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 specifically queried the petitioner about deduction claimed u/s 36(1)(viia) and received detailed submissions. Petitioner clarified it claimed only 7.5% deduction on total income without claiming rural advances deduction. Since the issue was actively considered during original assessment and AO was satisfied with petitioner's explanation, reopening based on subsequent change of opinion after Catholic Syrian Bank judgment was impermissible. Court ruled in favor of assessee.

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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.

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