CREDIT GRICOLE CORPORAE AND INVESTMENT BANK ( FORMELRY KNOWNA S CALYON BANK), MUMBAI V. ADIT (IT) 1(2), MUMBAI

CO 120/MUM/2011

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8248 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-01-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-01-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 01-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Bad and doubtful debts; Difference of opinion; Tax effect; Reason to believe; Provision of bad debts; Change of opinion
• Section: 143(3); 142(1); 14A; 115JB; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (J.M.) AND SHRI RAJENDRA (A.M.) ITA NO. 5644/MUM /2010 ASSESSMENT YEAR 2002-03 ASST. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) 1(2), ROOM NO. 119, SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI 400 038. VS. M/S CALYON BANK, (FORMERLY CREDIT AGRICOLE INDOSUES), 11 TH , 12 TH & 14 TH FLOOR HOECHAT HOUSE, NARIMAN POINT, MUMBAI 400 021. PAN AAACB 3537A (APPELLANT) (RESPONDENT) C.O. NO. 120/MUM /2011 ARISING OUT OF ITA NO. 5644/MUM/2010 ASSESSMENT YEAR 2002-03 M/S CALYON BANK, (FORMERLY CREDIT AGRICOLE INDOSUES), 11 TH , 12 TH & 14 TH FLOOR HOECHAT HOUSE, NARIMAN POINT, MUMBAI 400 021. PAN AAACB 3537A VS. ASST. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) 1(2), ROOM NO. 119, SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI 400 038. (APPELLANT) (RESPONDENT) REVENUE BY: SHRI MAHESH KUMAR ASSESSEE BY : SHRI MADHUR AGARWAL DATE OF HEARING 14-01-2013 DATE OF PRONOUNCEMENT 18-01-2013 ITA NO. 5644/MUM/2010 & CO 12 0/M/10 2 O R D E R PER DINESH KUMAR AGARWAL, J.M. THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DTD. 26-4-2010 PASSED BY THE LD. CIT(A)- 15, MUMBAI FOR THE A.Y. 2002- 03 AGAINST WHICH THE ASSESSEE HAS FILED C.O. THE R EVENUES APPEAL AND ASSESSEES C.O. ARE DISPOSED OF BY THIS COMMON ORDE R FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE A SSESSEE IS A FOREIGN COMPANY, DERIVES INCOME AS A COMMERCIAL BANK HAVING ITS HEAD OFFICE IN FRANCE. THE ASSESSEE HAS BRANCHES IN INDIA. THE R ETURN WAS FILED SHOWING TOTAL LOSS OF RS. 21,61,02,150/-. HOWEVER, THE ORIGINAL ASSESSMENT WAS COMPLETED AT A TOTAL LOSS OF RS. 12, 55,47,111/- VIDE ORDER DTD. 28-3-2005 PASSED U/S 143(3) OF THE INCOM E TAX ACT, 1961 (THE ACT). SUBSEQUENTLY, THE A.O. ON THE BASIS OF REASON S RECORDED OBSERVED THAT INCOME IN THIS CASE HAD ESCAPED ASSESSMENT, IS SUED NOTICE U/S 148 OF THE ACT DTD. 28-3-2008 REQUIRING THE ASSESSEE TO FILE ITS RETURN OF INCOME. IN RESPONSE, THE ASSESSE FILED RETURN OF I NCOME ON 1-4-2008 DECLARING A LOSS OF RS. 19,79,99,882/-. THE A.O. O N THE REQUEST OF THE ASSESSEE ISSUED REASONS FOR RE-OPENING OF THE CASE. SUBSEQUENTLY, THE A.O. ISSUED NOTICE U/S 142(1) OF THE ACT ALONG WITH DETAILED QUESTIONNAIRE