YES BANK LTD, MUMBAI V. DCIT 7(3), MUMBAI

ITA 1991/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3236 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 02-08-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 07-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIDISHA KALRADR
• Assessee Lawyers: NIMESH JAINAR
• Keywords: Reopening of assessment; Capital asset; Recovery proceedings; Business income; Depreciation; Rectification of order; Double taxation relief; Audit objection; Tangible material; Bad and doubtful debts; Difference of opinion; Assessment record; Reason to believe; Change of opinion; Reassessment proceedings; Capital expenditure
• Section: 143(3); 14A; 148; 37; 263; 154

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./ITA/1991/MUM/2015, /ASSESSMENT YEARS: 2008-09 YES BANK LIMITED 9 TH FLOOR, NEHRU CENTRE, DISCOVERY OF INDIA BLDG., DR. A.B. ROAD, WORLI MUMBAI-400 018. PAN:AAACY 2068 D VS. DCIT, -8(3)(2) ROOM NO.615, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, NEW MARINE LINES MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT) ./ITA/2021/MUM/2015, /ASSESSMENT YEARS: 2008-09 DCIT, -8(3)(2) MUMBAI-400 020. VS. YES BANK LIMITED MUMBAI-400 018. ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: MS. VIDISHA KALRA-DR ASSESSEE BY: MS. KRUPA GANDHI AND SHRI NIMESH JAIN-AR / DATE OF HEARING: 18.08.2016 / DATE OF PRONOUNCEMENT:24.08.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 30.12.14 OF CIT(A)-14, MUMBAI THE ASSESSEE AND THE ASSESSING OFFICER (AO)HAVE FILED CROSS APPEALS FOR THE YEAR U NDER CONSIDERATION.ASSESSEE -BANK FILED ITS RETURN OF INCOME ON 29.09.2008 DECLARING INCOME OF RS.320.87 CRORES. THE ORIGINAL ASSESS -MENT U/S.143(3) WAS COMPLETED ON 15.11.2010 DETERM INING INCOME OF THE ASSESSEE AT RS. 337.70 CRORES.LATER ON A NOTICE U/S.148. DT. 5.03.2 013 WAS ISSUED TO THE ASSESSEE. THE AO COMPLETED THE ASSESSMNET U/S.143(3) R.W.S. 147 OF T HE ACT ON 17.02.14, ASSESSING THE INCOME OF THE ASSESSEE AT RS.342.91 CRORES. ITA/1991/MUM/2015 (ASSESSEES APPEAL): 2. FIRST GROUND OF APPEAL IS ABOUT RE-OPENING. IN RESP ONSE TO NOTICE U/S.148, THE ASSESSEE HAD FILED RETURN OF INCOME ON 07.10.2013.IT MADE A REQU EST TO THE AO TO PROVIDE IT THE COPY OF REASON RECORDED.THE REASONS RECORDED BY HIM FOR REO PENING THE ASSESSMENT READ AS UNDER: IN THIS CASE IT IS FOUND THAT ASSESSING OFFICER DET ERMINED ASSESSED INCOME OF RS. 3,37,70, 08,315/-AFTER DISALLOWANCE OF PROVISION ON INVESTME NT, UNDER SECTION 14A AND DISALLOWANCE U/S. 35D. AUDIT SCRUTINY OF COMPUTATION OF INCOME REVEALED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S. 36(L)(VIIA) FOR AN AMOUNT OF RS. 200 734588/- AND THE SAME AS ALLOWED BY THE DEPARTMENT AS GIVEN BELOW. A.Y.2008-09 A.Y.2007-08 A.Y.2006-07 GENERAL LOAN LOSS PROVISION (I.E., PROVISION FOR STANDARD 179594700 254229012 72962742 1991 & 2021/M/15-YES BANK 2 ASSET/ADVANCES AS PER RBI GUIDELINES) . A PROVISION FOR NPA . B 21139888 NIL NIL TOTAL PROVISIONS (C)=A+B 200734588 254229012 72962742 TOTAL INCOME BEFORE DEDUCTION D 3409899537 16822358394 831125223 7.5% 255742465 226176880 62334392 DEDUCTION U/S.36(1)(VIIA) LOWER C AND D 200734588 126176880 62334392 IT WOULD BE SEEN FROM THE ABOVE THAT ASSESSEE IS RE GULARLY CREATING PROVISION FOR STANDARD ASSETS AND ADVANCES (SEE NOTE FORMING PART OF THE A CCOUNTS 18.4.3) UNDER THE HEAD GENERAL LOAN LOSS PROVISION EXCLUDING PROVISION FOR NPA AN D CLAIMING 36(1)(VIIA) ON THAT FROM THAT LAST THREE ASSESSMENT YEARS. THUS ASSESSEE BANKING COMPANY IS SIMPLY PULLING ASIDE MONEY BY CREATING PROVISION FOR STANDARD ASSET/ADVANCES TO M EET UNASCERTAINED LIABILITY THAT MAY BECOME EXPENDITURE ON THE HAPPENING OF AN EVENT IN FUTURE (LAST THREE YEARS NOT BAD DEBTS) WHICH IS INADMISSIBLE DEDUCTION AND CONTRADICTORY T O THE CBDT'S INSTRUCTION. (2) IT WAS ALSO NOTICED FROM THE RELEVANT RECORDS O F ASSESSMENT YEAR 2008-09 THAT ASSESSING OFFICER DETERMINED ASSESSED INCOME OF RS.3377008315 /-, AFTER DISALLOWANCE OF PROVISION ON INVESTMENT OF RS.13,31,60,503/- UNDER SECTION 14A O F RS. 22,02,363/- AND DISALLOWANCE UNDER SECTION 35D OF RS.3,28,92,000/- ASSESSING OFFICER H AS ALREADY DISCUSSED THE MATTER REGARDING DISALLOWANCE UNDER SECTION 35D AND STATED THAT ASSE SSEE COMPANY IS ENGAGED IN FINANCE BUSINESS AND IS NOT AN INDUSTRIAL UNDERTAKING. TH US, ENTIRE DEDUCTION CLAIMED BY BANKING COMPANY U/S. 35D IS NOT IN ORDER. AUDIT SCRUTINY OF ATTACHMENT IV OF 3CD AUDIT REPORT REVEALED THAT ASSESSEE HAD CLAIMED FOLLOWING EXPE NDITURE FOR DEDUCTION U/S.35D. I) PRELIMINARY & PRE-INCORPORATION EXPENSES - RS.5677 691/- II) SHARE ISSUE EXPENSES - RS.32892000/- HOWEVER,WHILE DETERMINING THE ASSESSED INCOME, ASSE SSING OFFICER DISALLOWED ONLY RS.3,28, 92,000/- IN RESPECT OF SHARE ISSUE EXPENSES AND PRE LIMINARY EXPENSE OF RS.5677691/- HAS NOT ADDED BACK TO THE INCOME. THEREFORE, I HAVE REASON TO BELIEVE THAT THE INCOME OF THE ASSESSEE CHARGEABLE TO TAX, HAS ESCAPED ASSESSMENT/OR A.Y. 2008-09. NOTICE U/S./48 IS SEPARATELY ISSUED. AFTER GETTING THE COPY OF THE REASONS, THE ASSESSEE VIDE ITS LETTER DATED 25/10/ 2013 RAISED OBJECTIONS AGAINST THE NOTICE ISSUED U/S. 148.THE A O PASSED AN ORDER AND REJECTED THE OBJECTIONS RAISED BY IT VIDE ORDER DATED 30.12.13. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM,IT WAS ARGUED THAT DURING THE ORIGINAL ASSESSMENT PROC -EEDINGS,THE AO HAD ASKED THE ASSESSEE TO FURNISH D ETAILS OF OUTSTANDING BALANCE OF PROVISION FOR BAD AND DOUBTFUL DEBTS CREATED U/S.36(1)(VIIA), THAT HE HAD FORMED AN OPINION ABOUT THE ALLOWABILITY OF THE ITEM, THAT THE ASSESSEE HAD ALS O FURNISHED SUBMISSION WITH REGARD TO CLAIM MADE U/S. 35D OF THE ACT, THAT THE DEDUCTION CLAIME D IN COMPUTATION OF INCOME WAS PART OF THE NOTES FORMING PART OF RETURN OF INCOME, THAT TH E REOPENING WAS BASED ON CHANGE OF 1991 & 2021/M/15-YES BANK 3 OPINION,THUS REASSESSMENT ON MERE CHANGE OF OPINION WAS BAD IN LAW,THAT THE RE-OPENING WAS BASED ON AUDIT REPORT. IT RELIED UPON THE CASES OF KELVINATOR INDIA LTD.(320ITR561), FORAMER FRANCE (264/566),RAO THAKUR NARAYAN SINGH(56/234), GARDEN SILK MILLS (222/68). 3.1. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ORDER OF THE AO,THE FAA HELD THAT THE BALANCE SHEET SHOWED OTHER LIABILITIES IN SCHEDULE-5,THAT AS PER DETAILS OF SAID SCHEDULE-5 PROVISIONS,SUBORDINATED DEBT AND PROVISI ON FOR STANDARD ADVANCES WERE SHOWN UNDER THE HEAD OTHERS AT PG-10,THAT IT HAD MADE P ROVISIONS AS PER GUIDELINES ISSUED BY RBI, THAT PROVISIONS MADE BY ASSESSEE FELL IN THE CATEGO RY OF PROVISIONS FOR INVESTMENT/STANDARD ADVANCES PROVISION FOR NON PERFORMING ASSETS, THAT THOSE PROVISIONS HAD BEEN MADE AS PER RBI GUIDELINES BY CREDITING THE AMOUNT DURING THE Y EAR, THAT AS PER PROVISIONS OF SECTION 36 (1) (VIIA) THE PROVISION FOR BAD AND DOUBTFUL DEBTS WAS REQUIRED TO BE CREATED FROM AY.2000- 01 TO 2004-05 ONLY,THAT THE PROVISIONS OF SECTION 3 6(1)(VIIA)WERE APPLICABLE FOR ONLY RURAL BRANCHES OF THE BANK,THAT THE ASSESSEE HAD CREATED PROVISIONS FOR YEAR UNDER APPEAL ONLY, THAT THE CLAIM MADE BY IT UNDER HEAD PROVISION FOR BAD A ND DOUBTFUL DEBT AMOUNTING TO RS.17.94 CRORES WAS NOT SUPPORTED IN THE ABSENCE OF ANY ACCO UNT IN THE NOMENCLATURE (I) PROVISION FOR BAD AND DOUBTFUL DEBTS, THAT THE PROVISION MADE BY THE ASSESSEE HAD NOTHING TO DO WITH THE SECTION 36(1)(VIIA),THAT IN THE COMPUTATION OF INCO ME CLAIM MADE BY ASSESSEE FOR PROVISIONS CREATED U/S. 36(1)(VIIA) WERE DISALLOWED IN TOTO AN D ONLY BAD DEBTS WERE REDUCED,THAT THE CLAIM OF THE ASSESSEE, NOT BEING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36 (1)(VIIA) WAS NOT FOUND SUPPORTED,THAT THE ASSESSEE HAD DISALLOWE D PROVISIONS FOR NON PERFORMING ADVANCES /GENERAL LOANS/PROVISIONS, THAT THE CLAIM MADE BY A SSESSEE FOR DEDUCTION OF EXPENDITURE AT 7.5% OF INCOME COULD NOT BE ALLOWED, THAT THERE WAS NO ACCOUNT IN NAME OF PROVISION FOR BAD AND DOUBTFUL DEBT CREDITED DURING THE PERIOD R ELEVANT TO ASSESSMENT YEAR 2000-01 TO 2004-05, THAT IT COULD NOT TAKE EXCUSE THAT MATERIA L WERE DISCLOSED FULLY 4. BEFORE US,THE AUTHORISED REPRESENTATIVE ( AR) STATE D THAT REOPENING OF ASSESSMENT FOR THE YEAR UNDER CONSIDERATION WAS BASED ON MERE CHANGE O F OPINION AND WAS BAD IN LAW, THAT THE ASSESSMENT WAS REOPENED UNDER SECTION 147 OF THE AC T WITHOUT ANY NEW TANGIBLE MATERIAL, THAT THE RE-OPENING WAS BAD IN LAW AS THE SAME WAS BASED ON AN AUDIT OBJECTION, THAT REOPENING WAS NOT JUSTIFIED AS SAME WAS REVENUE NEU TRAL. SHE RELIED UPON THE CASES OF KELVINATOR OF INDIA LTD.(320ITR561); PRIMA PAPER & ENGINEERING INDUSTRY (364ITR222); NDT SYSTEMS (363ITR603); AMITABH BACHHAN (349ITR76) ; HEAVY METAL AND TUBES LTD. (364ITR609); INDIA & EASTERN NEWSPAPER SOCIETY (119 ITR996); DRM ENTERPRISES (230 TAXMAN 61); ICICI HOME FINANCE CO.LTD. (210 TAXMAN 67); EXCEL INDUSTRIES LTD.(358 ITR 1991 & 2021/M/15-YES BANK 4 295)AND GLAXO SMITHKLINE ASIA(195TAXMAN35).SHE ALSO REFERRED TO THE PAGE NO.63, 137, 138, 112,113 OF PAPER BOOK . THE DEPARTMENTAL REPRESENTATIVE (DR) STATED THAT IT WAS NOT A CASE OF CHANGE OF OPINION, THAT THERE WERE NO BAD DEBTS,THAT ASSESSEE WAS NOT OPER ATING IN THE RURAL AREAS, THAT BAD DEBTS HAD TO BE WRITTEN OFF AS IRRECOVERABLE AS PER THE PROVI SIONS OF THE ACT, THAT THE BANK HAD FOLLOWED THE RBI GUIDELINES,THAT THERE WAS NO BAR IN THE ACT FOR NOT RELYING UPON THE AUDIT OBJECTIONS, AUDIT OBJECTION WAS ONE OF THE SOURCES OF REOPENING THE ESCAPED INCOME.SHE REFERRED TO THE CASE OF RAJESH JHAVERI STOCK BROKERS (P.) LTD. (29 1ITR500). 5. BEFORE PROCEEDING FURTHER,WE WOULD LIKE TO DELIBERA TE UPON THE VALIDITY OF AUDIT OBJECTIONS IN RE-OPENING OF ASSESSMENTS.IN OUR OPINION,THE PAR T OF THE NOTE OF AN AUDIT PARTY,WHICH MENTIONS THE LAW THAT ESCAPED THE NOTICE OF THE AO CONSTITUTES 'INFORMATION' AND THE PART WHICH EMBOIDES THE OPINION OF THE AUDIT PARTY IN RE GARD TO THE APPLICATION OR INTERPRETATION OF THE LAW CANNOT BE TAKEN INTO ACCOUNT BY THE AO.A CO MPLETED SCRUTINY ASSESSMENT SHOULD NOT BE DISTURBED IN A LIGHT MANNER.IF AN AUDIT OBJECTIO N POINTS OUT SOME MISTAKE IN THE ORIGINAL ORDER PROVISIONS OF SECTION 154 HAVE TO BE INVOKED AND NOT OF SECTION 147.BOTH THE SECTIONS FIND PLACE IN THE ACT FOR SPECIFIC PURPOSES.SIMILAR LY,IF THE ORDER PASSED BY AN AO IS FOUND TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REV ENUE,A NOTICE U/S.148 SHOULD NOT BE ISSUED. SECTION 147 IS NOT PANACEA FOR ALL THE ILLS.WE WOUL D LIKE TO DISCUSS THE LIMITATIONS OF AN AUDIT OBJECTION IN SUBSEQUENT PARARGRAPHS.BUT,AT PRESENT IT IS SUFFICIENT TO SAY THAT RE-OPENING SHOULD BE DONE ONLY IN CERTAIN CIRCUMSTANCES,AS ENV ISAGED BY THE SECTION. 5.1. FIRST OF ALL,WE WOULD LIKE TO REFER TO THE CASES TH AT DEAL WITH AUDIT OBJECTIONS AND VALIDITY OF RE-OPENING OF ASSESSMENTS ON THE BASIS OF SUCH O BJECTIONS.IN THE CASE OF ARONI COMMERCI- ALS LTD.(362ITR403)THE HONBLE BOMBAY HIGH COURT HA S HELD AS UNDER: THE PRIMARY REQUIREMENT TO REOPEN ANY ASSESSMENT IS A REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE REASO N SHOULD BE BASED ON TANGIBLE MATERIAL. TANGIBLE MATERIAL WOULD MEAN FACTUAL MATERIAL AND N OT INFERENCE OR OPINION ON MATERIAL ALREADY IN EXISTENCE AND CONSIDERED DURING THE ASSE SSMENT PROCEEDINGS .ONCE A QUERY IS RAISED DURING THE ORIGINAL ASSESSMENT PROCEEDINGS A ND THE ASSESSEE HAS REPLIED TO IT, IT FOLLOWS THAT THE QUERY RAISED WAS A SUBJECT OF CONS IDERATION OF THE AO WHILE COMPLETING THE ASSESSMENT. IT IS NOT NECESSARY THAT THE ASSESSMENT ORDER SHOULD CONTAIN REFERENCE OR DISCUSSION TO DISCLOSE HIS SATISFACTION IN RESPECT OF THE QUERY RAISED.( EMPHASIS SUPPLIED ) 1991 & 2021/M/15-YES BANK 5 THOUGH THE PRINCIPLE OF RES JUDICATA IS NOT APPLICA BLE TO TAX MATTERS AS EACH YEAR IS SEPARATE AND DISTINCT, NEVERTHELESS WHERE FACTS ARE IDENTICA L FROM YEAR TO YEAR, THERE HAS TO BE UNIFORMITY AND CONSISTENCY IN TREATMENT. IN THE CASE OF P.C.PATEL & CO.(379 ITR 151)THE HON BLE GUJARAT HIGH COURT HAS DEALT THE ISSUE OF AUDIT OBJECTIONS AS FOLLOW: INFORMATION GIVEN BY THE AUDIT PARTY OR AN AUDIT O BJECTION CAN BE USED FOR THE PURPOSE OF REOPENING OF THE ASSESSMENT.HOWEVER, FOR THAT THERE MUST BE FORMATION OF OPINION BY THE ASSESSING OFFICER OR THE ASSESSING OFFICER INDEPEND ENTLY MUST HAVE REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. FROM THE CORRESPONDENCE BETWEEN THE AO AND THE HIGHER AUTHORITY SHOWED THAT THOUGH THE AO MAINTAINED THAT THE AUDIT OBJECTION RAISED B Y THE AUDIT PARTY WAS NOT CORRECT,HOWEVER AS THE AMOUNT INVOLVED WAS VERY HIGH AS MENTIONED B Y THE AUDIT PARTY AND TO SAFEGUARD THE INTERESTS OF THE REVENUE AND THE GUIDELINES ISSUED THE REASSESSMENT PROCEEDINGS HAVE BEEN INITIATED. THEREFORE, THE FORMATION OF THE OPINION BY THE AO THAT THE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT WAS VITIATED THE REOPENING O F THE ASSESSMENT COULD NOT BE SUSTAINED AND DESERVED TO BE QUASHED AND SET ASIDE. NOW,WE WOULD LIKE TO REFER TO XEROX MODICORP LTD.(3 50 ITR 308) OF THE HONBLE DELHI HIGH COURT.IN THAT MATTER THE FOLLOWING REASONS WERE REC ORDED BY THE AO FOR RE-OPENING THE CASE: 'THE ASSESSMENT OF M/S. XEROX INDIA LTD. FOR THE AY .2004-05 WAS COMPLETED U/S. 143(3), VIDE ORDER DATED DECEM BER 27, 2006, DETERMINING AN INCO ME OF RS.27,39,40,490. 