Hdfc Bank Ltd vs Assistant Commissioner Of ...
2022 Latest Caselaw 2083 Bom

                                                                                  WP-1787-2014-J..doc




                               IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                                   ORDINARY ORIGINAL CIVIL JURISDICTION
         Digitally                      WRIT PETITION NO. 1787 OF 2014
         signed by
         SHRADDHA
SHRADDHA KAMLESH
KAMLESH TALEKAR
                      HDFC BANK LTD.,
TALEKAR  Date:
         2022.03.01   HDFC Bank House,
         13:45:57
         +0530        Senapati Bapat Marg,
                      Lower Parel (West), Mumbai -400 013            ....Petitioner

                              Versus

                      1. Assistant Commissioner of Income-tax-2(3),
                      Room No. 552, 5th Floor, Ayakar Bhavan,
                      M.K. Road, Mumbai-400 020.
                      3. Commissioner of Income-tax-2,
                      Room No. 344, 3rd foor, Ayakar Bhavan,
                      M.K. Road, Mumbai-400 020.
                      4. Union of India,
                      through the Secretary, Department of
                      Revenue, Ministry of Finance, North Block,
                      New Delhi-110001                           ...Respondents
                                                     ----
                      Mr.J.D. Mistri, Senior Advocate a/w. Mr.Madhur Agrawal i/b Mr.
                      Atul K. Jasani for petitioner.
                      Mr.Suresh Kumar for respondents-revenue.

                              CORAM           :     K.R. SHRIRAM &
                                                    N. J. JAMADAR, JJ.
                              JUDGMENT RESERVED ON :            11th FEBRUARY, 2022
                              PRONOUNCED ON        :            1st MARCH, 2022


                      JUDGMENT (PER N.J. JAMADAR, J.) :

1. Rule. Rule made returnable forthwith. With the consent of

learned counsel for the parties, heard fnally.

2. This petition, under Article 226 of the Constitution of India,

Shraddha Talekar, PS 1/27 WP-1787-2014-J..doc

assails the notice dated 26th March 2013 under section 148 of the

Income Tax Act, 1961 ('the Act, 1961') proposing to reopen the

assessment for the assessment year 2006-07, and the order, dated

19th August 2013 disposing the objections of the petitioner to the

said notice of reopening.

3. The background facts leading to this petition can be stated,

in brief, as under :

(a) The petitioner is registered as a banking

company with the Reserve Bank of India ('RBI') and is

engaged in the business of banking. The petitioner

has numerous branches across India. The petitioner,

being a scheduled bank and having branches in rural

areas, is entitled to deduction under section 36(1)

(viia) of the Act, 1961 for bad and doubtful debts

equivalent to 7½ % of the total income and 10% of

the aggregate average advances made by the rural

branches of the petitioner.

(b) The petitioner is also entitled to deduction

under section 36(1)(vii) of bad debts which is

written off as irrecoverable in the accounts of the

Shraddha Talekar, PS 2/27 WP-1787-2014-J..doc

petitioner for the previous year. However, in

computing the deduction under section 36(1)(vii),

the bad debts which are written off as irrecoverable

are required to be reduced to the extent of the

provision of bad and doubtful debt which was

allowed to the petitioner under clause (viia), in

earlier assessment year.

(c) In the light of the aforesaid tax regime, on

27th November 2006, the petitioner fled return of

income declaring a total income of

Rs.10,69,47,48,495/-, inter-alia, after claiming

deduction under section 36(1)(viia) of

Rs.96,87,97,764/- being 7½ % of the total income

and 10% of the average rural advances. The

petitioner also claimed deduction of bad debts

under section 36(1)(vii) of the Act aggregating to

Rs.418.60 Crores. The said amount of Rs.418.60

Crores was arrived at after reducing the provision

allowed under section 36(1)(viia) of the Act in the

earlier assessment years which had not been

adjusted by then.

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                                                                               WP-1787-2014-J..doc




                       (d)      During the course of the assessment, the

Assessing Offcer ('AO') issued a notice on 12 th

September 2007 and sought clarifcation/

information. The petitioner gave a detailed point-

wise reply, on 16th November 2007. Thereupon, the

AO passed an assessment order on 19th December

2008 under section 143(3) of the Act, 1961

determining the total taxable income of Rs.138,080

Lakhs.