DTD. 15-5-2008. IN RESPONSE, THE ASSESSEE FURNISHED REPLIES DTD. ITA NO. 5644/MUM/2010 & CO 12 0/M/10 3 25-10-2008 AND 3-12-2008. THE A.O. AFTER EXAMINING THE DETAILS FURNISHED BY THE ASSESSEE WHILE REJECTING THE ASSES SEES OBJECTION FOR RE- OPENING OF THE ASSESSMENT, ADDED THE EXCESS ALLOWAN CE OF BAD DEBTS TO THE EXTENT OF RS. 1,81,02,263/- TO THE INCOME OF TH E ASSESSEE, DISALLOWED THE EXPENSES INCURRED FOR EARNING EXEMPT INCOME RS. 7,31,444/- AND DID NOT ALLOW BAD DEBTS PROVISION WRITTEN BACK RS. 9,64 ,83,244/- ON THE GROUND THAT THE SAME ARE UN-ASCERTAINED LIABILITIES AND ACCORDINGLY COMPLETED THE ASSESSMENT AT A LOSS OF RS. 10,67,13, 404/- UNDER THE NORMAL PROVISIONS OF THE ACT AND ON THE ADJUSTED BO OK PROFIT RS. 9,81,30,434/- U/S 115JB OF THE ACT VIDE ASSESSMENT ORDER DTD. 22-12- 2008 PASSED U/S 143(3) R.W.S. 147 OF THE ACT. ON A PPEAL, THE LD. CIT(A) WHILE PARTLY ALLOWING THE APPEAL QUASHED THE RE-ASS ESSMENT PROCEEDING, DELETED THE ADDITION OF RS. 1,81,02,263/- MADE ON A CCOUNT OF EXCESS ALLOWANCE OF BAD DEBTS AND ADDITION OF RS. 7,31,444 /-MADE U/S 14A OF THE ACT AND ALSO DELETED THE DISALLOWANCE OF PROVIS ION FOR BAD DEBTS RS. 9,64,83,244/-. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 4. GROUNDS NO. 1 & 2 READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN HOLDING THAT THE RE-ASSESSMENT U/S 147 OF THE ACT IS BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(APPEALS) ERRED IN HOLDING THAT BOT H THE CONDITION ITA NO. 5644/MUM/2010 & CO 12 0/M/10 4 FOR RE-OPENING HAVE NOT BEEN FULFILLED AS THERE WAS NO OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY OR TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT IN VIEW OF THE FACT THAT:- (A) IN THE REASONS FOR RE-OPENING THE ASSESSMENT, T HE ASSESSING OFFICER MENTIONED VERY CLEARLY THAT THERE HAD BEEN EXCESS ALLOWANCE OF THE BAD DEBTS DEDUCTION TO THE EXTENT OF RS. 2.3 CRORES ON ACCOUNT OF THE FAILURE TO ADJUST THE CRED IT BALANCE IN THE ACCOUNT U/S 36(1)(VIIA)(B) OF THE ACT BY THE ASSESS EE AND THAT (B) THE BOOK PROFIT U/S 115JB SHOULD HAVE BEEN COMP UTED AT RS. 12.3 CRORES WHICH WAS NOT DONE BY THE ASSESSEE AT ALL. 5. AT THE TIME OF HEARING THE LD. D.R. WHILE NOT D ISPUTING THE FACTS THAT THE ASSESSEE HAS DISCLOSED RELEVANT MATERIAL D URING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDING, SUBMITS THAT FOR TH E REASONS AS MENTIONED IN THE ASSESSMENT ORDER, THE LD. CIT(A) W AS NOT JUSTIFIED IN HOLDING THAT THE RE-ASSESSMENT U/S 143 OF THE ACT I S BAD IN LAW. HE, THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE A.O . BE RESTORED. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE SUBMITS THAT SINCE ALL THE MATERIAL FACTS HAVE BEEN DISCLOSED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDING INASMUCH AS THE ASSESSEE HAS FILED ITS EXPLANATION ON THE QUERY RAISED BY THE A.O., WHICH ARE SUBJECT MATTER OF RE-ASSESSMENT PROCEEDING, APPEARING AT PAGE 1 TO 47 OF THE ASSESSEES PAPER BOOK, THEREFORE, THE LD. CIT(A) WAS FULLY JUS TIFIED IN QUASHING THE RE-ASSESSMENT PROCEEDING U/S 147/148 OF THE ACT. HE , THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) BE UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE A.O. ITA NO. 5644/MUM/2010 & CO 12 0/M/10 5 ISSUED NOTICE U/S 148 OF THE ACT DTD. 28-2-2008 AFT ER RECORDING THE FOLLOWING REASONS:- ANNEXURE CALYON BANK (FORMERLY KNOWN AS CREDIT AGRICOLE INDOSUEZ) A.Y. 2002-03 1. UNDER THE IT. ACT, DEDUCTION ON ACCOUNT OF BAD DEBTS UNDER SECTION 36(1)(VII) RELATING TO ADVANCES MADE BY AN ASSESSEE TO WHICH CLAUSE (VIIA) OF SECTION 36(1) READ WITH CLAU SE (V) OF SECTION 36(2), APPLIES, CAN BE ALLOWED ONLY IF THE ASSESSEE HAS DEBITED AMOUNT OF SUCH BAD DEBTS TO THE PROVISION FOR BAD A ND DOUBTFUL DEBT ACCOUNT. FURTHER, THE DEDUCTION ON ACCOUNT OF BAD DEBTS SHALL BE REDUCED BY THE AMOUNT OF CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT. IN THE CASE OF ASSESSEE FOR THE YEAR UNDER CONSIDER ATION, ASSESSMENT U/S.143(3) WAS MADE VIDE ORDER DATED 28/ 03/2005. WHILE COMPUTING TAXABLE INCOME, ASSESSEE WAS ALLOWE D A DEDUCTION OF RS. 18,357/- CRORES TOWARDS BAD DEBTS. HOWEVER, CREDIT BALANCE LYING IN THE BAD AND DOUBTFUL DEBTS ACCOUNT IN THE BEGINNING OF THE YEAR AMOUNTING TO RS.2.30 CRORE WA S NOT REDUCED. IN VIEW OF PROVISIONS OF CLAUSE (VII) OF SECTION 36 (1) AND CLAUSE (V) OF SECTION 36(2) OF THE IT. ACT, AMOUNT OF BAD DEBTS W RITTEN OFF IN THE BOOKS IS ALLOWABLE AS DEDUCTION ONLY TO THE EXTENT SUCH BAD DEBTS EXCEEDS THE PROVISION FOR BAD AND DOUBTFUL DEBTS AV AILABLE FOR THE PURPOSE. THUS IN THIS CASE, THERE WAS ALLOWED EXCES S ALLOWANCE OF BAD DEBTS TO THE EXTENT OF RS.2.30 CRORE INVOLVING TAX EFFECT OF RS.1,11 CRORE. 2. FURTHER AS PER PROVISION OF SECTION 115 JB OF I T. ACT, WHERE THE INCOME TAX PAYABLE ON THE TOTAL INCOME AS COMPU TED UNDER THE NORMAL PROVISIONS OF THE ACT IS LESS THAN 7.5 P ER CENT OF THE BOOK PROFIT, SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE AND THE ASSESSEE IS LIABLE T O PAY INCOME TAX AT THE RATE OF 7.5 PERCENT ON SUCH TOTAL INCOME . IN THE CASE OF THE ASESSEE, ASSESSMENT U/S.143(3) W AS MADE UNDER NORMAL PROVISIONS OF THE ACT, BY DETERMI NING THE INCOME OF THE ASSESSEE AS NIL AND NO INCOME WAS D ETERMINED UNDER SECTION 115JB. BOOK PROFIT U/S. LL5JB IN THIS CASE WORKS OUT TO RS.12.30 CRORE. BY NOT DETERMINING THE INCOME UN DER SECTION 115JB, IT HAS RESULTED IN UNDER ASSESSMENT OF INCOM E OF RS.12.30 CRORE INVOLVING TAX EFFECT OF RS.1.21 CRORE. ITA NO. 5644/MUM/2010 & CO 12 0/M/10 6 ACCORDINGLY I HAVE REASON TO BELIEVE HAT INCOME OF THE ASSESSE HAS ESCAPED ASSESSMENT IN VIEW OF THE AFORE MENTIONED REASONS FOR