2.THE ASSESSEE-COMPANY HAD CLAIMED AND WAS ALLOWED AN EXPENDITURE OF RS. 3,79,50,791 ON ACCOUNT OF ROYALTY PAID TO A FOREIGN COMPANY IN FOR EIGN EXCHANGE IN LIEU OF RENDERING TECHNICAL ASSISTANCE. SINCE THIS EXPENDITURE HAS PR OVIDED THE ASSESSEE A BENEFIT OF ENDURING NATURE, THIS EXPENDITURE OUGHT TO HAVE BEEN TREATED AS CAPITAL EXPENDITURE.' IT WAS CONTENDED BEFORE THE COURT THAT ONCE AN ASSE SSMENT WAS COMPLETED U/S.143(3) OF THE ACT,THE AO WAS PRESUMED TO HAVE APPLIED HIS MIND TO ALL THE ISSUES AND HE COULD NOT THEREAFTER REOPEN THE ASSESSMENT ON THE GROUND THAT HE DID NOT FORM ANY OPINION WITH RESPECT TO ANY PARTICULAR ISSUE;HE MUST HAVE TANGIBLE MATER IAL BEFORE HIM ON THE BASIS OF WHICH HE CAN ENTERTAIN A REASON TO BELIEVE THAT INCOME CHARGEABL E TO TAX HAS ESCAPED ASSESSMENT THAT THERE WAS NO REFERENCE TO ANY TANGIBLE MATERIAL IN THE RE ASONS RECORDED AND THAT ALL THAT WAS STATED THEREIN WAS THAT THE EXPENDITURE BY WAY OF ROYALTY CONFERRED AN ENDURING BENEFIT TO THE ASSESSEE AND OUGHT TO HAVE,THEREFORE, BEEN DISALLOW ED AS CAPITAL EXPENDITURE,THAT IT WAS NOTHING BUT A CHANGE OF OPINION WITHOUT ANY TANGIBL E MATERIAL COMING TO THE POSSESSION OF THE AO SUBSEQUENT TO THE COMPLETION OF THE ORIGINAL ASS ESSMENT.THE HONBLE COURT HELD AS UNDER: 1991 & 2021/M/15-YES BANK 6 ..THE ASSESSING AUTHORITY CANNOT KEEP IMPROVING HIS CASE FROM TIME TO TIME AND THAT THE REASSESSMENT PROCEEDINGS HAVE TO STAND OR FALL ON T HE BASIS OF WHAT WAS STATED IN THE REASONS RECORDED U/S. 148(2) OF THE INCOME-TAX ACT, 1961, A ND NOTHING MORE. NO FAILURE TO FURNISH FULL AND TRUE PARTICULARS RELATING TO THE ROYALTY PAYMEN TS, INCLUDING THE FAILURE TO FILE THE RELEVANT AGREEMENTS, HAD BEEN ALLEGED IN THE REASONS RECORDE D. IF ANYTHING, THE REASONS ARE AN ADMISSION THAT IT WAS THE AO WHO DID NOT DRAW THE I NFERENCE THAT THE ROYALTY PAYMENTS WERE CAPITAL IN NATURE. IT WAS FOR HIM TO DRAW THE APPRO PRIATE INFERENCE AND NOT FOR THE ASSESSEE TO TELL HIM WHAT INFERENCE OF FACT OR LAW SHOULD BE DR AWN FROM THE PRIMARY FACTS FURNISHED. ......... ............ MOREOVER, IT WAS NOT FOR THE ASSESSEE TO ADVISE THE AO AS TO WHAT INFERENCE HE SHOULD DRAW AS TO THE NATURE OF THE EXPENDITURE-WHETHER IT IS REVENUE OR CAPITAL. THE AUDIT OBJECTION WAS AN INFERENCE THAT THE ROYALTY PAYMENT RESULTED IN A CAPITAL BENEFIT ; SUCH AN OPINION EXPRESSED BY THE AUDIT COULD NOT CONSTITUTE TANGIBL E MATERIAL ON THE BASIS OF WHICH THE ASSESSMENT COULD BE REOPENED. THEREFORE, THE NOTICE WITHIN THE PERIOD OF FOUR YEARS FROM THE END OF THE AY.2004-05 WAS NOT VALID. 17.IT IS DIFFICULT TO SUSTAIN THE NOTICE ISSUED U /S. 148. THE AUDIT OBJECTION IS ONLY AN INFERENCE THAT THE ROYALTY PAYMENT RESULTED IN A CA PITAL BENEFIT ;SUCH AN OPINION EXPRESSED BY THE AUDIT CANNOT CONSTITUTE TANGIBLE MATERIAL ON TH E BASIS OF WHICH THE ASSESSMENT CAN BE REOPENED. IN THE CASE OF INDIAN AND EASTERN NEWSPAPER SOCIET Y V. CIT [1979] 119 ITR 996 (SC),THE SUPREME COURT EXPRESSED THE VIEW THAT INFORMATION A S TO CORRECT LEGAL POSITION MUST COME FROM A FORMAL SOURCE OR BODY WHICH IS COMPETENT TO PRONOUNCE UPON THE ISSUE AND THAT THE REVENUE AUDIT IS NOT COMPETENT TO PRONOUNCE ON ISSU ES OF LAW. THERE IS NO AVERMENT THAT THE REVENUE AUDIT ONLY POINTED OUT TO ANY FACTUAL ASPEC T OR MATERIAL OR PRIMARY FACT THAT WAS OMITTED TO BE DISCLOSED BY THE PETITIONER. 20. IN THE LIGHT OF THE FOREGOING, WE ARE OF THE VI EW THAT THE NOTICE ISSUED U/S. 148 FOR THE AY.2004-05 IS ALSO WITHOUT JURISDICTION. THE SAME I S QUASHED AS ALSO THE CONSEQUENT PROCEEDINGS. NEXT IS THE CASE OF GUJARAT FLUORO CHEMICALS LTD.(3 53 ITR 398),DECIDED BY THE HONBLE GUJARAT HIGH COURT.IN THAT MATTER,THE ASSESSEE HAD FILED ITS ORIGINAL RETURN OF INCOME ON DECLARING A TOTAL INCOME OF RS.23,75,74,840/-.THE R ETURN WAS SELECTED FOR SCRUTINY.THE AO FRAMED ASSESSMENT U/S.143(3) OF THE ACT COMPUTING T HE TOTAL INCOME OF THE ASSESSEE AT RS. 26,01,66,900/-.LATER ON,THE AO ISSUED A NOTICE ON TO REOPEN THE ASSESSMENT OF THE PETITIONER.AT THE REQUEST OF THE PETITIONER,REASONS FOR REOPENING WERE SUPPLIED.THE ASSESSEE , UNDER COMMUNICATION,DATED 24/12/2004,RAISED DETAILE D OBJECTIONS TO SUCH REOPENING OF ASSESS -MENT.PRIMARILY THE CONTENTION OF THE ASSESSEE WAS THAT ALL THE THREE GROUNDS ON WHICH THE AO DESIRED TO REOPEN THE ASSESSMENT WERE EXAMINED IN T HE ORIGINAL SCRUTINY ASSESSMENT AND 1991 & 2021/M/15-YES BANK 7 THAT,THEREFORE, REOPENING ON SUCH BASIS WAS NOT PER MISSIBLE.SUCH OBJECTIONS WERE REJECTED BY THE AO.AT THAT STAGE, THE ASSESSEE FILED THE PETITI ON BEFORE THE HONBLE COURT,CHALLENGING THE NOTICE FOR REOPENING OF ASSESSMENT ITSELF.ALLOWING THE PETITION,THE COURT HELD AS UNDER: THOUGH AN AUDIT OBJECTION MAY SERVE AS INFORMATION , ON THE BASIS OF WHICH THE INCOME-TAX OFFICER CAN ACT, ULTIMATE ACTION MUST DEPEND DIRECT LY AND SOLELY ON THE FORMATION OF BELIEF BY THE INCOME-TAX OFFICER ON HIS OWN......... ....IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THA T THE AO HELD NO INDEPENDENT BELIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. HE SUBMITTED THAT THE AO WAS UNDER COMPULSION BY THE AUDIT PARTY TO ISSUE NOTICE FOR R EOPENING OF ASSESSMENT THOUGH SHE HERSELF HELD A FIRM BELIEF THAT NO INCOME HAD ESCAP ED ASSESSMENT. THE AO IN HER AFFIDAVIT DID NOT DENY THIS. IN THE AFFIDAVIT WHAT WAS VAGUEL Y STATED WAS THAT THE DEPARTMENT WAS APPREHENSIVE ABOUT THE SOURCE OF INFORMATION ON THE BASIS OF WHICH SUCH AVERMENTS WERE MADE. INTER-DEPARTMENTAL CORRESPONDENCE WAS STRICTL Y CONFIDENTIAL. ON A DIRECTION FROM THE COURT THE REVENUE MADE A CANDID STATEMENT THAT THE FILE CONTAINING EXCHANGES BETWEEN THE AO AND THE AUDIT PARTY WAS NOT TRACEABLE. THE REVEN UE NOT HAVING EITHER DENIED THE CLEAR AVERMENTS OF THE ASSESSEE MADE IN THE PETITION ON O ATH NOR HAVING PRODUCED THE ORIGINAL FILES TO DEMONSTRATE THE INDEPENDENT FORMATION OF OPINION BY THE AO THOUGH SUFFICIENT TIME WAS MADE AVAILABLE,THE ISSUE STOOD FIRMLY CONCLUDED IN FAVOUR OF THE ASSESSEE. THE REASSESSMENT NOTICE WAS NOT VALID. IN THE CASE OF IOT INFRASTRUCTURE AND ENERGY SERVIC ES LTD.(332 ITR 587),THE HONBLE BOMBAY HIGH COURT HAS ALSO DEALT THE SIMILAR ISSUE. FACTS OF THE CASE WERE THAT IN ITS BALANCE SHEET AS OF 31.03.2004,THE ASSESSEE MADE A PROVISIO N FOR DIMINUTION IN THE VALUE OF ASSETS OF RS. 1.41 CRORES UNDER THE HEAD OF OPERATING AND OTH ER EXPENSES.IN ITEM 17 OF THE TAX AUDIT REPORT U/S. 44AB,THE ASSESSEE DISCLOSED THAT AN AMO UNT OF RS. 1.12 CRORES WAS A WRITE DOWN IN THE VALUE OF ASSETS AND THAT THIS EXCLUDED AN AMOUN T OF RS.29.23 LAKHS WHICH WAS A WRITE DOWN IN THE VALUE OF SLOW/NON MOVING INVENTORY VALU ED AT ESTIMATED REALIZABLE VALUE BEING CONSIDERED AS NOT IN THE NATURE OF CAPITAL EXPENDIT URE.THE AO REOPENED THE ASSESSMENT ON THE GROUND THAT THE ASSESSEE HAD DEBITED A PROVISION AM OUNTING TO RS. 1.41 CRORES ON ACCOUNT OF DIMINUTION IN THE VALUE OF ASSETS WHICH IN HIS VIEW WAS NOT A PROPER CHARGE ON PROFITS AS THE AMOUNT REPRESENTED A PROVISION MADE FOR A FALL IN T HE VALUE OF CAPITAL ASSETS, WHICH WAS CONSIDERED TO BE CAPITAL IN NATURE. THE ASSESSEE IN ITS OBJECTIONS DREW THE ATTENTION OF THE AO TO THE FACT THAT IN THE STATEMENT OF TOTAL INCOME, IT HAD ALREADY ADDED BACK THE AMOUNT OF RS. 1.12 CRORES AND THAT THE BALANCE OF RS.29.23 LAKHS RELATED TO A WRITE DOWN IN VALUE ON ACCOUNT OF SLOW OR NON-MOVING INVENTORY ESTIMATED ON THE BA SIS OF REALIZABLE VALUE WHICH COULD NOT BE REGARDED AS BEING IN THE NATURE OF CAPITAL EXPEN DITURE.THE AO ACCEPTED THAT