(e) On 18th February 2011, the jurisdictional

Assessing Offcer issued a notice under section

148 of the Act, 1961 proposing to reopen the

assessment. The Assessing Offcer was of the view

that there was failure to take into account the

enhanced deduction under section 36(1)(viia) while

allowing the deduction towards bad debts in

assessment year 2006-07, and, thus, he had

reason to believe that income of Rs.25,73,25,815/-

had escaped assessment for assessment year

2006-07. Eventually, an assessment order was

passed on 9th November 2011 under section 143(3)

Shraddha Talekar, PS 4/27 WP-1787-2014-J..doc

read with section 147 of the Act, 1961 revising the

total income at Rs.1,22,632 Lakhs.

(f) For assessment year 2010-11, pursuant to

the decision of the Supreme Court in Catholic

, the petitioner, as

advised, withdrew the claim for deduction under

section 36(1)(viia) and instead claimed higher

deduction under section 36(1)(vii) of the Act, 1961.

In respect of the said assessment year 2010-11, a

notice was issued to the petitioner on 28 th

December 2012 seeking explanation and

justifcation, so as to assist the AO to decide

whether notices under section 148 were required to

be issued for the last six assessment years.

(g) By communication dated 17th January

2013, the petitioner requested the AO to ignore the

said letter dated 13th August 2012 for the

assessment year 2010-11 as it had been advised

that it was entitled to claim deduction under

section 36(1)(viia), the claim for which was sought

1 343 ITR 270

Shraddha Talekar, PS 5/27 WP-1787-2014-J..doc

to be withdrawn by the letter dated 13th August

2012. Eventually, the assessment order was passed

for assessment year 2011-12 on 13th January 2013

under section 143(3) rejecting the claim of the

petitioner for deduction under section 36(1)(viia) on

the ground that some of the branches claimed by

the petitioner to be rural branches did not satisfy

the description of the rural branches under the

Act, 1961.

(h) By the impugned notice dated 26th March

2013, the AO proposed to reopen the assessment

for the assessment year 2006-07, on the premise

that he had reason to believe that income had

escaped assessment within the meaning of section

147 of the Act, 1961. Upon being requested, the AO

furnished the reasons in the nature of the order-

sheet, dated 26th March 2013, for the proposed

reopening.

(i) The AO premised the justifcation for

reassessment on the ground that during the

assessment proceedings for assessment year 2010-

Shraddha Talekar, PS                                                                 6/27
                                                                                WP-1787-2014-J..doc

11, when the assessee was called upon to submit

details of rural branches and advances in

justifcation of its claim for deduction under

section 36(1)(viia), the assessee had

withdrawn/given up the claim of deduction under

section 36(1)(viia) and the assessee revised its

return for assessment year 2011-12 also giving up

its claim for deduction under section 36(1)(viia).

Nonetheless, during the assessment proceeding for

the year 2011-12, it was found that many branches

projected as rural by the assessee were not, in fact,

rural branches, within the meaning of section

36(1)(viia) of the Act, 1961. The AO, thus,

concluded that since the assessee had claimed

incorrect deduction under section 36(1)(viia), the

assessee was likely to have claimed incorrect

deduction under the said section for assessment

year 2006-07, as well by mis-classifying the 'non-

rural' branches as 'rural' branches and, therefore,

he had reason to believe that the deduction under

section 36(1)(viia) had been incorrectly allowed for

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assessment year 2006-07 and, resultantly, there

was escapement of income within the meaning of

section 147 of the Act, 1961.

(j) The petitioner fled objections to the

proposed reopening of the reassessment. It was,

inter-alia, pointed out that the petitioner had

revived the claim for deduction under section 36(1)

(viia), which was initially sought to be withdrawn

and, thus, the very basis of reopening was non-est.

The AO, by the impugned order, dated 19th August

2012 rejected the objections and issued notice

under section 142(1) of the Act, 1961.

(k) The petitioner has, thus, invoked the writ

jurisdiction of this Court. The impugned action is

assailed primarily on the count of non-satisfaction

of the jurisdictional conditions to invoke the

provisions contained in section 147 of the Act,

1961.