WHICH NOTICE U/S.148 REQUIRES TO BE ISS UED. SD/- (R.K. JALALI) DEPUTY DIRECTOR OF INCOME-TAX (INTERNATIONAL TAX ATION) RANGE 192), MUMBAI. WE FURTHER FIND THAT DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDING THE ASSESSEE HAS DISCLOSED ALL THE MATERIAL FACTS I NCLUDING THE AMOUNT OF BAD DEBTS WRITTEN OFF IN THE CHART OF COMPUTATION O F TOTAL INCOME ALONG WITH NOTE, STATEMENT OF COMPUTATION OF INCOME U/S 1 15JB OF THE ACT, AUDIT REPORT U/S 115JB COMPUTING THE BOOK PROFIT OF THE COMPANY IN FORM NO. 29-B APPEARING AT PAGES 3, 6, 8 TO 11 RESP ECTIVELY OF THE ASSESSEES PAPER BOOK. WE FURTHER FIND THAT ON THE QUERY RAISED BY THE A.O., THE ASSESSEE HAS ALSO FILED ITS EXPLANATION V IDE LETTER DTD. 27-01-2005 WHEREIN THE ASSESSEE IN ITEM NO. 5 HAS E XPLAINED THE PROVISION OF BAD DEBTS WRITTEN OFF ALONG WITH ANNEX URE 5 APPEARING AT PAGES 15 TO 19 OF THE ASSESSEES PAPER BOOK. WE FU RTHER FIND THAT THE ASSESSEE HAS FURTHER EXPLAINED THE ABOVE MATTER VID E LETTER DTD. 18-2- 2005 APPEARING AT PAGE 20 TO 27 OF THE ASSESSEES P APER BOOK. FROM THE ABOVE, IT IS VERY CLEAR THAT ON THE BASIS OF THE QU ERY RAISED BY THE A.O., THE ASSESSEE HAS FILED RELEVANT EXPLANATIONS AND TH E A.O., IN THE ORIGINAL ASSESSMENT PROCEEDING, AFTER CONSIDERING THE SAME, ALLOWED THE CLAIM OF THE ASSESSEE. IN THIS VIEW OF THE MATTER WE ARE OF THE VIEW THAT THE A.O. WHILE COMPLETING THE ORIGINAL ASSESSMENT HAS FORMED AN OPINION AND ITA NO. 5644/MUM/2010 & CO 12 0/M/10 7 ALLOWED THE CLAIM OF THE ASSESSEE. IT IS NOT THE C ASE OF THE REVENUE THAT THERE IS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT. 8. IN ASIAN PAINTS LTD. VS. DY. CIT (2004) 308 ITR 195 (BOM) IT HAS BEEN HELD THAT FRESH APPLICATION OF MIND BY THE ASS ESSING OFFICER TO THE SAME SET OF FACTS AMOUNTS TO CHANGE OF OPINION AND DOES NOT WARRANT RE- OPENING. 9. RECENTLY IN MRS. PARVEEN P. BHARUCHA VS. DY. CIT (2012) 348 ITR 325 (BOM) IT HAS BEEN HELD AS UNDER (HEADNOTE):- HELD, ALLOWING THE PETITION, THAT WHILE GRANTING T HE BENEFIT TO THE PETITIONER THE DEPUTY COMMISSIONER TOOK A VIEW THAT INVESTMENT MADE OUT OF EARNEST MONEY/ADVANCE RECEIV ED AS A PART OF THE SALE CONSIDERATION BEFORE THE DATE OF THE TR ANSFER OF THE ASSETS WOULD ALSO BE ENTITLED TO THE BENEFIT OF SEC TION 54EC. THIS VIEW WAS A POSSIBLE VIEW IN VIEW OF CIRCULAR NO. 35 9, DATED MAY 10, 1983, AND THE DECISION OF THE TRIBUNAL. THE REA SONS RECORDED BY THE DEPUTY COMMISSIONER FOR REOPENING THE ASSESS MENT DID NOT STATE THAT THE DEDUCTION UNDER SECTION 54E WAS NOT CONSIDERED IN THE ASSESSMENT PROCEEDINGS. IN FACT FROM THE REASON S, IT APPEARED THAT ALL FACTS WERE AVAILABLE ON RECORD AND, ACCORD ING TO THE REVENUE, THE DEDUCTION WAS ONLY ERRONEOUSLY GRANTED . THIS WAS A CLEAR CASE OF REVIEW OF AN ORDER. THE APPLICATION O F LAW OR INTERPRETATION OF A