Icici Bank Ltd vs Dy. Commissioner Of Income Tax
2011 Latest Caselaw 35 Bom

                                   1                 WP 1765.11 Judg.sxw

    JPP




                                                                      
          IN THE HIGH COURT OF JUDICATURE AT BOMBAY
             ORDINARY ORIGINAL CIVIL JURISDICTION




                                              
                 WRIT PETITION NO. 1765 OF 2011

    ICICI Bank Ltd.                             ... Petitioner.




                                             
          V/s.

    Dy. Commissioner of Income Tax
    Circle 3(1) and Anr.                        ... Respondents.




                                      
    Mr. S.E. Dastoor, Senior Advocate with Ms. Aarti Vissanji and
                       
    Mr. S.J. Mehta for the Petitioner.
    Mr. Vimal Gupta for the Respondents.

                        CORAM : DR. D.Y. CHANDRACHUD &
                      
                                    A.A. SAYED, JJ.

9 NOVEMBER 2011.

ORAL JUDGMENT (Per Dr. D.Y. Chandrachud, J.) :-

Rule, by consent returnable forthwith. With the consent

of Counsel and at their request the Petition is taken up for

hearing and final disposal.

2. The challenge in these proceedings under Article 226 of

the Constitution of India is to a notice issued by the Assessing

Officer on 30 March 2010 under Section 148 of the Income Tax

Act, 1961 seeking to re-open an assessment for Assessment

Year 2003-04.

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3. The notice 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." 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 Assessing Officer 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.

4. The Petitioner filed its return of income for Assessment

Year 2003-04 on 28 November 2003. A revised return of

income was thereafter filed on 11 January 2005 and 31 March

2005. The Assessing Officer issued several questionnaires on

3 August 2005, 6 December 2005 and 30 December 2005.

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The Assessee filed its replies on 18 November 2005, 5

December 2005, 23 December 2005 and 20 January 2006.

The Assessing Officer passed an order of assessment on 28

February 2006.

5. During the course of the assessment, the Assessee had

made a claim under Section 10(23G) in the total amount of

Rs.124.71 crores. The Assessing Officer 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 Assessing

Officer 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 (Appeals). The CIT (Appeals), by an order

dated 29 September 2010 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.

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6. The Assessing Officer issued a notice under Section 148

on 30 March 2010. The reasons which have been furnished to

the Assessee in response to a request for disclosure, on the

basis of which the assessment is sought to be re-opened, are

as follows :-

" In the case, assessment u/s. 143(3) of the I.T. Act, 1961 was completed on 28.02.2006.

(i) On perusal of the records, it is found that the

assessee has claimed bad debts in respect of such parties in whose respect the income was claimed exempt

u/s. 10(23G) of the I.T. Act. As the income was not offered for tax in the previous years, no deduction can be allowed u/s. 36(2) of the I.T. Act. After prima facie

verification, it is found that the total underassessment of income on this count is to the tune of Rs.

8,11,54,142/-. Therefore, the income to the tune of Rs. 8,11.54,142/- has escaped assessment.

(ii) Further, it is found that the total income before allowing deduction u/s. 36(1)(viia) and 36(2)(viii) was determined at Rs.4,14,07,89,503/-. Deduction of Rs.

50,00,00,000 was allowed u/s. 36(1)(viii). Hence for the purpose of allowing deduction u/s.36(1)(viia), the total income should have been taken at Rs.3,64,07,89,513 and deduction u/s. 36(1)(viia) should have been allowed to the extent of Rs.27,30,59,213/-. However, it is seen

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from Assessment order that assessee was allowed deduction of Rs.31,05,54,214 (7.5% of Rs.44,07,89,503).

It has led to under-assessment of income to the extent of Rs.3,75,00,006/-. Thus, the income to the tune of Rs.

3,75,00,006/- has escaped assessment.

(iii) It is found that the assessee has claimed Bad Debts

at Rs.733.31 crores. However, in the NPA return furnished by the assessee to the Reserve Bank of India, the Bad Debt is only Rs.152.52 crores. Thus, there is

excess claim of Bad Debt of Rs.580.79 crores resulting into short levy of tax of Rs.213.44 crores.

In view of the above, I have reason to believe that

the income aggregating to Rs.592.66 crores (Rs.8.12 cr + 580.79 Cr.) has escaped assessment resulting into short levy of tax."