4. The petitioner avers, since the notice came to be issued

beyond four years of the end of the assessment year 2006-07, and

assessment under section 143(3) of the Act, 1961 had been

Shraddha Talekar, PS 8/27 WP-1787-2014-J..doc

effected, not once but twice, the resort to the provisions contained

in section 147 of the Act was impermissible unless there was

failure on the part of the petitioner to disclose fully and truly all

the material facts for the purpose of the assessment. The aspect

of alleged mis-classifcation of 'non-rural' branches as 'rural'

branches was specifcally raised and enquired into by the AO.

Thus, there was no reason for forming the belief that the income

escaped assessment on account of failure to disclose fully and

truly all material facts necessary for assessment, even remotely.

At any rate, the said belief was solely rested on the change of the

opinion by the jurisdictional AO, who issued the impugned notice,

on the same set of facts.

5. An affdavit-in-reply is fled on behalf of the respondents

controverting the assertions in the petition. The respondents have

made an endeavour to support the impugned action. The

respondents have contended, inter-alia, that pursuant to the

withdrawal of claim of deduction under section 36(1)(viia) of the

Act, 1961, notices for reopening were issued in respect of

assessment years 2007-08, 2008-09 and 2009-10 on the same

ground on which the impugned notice was issued, in respect of

assessment year 2006-07. However, the petitioner had not assailed

Shraddha Talekar, PS 9/27 WP-1787-2014-J..doc

those notices for reopening. The respondents have further

contended that the deduction claimed by the petitioner by

projecting its 'non-rural' branches as 'rural' branches can, by no

stretch of imagination, be construed as a true disclosure of

material facts relevant for the assessment. As the subsequent

enquiry revealed such mis-classifcation of branches, the AO was

justifed in reopening the assessment.

6. An affdavit-in-rejoinder was fled on behalf of the petitioner

to meet the grounds raised by the respondents in the affdavit-in-

reply.

7. We have heard Mr.J.D. Mistri, the learned Senior Counsel

for the petitioner, and Mr. Suresh Kumar, the learned counsel for

the respondents-revenue. With the assistance of the learned

counsel for the parties, we have carefully perused the material on

record including the previous assessment orders for the

assessment year 2006-07, notices issued during the course of

those assessment proceedings and response thereto on behalf of

the petitioner.

8. Mr. Mistri, the learned Senior Counsel for the petitioner,

urged with a degree of vehemence, that the impugned action

Shraddha Talekar, PS 10/27 WP-1787-2014-J..doc

manifests arbitrariness of highest order. Apart from the fact that

the jurisdictional conditions to reopen the assessment are not at

all made out, what, according to Mr. Mistri, impairs the impugned

action is the utter disregard to the statutory provisions and

safeguards. Assailing the claim of the AO that on 25 th March 2013,

the AO had obtained the prior approval of the Competent

Authority under section 151(1) of the Act, 1961, as refected in the

Order-Sheet (Exh. 1), Mr. Mistri would urge that the material on

record belies the authenticity of the said version. Inviting the

attention of the Court to the variance in the reasons recorded in

the Order Sheet (Exh.1 to the affdavit in reply) and the reasons

purportedly placed before the Commissioner of Income Tax, dated

15th March 2013 for obtaining approval (Exh.2), Mr. Mistri

strenuously submitted that an inference becomes inescapable

that the AO had not recorded the reasons before obtaining the

approval of the Competent Authority or, at any rate, the very

reasons which were furnished to the petitioner were not placed

before the Competent Authority and, thus, the impugned action is

wholly vitiated.

9. Mr. Suresh Kumar, the learned counsel for the revenue

joined the issue by canvassing a submission that the substance of

Shraddha Talekar, PS 11/27 WP-1787-2014-J..doc

the reasons recorded in the Order Sheet (Exh.1) and those placed

for approval before the Commissioner (Exh.2) is substantially

same. The fact that a sentence or two does not fnd place in the

Order Sheet does not detract materially from the authenticity and

veracity of the reasons recorded by the AO. In any event, since the

assessment was proposed to be reopened on the ground that the

petitioner had claimed deduction by projecting its 'non-rural'

branches as 'rural' branches, the petitioner can satisfy the AO by

placing cogent material in justifcation of its claim and, thus, this

Court may not exercise its writ jurisdiction, submitted Mr. Suresh

Kumar.

