TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 257
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.... Tax Act, 1961 (hereinafter called as 'the Act'). The returns was initially processed u/s 143(1) of the Act, for all the assessment years. Subsequently, the assessment for the assessment year 2007-08 has been subjected to scrutiny and the A.O. has completed assessment u/s 143(3) of the Act on 17.2.2009 determining total income of Rs. 65,150/-. However, the assessment for the assessment year 2008-09 and 2009-10 has been completed u/s 143(1) of the Act and intimation u/s 143(1)(a) of the Act has been issued accepting income declared by the assessee. 3. Subsequently, the assessments for the assessment year 2007-08 to 2009-10 have been re-opened by issuance of notice u/s 148 of the Act. The A.O. re-opened the assessment after recording reasons for reopening of assessment, as per which the A.O. stated that while arriving at income under the head 'income from business', the assessee claimed deduction u/s 36(1)(viia) of the Act, towards provision for bad and doubtful debts for an amount of 7.5% of the total income, computed before making any deduction under this clause and chapter VIA and an amount not exceeding 10% of the aggregate average advances made by the rural branch....
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....sment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee has challenged the re-assessment proceedings on the ground that reopening of assessment is bad in law and liable to be quashed, as the A.O. has re-opened the assessment merely on 'change of opinion' without any tangible material which suggests escapement of income within the meaning of section 147 of the Act. The assessee has filed elaborate written submissions and also relied upon plethora of judgements. The assessee also agitated the issues on merit and contended that the A.O. was erred in restricting deductions towards provision for bad and doubtful debts without understanding the provisions of section 36(1)(viia) of the Act, wherein it was categorically specified deduction towards provision for bad and doubtful debts in the case of Co-operative banks. The assessee also made a fresh claim towards exclusion of amount withdrawn from reserves for bad and doubtful debts created for the previous financial years, which was not made either in the original return of income filed u/s 139(1) of the Act or revised return filed u/s 148 of the Act. The assessee contended that it has withdrawn cer....
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....ion 36(1)(viia) of the Act, in the statement of computation of total income, therefore, the A.O. was right in restricting the deduction towards provision for bad and doubtful debts to the extent actual provision created in the books of accounts. In so far as fresh claim made by the assessee, towards exclusion of amount withdrawn from reserve created in the earlier period towards provision for bad and doubtful debts, the CIT(A) held that the assessee cannot make any fresh claim in the re-assessment proceedings, as the reopening of the assessment is for the benefit of revenue. In support of his findings, relied upon the decision of Hon'ble Supreme Court in the case of CIT Vs. V. Jagan Mohan Rao 75 ITR 373 and CIT Vs. Sun Engineering Works Pvt. Ltd. 198 ITR 297. 8. Aggrieved by the CIT(A) order, the assessee preferred an appeal before us and raised the following grounds of appeal. Since, the assessee has raised common grounds for all the 3 years, for the sake of convenience, we extract grounds raised for the assessment year 2007-08. "1.The Impugned Order of the Ld. Commissioner of (Appeals), Visakhapatnam is opposed to law, facts and in the circumstances of the case. 2. Under the ....
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....regular assessment, it cannot issue notice for reopening the assessment on the basis of the same documents merely on the basis of change of opinion. Relied on: Abhiyog Holdings Pvt. Ltd., Vs. Income Tax Officer (OSD) Range- 1 2012-TIOL-601-HC-AHM-IT. f) Where assessee had disclosed full facts and no new material was available to revenue to reopen the case, it was a case of mere change of opinion and, hence, reassessment could not be made in such a case. Relied on: Jagson International Ltd., Vs. Commissioner of Income Tax (2012) 46 (I) ITCL 517 (Del-HC)." 9. The assessee also filed a petition for admission of additional grounds, wherein it has raised additional grounds challenging the validity of re-assessment proceedings on the ground that the reasons recorded for re-opening of assessment has not been furnished, despite a specific request made by the assessee, in the light of the decision of Hon'ble Supreme Court in the case of G.K.N. Drive Shaft's India Ltd. Vs. Income Tax Officer and Others (2003) 259 ITR 19 (SC). The additional grounds raised by the assessee are reproduced as under: "7A) The Learned Commissioner of Income Tax (Appeals), ought to have appreciated the fac....
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....e appeals is validity of re-assessment proceedings. The assessee has raised common grounds for all the 3 years, challenging the validity of re-assessment proceedings on the ground that the A.O. has reopened the assessments merely on 'change of opinion' without any fresh materials, subsequently came to his knowledge after completion of original assessment u/s 143(1)/143(3) of the Act. The Ld. A.R. for the assessee submitted that the A.O. has re-opened the assessment merely on change of opinion without there being any fresh material which suggest escapement of income within the meaning of section 147(a) of the Act, which is a pre-condition for re-opening of assessment, whether the assessment is completed u/s 143(1) or 143(3) of the Act. The Ld. A.R. further submitted that the A.O. has recorded reasons, as per which he is referring to the return of income filed by the assessee and also CBDT instruction no.17/2008 dated 26.11.2008 to form a reason to believe that income chargeable to tax had escaped assessment. Except this, the A.O. has not referred to any fresh tangible material to form a reasonable belief that the income chargeable to tax had escaped assessment. Therefore, the format....
