2024 (3) TMI 731 - HC - Income Tax

Bank wins challenge against tax reassessment under Section 147 based on change of opinion after Catholic Syrian Bank judgment

Bombay HC held that reopening of assessment u/s 147 was invalid as it was based on change of opinion. The AO had during original assessment proceedings ... Reopening of assessment u/s 147 - claim of deduction u/s 36(1)(viia) - Petitioner filed its return of income (“ROI”) for AY 2010-11 declaring a total income but subsequently, filed a revised ROI as added back an amount being a provision for Non-Performing Advances as per the RBI Regulations. Petitioner has also claimed an amount as deduction u/s 36(1)(viia) of the Act being 7.5% of the profit of Petitioner and claim was disclosed in the computation of income HELD THAT:- Issue of deduction u/s 36(1)(viia) of the Act was under active consideration of the AO - AO had called upon Petitioner to give details of outstanding balance in provision for bad and doubtful debts created u/s 36(1)(viia) and also raised a specific query in respect of rural branches separately and called for proof of such rural branches. It is also stated in the Petition, and that has not been denied, that Petitioner was called upon to make submissions for the relevant assessment year on the basis of the notice issued for AY 2008-09. Petitioner vide its letter submitted the details including, inter alia, details of bad debts written off, details of outstanding balance and deduction claimed u/s 36(1) (viia) for the last three years. It is also averred in the petition that Petitioner clarified that Petitioner had claimed deduction under Section 36(1)(viia) of the Act only for 7.5% of total income but had not claimed any deduction for rural advances as on 31st March 2010 and the 7.5% being Rs. 65,37,16,370/-. In the affidavit in reply, there is no denial and it is just stated, “I offer no comments as facts are stated”. Therefore, as held in Aroni Commercials Limited [2014 (2) TMI 659 - BOMBAY HIGH COURT] it is settled law that once a query is raised during the assessment proceedings and Assessee has replied to it, it follows that the query raised was a subject of consideration of the AO while completing the assessment. It is also not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. Therefore, the reopening of the assessment, in our view, is merely on the basis of change of opinion of the AO from that held earlier during the course of assessment proceedings and this change of opinion does not constitute justification and/or reason to believe that income chargeable to tax has escaped assessment. When the assessment order was passed the decision of the Apex Court in Catholic Syrian Bank Ltd [2012 (2) TMI 262 - SUPREME COURT] was available. In our view, the AO was supposed to be aware of the decision of the Apex Court in Catholic Syrian Bank Ltd. (supra), but did not refer to the said judgment or deal with the said judgment because he was satisfied with Petitioner’s explanation that Petitioner had claimed deduction under Section 36(1)(viia) of the Act only for 7.5% of the total income and had not claimed any deduction for rural advances as on 31st March 2010. Therefore, this is a clear case of change of opinion and that cannot be a basis for reopening the assessment. One more point which requires mention is Petitioner has categorically stated and it has been accepted in the assessment order that it has not claimed any deduction for rural advances. If that is the case, there is no basis for any escapement of income. When the petition was admitted on 20th April 2016 also the Court had expressed a prima facie view that the AO would have formed a necessary opinion taking a view that the decision of the Apex Court in Catholic Syrian Bank Ltd. (supra) would not militate against the view canvassed by Assessee and allow the claim of Petitioner for deduction under Section 36(1)(viia) of the Act. Decided in favour of assessee. Issues Involved:1. Validity of reopening the assessment under Section 148 of the Income Tax Act, 1961.2. Applicability of deduction under Section 36(1)(viia) of the Income Tax Act, 1961.Summary:1. Validity of reopening the assessment under Section 148 of the Income Tax Act, 1961:The petitioner, a bank, challenged a notice dated 31st March 2015 issued by Respondent No. 1 under Section 148 of the Income Tax Act, 1961, to reopen the assessment for Assessment Year (AY) 2010-11, and an order dated 29th February 2016 rejecting the petitioner's objections to the proposed reassessment. The reopening was based on the claim of deduction under Section 36(1)(viia) of the Act. The petitioner argued that this was a clear case of change of opinion since the issue was already considered during the original assessment proceedings, and there was no new tangible material to justify the reopening. The court found that the assessment order dated 29th January 2013 was passed after considering the petitioner's explanation and the law laid down by the Supreme Court in Catholic Syrian Bank Ltd. v. Commissioner of Income Tax. The court held that reopening the assessment based on a change of opinion is not justified and does not constitute a reason to believe that income chargeable to tax has escaped assessment.2. Applicability of deduction under Section 36(1)(viia) of the Income Tax Act, 1961:The petitioner claimed a deduction of Rs. 65,37,16,370/- under Section 36(1)(viia) of the Act for the provision for bad and doubtful debts, which was allowed by the Assessing Officer (AO) during the original assessment. The reopening notice alleged that the deduction was not in accordance with the law as confirmed by the Supreme Court in Catholic Syrian Bank Ltd., which held that the provision for bad and doubtful debts under Section 36(1)(viia) is available only for rural advances. The petitioner clarified that no deduction was claimed for rural advances as on 31st March 2010. The court noted that the AO had raised specific queries regarding the provision for bad and doubtful debts and rural branches during the original assessment, and the petitioner had provided the necessary details. The court concluded that the AO was aware of the Supreme Court decision and was satisfied with the petitioner's explanation. Therefore, the court held that there was no basis for any escapement of income and the reopening of the assessment was not justified.Conclusion:The court made the rule absolute in terms of prayer clause (a), quashing and setting aside the impugned notice dated 31st March 2015 and the impugned order dated 29th February 2016.