10. Mr. Mistri stoutly submitted that the pivotal question is

whether the jurisdictional conditions to reopen the assessment

were fulflled? If the petitioner succeeds in demonstrating that the

requisite conditions to invoke the provisions contained in section

147 of the Act, 1961 were not made out, the revenue cannot be

heard to urge that the petitioner be relegated to the AO to suffer

another round of arbitrary assessment, especially when the

issues, on which the assessment is sought to be reopened, were

fully considered and a conclusive view was recorded thereon.

Shraddha Talekar, PS                                                               12/27
                                                                                    WP-1787-2014-J..doc




               11.     The     legal    position     as    regards    the     assessment        or

reassessment under section 147 of the Act, 1961 as it stood before

it suffered the amendment under the Finance Act, 2021, is well

crystallized. Section 147 enables the AO to assess or reassess any

income chargeable to tax, which he had reason to believe, has

escaped assessment in an assessment year. The existence of the

reason to believe that income chargeable to tax has escaped

assessment is a jurisdictional condition for invoking the power

under section 147 of the Act, 1961, both within and beyond the

period of four years from the end of the relevant assessment year.

The AO is, therefore, statutorily enjoined to record reasons and

obtain the approval of the Competent Authority, before a notice to

reopen the assessment under section 148 of the Act, 1961 is

issued. Additionally, where the assessment is proposed to be

reopened beyond the period of four years, and there has been an

assessment under section 143(3) of the Act, 1961, the AO is

further enjoined to satisfy himself that the escapement of income

was on account of the failure on the part of the assessee to

disclose fully and truly all material facts necessary for

assessment. Such reasonable belief as to the escapement of the

income ought to be based on tangible material. This requirement

Shraddha Talekar, PS 13/27 WP-1787-2014-J..doc

of existence of tangible material for formation of the reason to

believe escapement of income saves the said exercise from the vice

of arbitrariness. Lastly, the reason to believe the escapement of

income should not partake the character of a mere change of

opinion on the same facts and material. A mere change of opinion

does not furnish a justifable ground for reopening the

assessment.

12. In the light of the aforesaid propositions which govern

the justifability of the exercise of the power under section 147 of

the Act, 1961, the submissions canvassed on behalf of the parties

now fall for consideration in the context of the facts of the case,

which we have narrated above.

13. The controversy lies in a very narrow compass. Whether the

assessee had incorrectly claimed the deduction under section

36(1)(viia) of the Act, 1961? Under clause (vii) of section 36(1), an

assessee is entitled to allowance of 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. Clause (viia) provides a

further allowance to an assessee which is a Scheduled Bank in

respect of any provision for bad debt and doubtful debts, an

amount not exceeding 7½ % of the total income and an amount

Shraddha Talekar, PS 14/27 WP-1787-2014-J..doc

not exceeding ten per cent of the aggregate average advances

made by the rural branches of such bank computed in the

prescribed manner. For the purpose of the said clause, a rural

branch means a branch of a scheduled bank situated in a place

which has a population of not more than ten thousand according

to the last preceding census of which the relevant fgures have

been published before the frst day of the previous year. The frst

proviso to clause (vii) further provides 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.

14. In the light of these provisions, it has to be seen as to what

was the nature of the deduction claimed by the assessee for the

assessment year 2006-07. Under the initial return of income fled

by the assessee for assessment year 2006-07, the petitioner had

claimed deduction under section 36(1)(viia) to the tune of Rs.

96,87,97,764/-. On 12th September 2007, the AO sought

information/clarifcation under section 143(3) of the Act, 1961. As

regards the deduction claimed under section 36(1)(viia), the AO

Shraddha Talekar, PS 15/27 WP-1787-2014-J..doc

had solicited, inter-alia, information under query No.13. In

response thereto, the assessee, by letter dated 16 th November

2007, had furnished following particulars :

(i) Details of deduction claimed under section 36(1) (viia);

(ii) List of rural branches with copies of licenses;

(iii) Copy of the relevant extract of RBI master circular on branch authorization.