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....to file a return in response to notice u/s 148 of the Act and if he so desires to seek reasons for issuing notices. Once, the assessee made a request for reasons recorded for re-opening of the assessment, the A.O. is bound to furnish reasons within a reasonable time and also dispose of objections, if any filed by the assessee before completion of reassessment proceedings. Since, the A.O. failed to furnish reasons recorded for re-opening of assessment, the assessment proceedings are bad in law and liable to be quashed. To this effect, the assessee has filed an affidavit stating that the A.O. has not furnished reasons recorded for re-opening of the assessment before completion of assessment proceedings u/s 143(3) r.w.s. 147 of the Act. In support of his arguments, relied upon the following judgements: 1. GKN Driveshaft's (India) Ltd. Vs. DCIT (2003) 259 ITR 19(SC) 2. Asian Pain Ltd. Vs. DCIT (2008) 296 ITR 96 (Bom) 3. IOT Infrastructure and Eng. Services Ltd. Vs. ACIT (2010) 329 ITR 1(Bom) 4. Allanda Cold Storage Vs. ITO (2006) 287 ITR 1 (Bom) (Asst Yr.2001- 2002) 5. Bhabesh Chandra Panja Vs. ITO (2010) 41 SOT 390 (TM) (Kol) 6. Berger Paints India Ltd. Vs. Asst. Comm. Of I....
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....ssee has made a specific request for reasons recorded for re-opening of the assessment before filing revised return in response to notice u/s 148 of the Act. Though the Hon'ble Supreme Court in the case of G.K.N. Drive Shaft's India Ltd. (supra), had clearly stated that the reasons recorded for re-opening has to be furnished in case the assessee made a request, but the fact remains that there is no records in the file to indicate that the assessee has made a request for reasons recorded for re-opening of the assessment. In the absence of any request, there is no merits in the ground raised by the assessee that the A.O. has not furnished any reasons recorded for re-opening of the assessment. 15. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The factual matrix which leads to re-opening of assessment for the assessment year 2007-08 to 2009-10 are that the assessee has claimed deduction towards provision for bad and doubtful debts under the provisions of section 36(1)(viia) of the Act. The assessee has claimed deductions towards provision for bad and doubtful debts for an amount of 7.5% of the total inco....
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.... under property income 1,05,789 14,03,32,021 Less: Rents received considered separately 1,98,863 Less: Depreciation allowable included in reserves (net) 12,00,221 13,89,32,937 Less: Deduction u/s 36(1)(viia) 7.5% of total income of 13,89,98,089 4,886 10% of Average advances of Rural branches 21,51,75,144 21,51,80,030 Restricted to income under the head "Business" 13,89,32,927 Business income 0 Income under "House Property" offered as the total income for the year 65,152 The working of the total income by allowing the correct deduction under sec.36(1)(viia) is given as under: Net profit as per profit and loss of account 1,69,96,099 Add: Reserves created (Sch. No.16A) 11,83,67,058 Add: Income Tax paid 48,63,075 Add: Municipal taxes considered under property income 1,05,789 14,03,32,021 Less: Rents received considered separately 1,98,863 Less: Depreciation allowable included in reserves (net) 12,00,221 TOTAL INCOME (before deduction u/s 36(1)(viia) 13,89,32,937 Less: Deduction u/s 36(1)(viia): Restricted to the amount of Reserve for bad & doubtful debts" actually debited to the ....
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....towards provision for bad and doubtful debts u/s 36(1)(viia) of the Act, except this no other tangible material available with the A.O. or came to his knowledge after the original assessment. The A.O. formed his reason to believe solely on the ground that excess deduction allowed u/s 36(1)(viia) of the Act, towards bad and doubtful debts, which is otherwise not allowable and hence opined that income chargeable to tax had escaped assessment. 18. The provisions of section 147, provides for re-opening of assessment, if the A.O. has reason to believe that any income chargeable to tax had escaped assessment. In this case, admittedly, the re-opening is within 4 years, therefore, the second proviso to section 147 of the Act has no application, which mandates failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Since, the re-opening was within 4 years, as per the first proviso to section 147 of the Act, for re-opening of any assessment, the A.O. should have a reason to believe that income chargeable to tax had escaped assessment. No doubt the reason to believe should be subjective but not objective. Therefore, the reason to believe f....