7. Learned Senior Counsel appearing on behalf of the

Assessee, in assailing the notice for re-opening the

assessment submitted that (i) Ex-facie the reasons which have

been recorded by the Assessing Officer do not contain even

an allegation that there was a failure on the part of the

Assessee to fully and truly disclose all the material facts

necessary for the assessment. The reasons do not show any

failure on the part of the Assessee to make a full and true

6 WP 1765.11 Judg.sxw

disclosure; (ii) Consequently, condition precedent for the

exercise of the jurisdiction to re-open an assessment beyond

the period of four years of the end of the relevant Assessment

Year under the first proviso to Section 147 has not been

fulfilled; (iii) Admittedly, in the present case, the Assessee had

filed an Appeal against the order of assessment including

inter-alia on the ground that the Assessing Officer had erred in

allowing a write off only to the extent of Rs.672 crores on

account of bad debts under Section 36(1)(vii) since the

Assessee had a higher claim to the extent of Rs.1503 crores.

The second proviso to Section 147 precludes the re-opening of

an assessment in relation to matters which are the subject

matter of an Appeal, Reference or Revision. The powers of the

Commissioner (Appeals) under Section 251 are wide enough

to enhance or reduce the assessment. The CIT (Appeals)

having rendered a final determination on 29 September 2010,

the exercise of the power to re-open an assessment was not

warranted; (iv) None of the grounds which have been set out

in the reasons disclosed would validate the exercise of the

power to re-open an assessment beyond the period of four

years.

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8. On the other hand, Counsel appearing on behalf of the

Revenue submitted that (i) The Assessee should have

disclosed, while filing the returns that the bad debts in respect

of which a write off had been claimed under Section 36(1)(vii)

pertained at least in part to income which had been exempted

under Section 10(23G). In failing to do so, the Assessee must

be held to have failed to disclose fully and truly all the

material facts necessary for the assessment; (ii) In computing

the deduction under Section 36(1)(viia), the deduction which

had been allowed under Section 36(1)(viii) ought to have been

excluded. Hence, the Assessing Officer was justified, in the

second reason for re-opening the assessment in forming the

opinion that income had escaped assessment; (iii) The

Assessee, while claiming bad debts in the amount of Rs.

733.31 crores had in the NPA returns submitted to the Reserve

Bank of India claimed that non-performing assets were to the

extent of Rs.152 crores; this would warrant an investigation

by the Assessing Officer for which the assessment could be re-

opened.

9. Before dealing with the rival submissions, it would be at

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the outset necessary to have due regard to the nature of the

enquiry that was conducted by the Assessing Officer before he

passed an order of assessment under Section 143(3) on 28

February 2006. The Assessing Officer had addressed three

communications to the Assessee on 3 August 2005, 6

December 2005 and 30 December 2005. In the first notice

dated 3 August 2005, the Assessing Officer called upon the

Assessee to furnish details of the bad debts, the amounts

advanced, duration of the debts outstanding and steps taken

to recover the bad debts. In the communication dated 6

December 2005, the Assessee was inter-alia called upon to

make a disclosure in respect of the following matters :-

"1. The examination of the statement giving details of

bad debts written off shows that the information/details furnished so far are incomplete. You are requested to

furnish the information party-wise in all cases in the chart form as follows :

(i) Complete name and the latest postal address of

the party in the same column.

(ii) Principal amount write off.

(iii) Interest and other charges write off.

         (iv)    Total write off.
         (v)     Total loan disbursed.





                                      9                  WP 1765.11 Judg.sxw

(vi) Amount recovered in subsequent years (year-wise).

(vii) Outstanding amount as on 31.03.2003.

(ix) Proper supporting documentary evidences

regarding the reasons for its inability to recover the loan and the interest amount and the steps taken for recovery. Please note that any claim of bad

debt is required to be established to the effect that debt has become bad and written off and the unsubstantiated claim in this regard is to be

rejected."

10.

In the subsequent communication dated 30 December

2005, the Assessing Officer called upon the Assessee to make

a further disclosure of why in certain cases only a part of the

bad debt had been written off in a number of cases. The

Assessee was called upon to disclose what steps have been

taken for the recovery of the debts. The Assessee was also

called upon to disclose together with supporting evidence

whether all the conditions which were laid down under Section

10(23G) were fulfilled for claiming an exemption.

11. The Assessee responded to the queries by its letters

dated 18 November, 5 December, 23 December 2005 and 20

January 2006.