THE AMOUNT OF 1991 & 2021/M/15-YES BANK 8 RS. 1.12 CRORES OUT OF RS.1.41 CRORES HAD BEEN DISA LLOWED BY THE ASSESSEE IN THE RETURN OF INCOME. HOWEVER, HE TREATED THE BALANCE OF RS. 29.2 3 LAKHS TO BE OF A CAPITAL NATURE WITHOUT DEALING WITH THE OBJECTION OF THE ASSESSEE THAT A W RITE DOWN IN THE VALUE OF SLOW MOVING OR NON-MOVING INVENTORY COULD NOT BE TREATED AS OF A C APITAL NATURE . ON A WRIT PETITION THE HONBLE COURT ALLOWED THE PETITION AND HELD THAT TH E REOPENING OF THE ASSESSMENT WAS NOT VALID.THE COURT OBSERVED AS UNDER: IT IS NOW A SETTLED POSITION OF LAW THAT THOUGH, AF TER APRIL 1, 1989, THE POWER TO REOPEN AN ASSESSMENT IS MUCH WIDER THAN PREVIOUSLY, THE WORDS REASON TO BELIEVE DO NOT CONFER AN ARBITRARY POWER UPON THE AO TO REOPEN AN ASSESSMENT MERELY ON THE BASIS OF A CHANGE OF OPINION.THE AO MUST POSSESS TANGIBLE MATERIAL TO CO ME TO THE CONCLUSION THAT THERE IS AN ESCAPEMENT OF INCOME FROM ASSESSMENT. THE VALIDITY OF A NOTICE OF THE AO SEEKING TO REOPEN AN ASSESSMENT WOULD HAVE TO BE DETERMINED ON THE LA W AS IT PREVAILED ON THE DATE OF THE NOTICE REOPENING OF THE ASSESSMENT AND HAS TO BE AS SESSED WITH REFERENCE TO THE REASONS RECORDED BY THE ASSESSING OFFICER. (I)ADMITTEDLY, OF THE AMOUNT OF RS. 1.41 CRORES,TH E ASSESSEE HAD DISALLOWED AN AMOUNT OF RS. 1.12 CRORES IN THE COMPUTATION OF INCOME AND THIS H AD BEEN ACCEPTED BY THE AO IN HIS ORDER. THAT BEING THE POSITION, THERE COULD HAVE BEEN NO O CCASION FOR THE AO TO FORM A REASON TO BELIEVE THAT THIS PART OF THE INCOME (RS. 1.12 CROR ES) HAD ESCAPED ASSESSMENT. (II) THE ASSESSEE IN ITEM 17(A) OF THE TAX AUDIT RE PORT CLEARLY STATED THAT THE BALANCE OF RS.29.23 LAKHS WAS A WRITE DOWN IN THE VALUE OF SLO W/NON-MOVING INVENTORY WHICH WAS VALUED AT ITS ESTIMATED REALIZABLE VALUE AND WHICH WAS NOT IN THE NATURE OF CAPITAL EXPENDITURE. IN ITS OBJECTIONS, THE ASSESSEE CLARIFIED THAT A WRITE DOW N IN THE VALUE OF INVENTORY COULD NEVER BE REGARDED AS OF CAPITAL NATURE. THE AO DID NOT DEAL WITH THE SUBMISSION OF THE ASSESSEE WHILE DISPOSING OF THE OBJECTIONS . AS A MATTER OF FACT, IN HIS RESPONSE TO THE AUDIT OBJECTION HE AO HAD STATED, AS REGARDS THE AMOUNT OF RS. 29.23 LAKH S, THAT IT WAS MENTIONED IN ITEM 17 OF THE AUDIT REPORT THAT THE ESTIMATED REALIZABLE VALU E OF THE INVENTORY WAS CONSIDERED NOT IN THE NATURE OF CAPITAL EXPENDITURE. IN THE CIRCUMSTANCES, THE REOPENING OF THE ASSESSME NT WAS NOT FOUNDED ON TANGIBLE MATERIAL AND THE AO HAD ACTED OUTSIDE THE FOLD OF HIS JURISDICTION. NOW,WE WOULD REFER TO THE JUDGMENT OF TRANSWORLD IN TERNATIONAL INC.(273 ITR 242),OF THE HONBLE DELHI HIGH COURT.FACTS OF THE CASE WERE THA T THE PETITIONER,A NON-RESIDENT FOREIGN COMPANY,WAS ENGAGED IN THE BUSINESS OF PRODUCING TE LEVISION PROGRAMMES PRIMARILY OF SPORT ACTIVITIES.FOR THE AY.1997-98 A RETURN OF INCOME U/ S. 139(1) OF THE ACT WAS FILED DECLARING AN INCOME OF RS.95,59,750/- WHEREIN A CLAIM WAS MADE F OR DEPRECIATION @ 25%,AMOUNTING TO RS.1,36,00,682/- ON PLANT AND MACHINERY VALUED AT R S.5,44,02,729/-. THE RETURN OF INCOME 1991 & 2021/M/15-YES BANK 9 WAS PROCESSED U/S. 143(1)(A) OF THE ACT. VARIOUS NO TICES WERE ISSUED AND QUERIES WERE RAISED DURING THE COURSE OF ASSESSMENT PROCEEDINGS.ACCORDI NG TO THE PETITIONER ALL THE MATERIAL FACTS NECESSARY FOR ASSESSMENT WERE DISCLOSED FULLY AND T RULY.ALL THE QUERIES WERE ANSWERED AND NECESSARY INFORMATION CALLED FOR WAS FURNISHED FOR THE PURPOSE OF DETERMINING THE TOTAL INCOME.THE AO MADE AN ORDER U/S. 143(3) OF THE ACT, AND DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS.99,83,740/-.A TAX-DEPRECIATION-SCHED ULE HAD BEEN FILED SHOWING DETAILS OF DEPRECIATION CLAIMED. THE PLANT AND MACHINERY INCLU DED ONE OB VAN. SUBSEQUENTLY AN AUDIT OBJECTION WAS RAISED TO THE GRANT OF FULL DEPRECIAT ION. A NOTICE OF REASSESSMENT WAS ISSUED THERE UPON.ON A WRIT PETITION,AGAINST THE NOTICE AN D REASSESSMENT PROCEEDINGS ,THE HONBLE COURT HELD AS UNDER: THE VALIDITY OF INITIATION OF REASSESSMENT PROCEED INGS HAS TO BE JUDGED WITH REGARD TO THE MATERIAL AVAILABLE WITH THE AUTHORITY AT THE POINT OF TIME OF ISSUING THE NOTICE U/S. 148 OF THE INCOME-TAX ACT, 1961. WHEN THE ASSESSEE HAS DISCLOS ED FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT AND ON THE BASIS OF WH ICH THE ASSESSMENT IS MADE, THEN EXERCISE OF POWERS U/S. 148 OF THE ACT CONTEMPLATES THAT : ( A) THERE MUST BE MATERIAL FOR THE BELIEF REGARDING ESCAPE OF INCOME FROM TAXATION ; (B) CIRC UMSTANCES MUST EXIST AND CANNOT BE DEEMED TO EXIST FOR ARRIVING AT AN OPINION ; (C) RE ASONS TO BELIEVE MUST BE HONEST AND NOT BASED ON SUSPICION, GOSSIP, RUMOUR OR CONJECTURE ; (D) REASONS REFERRED TO MUST DISCLOSE THE PROCESS OF REASONING BY WHICH THE AO HOLDS REASONS TO BELIEVE AND CHANGE OF OPINION DOES NOT CONFER JURISDICTION TO REASSESS ; (E) THERE MUS T BE NEXUS BETWEEN MATERIAL AND BELIEF ; AND (F) REASONS RECORDED MUST SHOW APPLICATION OF MIND BY THE ASSESSING OFFICER. WHERE AN ASSESSMENT HAS BEEN MADE AND THERE IS PURPORTED EXC ESSIVE DEPRECIATION, ITS ALLOWANCE WOULD REQUIRE EXAMINATION OF FACTS AND THAT MUST BE REFLE CTED IN A WELL REASONED DOCUMENT BEFORE ISSUANCE OF NOTICE FOR REASSESSMENT. THE PRIMARY FUNCTION OF AUDIT IN RELATION TO ASSESS MENTS AND REFUNDS IS THE CONSIDERATION WHETHER THE INTERNAL PROCEDURES ARE ADEQUATE AND SU FFICIENT.IT IS NOT INTENDED THAT THE PURPOSE OF AUDIT SHOULD GO ANY FURTHER. WHETHER IT IS THE INTERNAL AUDIT PARTY OF THE INCOME-TAX DEPARTMENT OR AN AUDIT PARTY OF THE COMP TROLLER AND AUDITOR-GENERAL, THEY PERFORM ESSENTIALLY ADMINISTRATIVE OR EXECUTIVE FUN CTIONS AND CANNOT BE ATTRIBUTED THE POWERS OF JUDICIAL SUPERVISION OVER THE QUASI-JUDIC IAL ACTS OF THE INCOME-TAX AUTHORITIES. THE INCOME-TAX ACT DOES NOT CONTEMPLATE SUCH POWER IN ANY INTERNAL AUDIT ORGANISATION OF THE INCOME-TAX DEPARTMENT BUT ONLY IN THOSE AUTHORITIES WHICH ARE SPECIFICALLY AUTHORISED TO EXERCISE ADJUDICATORY FUNCTIONS. 