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....G.K. Drive Shafts (2003) 259 ITR 19 has upheld passing of objective order. Similarly, concept of 'change of opinion' is not prescribed by statute. But these concepts have been evolved in view of interpretation and observation of courts after going through the legislative intention and provisions of the Act, otherwise power to re-open will be abused by the A.O. to re-open the assessment and what he cannot do directly, he will do indirectly. Therefore, in the absence of tangible material, allowing the A.O. to re-open the assessment on the basis of assessment, whether completed u/s 143(1) or 143(3) of the Act, would amount to review of the earlier proceeding and abuse of power by the A.O. The assessment can be re-opened, if the A.O. had reason to believe and that belief is based on new material which was not there at the time of original assessment. If the reason to believe is based on re-appraisal or re-consideration of the material/information already available on record at the time of completion of original assessment, then re-opening is certainly based on mere change of opinion which is not permissible under law. 21. Having said, let us examine what constitutes a material to form....
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....sence of new material, whether assessment completed u/s 143(1) & 143(3) of the Act, if the assessment is re-opened, then it would amount to mere change of opinion, which is not permissible under law. 23. Having said, let us examine the facts of the present case. In this case, the assessment for the assessment year 2007-08 has been completed u/s 143(3) of the Act. However, the assessment for the assessment year 2008-09 & 2009-10 has been completed u/s 143(1) of the Act. Admittedly, re-opening of assessment in all the 3 years is within 4 years, hence second proviso to section 147 of the Act, has no application. If you examine the facts of the present case with first proviso to section 147 of the Act, it is clear that the A.O. has recorded common reasons for all the 3 years. If you go through the reasons recorded by the A.O., it is undoubtedly clear that the A.O. has referred to the return of income filed by the assessee and also CBDT instruction no.17/2008 dated 26.11.2008, which is already available with the A.O. before completion of assessment for the assessment year 2007-08 to 2009-10. Except referring to return of income and CBDT instructions, the A.O. never referred to any new ....
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....uctions with reference to the provisions of law. Therefore, we are of the view that a general instruction, which is meant for the benefit of the A.O. and also which explains the position of law cannot be considered as a tangible material for re-opening the individual assessment of any assessee. We further noticed that the CBDT instruction no.17/2008 dated 26.11.2008 which is issued subsequent to the date of filing of the return by the assessee for the assessment year 2007-08 and 2008-09 i.e. on 30.10.2008 cannot be relied upon by the A.O. as a tangible material to re-open the assessment. We further observed that the words 'has reason to believe' are stronger than the words 'is satisfied'. In other words, the A.O. himself formed an objective and prima facie opinion himself on the basis of expressed statement or reasons or definite/relevant material in his possession. To put it differently, the words 'reason to believe' suggest that the belief must be that of a honest and reasonable person based upon reasonable grounds and that the A.O. may act on irect or circumstantial evidence, but not on mere suspicion, gossip or rumour. 25. In the present case on hand, on perusal of the facts a....
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..... had not furnished reasons recorded for re-opening of the assessment. 27. Having heard both the sides and considered material on record, we find that the assessee has filed a letter requesting the A.O. to furnish reasons recorded for re-opening of the assessment. We further observed that the revenue failed to bring on record any evidence to counter the claim made by the assessee that the A.O. has not furnished reasons recorded for re-opening of assessment. The law is well settled now that in respect of re-opening of assessment, the Hon'ble Supreme Court, in the case of G.K.N. Drive Shaft's India Ltd. 259 ITR 19, held that it is mandatory on the part of the A.O. to provide the reasons recorded for re-opening of the assessment, in case the assessee has made a request for the copy of the reasons recorded for re-opening of the assessment. In the said judgement, the Hon'ble Supreme Court laid down the procedure to be followed by the A.O. and the assessee after the issue of a notice u/s 148 of the Act. The court further observed that it must be followed by both the parties. If any party makes a default in following the procedure, it is to his detriment. Accordingly, as per the said jud....
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.... the assessment would be bad in law. From the reading of the above judgements, it is abundantly clear that the A.O. is bound to furnish reasons recorded for re-opening of the assessment, if the assessee made a specific request. In case the A.O. failed to furnish reasons recorded, despite a specific request made by the assessee, then the re-assessment proceedings is bad in law and liable to be quashed. 29. In the present case on hand, on perusal of the facts available on record, we find that the A.O. had issued notice u/s 148 of the Act, on 30.6.2011 calling upon the assessee to furnish return of income. In response, the assessee has filed a letter on 18.7.2011 requesting for time of atleast 30 days for submitting the required details. Thereafter, the A.O. has issued a letter dated 25.7.2011 to furnish returns in response to notice issued u/s 148 of the Act. In response to letter, the assessee has filed a letter on 8.8.2011 and requested the A.O. to furnish reasons recorded for re-opening of the assessment for all the assessment years. Thereafter, the assessee has filed one more letter on 26.8.2011 and requested the A.O. to treat the return filed earlier u/s 139(1) of the Act, as t....