15. At this juncture, we must note that the assessee had

furnished copies of the orders/communication issued by the RBI

authorising the assessee to open the rural branches of which the

list was furnished as annexure-1 to the said reply dated 16 th

November 2007. It is imperative to note that on 19 th December

2008, the AO passed the assessment order under section 143(3) of

the Act, 1961, and allowed the deduction under section 36(1)(viia),

of Rs.939 Crores, as claimed by the assessee in the annexure-A to

the said reply dated 16th November 2007. We have noted that the

assessment for assessment year 2006-07 was reopened on 14 th

February 2011 and an assessment order was passed on 9 th

November 2011 under section 143(3) read with section 147 of the

Act, 1961; wherein also, the deduction under section 36(1)(viia) of

Rs. 939 Crores was retained.

16. In the backdrop of the aforesaid material, it would be

Shraddha Talekar, PS 16/27 WP-1787-2014-J..doc

inconceivable to assert that the assessee had not made a full

disclosure of all the material facts, so far as the claim for

deduction under section 36(1)(viia) of the Act, 1961. Through this

prism, the reasonability of the belief formed by the AO is required

to be appreciated. The trigger for entertaining the belief about the

escapement of income is apparently withdrawal by the assessee of

the claim for deduction under section 36(1)(viia) for the

assessment year 2010-11. This stand of the assessee, it seems,

made the revenue to entertain doubt as regards the classifcation

of the branches by the assessee as "rural branches" for the

purpose of deduction under section 36(1)(viia) for the preceding

years as well. When the revenue voiced its concern, the petitioner,

as the record indicates, revived the claim for deduction under

section 36(1)(viia).

17. It was submitted on behalf of the assessee that at that point

of time, the assessee was advised not to claim deduction under

section 36(1)(viia) in view of the exposition of law in the case of

Catholic Syrian Bank Ltd. (Supra). We do not deem it necessary to

delve into this aspect of the matter as it does not bear upon the

existence or otherwise of the jurisdictional condition for reopening

Shraddha Talekar, PS 17/27 WP-1787-2014-J..doc

the assessment, with which we are essentially and primarily

concerned.

18. The thrust of the submission on behalf of the revenue was

that though there was disclosure of material facts by the

assessee, the disclosure was not true in the sense that the

assessee had claimed deduction by projecting non-rural branches

as rural branches.

19. Keeping in view the object of the deduction allowed under

section 36(1)(viia) qua rural branches, we gave our anxious

consideration to the aforesaid submission and minutely

scrutinized the material on record so that the assessee does not

derive an unjust beneft on the strength of unjustifed claims as

regards the nature of the branch.

20. The revenue assailed the disclosure as incomplete by

pressing into service a submission that the mere classifcation of

the branches as rural by RBI was not enough. In view of the

Explanation (ia) to clause (viia), to claim beneft thereunder, it was

necessary to demonstrate that the branch was situated in a place

which had a population of not more than ten thousand, according

to the last preceding census.

Shraddha Talekar, PS                                                                 18/27
                                                                          WP-1787-2014-J..doc

21. This submission raises the issue of the nature of the

disclosure expected of an assessee. In the facts of the case, the

question would be, whether the assessee was under an obligation

to place on the record further material as regards the population

of the particular place where the rural branch was opened

pursuant to a license issued by the RBI ?

22. There can be no duality of opinion that it is the assessee's

duty to disclose all primary facts. Once the assessee discloses all

the primary facts, the inferences to be drawn thereon is a matter

within the exclusive province of authority of the AO. This duty of

assessee does not extend beyond disclosure of primary facts. The

assessee is not expected to suggest an inference on those facts,

correct or otherwise. In a given case, the fact that the assessee

had suggested a particular inference, which upon reconsideration,

does not fnd favour with the Assessing Offcer subsequently, may

not furnish a justifable ground to hold that there was non-

disclosure of primary facts.

23. A proftable reference, in this context, can be made to the

pronouncement of the Supreme Court in the case of Calcutta

Discount Co. Ltd. Vs. Income Tax Offcer 2, wherein the aforesaid 2 (1961) 41 ITR 191 (SC)

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aspect was illuminatingly postulated :

(10) Does the duty however extend beyond the full and truthful disclosure of all primary facts ? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else-far less the assessee--to tell the assessing authority what inferences-whether of facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts.

(11) If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn ? (12) It may be pointed out that the Explanation to the sub- section has nothing to do with " inferences " and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income-tax Offcer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose " inferences "-to draw the proper inferences being the duty imposed on the Income-fax Offcer.