1991 & 2021/M/15-YES BANK 10 THE HONBLE APEX COURT,IN THE CASE OF INDIAN AND EA STERN NEWSPAPER SOCIETY (SUPRA),HAD AN OCCASION TO CONSIDER THE QUESTION OF BASING A NOTIC E ON AN AUDIT REPORT.IT HAD OBSERVED AS UNDER: FOR THE PURPOSE OF IMPOSING A CHECK OVER THE ARITH METICAL ACCURACY OF THE COMPUTATION OF INCOME AND THE DETERMINATION OF TAX,INTERNAL AUDIT ORGANISATION WAS SET UP.FROM 1960 ONWARDS THE AUDIT WAS ENTRUSTED TO THE COMPTROLLER AND AUDITOR GENERAL OF INDIA.THE NATURE AND SCOPE OF RECEIPT AUDIT ARE DEFINED BY SECTION 1 6 OF THE COMPTROLLER AND AUDITOR GENERAL'S (DUTIES, POWERS AND CONDITIONS OF SERVICE) ACT, 197 1.THE AUDIT BY THE COMPTROLLER AND AUDITOR GENERAL, AS POINTED OUT BY THE APEX COURT, IS PRINCIPALLY INTENDED FOR THE PURPOSE OF SATISFYING HIM WITH REGARD TO THE SUFFICIENCY OF TH E RULES AND PROCEDURES PRESCRIBED FOR THE PURPOSE OF SECURING AN EFFECTIVE CHECK ON THE ASSES SMENT, COLLECTION AND PROPER ALLOCATION OF REVENUE. PARA. 3 OF THE CIRCULAR ISSUED BY THE BOAR D DTD. 28.07.1960 WARNS THAT ' THE AUDIT DEPARTMENT SHOULD NOT IN ANY WAY SUBSTITUTE ITSELF FOR THE REVENUE AUTHORITIES IN THE PERFORMANCE OF THEIR STATUTORY DUTIES' . PARA. 4 OF THE CIRCULAR BEING RELEVANT IS REPRODUCED HEREUNDER (PAGE 1003) : ' AUDIT DOES NOT CONSIDER IT ANY PART OF ITS DUTY T O PASS IN REVIEW THE JUDGMENT EXERCISED OR THE DECISION TAKEN IN INDIVIDUAL CASES BY OFFICERS ENTRUSTED WITH THOSE DUTIES, BUT IT MUST BE RECOGNIZED THAT AN EXAMINATION OF SUCH CASES MAY BE AN IMPORTANT FACTOR IN JUDGING THE EFFECTIVENESS OF ASSESSMENT PROCEDURE . . . IT IS, HOWEVER, TO FORMING A GENERAL JUDGMENT RATHER THAN TO, THE DETECTION OF INDIVIDUAL ERRORS OF ASSE SSMENT, ETC., THAT THE AUDIT ENQUIRIES SHOULD BE DIRECTED. THE DETECTION OF INDIVIDUAL ERRORS IS AN INCIDENT RATHER THAN THE OBJECT OF AUDIT.' THE HONBLE COURT ALSO OBSERVED AS UNDER: ' WHERE A BENCH OF TWO LEARNED JUDGES OF THIS COURT OBSERVED THAT A CASE WHERE INCOME HAD ESCAPED ASSESSMENT DUE TO THE ' OVERSIGHT, INADVERT ENCE OR MISTAKE' OF THE INCOME-TAX OFFICER MUST FALL WITHIN SECTION 34(1)(B) OF THE INDIAN INC OME-TAX ACT, 1922. IT APPEARS TO US, WITH RESPECT, THAT THE PROPOSITION IS STATED TOO WIDELY AND TRAVELS FARTHER THAN THE STATUTE WARRANTS IN SO FAR AS IT CAN BE SAID TO LAY DOWN THAT IF, ON REAPPRAISING THE MATERIAL CONSIDERED BY HIM DURING THE ORIGINAL ASSESSMENT, THE INCOME-TAX OFFI CER DISCOVERS THAT HE HAS COMMITTED AN ERROR IN CONSEQUENCE OF WHICH INCOME HAS ESCAPED AS SESSMENT, IT IS OPEN TO HIM TO REOPEN THE ASSESSMENT. IN OUR OPI NION, AN ERROR DISCOVERED ON A RECONSIDERATION OF THE SAME MATERIAL (AND NO MORE) DOES NOT GIVE HIM THAT POWER. THAT WA S THE VIEW TAKEN BY THIS COURT IN MAHARAJ KUMAR KAMAL SINGH V. CIT [1959] 35 ITR 1 (SC) ; CIT V. A. RAMAN AND CO. [1968] 67 ITR 11 (SC) AND BANKIPUR CLUB LTD. V. CIT [1971] 82 ITR 831 (SC) AND WE DO NOT BELIEVE THAT THE LAW HAS SINCE TAKEN A DIFFERENT COURSE. ANY OBSERVA TIONS IN KAL YANJI MAVJI AND CO. V. CIT [1976] 102 ITR 287 (SC) SUGGESTING THE CONTRARY DO NOT, WE SAY WITH RESPECT, LAY DOWN THE CORRECT LAW.' 1991 & 2021/M/15-YES BANK 11 IN SHETH BROTHERS,(251 ITR 270)THE HONBLE GUJARAT HIGH COURT,HAS HELD AS UNDER: ' ON A READING OF A RECENT DECISION OF THIS COURT I N THE CASE OF ADANI EXPORTS V. DEPUTY CIT [1999] 240 ITR 224, IT IS SEEN THAT THE CENTRAL BOA RD OF DIRECT TAXES HAS ISSUED SOME INTERNAL DIRECTIONS TO THE ASSESSING OFFICERS TO INITIATE RE MEDIAL MEASURES BY WAY OF REASSESSMENT IN ALL CASES WHERE AUDIT OBJECTION ARE RAISED. WHILE DEALI NG WITH SUCH A SITUATION, THE COURT REFERRED TO AND APPLIED THE RATIO OF THE SUPREME COURT DECISION IN THE CASE OF INDIAN AND EASTERN NEWSPAPER SOCIETY V. CIT [1979] 119 ITR 996 AFTER EXTRACTING THE RELEVANT PORTION FROM THE APEX COURT DECISION, THIS COURT HAS REFERRED TO THE FACTS IN DETAIL.THEREAFTER, THE COURT WENT ON TO DE AL WITH THE CENTRAL BOARD OF DIRECT TAXES INSTRUCTIONS AS UNDER (PAGE 231) : 'NOTWITHSTANDING THIS CLEAR POSITION OF LAW EMERGIN G FROM THE DECISION OF THE SUPREME COURT, THE INSTRUCTIONS OF THE BOARD STILL PERSISTED THAT AS S OON AS AUDIT OBJECTIONS ARE RAISED, PROMPT REMEDIAL ACTION IN THE NATURE OF REASSESSMENT SHOUL D BE TAKEN EVEN IF OBJECTION IS NOT ACCEPTED BY THE INCOME-TAX OFFICER. THE INSTRUCTIONS ARE BEI NG TAKEN FOR REMEDIAL ACTION, VIZ., REMEDIAL ACTION SHOULD INVARIABLY BE INITIATED AS A PRECAUTI ONARY MEASURE IN RESPECT OF AUDIT OBJECTION, EVEN IF THE OBJECTION IS NOT ACCEPTED BY THE INCOME -TAX OFFICER OR WITHOUT THE ASSESSING AUTHORITY APPLYING HIS MIND TO SUCH INFORMATION FOR REACHING HIS OWN CONCLUSION. ONCE THE REMEDIAL ACTION IS INITIATED, IT CAN BE DROPPED WITH THE APP ROVAL OF THE COMMISSIONER OF INCOME-TAX IF THE OBJECTION RAISED IS ONE OF FACTS AND THE FACTS STAT ED TO THE AUDIT ARE FOUND TO BE INCORRECT. THUS, CONTRARY TO THE DECISION OF THE SUPREME COURT , THE INSTRUCTION OF THE BOARD DIRECTS THAT MERELY ON RAISING OF AUDIT OBJECTION REMEDIAL ACTIO N BY INITIATING PROCEEDINGS OF REASSESSMENT BE TAKEN, NOTWITHSTANDING THAT THE AUTHORITY VESTED WITH POWER TO EXERCISE JURISDICTION FOR ISSUING NOTICE IS NOT SATISFIED ABOUT EXISTENCE OF SUCH CIRCUMSTANCES WHICH MAY WARRANT EXERCISE OF SUCH POWER. TO SAY THE LEAST, SUCH ULTRA VIRES INSTRUCTIONS CAN NOT BE PRESSED INTO SERVICE TO SAVE THE INITIATION OF PROCEEDINGS U/S. 147, IN THE ABSENCE OF HOLDING OF ANY BELIEF BY THE ASSESSING OFFICER, BY ARROGATING THE POWER TO I TSELF BY THE BOARD BY ISSUING SUCH DIRECTIONS CONTRARY TO THE PROVISIONS OF LAW AT THE PAIN OF SU BJECTING THE OFFICER TO PAIN OF EXPOSING HIM TO CHARGE OF INSUBORDINATION' .' A FULL BENCH OF THE HONBLE DELHI HIGH COURT,IN THE CASE OF KELVINATOR OF INDIA LTD.(256 ITR1),HAD ALSO AN OCCASION TO EXAMINE A SIMILAR ASP ECT.THE COURT EXAMINED THE EFFECT OF AMENDMENT TO SECTION 147 AND CIRCULAR NO. 549 DATE D 31/10/ 1989 AND OBSERVED AS UNDER: ' IT IS A WELL SETTLED PRINCIPLE OF INTERPRETATION OF STATUTE THAT THE ENTIRE STATUTE SHOULD BE READ AS A WHOLE AND THE SAME HAS TO BE CON SIDERED THERE AFTER CHAPTER BY CHAPTER AND THEN SECTION BY SECTION AND ULTIMATELY WORD BY WORD. IT IS NOT I N DISPUTE THAT THE AO DOES NOT HAVE ANY JURISDICTION TO REVIEW HIS OWN ORDER.HIS JURISDICTI ON IS CONFINED ONLY TO RECTIFICATION OF MISTAKES AS CONTAINED IN SECTION 154 OF THE INCOME- TAX ACT, 1961.THE POWER OF RECTIFICATION OF 1991 & 2021/M/15-YES BANK 12 MISTAKE CONFERRED UPON THE INCOME-TAX OFFICER IS CI RCUMSCRIBED BY THE PROVISIONS OF SECTION 154 OF THE ACT. THE SAID POWER CAN BE EXERCISED WHE N THE MISTAKE IS APPARENT. EVEN A MISTAKE CANNOT BE RECTIFIED WHERE IT MAY BE A MERE POSSIBLE VIEW OR WHERE THE ISSUES ARE DEBATABLE. EVEN THE INCOME-TAX APPELLATE TRIBUNAL HAS LIMITED JURISDICTION U/S. 254(2) OF THE ACT. THUS WHEN THE AO OR TRIBUNAL HAS CONSIDERED THE MATTER I N DETAIL AND THE VIEW TAKEN IS A POSSIBLE VIEW THE ORDER CANNOT BE CHANGED BY WAY OF EXERCISI NG THE JURISDICTION OF RECTIFICATION OF MISTAKE. IT IS A WELL SETTLED PRINCIPLE OF LAW THAT WHAT CAN NOT BE DONE DIRECTLY CANNOT BE DONE INDIRECTLY.IF THE INCOME-TAX OFFICER DOES NOT POSSE SS THE POWER OF REVIEW,HE CANNOT BE PERMITTED TO ACHIEVE THE SAID OBJECT BY TAKING RECO URSE TO INITIATING A PROCEEDING OF REASSESSMENT OR BY WAY OF RECTIFICATION OF MISTAKE. IN A CASE OF THIS NATURE THE REVENUE IS NOT WITHOUT REMEDY.SECTION 263 OF THE ACT EMPOWERS THE COMMISSIONER TO REVIEW AN ORDER WHICH IS PREJUDICIAL TO THE REVENUE.' ' ANOTHER ASPECT OF THE MATTER ALSO CANNOT BE LOST SIGHT OF. A STATUTE CONFERRING AN ARBITRARY POWER MAY BE HELD TO BE ULTRA VIRES ARTICLE 14 OF T HE CONSTITUTION OF INDIA. IF TWO INTERPRETATIONS ARE POSSIBLE, THE INTERPRETATION WH ICH UPHOLDS CONSTITUTIONALITY, IT IS TRITE, SHOULD BE FAVOURED. IN THE EVENT IT IS HELD THAT BY REASON OF SECTION 1 47 IF THE INCOME- TAX OFFICER EXERCISES HIS JURISDICTION FOR INITIATING A PROCEEDING FOR REASSE SSMENT ONLY UPON A MERE CHANGE OF OPINION, THE SAME MAY BE HELD TO BE UNCONSTITUTIONAL. WE ARE THEREFORE OF THE OPINION THAT SECTION 147 OF THE ACT DOES NOT POSTULATE CONFERMENT OF POWER U PON THE AO TO INITIATE REASSESSMENT PROCEEDING UPON HIS MERE CHANGE OF OPINION. 