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12. In the course of the order of assessment, the Assessing

Officer considered the claim to a write off under Section 36(1)

(vii) in a considerable amount of detail. The discussion on the

subject spans over nearly fifty pages. The Assessing Officer,

as already noted earlier, dis-allowed the claim on account of

bad debts to the total extent of Rs.769.75 crores. During the

course of Assessment order, the Assessing Officer specifically

applied his mind to the deduction under Section 10(23G). The

Assessing Officer noted that the Assessee had claimed an

exemption under Section 10(23G) in the amount of Rs.124.71

crores. The claim was allowed in part to the extent of Rs.

53.80 crores.

13. Now, it is in this background that the reasons which have

been formulated by the Assessing Officer need to be

considered.

14. The re-opening of the assessment in the present case is

sought to be effected admittedly beyond a period of four

years of the end of the relevant Assessment Year. The notice

under Section 148 was issued on 30 March 2010 and the

assessment for Assessment Year 2003-04 is sought to be re-

                                        11               WP 1765.11 Judg.sxw

    opened.         By virtue of the first proviso to Section 147, the

jurisdictional condition for the exercise of the power to re-

open beyond four years is that there must be a failure on the

part of the Assessee to fully and truly disclose all material

facts necessary for the assessment. This requirement has

been elaborated upon in two Judgments of Division Benches of

this Court. In Hindustan Lever Ltd. V/s. R.B. Wadkar,

Assistant Commissioner of Income Tax1, the Division

Bench has observed as follows :-

" The reasons recorded by the Assessing Officer

nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year.

It is needless to mention that the reasons are required to

be read as they were recorded by the Assessing Officer.

No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be

allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak

through his reasons. It is for the Assessing Officer to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the

1 268 ITR 332

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concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion

on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer

from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of the mind of the Assessing Officer. The reasons recorded

should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons

recorded must be based on evidence. The Assessing

Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on

record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year,

so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against

arbitrary reopening of the concluded assessment."

15. The same principle has been reiterated in a subsequent

judgment of a Division Bench in Bhavesh Developers V/s.

Assessing Officer2 in the following observations :-

" Significantly, the reasons that have been disclosed to the assessee do not contain a finding to the effect that there was a failure to fully and truly disclose all

2 329 ITR 249

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necessary facts, necessary for the purpose of assessment. In these circumstances, the condition

precedent to a valid exercise of the power to reopen the assessment, after a lapse of four years from the relevant

assessment year, is absent in the present case. There is merit in the submission which has been urged on behalf of the assessee that an exceptional power has been

conferred upon the Revenue to reopen an assessment after a lapse of four years. The conditions which are prescribed by the statute for the exercise of such a

power must be strictly fulfilled and in their absence, the

exercise of power would not be sustainable in law."

16. Now, in the present case, ex-facie, 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 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 Assessing Officer 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

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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).

17. In this regard, it needs to be noticed that the second

proviso to Section 147 stipulates that the Assessing Officer

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(Appeals) against the order of

assessment. Paragraph 4(v) of the reply states that by his

order dated 29 September 2010, the CIT (Appeals) 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 Assessing Officer cannot

purport to re-open the assessment in respect of a matter

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which squarely formed the subject matter of the Appeal

before the CIT(Appeals). Under Section 251, the powers of

the CIT(Appeals) are wide. The CIT(Appeals) 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

under Section 10(23G).

the extent to which income had been claimed to be exempt

The object and purpose underlying

the second proviso to Section 147 is that upon an assessment

being re-opened, the Assessing Officer 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 Assessing Officer. 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 jurisidction,

once the write off formed the subject matter of an appeal

before the CIT(Appeals) and which resulted in an order of 29

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September 2010 of the appellate authority. The power to re-

open an assessment cannot be exercised to re-open what

formed the subject matter of an appeal to the CIT (Appeals).

18. The second ground that has weighed with the Assessing

Officer 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 Assessing Officer 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, we are of the view that

there is merit in the contention urged on behalf of the

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Assessee that any Assessing Officer duly informed in law

could not possibly come to the conclusion that there is an

escapement on this ground.

19. For these reasons, we are of the view that the Assessing

Officer has 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 has not been fulfilled.

20. Accordingly, we make the rule absolute by setting aside

the notice dated 30 March 2010. There shall be no order as to

costs.

   



                                   (Dr. D.Y. Chandrachud, J.)





                                           (A.A. Sayed, J.)






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