TaxTMI 
TaxTMI 
2022 (3) TMI 163
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.... 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 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 filed 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 avera....
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....ejecting 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 justification for reassessment on the ground that during the assessment proceedings for assessment year 2010- 11, when the assessee was called upon to submit details of rural branches and advances in justification of its claim for deduction under section 36(1)(viia), the assessee had withdrawn/given up the claim of deduction under section 36(1)(viia) and the assessee revised its return for assessment year 2011-12 also giving up its claim for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....
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....e 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 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-classification of branches, the AO was justified in reopening the assessment. 6. An affidavit-in-rejoinder was filed on behalf of the petitioner to meet the grounds raised by the respondents in the affidavit-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....
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....otal question is whether the jurisdictional conditions to reopen the assessment were fulfilled? 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. 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 e....
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....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 filed 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 / clarification under section 143(3) of the Act, 1961. As regards the deduction claimed under section 36(1)(viia), the AO had solicited, inter-alia, information under query No.13. In response thereto, the assessee, by letter dated 16th 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 j....
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.... 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 benefit on the strength of unjustified 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 classification of the branches as rural by RBI was not enough. In view of the Explanation (ia) to clause (viia), to claim benefit 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. 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 th....
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....d 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 Officer. (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, first 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 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 ....
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....bed 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-classification 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 classified 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 first 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 (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 princi....