24. IT IS REQUIRED TO BE NOTED, AS POINTED OUT BY L EARNED COUNSEL FOR THE ASSESSEE, THAT THERE WAS NO FRESH INFORMATION SUPPLIED TO THE AO BY ANY ONE INCLUDING THE AUDIT PARTY. IN A CASE LIKE THIS, THE DUTY OF THE AO IS THAT HE HIMSELF SH OULD EXAMINE THE MATERIAL PLACED ON RECORD AND SHOULD ARRIVE AT A PRIMA FACIE BELIEF IN THIS B EHALF. HE MUST RECORD A CONCLUSION THAT THERE IS ESCAPEMENT ON ACCOUNT OF EXCESSIVE DEPRECI ATION ALLOWANCE AND IS REQUIRED TO GIVE REASONS IN THIS BEHALF. HE HAS TO JUSTIFY THE EXERC ISE OF REASSESSMENT. IN THE INSTANT CASE, THE AO WHILE RECORDING THE REASONS HAS NOT DONE ANY EXE RCISE. WHERE AN ASSESSMENT HAS BEEN MADE AND THERE IS PURPORTED EXCESSIVE DEPRECIATION, ITS ALLOWANCE WOULD REQUIRE EXAMINATION OF FACTS AND THAT MUST BE REFLECTED IN A WELL REASO NED DOCUMENT BEFORE ISSUANCE OF NOTICE FOR REASSESSMENT. IN THE INSTANT CASE, THAT EXERCISE HA S NOT BEEN DONE. SECTION 148 OF THE ACT SPECIFICALLY REQUIRES THE AO TO RECORD REASONS. THE VALIDITY OF INITIATION OF REASSESSMENT PROCEEDINGS HAS TO BE JUDGED WITH REGARD TO THE MAT ERIAL AVAILABLE WITH THE AUTHORITY AT THE POINT OF TIME OF ISSUING THE NOTICE U/S. 148 OF THE ACT. WHEN THE ASSESSEE HAS DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSE SSMENT AND ON THE BASIS OF WHICH THE ASSESSMENT IS MADE, THEN EXERCISE OF POWERS U/S. 14 8 OF THE ACT CONTEMPLATES THAT : (A) THERE 1991 & 2021/M/15-YES BANK 13 MUST BE MATERIAL FOR THE BELIEF ; (B) CIRCUMSTANCES MUST EXIST AND CANNOT BE DEEMED TO EXIST FOR ARRIVING AT AN OPINION ; (C) REASONS TO BELIEVE MUST BE HONEST AND NOT BASED ON SUSPICION, GOSSIP, RUMOUR OR CONJECTURE ; (D) REASONS REFERRED TO MUST DISCLOSE THE PROCESS OF REASONING BY WHICH THE AO HOLDS ' REASONS TO BELIEVE' AND CHA NGE OF OPINION DOES NOT CONFER JURISDICTION TO REASSESS ; (E) THERE MUST BE NEXUS BETWEEN MATER IAL AND BELIEF ; AND (F) REASONS RECORDED MUST SHOW APPLICATION OF MIND BY THE AO (SEE SHETH BROTHERS' CASE [2001] 251 ITR 270 (GUJ)). 25. IN THE INSTANT CASE, WE FIND THAT THE AO HIMSEL F HAS NOT EXAMINED THE MATTER KEEPING IN MIND THE ABOVE PRINCIPLES AND MERELY RELYING ON THE AUDIT OBJECTION HAS ISSUED THE NOTICE. THAT IS CONTRARY TO THE REQUIREMENT OF LAW...... 26. IN OUR OPINION, ON THE SAME MATERIAL A DIFFEREN T VIEW IS SOUGHT TO BE TAKEN AND THIS IS NOTHING BUT A MERE CHANGE OF OPINION AND THAT WOULD NOT AMOUNT TO ESCAPEMENT OF INCOME. MERE CHANGE OF OPINION WOULD NOT CONFER JURISDICTIO N UPON THE AO TO INITIATE PROCEEDINGS U/S. 147 OF THE ACT..... IN THE CASE OF G. AMEER(150 ITR 443)THE HONBLE KER ALA HIGH COURT HAS DEALT WITH AUDIT OBJECTIONS AND THEIR RELEVANCE IN FOLLOWING MANNER: WHERE AN ASSESSMENT IS SOUGHT TO BE REOPENED ON THE BASIS OF INFORMATION FURNISHED BY AUDIT OBJECTION, IF WHAT WAS SUPPLIED BY THE AUDIT PARTY WAS MERELY INFORMATION AND THE ASSESSING AUTHORITY TREATED IT AS SUCH INFORMATION AND PROCEE DED TO ASSESS, THERE WOULD BE NO OBJECTION TO SUCH A COURSE. IF, ON THE OTHER HAND, THE AUDIT PARTY EXPRESSED A VIEW ON THE MATERIALS AND THE ASSESSING AUTHORITY ADOPTING THAT VIEW DECIDED TO REOPEN THE ASSESSMENT, THAT MIGHT BE OBJECTIONABLE. THE ASSESSING AUTHORITY WOULD THEN B E ACTING NOT UPON ANY INFORMATION BUT UPON THE VIEW EXPRESSED BY THE AUDIT PARTY. THE HONBLE GUJARAT HIGH COURT HAS IN THE MATTER OF ARYODAYA SPINNING AND WEAVING COMPANY LIMITED(144ITR817) FOUND THAT THE ASSESSEE- COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING TEXTILES,THAT IT WAS FOLLOWING THE COST METHOD FOR THE PURPOSE OF VALUING ITS OPENING AND CLOSING STOCKS OF CLOTH AND YARN FOR TH E PURPOSE OF INCOME-TAX ASSESSMENT FOR THE PAST SEVERAL YEARS,THAT THE SAME METHOD WAS ALSO FO LLOWED FOR THE PURPOSE OF PREPARATION OF BALANCE-SHEET UP TO THE AY.1965-66,THAT A DEPARTURE WAS,HOWEVER,MADE FROM THE AY.1966- 67 ONWARDS,THAT THE ASSESSEE ADOPTED TWO METHODS OF VALUATION OF STOCKS OF YARN IN PROCESS AND CLOTH, ONE FOR PURPOSES OF THE COMPANIES ACT, 1 956, AND ANOTHER FOR PURPOSES OF INCOME- TAX. SO FAR AS THE YARN IN PROCESS WAS CONCERNED, T HE ASSESSEE FOLLOWED A UNIFORM METHOD OF VALUING THE STOCK AT 12 PAISE PER KG. FOR PURPOSES OF INCOME-TAX. COST OF YARN IN PROCESS FOR PURPOSES OF ITS BALANCE-SHEET WAS WORKED OUT BY ADD ING 25% WEAVING CHARGES TO THE COST OF READY YARN. FOR THE AY.S.1970-71 AND 1974-75, THE P ETITIONER FOLLOWED THE SAME METHOD OF 1991 & 2021/M/15-YES BANK 14 VALUATION OF ITS STOCK WHICH IT HAD FOLLOWED FROM T HE AY.1966-67.IN OTHER WORDS, IT VALUED ITS STOCK OF YARN IN PROCESS AT 12 PAISE PER KG. FOR TH E PURPOSE OF INCOME-TAX, WHILE IT ADOPTED A DIFFERENT METHOD OF VALUATION FOR THE PURPOSE OF BA LANCE-SHEET AND PROFIT AND LOSS ACCOUNT, AS MENTIONED ABOVE.STATEMENTS CONTAINING DETAILS OF ME THODS OF VALUATION ADOPTED BY IT WERE FILED ALONG WITH ITS RETURNS OF INCOME.BALANCE-SHEE TS IN WHICH A METHOD DIFFERENT FROM THE ONE ADOPTED FOR THE PURPOSE OF INCOME-TAX WAS FOLLO WED WERE ALSO FILED IN THE COURSE OF ASSESSMENT PROCEEDINGS. IN ANSWER TO THE QUERIES PU T BY THE AO IN BOTH THE YEARS IN QUESTION, THE PETITIONER HAD EXPLAINED THE METHODS OF VALUATI ON OF STOCK ADOPTED BY IT. IT WAS AFTER TAKING INTO CONSIDERATION VALUATION OF STOCK FOR TH E PURPOSE OF INCOME-TAX AND VALUATION OF STOCK FOR THE PURPOSE OF BALANCE-SHEET, THAT THE AO MADE SUITABLE ADJUSTMENTS IN THE ASSESSMENTS FOR THE SAID YEAR. THE AO STARTED REASS ESSMENT PROCEEDINGS FOR THE AY.1970-71 ON THE GROUND THAT THE METHOD OF VALUING STOCK ADOP TED BY THE ASSESSEE HAD BEEN WRONGLY DESCRIBED AS THE COST METHOD AND THEREBY THE ASSESS EE HAD MISLED THE INCOME-TAX AUTHORITIES. REASSESSMENT PROCEEDINGS WERE STARTED FOR THE AY.19 74-75 U/S.147(A) OR IN THE ALTERNATIVE U/ S.147(B) ON THE GROUND THAT THE AUDIT OBJECTION HAD DISCLOSED THAT THE METHOD ADOPTED BY THE ASSESSEE WAS ERRONEOUS. ON A WRIT PETITION TO QUASH THE NOTICES OF REASSESSMENT: THE DUTY WHICH IS CAST UPON THE ASSESSEE IS TO MAKE A TRUE AND FULL DISCLOSURE OF THE PRIMARY FACTS AT THE TIME OF THE ORIGINAL ASSESSMENT. ONCE HE HAS DONE THAT, HIS DUTY ENDS. IT IS FOR THE ITO TO DRAW CORRECT INFERENCES FROM THOSE PRIMARY F ACTS. IT IS NOT THE RESPONSIBILITY OF THE ASSESSEE TO ADVISE THE ITO WITH REGARD TO THE INFER ENCE WHICH HE SHOULD DRAW FROM THE PRIMARY FACTS. IF THE ITO DRAWS AN INFERENCE WHICH APPEARS SUBSEQ UENTLY TO BE ERRONEOUS A MERE CHANGE OF OPINION WITH REGARD TO THAT INFERENC E WOULD NOT JUSTIFY THE INITIATION OF ACTION FOR REOPENING ASSESSMENTS UNDER S. 147(A). IT WOULD NOT BE OPEN TO THE ITO TO REOPEN THE COMPL ETED ASSESSMENT UPON A REAPPRAISAL OF THE MATERIAL CONSIDERED BY HIM DURING THE ORIGINAL ASSESSMENT. AN ERROR DISCOVERED ON A REAPPRAISAL OF THE SAME MATERIAL WITHOUT ANYTHING M ORE DOES NOT GIVE HIM THE POWER TO REOPEN THE ASSESSMENT UNDER S. 147(B). ( EMPHASIS BY US). .ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPENDAGE OR LABEL WHICH THE PETITIONER GAVE TO THE METHOD OF VALUATION OF STOCK OF YARN WA S NOT BY ITSELF A PRIMARY FACT NECESSARY FOR ASSESSMENT.EVEN ASSUMING IT WAS A PRIMARY FACT, THE PETITIONER HAD SIMULTANEOUSLY PLACED ON RECORD IN THE FORM OF A STATEMENT THE DETAILS OR PA RTICULARS IN RELATION TO THE VALUATION OF STOCK. IN OTHER WORDS, THE ACTUAL METHOD ADOPTED BY THE PETITIONER FOR VALUING THE STOCK WAS LAID BARE IN ALL ITS ESSENTIAL PARTICULARS IN THE C OURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS. IT WAS FOR THE ITO TO DRAW THE CORRECT INFERENCE FR OM ALL THOSE PRIMARY FACTS TAKEN TOGETHER AND TO DECIDE, INTER ALIA, WHETHER OR NOT THE STOCK COULD BE SAID TO HAVE BEEN VALUED AT COST 1991 & 2021/M/15-YES BANK 15 AS CLAIMED BY THE PETITIONER. IT WAS NO PART OF THE DUTY OF THE PETITIONER TO ADVISE THE ITO WITH REGARD TO THE TRUE AND CORRECT INFERENCE WHICH SHOULD BE DRAWN FROM THOSE PRIMARY FACTS AS REGARDS THE METHOD OF VALUATION . THERE WAS, THEREFORE, NO JUSTIFICATION FOR REOPEN ING THE ASSESSMENT IN EITHER OF THE ASSESSMENT YEARS UN DER CONSIDERATION UNDER S. 147(A). THE FACTUAL INFORMATION SUPPLIED BY THE AUDIT OBJEC TION WAS ALREADY CONSIDERED BY THE ITO WHEN HE FRAMED THE ASSESSMENT.THE ITO HAD STATED TH AT THE ACCEPTANCE OF THE METHOD OF VALUATION OF STOCK WAS ERRONEOUS.THE ERROR,IF ANY, WAS DISCOVERED ON A REAPPRAISAL OF THE SAME MATERIAL ON RECORD. THIS WAS, THEREFORE, A CAS E OF MERE CHANGE OF OPINION. THE ITO, THEREFORE, HAD NO JURISDICTION TO REOPEN THE ASSESS MENT FOR 1974-75 UNDER S. 147(B). IN THE MATTER OF ANIL STARCH PRODUCTS LTD.(134 ITR 355) THE HONBLE GUJARAT HIGH COURT HAD FOUND THAT A NOTICE OF REASSESSMENT WAS ISSUED ON I NFORMATION RECEIVED FROM AN AUDIT OBJECTION PERTAINING TO DEDUCTION OF TWO ITEMS, NAM ELY, (1)FEES PAID IN CONNECTION WITH APPEARANCE BEFORE THE MRTP COMMISSION, AND (2) GRAT UITY ACTUALLY PAID TO EMPLOYEES. DECIDING THE MATTER THE HONBLE COURT HELD AS UNDER : THE OPINION OF THE INTERNAL AUDIT PARTY OF THE I.T. DEP T. CANNOT BE REGARDED AS 'INFORMATION' WITHIN THE MEANING OF S. 147(B) OF TH E I.T. ACT, 1961, FOR THE PURPOSE OF REOPENING AN ASSESSMENT. ALTHOUGH AN AUDIT PARTY DOES NOT POSSESS THE POWER TO PRONOUNCE ON THE LAW,IT NEVERTHELESS MAY DRAW THE ATTENTION O F THE ITO TO IT. WHILE THE LAW MAY BE ENACTED OR LAID DOWN ONLY BY A PERSON OR BODY WITH AUTHORITY IN THAT BEHALF, THE KNOWLEDGE OR AWARENESS OF THE LAW MAY BE COMMUNICATED BY ANYONE. NO AUTHORITY IS REQUIRED FOR THE PURPOSE. ...... AT THE TIME OF THE ORIGINAL ASSESSMENT ALL T HE RELEVANT FACTS INCLUDING THE DIRECTORS' REPORT WHICH WAS PART AND PARCEL OF THE BALANCE-SHEET WAS DULY SUBMITTED AND THE ITO HAD CONSIDERED ALL THE MATERIAL AND ALLOWED DEDUCTION O F LEGAL EXPENSES. THE AUDIT DEPARTMENT HAD NOT POINTED OUT ANY BINDING JUDGMENT OF A HIGH COURT OR THE SUPREME COURT ON THIS ASPECT NOR HAD IT POINTED OUT ANY STATUTORY PROVISI ON WHICH THE ITO MAY HAVE MISSED ON THE EARLIER OCCASION.THEREFORE, THE ITO HAD NO JURISDIC TION TO REOPEN THE ASSESSMENT ON THIS GROUND. THE ITO HAD ALLOWED DEDUCTION OF GRATUITY A FTER CONSIDERING THE RELEVANT PROVISIONS. ON RECEIPT OF THE AUDIT OBJECTION THE ITO HELD THAT HIS EARLIER VIEW WAS NOT CORRECT. THAT COULD NOT BE CALLED 'INFORMATION' WITHIN THE MEANIN G OF S. 147(B). THE NOTICE OF REASSESSMENT WAS INVALID AND LIABLE TO BE QUASHED. 5.2. WE WOULD LIKE TO REFER TO SOME OF THE MATTERS DEALI NG WITH THE CONCEPT OF CHANGE OF OPINION,AS THE COURTS ARE UNANIMOUS THAT RE-ASSESSM ENT PROCEEDINGS,INITIATED BECAUSE OF CHANGE OF OPINION,HAVE TO BE QUASHED. 1991 & 2021/M/15-YES BANK 16 FACTS OF THE FIRST CASE I.E. CENTRAL WAREHOUSING CO RPORATION LTD.(382ITR 172)WERE THAT THE ASSESSMENT OF THE ASSESSEE FOR THE AY.2005-06 WAS C OMPLETED U/S.143(3) OF THE ACT.THE AO SUBSEQUENTLY REOPENED THE ASSESSMENT ON THE GROUND THAT HE HAD INADVERTENTLY FAILED TO NOTICE THAT INCOME OF THE ASSESSEE FROM THE DISPOSAL OF ST OCKS IN THE BONDED WAREHOUSE HAD ESCAPED ASSESSMENT.THE TRIBUNAL HELD THAT THE REOPENING OF THE ASSESSMENT WAS INVALID. DISMISSING THE APPEAL FILED BY THE DEPARTMENT THE HONBLE DELH I HIGH COURT HELD AS UNDER: THE ORIGINAL ASSESSMENT WAS FRAMED UNDER SECTION 143(3) OF THE ACT AND WHILE FRAMING ORIGINAL ASSESSMENT,A SPECIFIC QUERY WAS RAISED BY THE ASSESSING OFFICER AND WAS CLARIFIED BY THE ASSESSEE IN WRITING. IT WAS NOT A CASE WHERE RE LEVANT MATERIAL WAS NOT DISCLOSED BY THE ASSESSEE IN THE FIRST ROUND OF ASSESSMENT. THUS THE REOPENING OF THE ASSESSMENT BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2005-06 W AS BASED ON A CHANGE OF OPINION, WHICH WAS IMPERMISSIBLE IN LAW. IN THE MATTER OF TIRUPATI FOAM LTD.(380ITR493)THE H ONBLE GUJARAT HIGH COURT HELD THAT WHERE THE ISSUE OF ACCOUNTING TREATMENT IN RESPECT OF UNUTILISED CENVAT CREDIT FOR THE PURPOSE OF VALUING THE CLOSING STOCK WAS ALREADY EXAMINED B Y THE AO DURING THE SCRUTINY ASSESSMENT, REASSESSMENT PROCEEDINGS,ON THE SAME ISSUE WITHOUT ANY TANGIBLE MATERIAL,WAS MERE A CHANGE OF OPINION AND, HENCE,NOT SUSTAINABLE. IN THE CASE OF TURNER BROADCASTING SYSTEMS ASIA PAC IFIC INC.(380ITR412)FOLLOWING PROPOSI - TIONS OF LAW LAID DOWN BY THE FULL BENCH OF THE HON BLE DELHI HIGH COURT IN THE CASE OF USHA INTERNATIONAL LTD.(348 ITR 485),WERE REFERRED TO: (I)THE EXPRESSION CHANGE OF OPINION POSTULATES FO RMATION OF OPINION AND THEN A CHANGE THEREOF. IN THE CONTEXT OF SECTION 147 OF THE INCOM E-TAX ACT, 1961, IT IMPLIES THAT THE ASSESSING OFFICER SHOULD HAVE FORMED AN OPINION AT THE FIRST INSTANCE, I.E., IN THE PROCEEDINGS UNDER SECTION 143(3) AND BY INITIATION OF THE REASS ESSMENT PROCEEDINGS, THE ASSESSING OFFICER PROPOSES OR WANTS TO TAKE A DIFFERENT VIEW ; (II) REASSESSMENT PROCEEDINGS WILL BE INVALID IN CA SE THE ASSESSMENT ORDER ITSELF RECORDS THAT THE ISSUE WAS RAISED AND WAS DECIDED IN FAVOUR OF T HE ASSESSEE. REASSESSMENT PROCEEDINGS IN THE SAID CASES WILL BE HIT BY THE PRINCIPLE OF CHA NGE OF OPINION ; AND (III) REASSESSMENT PROCEEDINGS WILL BE INVALID IN CASE AN ISSUE OR QUE RY IS RAISED AND ANSWERED BY THE ASSESSEE IN ORIGINAL ASSESSMENT PROCEEDINGS BUT THEREAFTER T HE ASSESSING OFFICER DOES NOT MAKE ANY ADDITION IN THE ASSESSMENT ORDER. IN SUCH SITUATION S, IT SHOULD BE ACCEPTED THAT THE ISSUE WAS EXAMINED BUT THE ASSESSING OFFICER DID NOT FIND ANY GROUND OR REASON TO MAKE ADDITION OR REJECT THE STAND OF THE ASSESSEE. HE FORMS AN OPINI ON. THE REASSESSMENT WILL BE INVALID BECAUSE THE ASSESSING OFFICER HAD FORMED AN OPINION IN THE ORIGINAL ASSESSMENT, WHETHER OR NOT HE HAD RECORDED HIS REASONS IN THE ASSESSMENT O RDER. 1991 & 2021/M/15-YES BANK 17 5.3. THE FACTS OF THE ABOVE CASE WERE THAT THE