(13-14) We have therefore come to the Conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this."

(emphasis supplied)

24. On the aforesaid touchstone, reverting to the facts of the

case, frst and foremost, the assessee cannot be said to have made

a selective disclosure. Since the list of the rural branches, as

claimed by the assessee, along with the supporting documents

Shraddha Talekar, PS 20/27 WP-1787-2014-J..doc

was placed before the AO, it was the duty of the AO to examine

whether the places where the branches were opened by the

assessee, had population below the threshold prescribed under

clause (ia) of the Explanation to clause (viia) of section 36(1). The

assessee was not expected to place even census data and collate

the information. It was for the AO to examine the matter, collate

the information and thereafter draw necessary inference.

Secondly, the AO had the opportunity to examine the issue as to

whether the branches projected as 'rural' satisfed the description

prescribed under clause (ia) of the Explanation, not once but

twice. What accentuates the situation is the fact that the specifc

queries were raised, information solicited and, thereafter, the

deduction, as claimed, was allowed, not once but twice.

25. At this juncture, the potency of the reasons recorded by the

AO assumes critical signifcance. An action of reopening the

assessment under section 147 of the Act, 1961 must stand or fall

by the weight of the reasons recorded by the AO and nothing else.

The justifability of the reassessment thus hinges upon the

sustainability of the reasons, recorded by the AO preceding the

issue of notice under section 148 of the Act, 1961. Those reasons

cannot be improved upon and/or supplemented, much less

Shraddha Talekar, PS 21/27 WP-1787-2014-J..doc

substituted, by affdavit and/or oral submissions, while meeting

the challenge to the proposed reassessment ( Aroni Commercials

Ltd. Vs. Deputy Commissioner of Income-tax 2(1) 3.

26. In the case at hand, the reasons recorded by the AO, as

manifested in the Order-Sheet dated 26 th March 2013 indicate that

the action to reopen the assessment was driven by the stand of

the assessee to withdraw the claim for deduction under section

36(1)(viia) for the assessment year 2010-11, and submission of

the revised return for the assessment year 2011-12, giving up the

claim for such deduction. The AO further recorded that many

branches of the assessee claimed as 'rural', for the purpose of

assessment for the assessment year 2010-11, were not found to be

rural branches as defned in Explanation (ia) to clause (viia). With

this preface, the AO proceeded to reopen the assessment for

assessment year 2006-07, observing that it was 'likely' that the

assessee might have claimed incorrect deduction under the said

section for assessment year 2006-07 by mis-classifying the 'non-

rural' branches as 'rural' branches.

27. In the aforesaid reasons, two factors are conspicuous by

their absence. First, there is no assertion that the income escaped

3 [2014] 44 taxmann.com 304 (Bombay)

Shraddha Talekar, PS 22/27 WP-1787-2014-J..doc

assessment on account of the failure to disclose truly and fully all

material facts relevant for the assessment for assessment year

2006-07. Second, the mis-classifcation of branches was not

premised on the population of the place, where those branches

were operating, having exceeded the threshold prescribed in

Explanation (ia) to clause (viia), as per census 2001.

28. The failure to record the formation of opinion that income

escaped assessment on account of the failure to make a true and

full disclosure was sought to be met by banking upon the reasons

submitted to the Commissioner for obtaining prior approval.

Whereas, the non-mention of the mis-classifcation of branches,

in the backdrop of the population, was sought to be met by

recording in the order on objection that though the branches were

initially classifed as 'rural' based on the license issued by RBI,

yet, in the census 2001, the population of those places might have

exceeded the threshold of ten thousand and those places would

have ceased to be 'rural'. None of these explanations deserves

countenance.

29. The frst explanation does more harm than good to the

interest of the revenue as it gives heft to the submission of

Mr.Mistri that variance in the reasons recorded in the Order-Sheet

Shraddha Talekar, PS 23/27 WP-1787-2014-J..doc

(furnished to the petitioner) and those submitted to the

Commissioner erodes the credibility and sanctity of those reasons

and the entire exercise of reopening the assessment. The second

explanation falls foul of the fundamental principle that the notice

for reopening the assessment is to be tested on the reasons which

weighed with the AO. There is no room for supplementing or

substituting those reasons.

30. The position which thus emerges is that the assessee had

placed all the relevant facts before the AO. Specifc queries were

raised as regards the allowability of deduction under section 36(1)

(viia). Upon consideration of the explanation furnished by the

assessee, the claim for deduction was allowed. Even the relevant

material in the nature of census 2001 data was available at the

time of original assessment and the subsequent assessment

under section 143(3) read with section 147 of the Act, 1961. In the

face of these hard facts, the reopening on the premise that it was

'likely' that the assessee might have claimed incorrect deduction

in the past assessment years is in the nature of a 'guess' hazarded

by the AO without any tangible material. The expression 'reason

to believe' is not equivalent to a 'hunch' or 'guess'. Nor does it

imply a purely subjective satisfaction. The expression suggests

Shraddha Talekar, PS 24/27 WP-1787-2014-J..doc

that the belief must be that of an honest and reasonable person

based upon reasonable grounds, in contradistinction to mere

suspicion.

31. It is trite law that once the AO on consideration of the

material on record and the explanation offered, arrives at a fnal

conclusion that the assessee is entitled to the deduction as

claimed then, on the basis of the very same material, the AO

cannot form a prima facie opinion that the deduction is not

allowable and accordingly reopen the assessment on the ground

that income chargeable to tax has escaped assessment. ( Cartini

India Limited Vs. Additional Commissioner of Income-Tax and

Others 4). The case of the revenue at hand stands on an even

weaker foundation as the conclusive views were recorded by the

AO, twice.

32. As indicated above, we have delved into the matter in a

greater detail to satisfy ourselves that the assessee has not had

unjustifed deduction. In the affdavit-in-reply, an endeavour was

made to demonstrate that the random verifcation of the branches

revealed that the assessee had incorrectly claimed as many as

eight 'non-rural' branches as 'rural' branches (Paragraph No. 16 of

4 [2009] 314 ITR 275 (Bom.)

Shraddha Talekar, PS 25/27 WP-1787-2014-J..doc

the affdavit-in-reply). We have compared the said information

with the list of branches furnished by the assessee along with the

letter dated 26th November 2007, during the course of the original

assessment. Except the branch at Palakkad, District Palakkad,

Kerala, none of the rest seven branches was claimed by the

assessee as 'rural' branch for the assessment year 2006-07. We

also notice that along with the annexure to the said letter, the

assessee had furnished copies of the license issued by the RBI to

open a branch at the rural centre, Chandranagar, in Palakkad

District, Kerala. It seems that the respondents have considered

the branch at the Palakkad District Headquarters in support of

their claim that there was misclassifcation of the branch though,

in fact, a rural branch was opened at Chandranagar in Palakkad

District, Kerala.

33. The last submission on behalf of the revenue that the

petitioner had not assailed the reopening of the assessment for

the assessment years 2007-08, 2008-09 and 2009-10 on the same

ground and, eventually, orders were by the ITAT in the context of

the fnal assessment orders post reopening of the assessment in

respect of those assessment years, though appears alluring at the

frst blush, yet does not advance the cause of the revenue. Once, it

Shraddha Talekar, PS 26/27 WP-1787-2014-J..doc

is held that the jurisdictional condition for invoking the power

under section 147 is not satisfed for a particular assessment year,

the notice for reopening cannot be sustained. Then, it does not

matter that the assessee did not assailed the notice for reopening

in respect of preceding or succeeding years.

34. The conspectus of the aforesaid consideration is that the

impugned notice of reopening and the order on objections deserve

to be quashed and set aside.

35. Hence, the following order :

O RDER

(i) The petition stands allowed in terms of prayer clause

(a), which reads as under :

(a) that this Hon'ble Court be pleased to issue a Writ of Certiorari or any other writ order or direction under Article 226 of the Constitution of India calling for the records of the case leading to the issue of the Impugned Notice and passing of the Impugned Order and after going through the same examining the question of legality thereof, quash, cancel and set aside the Impugned Notice (Exhibit M) and Impugned Order (Exhibit Q).

Rule made absolute in the aforesaid terms.

No costs.

                ( N. J. JAMADAR, J. )                        ( K.R. SHRIRAM, J. )



Shraddha Talekar, PS                                                                    27/27