STATUTE LEADING TO A PARTICULAR CONCLUSION CANNOT LEAD TO A CONCLUSION THAT TAX HAS ESCAPED AS SESSMENT FOR THIS WOULD THEN CERTAINLY AMOUNT TO REVIEW OF AN OR DER WHICH IS NOT PERMITTED UNLESS SO SPECIFIED IN A STATUTE. THE ORDER DISPOSING OF THE PETITIONER'S OBJECTIONS TO INITIATION OF PRO CEEDINGS UNDER SECTION 147 ALSO PROCEEDED ON THE VIEW THAT THERE H AD BEEN NON- APPLICATION OF MIND DURING THE ORIGINAL PROCEEDINGS FOR ASSESSMENT. THIS WAS UNSUSTAINABLE AND A FRESH APPL ICATION OF MIND BY THE ASSESSING OFFICER ON THE SAME SET OF FA CTS AMOUNTED TO A CHANGE OF OPINION AND DID NOT WARRANT REOPENIN G. 10. IN THE ABSENCE OF ANY CONTRARY MATERIAL PLACED ON RECORD BY THE REVENUE TO SHOW THAT THE ASSESSEE HAS NOT DISCLOSED ALL THE RELEVANT ITA NO. 5644/MUM/2010 & CO 12 0/M/10 8 MATERIAL OR THE A.O. HAS NOT CONSIDERED THE SAME AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDING, WE RESPECTFULLY FOLLOWING TH E RATIO OF THE ABOVE DECISIONS HOLD THAT THE LD. CIT(A) WAS FULLY JUSTIF IED IN QUASHING THE RE- ASSESSMENT PROCEEDING INITIATED U/S 147/148 OF THE ACT. THE GROUNDS TAKEN BY THE REVENUE ARE, THEREFORE, REJECTED. 11. SINCE WE HAVE UPHELD THE ORDER PASSED BY THE LD . CIT(A) IN QUASHING THE RE-ASSESSMENT PROCEEDING, WE DO NOT CO NSIDER IT NECESSARY TO ADJUDICATE ON THE GROUND RAISED BY THE REVENUE O N MERITS OF THE CASE AND ACCORDINGLY THE OTHER GROUNDS TAKEN BY THE REVE NUE ARE REJECTED. C.O. NO. 120/MUM/2011 12. ALL THE GROUNDS TAKEN BY THE ASSESSEE IN THE C. O. ARE ON MERITS, THEREFORE, KEEPING IN VIEW OF OUR FINDING RECORDED IN REVENUES APPEAL WHEREIN WE HAVE QUASHED THE ASSESSMENT ORDER PASSED U/S 147/148 OF THE ACT, THE GROUNDS TAKEN BY THE ASSESSEE ARE, THE REFORE, REJECTED. 13. THE ASSESSEE HAS ALSO TAKEN AN ADDITIONAL GROUN D OF APPEAL WHICH READS AS UNDER:- THE IMPUGNED REASSESSMENT ORDER DTD. 22 DECEMBER 20 08 IS BAD IN LAW AND OUGHT TO BE QUASHED AS THE ASSESSING OFF ICER (AO) FAILED TO ISSUE A NOTICE UNDER SECTION 143(2) OF TH E INCOME-TAX ACT, 1961 14. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT HE DOES NOT WANT TO PRESS THE ABOVE GROUND WHI CH WAS NOT OBJECTED TO BY THE LD. D.R. ITA NO. 5644/MUM/2010 & CO 12 0/M/10 9 15. THAT BEING SO AND IN THE ABSENCE OF ANY SUPPORT ING MATERIAL PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE, THE ABOVE GROUND RAISED BY THE ASSESSEE IS, THEREFORE, REJECTED BEING NOT PRES SED. 16. IN THE RESULT, THE REVENUES APPEAL AND ASSESS EES C.O. STAND DISMISSED. ORDER PRONOUNCED ON 18-1-2013. SD/- (RAJENDRA ) ACCOUNTANT MEMBER SD/- (DINESH KUMAR AGARWAL) JUDICIAL MEMBER MUMBAI, DATED : 18-1-2013 RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- 15, MUMBA I 4. THE DIT (IT) -2, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH L, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI