). [Para 16] In this regard, it needs to be noticed that the second proviso to section 147 stipulates that the AO may assess or re-assess such income other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. In the present case, it has emerged from the affidavit in reply of the Revenue that the assessee had filed an appeal to the CIT(A) against the order of assessment. Paragraph 4(v) of the reply states that by his order dated 29-9-2010, the CIT(A) partly allowed the appeal filed by the Petitioner by accepting the claim under section 36(1)(vii) and section 36(1)(viii) and by allowing a proportionate deduction under section 10(23G) on the basis of the ratio adopted in the earlier assessment years. That being the position, in view of the clear provisions of the second proviso to section 147, the AO cannot purport to re-open the assessment in respect of a matter which squarely formed the subject matter of the Appeal before the CIT(A). Under section 251, the powers of the CIT(A) are wide. The CIT(A) is entitled while disposing of an appeal against an order of assessment to confirm, reduce, enhance or annul the assessment. Consequently, it was open to the Revenue in the appeal before the appellate authority to urge that the claim to a write off under section 36(1)(vii) ought to have been dis allowed to the extent to which income had been claimed to be exempt under section 10(23G). The object and purpose underlying the second proviso to section 147 is that upon an assessment being re-opened, the AO is entitled to assess or re-assess such income which is chargeable to tax which has escaped assessment. However, matters which are the subject matter of an appeal, reference or revision, are excepted from the jurisdiction of the AO. In the present case, the exercise of the power to re-open the assessment on the first and third ground, both of which relates to the write off of bad debts under section 36(1)(vii) is in excess of jurisdiction, once the write off formed the subject matter of an appeal before the CIT (A) and which resulted in an order of 29-9-2010 of the appellate authority. The power to reopen an assessment cannot be exercised to re-open what formed the subject matter of an appeal to the CIT(A). [Para 17] The second ground that has weighed with the AO is that according to him, there has been an excessive deduction under section 36(1)(viia). Now, so far as this aspect is concerned, the order of assessment would show that the AO allowed a deduction to the extent of 7.5% of the total business income computed at Rs. 414.07 crores. The total income of the assessee has been computed at Rs. 1241.63 crores. Ex-facie, section 36(1)(viia) allows a deduction in respect of a provision for bad and doubtful debts made by a Scheduled Bank of an amount not exceeding 7.5% of the total income (computed before making any deduction in that clause and Chapter VIA). As a matter of fact, it is the grievance of the assessee, which forms the subject matter of a separate application for rectification that the officer ought to have granted a deduction of an amount of 7.5% of the total income and not of the lesser amount of the business income. Hence, on this aspect of the matter. There was merit in the contention urged on behalf of the assessee that any AO duly informed in law could not possibly come to the conclusion that there was an escapement on this ground. The AO had acted in excess of his jurisdiction in purporting to re-open the assessment after the expiry of a period of four years of the end of the assessment year. The jurisdictional condition for the exercise of the power to re-open in such a case had not been fulfilled.