AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 1506
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....hat the proviso to Section 14A would operate even in respect of cases where the assessment is made for the first time u/s 147 of the Income Tax Act? (iii) Whether in the facts and circumstances of the case, the Tribunal was right in granting deduction in respect of bad debts both under Section 36(1)(vii) and (viia) simultaneously?" 2.1. The assessee bank (now merged with the ICICI Bank Limited), for the assessment year 2000-2001, filed its return of income on 30.11.2000 admitting a total income of Rs. 21,39,92,530/-. The return of income was processed on 30.3.2001 and refund due to the assessee of Rs. 6,35,27,000/- was granted along with interest under Section 244A of the Income-tax Act, 1961 [Act] of Rs. 1,67,28,726/-. 2.2. It was noticed and revealed that the assessee bank had claimed bad debts to the tune of Rs. 18.95 Crores, consisting of Rs. 12.16 Crores being bad debts written off and claimed in the profit and loss account under Provisions and Contingencies-Schedule 17 to the profit and loss account and balance sheet; and another sum of Rs. 6,79,60,434/- representing capital portion written off in respect of certain transactions claimed in the memo of income. ....
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.... contended that the ITAT grossly erred in setting aside the order of the lower authorities by deleting the disallowance made under Section 14A of the Act by the Assessing Office at 7.2% and restricted to 2% by the CIT(A). 6.2. Learned counsel for the revenue would further submit that the ITAT failed to apply the Board Circular No.11/2001, dated 23.7.2001, according to which, only when assessment proceedings have attained finality before 1.4.2001, it could not be reopened under Section 147 of the Act to disallow expenditure incurred on exempted income under Section 14A of the Act. Pointing out that, in the present case, the intimation under Section 143(1) of the Act itself was issued only on 30.3.2002, i.e., after 1.4.2001, it was contended that the proceedings had not reached finality as on 1.4.2001 and it was not a case of concluded transaction, therefore, as per the Board's circular, the reopening of assessment was legally justified. 6.3. It is further contended that the ITAT completely erred in upholding the order of the CIT(A) that the claim for bad debts should be allowed in its entirety. The ITAT erred in law in allowing the entire claim of the assessee failing to s....
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....er Section 147 of the Act for any assessment year beginning on or before 1.4.2001. According to him, the exercise undertaken by the Assessing Officer amounts to reassessment, as the assessment has already been done earlier and the proviso to Section 14A of the Act debars the Assessing Officer to reassess under Section 147 of the Act. 7.3. Learned counsel for the assessee would further submit that there is no illegality in the finding of the ITAT that the assessee was entitled to appropriate deduction in respect of bad debts. The findings recorded by the ITAT in granting deduction in respect of bad debts are in accordance with the provisions applicable. 7.4. According to learned counsel for assessee, it was rightly held by the ITAT that, since the Assessing Officer has disallowed depreciation treating the transactions as financial transactions, the CIT(A) accepted the alternate ground of the assessee that these advances have become bad and held that once the Assessing Officer had disallowed the claim of depreciation on the leased assets and when the genuineness of the debts which have become bad were not doubted by him, the assessee should have been allowed deduction in respec....
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....im of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. Explanation.-For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previ....
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.... applying the provisions of newly inserted Section 14-A of the Act.' 17. By the Finance Act, 2002, a statutory provision was also inserted by way of proviso to Section 14-A. What was clarified by the circular has been statutorily engrafted in the proviso to the following effect: 'Provided that nothing contained in this section shall empower the assessing officer either to reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154, for any assessment year beginning on or before the 1st day of April, 2001.' 18. By the Finance Act, 2006, Section 14-A was numbered as sub-section (1) and after sub-section (1), sub-sections (2) and (3) were inserted w.e.f. 1-4-2007 to the following effect: "14-A. (2) The assessing officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the assessing officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the c....
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....14A of the Act at 7.2% of tax free interest income as expenditure for earning exempt under Section 14A of the Act, which worked out to Rs. 2,44,65,600/- (being 7.2% of Rs. 33.98 crores). The CIT(A), however, restricted this disallowance under Section 14A of the Act to 2% of Rs. 33.98 Crores, which works out to Rs. 67.96 lakhs. The ITAT, however, went on to hold that under proviso to Section 14A of the Act, the Assessing Officer cannot make any disallowance for any assessment year beginning on or before 1.4.2001. 12. After referring to provisions contained in Section 14A of the Act, the reasons assigned by the ITAT are as below: "A reading of the proviso above clearly shows that the Assessing Officer is clearly debarred from taking any action u/s 47 in this regard for any assessment year beginning on or before 1st day of April, 2001. The present assessment year being 2000-01, hence under the sanguine provisions of the Act, the Assessing Officer cannot make any disallowance in this regard u/s 14. Hence, we set aside the orders of the authorities below on this issue and decide the issue in favour of the assesee." 13. Therefore, the ITAT interpreted the provision i....
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....eemed to be a demand notice issued under Section 156, that did not per se preclude the right of the assessing officer to proceed under Section 143(2). That right is preserved and is not taken away. Between the period from 1-4-1989 to 31-3-1998, the second proviso to Section 143(1)(a), required that where adjustments were made under the first proviso to Section 143(1)(a), an intimation had to be sent to the assessee notwithstanding that no tax or refund was due from him after making such adjustments. With effect from 1-4-1998, the second proviso to Section 143(1)(a) was substituted by the Finance Act, 1997, which was operative till 1-6-1999. The requirement was that an intimation was to be sent to the assessee whether or not any adjustment had been made under the first proviso to Section 143(1) and notwithstanding that no tax or interest was found due from the assessee concerned. Between 1-4-1998 and 31-5-1999, sending of an intimation under Section 143(1)(a) was mandatory. Thus, the legislative intent is very clear from the use of the word "intimation" as substituted for "assessment" that two different concepts emerged." While making an assessment, the assessing officer is free to ....
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.... one of us (D.K. Jain,J.) in Apogee International Ltd. v. Union of India [(1996) 220 ITR 248 (Del)]. It may be noted above that under the first proviso to the newly substituted Section 143(1), with effect from 1-6-1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under Section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any assessing officer, but mostly by ministerial staff. Can it be said that any "assessment" is done by them? The reply is an emphatic "no". The intimation under Section 143(1)(a) was deemed to be a notice of demand under Section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under Section 143(1)(a), the question of change of opinion, as contended, does not arise." 17. The aforesaid decision was, later on, relied upon by the Hon'ble Supreme Court....
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....er Section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under Section 143(1)(a), the question of change of opinion, as contended, does not arise." 18. The issue as to whether Section 14A of the Act barred original assessment on the basis of retrospective amendment was categorically answered by the Delhi High Court in the case of Honda Siel Power Products Ltd v. Deputy Commissioner of Income Tax and another (supra), as below: "8. The petitioner has relied upon the proviso to section 14A of the Act. The proviso, according to us, is not applicable in view of the factual matrix of the present case and does not protect or come to the aid of the petitioner. In the present case, after return of income for the assessment year 2000-01 was filed on November 30, 2000, the case was taken up in scrutiny. Assessment order under section 143(3) of the Act was passed on March 7, 2003. The proviso only bars reassessment/rectification and not ....
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....f these provisions. A bare reading of these provisions shows that Sections 36(1)(vii) and 36(1)(vii-a) are separate items of deduction. These are independent provisions and, therefore, cannot be intermingled or read into each other. It is a settled canon of interpretation of fiscal statutes that they need to be construed strictly and on their plain reading. 17.The provisions of Section 36(1)(vii) would come into play in the grant of deductions, subject to the limitation contained in Section 36(2) of the Act. Any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year is the deduction which the assessee would be entitled to get, provided he satisfies the requirements of Section 36(2) of the Act. Allowing of deduction of bad debts is controlled by the provisions of Section 36(2). The argument advanced on behalf of the Revenue is that it would amount to allowing a double deduction if the provisions of Sections 36(1)(vii) and 36(1)(vii-a) are permitted to operate independently. There is no doubt that a statute is normally not construed to provide for a double benefit unless it is specifically so stipulated or is cle....