Madras High Court
Commissioner Of Income Tax vs M/S.Indbank Merchant Banking on 19 February, 2025
Author: S.S.Sundar
Bench: S.S.Sundar, C.Saravanan
T.C.A.No.760 of 2008
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 19.02.2025
CORAM :
THE HONOURABLE MR.JUSTICE S.S.SUNDAR
and
THE HONOURABLE MR.JUSTICE C.SARAVANAN
T.C.A.No.760 of 2008
Commissioner of Income Tax,
Chennai. ... Appellant
Vs.
M/s.Indbank Merchant Banking
Services Limited,
rd
3 Floor, Krest Building,
No.2, Jehangir Street,
Second Line Beach,
Chennai – 600 001. ... Respondent
Prayer: Appeal under Section 260A of the Income Tax Act, 1961, against the
order of the Income Tax Appellate Tribunal, Madras “A” Bench, Chennai dated
30.11.2007 in I.T.A.No.915/Mds/2006 for the Assessment Year 1997-1998 and
for setting aside the same.
For Appellant : Mr.Avinash Krishnan Ravi
and Mr.T.Ravikumar
Senior Standing Counsel
For Respondent : Mr.G.Baskar
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1/20
T.C.A.No.760 of 2008
JUDGMENT
(Judgment of this Court was delivered by C.SARAVANAN, J.)
The present appeal has been admitted on 08.07.2008. Following
substantial questions of law were framed for answering in this appeal:
i. Whether on the facts and in the circumstances of the case,
the Tribunal was right in holding that the reopening
beyond four years is bad in law, merely because the
schedule to the accounts contained the fact of non-
recognition of certain income, inspite of Explanation 1 to
Section 147 of the Income Tax Act?
ii. Whether income from non-performing assets can be
offered only on cash basis, even though the assessee is
following a mercantile system of accounting?
2. By the Impugned Order dated 30.11.2007, the Appellate Tribunal had
partly allowed/partly dismissed I.T.A.(TR) No.59/2005-
2006/I.T.A.No.76/2005-2006 filed by the respondent / assessee against the
Assessment Order dated 07.03.2006 of the Appellate Commissioner, against the
Assessment Order dated 28.03.2005 passed under Section 143(1) of the Income
Tax Act, 1961.
3. The Appellate Commissioner had allowed the aforesaid appeal of the
respondent / assessee against the Assessment Order dated 07.03.2006 insofar as
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i. Non-Recognition of Income from Non-Performing Assets for
Rs.4,38,95,858/- by following order dated 01.12.2004.
ii. Expenditure relatable to exempt income for Rs.30,58,660/-.
4. The dispute pertains to the Assessment Year 1997-1998. The
respondent / assessee had filed a return of income on 25.11.1997. In the return
of income, the respondent / assessee had declared a loss of Rs.4,85,81,394/-.
The said return was processed under Section 143(1)(a) of the Income Tax Act,
1961 on 01.07.1998. An amount of Rs.5,94,33,892/- was added to the taxable
income. It appears, the appellant had filed I.T.A.No.171/1998-1999 dated
22.01.1999. The Appellate Commissioner vide Order dated 22.01.1999 opined
that Assessing Officer was free to examine the issue in the regular Assessment.
5. Thereafter, a scrutiny assessment order was passed on 14.03.2000
under Section 143(3) of the Income Tax Act, 1961 whereby, the net taxable
income of the respondent / assessee was determined as Rs.4,59,19,240/-. In the
aforesaid scrutiny assessment order, the following income were added:-
Heads Amount
Amount written off as income Rs.5,94,33,892/-
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Heads Amount
towards Non-Preferential Assets
Lease Income towards Lease Rs.3,50,66,737/-
Equalization
Total Rs.9,45,00,629/-
6. Thus, the total income of the respondent / assessee was determined as
Rs.5,94,33,892/- + Rs.3,50,66,737/- - Rs.4,85,81,394/- = Rs.4,59,19,235/-
(Rs.4,59,19,240/-)
7. It appears that earlier against the order dated 01.07.1998 passed under
Section 143(1)(a) of the Income Tax Act, 1961, the respondent / assessee had
filed an appeal in I.T.A.No.171/1998-1999. The Appellate Commissioner by an
Order dated 22.01.1999 in I.T.A.No.171/1998-1999, held that the issue was
debatable and cannot form part of the assessment under Section 143(1) of the
Income Tax Act, 1961 and opined that the Assessing Officer was however, free
to examine the issue in the regular assessment. It is, in the course of the regular
assessment on the aforesaid sum of Rs.5,94,33,892/-, a sum of Rs.3,50,66,737/-
was added from lease income towards lease equalization.
8. On the aforesaid sum, the respondent / assessee was required to pay
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the following amounts toward tax as detailed below:-
Income-tax @ 40% Rs. 1,83,67,696/-
ADD Sur-charge @ 7.5% Rs. 13,77,577/-
Rs. 1,97,45,273/-
LESS TDS credit Rs. 24,46,717/-
Rs. 1,72,98,556/-
LESS Advance tax paid Rs. 96,75,000/-
Tax payable Rs. 76,23,556/-
ADD 234-B interest Rs. 54,88,920/-
234-C interest Rs. 1,64,647/-
Tax payable Rs. 1,32,77,123/-
LESS Demand raised under Rs. 35,72,030/-
Section 143(1)(a) dated
01.07.1998
Additional Tax Rs. 97,05,093/-
9. Meanwhile, the assessment was reopened by issuance of a Notice
dated 16.03.2004 under Section 148 of the Income Tax Act, 1961, which
ultimately culminated in a Re-Assessment Order dated 28.03.2005 wherein, the
following taxable income of the respondent / assessee was redetermined:-
1. income from the alleged non-performing assets - Rs.4,38,95,858/-
2. The expenditure relatable to exempt income - Rs.3,05,86,604/-
3. The expenses disallowed - Rs.31,13,223/- (as dealt in order dated
28.03.2002 for the Assessment Year 1996-1997).
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4. write off amount - Rs.1,32,56,081/-
10. Thus, total income of the respondent / assessee was redetermined as
follows:-
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11. As mentioned above, on further appeal, the Appellate Commissioner
in I.T.A.(TR) No.59/2005-2006 (I.T.A.No.76/2005-2006) vide order dated
07.03.2006, partly allowed and partly dismissed the appeal of the respondent /
assessee.
12. Snapshot of the order of the Appellate Commissioner is summarized
in the following table:-
Grounds Heading Order Result
Ground No.1 Non-recognition The Assessing Officer is Allowed
of income from directed to delete the addition
non-performing made on account of income
assets from Non-performing assets and
modify the order. This ground
of appeal is Allowed.
Ground No.2 Expenditure The Assessing Officer is Allowed
relatable to directed to modify the order.
exempt income This ground of appeal is
Allowed.
Ground No.3 Disallowance of Having regard to the sum Dismissed
depreciation totality of facts, the Appellate
Commissioner therefore
confirmed the order of the
Assessing Officer. This ground
of appeal is Dismissed.
Ground No.4 Disallownace The appellant has not been able Dismissed
under Section to file any evidence in support
35D of this claim at the appeal stage.
Resultantly, the disallowance
made is hereby confirmed. This
ground of appeal is dismissed.
Ground No.5 Additional In the order under appeal, the Dismissed
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Grounds Heading Order Result
Ground Assessing Officer has addressed
the issue at great length and
justified the issue of notice
under Section 148 dated
16.03.2004. Further it has also
been found from the records that
notice under section 143(2) in
this case was issued on
24.08.2004 and served on the
assessee on 26.08.2004 in
responde to which Shri
Mukundan, Vice President of
the company attended the
hearing before the Assessing
Officer on 09.09.2004. For the
reasons stated, the additional
ground raised is Dismissed.
13. Aggrieved by the same, both the appellant herein and the respondent
filed Appeals in I.T.A.No.1732/Mds/2006 and I.T.A.No.915/Mds/2006
respectively before the Appellate Tribunal.
14. The Appellate Tribunal has allowed the respondent / assessee's appeal
and dismissed the appellant's appeal. In other words, the additions made in the
assessment order dated 28.03.2005 pursuant to Notice dated 16.03.2004 issued
under Section 148 of the Income Tax Act, 1961 with the approval of the
Commissioner dated 24.08.2004 has been completely reversed by the Appellate
Tribunal.
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15. The Appellate Tribunal has allowed the appeal of the respondent /
assessee and dismissed the appeal of the appellant Department on the ground
that there was no failure on the part of the respondent / assessee to truly and
fully disclose all material facts necessary for determining the tax in the light of
the decision of this Court in Commissioner of Income Tax Vs. Elgi Finance
Company Limited, 286 ITR 674 and that of the decision of the Hon'ble
Supreme Court in Commissioner of Income Tax Vs. Foramer France, 264
ITR 566.
16. Learned counsel for the appellant Income Tax Department has stated
that what was added to the income of the respondent / assessee was a sum of
Rs.5,94,33,892/- vide Order dated 14.03.2000 and lease equalization of
Rs.3,50,66,737/- and after deducting / reducing the admitted loss of
Rs.4,85,81,394/-, the taxable income was arrived at Rs.4,59,19,235/-. It is
submitted that the respondent / assessee had failed to disclose all the facts that
all income has not been recognized from certain advances as detailed above in
the table, which have been allowed.
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17. It is submitted that the Appellate Tribunal has only referred to the 1st
proviso to Section 147 of the Income Tax Act, 1961 but has ignored
Explanation 1 to Section 147 of the Income Tax Act, 1961. It is submitted that
mere production of Books of Account or other evidence from which material
evidence could be gathered with due diligence or discovered by the Assessing
Officer will not necessarily amount to disclosure within the meaning of 1st
Proviso to Section 147 of the Income Tax Act, 1961. Hence, submits that the
Impugned Order of the Tribunal has to be set aside.
18. Learned counsel for the appellant has placed reliance on the
following decisions:-
i. Phool Chand Bajrang Lal and others V. Income Tax Officer and
others, [1993] 203 ITR 456 (SC)
ii. Calcutta Discount Company Limited Vs. Income Tax Officer,
Companies District, I and others, [1961] 41 ITR 191 (SC)
iii. Amin's Pathology Laboratory Vs. P.N.Prasad and others, [2001] 252
ITR 673 (Bom.)
iv. T.N.Power Finance and Infrastructure Development Corporation
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Limited Vs. Joint Commissioner of Income Tax, (2006) 280 ITR 491.
v. First Leasing Company of India Limited Vs. Assistant Commissioner
of Income Tax, Company Circle-II (1), 2019 SCC OnLine Mad 5429.
vi. Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock
Brokers Private Limited, [2007] 291 ITR 500 (SC).
vii. Southern Technologies Limited Vs. Joint Commissioner of Income
Tax, Coimbatore, [2010] 320 ITR 577 (SC).
viii. Sundaram Finance Limited Vs. Assistant Commissioner of Income
Tax, Chennai, [2012] 349 ITR 356 (SC).
ix. Aparanjitha Finance Co. Limited Vs. The Joint Commissioner of
Income Tax Special Range-II, Madurai, 2015 SCC Online Mad. 1999.
x. Commissioner of Income Tax, Kolkata-II, Kolkata Vs. Universal
Industrial Fund Limited, 2015 SCC OnLine Cal 5686.
xi. Principal Commissioner of Income Tax-6 Vs. Khyati Realtors Private
Limited, [2022] 447 ITR 167 (SC).
xii. Commissioner of Income Tax, Kolkata-II, Kolkata Vs. M/s.Arco
Impex Limited, 2017 SCC OnLine Cal 9156.
xiii. Commissioner of Income Tax Vs. Sakthi Finance Limited, [2013]
352 ITR 102 (Mad.).
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19. Learned counsel for the respondent / assessee has relied on the
decisions of the Courts in the following cases:-
i. Assistant Commissioner of Income-tax V. CEAT Limited, [2023] 146
taxmann.com 108 (SC).
ii. Commissioner of Income Tax Vs. ECO Media (P) Limited, (2012) 81
CCH 0085 ChenHC.
iii. Commissioner of Income Tax Vs. BAER shoes (India) (P) Limited,
(2011) 331 ITR 0435.
iv. Commissioner of Income Tax Vs. M/s.Indbank Merchant Banking
Services Limited in T.C.A.Nos.2097 to 2099 of 2008 dated 30.07.2019.
20. Defending the Impugned Order, the learned counsel for the
respondent / assessee submits that there was no failure on the part of the
appellant Income Tax Department to disclose any material evidence for
completing the assessment either before the return was processed under Section
143(1)(a) of the Income Tax Act, 1961 on 01.07.1998 or in the course of
Assessment Order dated 14.03.2000 under Section 143(3) of the Income Tax
Act, 1961 pursuant to Order of the Commissioner of Income Tax (Appeals) or
the Appellate Commissioner dated 22.01.1999 in I.T.A.No.171/1998-1999.
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21. Learned counsel for the respondent / assessee took us through the
return of income filed by the respondent / assessee under Section 139 of the
Income Tax Act, 1961 on 25.11.1997 and Part-VI attaching the list of
documents / statements appended to the return of income filed on 25.11.1997.
22. It is submitted that since the respondent / assessee had taken a bona
fide stand that not only a sum of Rs.594.33 lakhs (Rs.5,94,33,892/-) was not
recognized as per the prudential norms of the Reserve Bank of India (RBI) but
also a sum of Rs.438.96 lakhs comprising of Rs.179.12 lakhs under leasing,
Rs.201.34 lakhs under Hire Purchase, Rs.17.50 lakhs under interest on
Debentures and Rs.41 lakhs under interest on Inter Corporate Deposit was not
recognised as income in the current year.
23. It is submitted that in the return that was processed under Section
143(1) of the Income Tax Act, 1961 itself, the aforesaid sum of Rs.594.33 lakhs
was added and that the Appellate Commissioner vide Order dated 22.01.1999 in
I.T.A.No.171/1998-1999 against the return that was processed under Section
143(1)(a) of the Income Tax Act, 1961 on 01.07.1998, given liberty to the
Assessing Officer to examine the issue in the regular assessment.
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24. It is submitted that during the regular assessment, all the informations
were available and there was no suppression of any information that was
required for completing the assessment under Section 143(3) of the Income Tax
Act, 1961.
25. Learned counsel for the respondent / assessee also referred to the
Annual Report of the Financial Year 1996-1997 for the relevant Assessment
Year 1997-1998 wherein in Schedule-M in the notes of accounts, the above
details were furnished and it is based on the Scheme, the Assessing Officer
while processing the return under Section 143(1) of the Income Tax Act, 1961,
had included a sum of Rs.594.33 lakhs vide Order dated 01.07.1998.
26. Thus, it is submitted that in the Assessment Order that was passed on
14.03.2000, the Assessing Officer added a sum of Rs.3,50,66,737/- being the
amount that was deducted from the Lease Income towards Lease Equalization.
27. Learned counsel for the respondent / assessee also drew attention to
Order passed under Section 154 of the Income Tax Act, 1961 on 08.06.2000
and had ordered refund of Rs.21,51,179/- taking note of Tax Free Bonds for a
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sum of Rs.3,05,86,604/-, and computed the aforesaid refund of Rs.21,51,179/-
under Section 115JA of the Income Tax Act, 1961. He also drew attention the
following calculation in Section 154 Order dated 08.06.2000:-
Heads Amount
Total Income Rs.1,28,74,400/-
Income-tax thereon @ 40% Rs. 51,49,760/-
Add : Surcharge @ 7.5% Rs. 3,86,232/-
Rs. 55,35,992/-
Less : TDS Credit given Rs. 25,76,787/-
Rs. 29,59,205/-
Less : Advance-tax paid Rs. 96,75,000/-
Refund Rs. 67,15,795/-
Less : 234-C Interest (as per NIL
143(1)(a) dated 01.07.1998)
Less : Additional Tax levied Rs. 51,56,960/-
under Section 143(1)(a) dated
01.07.1998
Refund Rs. 15,58,835/-
Add : Interest under Section 244- Rs. 5,92,344/-
A @ 1%
Total Refund Rs. 21,51,179/-
28. We have heard the learned counsel and learned Senior Standing
Counsel for the appellant and the learned counsel for the respondent.
29. We are of the view that although the petitioner had failed to include a
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sum of Rs.5,94,33,892/- in the return that was filed on 25.11.1997, the
Assessing Officer had included the same while processing the return on
01.07.1998 under Section 143(1)(a) of the Income Tax Act, 1961.
30. The aforesaid income of Rs.5,94,33,892/- was obtained by the
Assessing Officer while passing the aforesaid order under Section 143(1)(a) of
the Income Tax Act, 1961 on 01.07.1998 from the Annual Report filed by the
respondent / assessee for the relevant Financial Year 1996-1997 and for the
relevant Assessment Year 1997-1998.
31. As mentioned elsewhere above, the amount of Rs.438.96 lakhs which
was added in the Re-Assessment Order dated 28.03.2005 was the 1st item which
was left out by the Assessing Officer while including the aforesaid sum of
Rs.5,94,33,892/- in the Order dated 01.07.1998 under Section 143(1)(a) of the
Income Tax Act, 1961.
32. The option that was available at that point of time was to invoke
jurisdiction under Section 263 of the Income Tax Act, 1961 as the Assessment
Order that was passed on 14.03.2000 under Section 143(3) of the Income Tax
Act, 1961, was both prejudicial to the interest of Revenue and erroneous.
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33. Instead, an order came to be passed under Section 154 of the Income
Tax Act, 1961 on 08.06.2000 by computing the income under Section 115JA of
the Income Tax Act, 1961, resulting in refund of Rs.21,51,179/-.
34. Against the aforesaid Order also, the appellant had the remedy under
Section 263 of the Income Tax Act, 1961 as it resulted in wrongful refund of
Rs.21,51,171/- to the respondent / assessee.
35. Although Explanation 1 to Section 147 of the Income Tax Act, 1961
as it stood till 31.03.2021 stipulated that mere production of Books of Account
or other evidence before the Assessing Officer from which material evidence
could with due diligence have been discovered by the Assessing Officer will
not necessarily amount to disclosure within the meaning of 1st Proviso to
Section 147 of the Income Tax Act, 1961, the fact remains that both the amount
of Rs.594.33 lakhs and 438.96 lakhs were available and were seen by the
Assessing Officer while processing the return under Section 143(1) of the
Income Tax Act, 1961 and while passing the order on 01.07.1998. Therefore,
the invocation of machinery under Section 148 of the Income Tax Act, 1961 for
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passing reassessment order under Section 143(3) read with Section 147 of the
Income Tax Act, 1961 was without any jurisdiction and has therefore been
rightly interfered by the Appellate Tribunal.
36. Although for the purpose of claiming deductions, the respondent /
assessee should have written off such income under Section 36(1)(vii) of the
Income Tax Act, 1961.
37. In the light of the above discussion, we answer the substantial
questions of law in favour of the respondent / assessee and against the appellant
Income Tax Department.
38. This Writ Appeal stands dismissed. No costs.
[S.S.S.R., J.] [C.S.N., J.]
19.02.2025
Neutral Citation : Yes / No
arb
To:
Commissioner of Income Tax,
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Chennai.
S.S.SUNDAR, J.
and
C.SARAVANAN, J.
arb
19.02.2025
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