ASSESSEE WAS A COMPANY INCORPORATED IN THE U. S. A. AND WAS A TAX RESIDENT OF THE U. S. A.DURING THE RELEVANT FINANCIAL YEARS, IT DERIVED INCOME FROM THE GRANT OF EXCLUSIVE RIGHTS TO TIIPL IN INDIA TO SELL ADVERTISING ON THE PRODUCTS AND TO DISTRIBUTE CERTAIN PRODUCTS.IT FILED ITS RET URNS FOR THE AY.S.2007-08 AND 2008-09.THE ASSESS -MENTS WERE MADE AND THE AO IN THE ASSESSMEN T ORDERS HAD REFERRED TO THE MUTUAL AGREEMENT TO AVOID DOUBLE TAXATION UNDER ARTICLE 27 OF DTAA BETWEEN INDIA AND THE U. S. A, FOR THE AY.S.2001-02 TO 2004 -05 AND THE FACT THAT SUBSEQUENTLY FOR THE AY.2005-06, ASSESSMENT WAS CONCLUDED FOLLOWING THE MUTUAL AGREE MENT PROCEDURE.THE AO IN THE ASSESSMENT ORDER HAD SPECIFICALLY RECORDED THAT SIN CE THE FACTS OF THE YEAR UNDER CONSIDERATION REMAINED THE SAME, FOLLOWING THE AGREEMENT REACHED BY THE RESPECTIVE COMPETENT AUTHORITIES IN THE EARLIER YEARS, THE TAX WAS COMPUTED AT 10% A CCORDING TO RESOLUTIONS PASSED IN THE MUTUAL AGREEMENT PROCEDURE.NOTICES OF REASSESSMENT WERE ISSUED IN RESPECT OF BOTH THE ASSESSMENT YEARS. 5.4 .ON WRIT PETITIONS AGAINST THE NOTICES,THE HONBLE DELHI COURT HELD THAT NO FRESH INFORMATION OR MATERIAL HAD BEEN REFERRED TO IN THE REASONS RECORDED FOR SEEKING TO REOPEN THE ASSESSMENT,THAT THE MATERIAL THAT WAS RE FERRED TO WAS THE VERY SAME MATERIAL THAT WAS ALREADY BEFORE THE AO AT THE TIME OF FRAMI NG OF THE ASSESSMENTS U/S.143(3) OF THE ACT AND EVEN THE REASONS RECORDED THAT FROM TH E PERUSAL OF THE ASSESSMENT RECORD, IT IS OBSERVED THAT,THAT IT SHOWED THAT THE AO HAD SOUGHT TO RE-APPRECIATE THE MATERIAL THAT WAS ALREADY THERE AT THE TIME WHEN THE ASSESSM ENT WAS FRAMED U/S.143(3),THAT IT WAS CLEARLY A CASE OF CHANGE OF OPINION ,( EMPHASIS BY US )WHICH WAS CLEARLY NOT PERMISSIBLE,THAT THE NOTICES WERE NOT VALID.WE WOUL D ALSO LIKE TO REPRODUCE PARAGRAPHS 16 AND 17 OF THE ORDER AND SAME READ AS UNDER: 16. PERUSAL OF THE ASSESSMENT ORDERS IN BOTH THE PE TITIONS CLEARLY SHOW THAT AN OPINION WAS FORMED BY THE ASSESSING OFFICER THAT TAXATION OF AD VERTISEMENT AND DISTRIBUTION REVENUE WAS TO BE GOVERNED BY THE MAP RESOLUTION AND THE COMPET ENT AUTHORITIES OF THE USA AND INDIA HAD AGREED TO AN ATTRIBUTION OF 10 PER CENT. OF THE TOTAL REVENUE GENERATED FROM THE SAID DISTRIBUTION AND ADVERTISEMENT SALES AGREEMENT. THE SAME WAS AGREED TO BE TREATED AS BUSINESS INCOME. 17. A DETAILED QUESTIONNAIRE HAD BEEN ISSUED TO THE PETITIONER, WHICH WAS DULY REPLIED TO. AS MANY AS 38 QUERIES HAD BEEN RAISED AND A DETAILED R EPLY ALONG WITH ALL ANNEXURES AND SUPPORTING DOCUMENTS WERE FURNISHED BY THE PETITION ER IN RESPONSE TO THE QUERIES RAISED. THE COPIES OF THE RELEVANT AGREEMENTS, THE GENERATION O F INCOME AND THE TAX TREATMENT GIVEN BY THE PETITIONER TO THE SAID INCOME WAS DULY DISCLOSE D TO THE ASSESSING OFFICER. THE MATERIAL BASED ON WHICH THE REOPENING HAS BEEN SOUGHT TO BE DONE BY THE DEPARTMENT WAS AVAILABLE 1991 & 2021/M/15-YES BANK 18 BEFORE THE ASSESSING OFFICER AT THE TIME OF THE FRA MING OF THE ASSESSMENT UNDER SECTION 143. NOT ONLY WAS THE SAME BEFORE THE ASSESSING OFFICER, THE ASSESSING OFFICER HAS REFERRED TO THE SAME IN THE ASSESSMENT YEAR AND TAKEN NOTE OF THE S AME. NOW WE WOULD LIKE TO REFER TO THE CASE OF HEWLETT-P ACKARD GLOBALSOFT PVT. LTD. (380 ITR 386),THE HONBLE KARNATAKA HIGH COURT.FACTS OF THE CASE WERE THAT THE ASSESSEE WAS A COMPANY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOP MENT.FOR THE AY.2003-04,IN ITS RETURN OF INCOME IT HAD CLAIMED DEDUCTION U/S. 10A OF THE ACT.THE RETURN OF INCOME WAS PROCESSED AND SELECTED FOR SCRUTINY.WHILE CLAIMING THE DEDUCT ION THE ASSESSEE HAD EXCLUDED THE EXPENSES INCURRED IN FOREIGN CURRENCY FOR PROVIDING TECHNICAL SERVICES AND HAD INCLUDED THE PROFITS DERIVED FROM TECHNICAL SERVICES IN THE ELIG IBLE PROFITS FOR DEDUCTION U/S.10A.THE CLAIM WAS ALLOWED.THEREAFTER, NOTICE WAS ISSUED AND REASS ESSMENT WAS COMPLETED EXCLUDING THE PROFITS DERIVED FROM TECHNICAL SERVICES FROM THE EL IGIBLE PROFITS.THE TRIBUNAL ANNULLED THE REASSESSMENT PROCEEDINGS.ON APPEAL TO THE HIGH COUR T,THE MATTER WAS DECIDED AS FOLLOW: ..IT COULD BE SEEN FROM THE ORIGINAL ASSESSMENT R ECORDS THAT THE CLAIM OF THE ASSESSEE UNDER SECTION 10A WAS THOROUGHLY SCRUTINISED,THE ASSESSIN G OFFICER HAD EXAMINED THE CLAIM OF EXPENDITURE INCURRED IN FOREIGN CURRENCY FOR PROVID ING TECHNICAL SERVICES ALLOCATING THE SUM OF RS.38,51,45,781 BETWEEN THE FIVE SOFTWARE TECHNO LOGY PARK UNITS IN THE RATIO OF THE EXPORT SALES. IN FACT, THE ASSESSING OFFICER HAD RAISED CE RTAIN QUERIES DURING THE ASSESSMENT PROCEEDINGS AND A DETAILED REPLY HAD BEEN GIVEN BY THE ASSESSEE. JURISDICTION UNDER SECTION 147 OF THE INCOME-TAX ACT, 1961, CAN BE INVOKED BY THE ASSESSING OFFICER WHERE HE HAS REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPE D ASSESSMENT. HOWEVER, SUCH REASON TO BELIEVE CANNOT BE BASED ON A MERE CHANGE OF OPINIO N. THE ASSESSING OFFICER DOES NOT HAVE JURISDICTION TO REVIEW HIS OWN ORDER. THE TRIBUNA L WAS FULLY JUSTIFIED IN ARRIVING AT THE CONCLUSION THAT THE REOPENING OF ASSESSMENT WAS BY CHANGE OF OPINION. THE REASSESSMENT WAS NOT VALID. IN THE MATTER OF PLUS PAPER FOOD PAC LTD.(374ITR485 )ISSUE OF DEPRECIATION WAS DEALT BY THE AO IN THE ORIGINAL ASSESSMENT PASSED U/S.143(3)OF T HE ACT.LATER ON,HE ISSUED NOTICE U/S.148 WITH REGARD TO ALLOWABILITY DEPRECIATION.MATTER TRA VELLED UP TO THE HONBLE BOMBAY HIGH COURT AND WAS DECIDED AS UNDER: REASSESSMENT PROCEEDINGS CAN BE INITIATED ONLY IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT.THE WORD S REASON TO BELIEVE MUST RECEIVE AN INTERPRETATION WHICH IS IN CONSONANCE WITH THE SCHE ME OF THE LAW. THERE CANNOT BE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSMEN T ON THE BASIS OF A MERE CHANGE OF OPINION. THE ASSESSING OFFICER HAS NO POWER TO REVI EW. HE HAS ONLY A POWER TO REASSESS. IN THE GARB OF REOPENING THE ASSESSMENT, A REVIEW CANN OT TAKE PLACETHE ORIGINAL 1991 & 2021/M/15-YES BANK 19 ASSESSMENT ORDER IN THE PRESENT CASE HAD OBVIOUSLY TAKEN INTO ACCOUNT THE ASPECT OF DEPRECIATION.PERUSAL OF THE ASSESSMENT ORDER REVEAL ED THAT ALL RELEVANT DOCUMENTS AND DETAILS AS CALLED FOR WERE FILED. IT WAS FURTHER RECORDED I N THE ASSESSMENT ORDER THAT THE DETAILS OF THE ASSESSEE-COMPANY ALONG WITH THE RETURN OF INCOME AN D THOSE WHICH WERE CALLED FOR ASSESSMENT PROCEEDINGS WERE SCRUTINISED. THERE DID NOT APPEAR TO BE TANGIBLE MATERIAL/REASON FOR THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT PROCEEDINGS IN THE FACTS OF THE PRESENT CASE. THE REASONS OFFERED BY THE ASSESS ING OFFICER WHILE REJECTING THE OBJECTION ON THE BASIS THAT THE ISSUE INVOLVED IN REASSESSMENT P ROCEEDINGS WERE NEVER EXAMINED BY THE ASSESSING OFFICER WERE NOT TENABLE. NO PARTICULARS WHATSOEVER HAD BEEN RELIED UPON BY THE ASSESSING OFFICER WHILE REJECTING THE OBJECTIONS.. . THOUGH THE POWER TO REOPEN IS MUCH WIDER BUT THE INTERPRETATION THAT THE WORDS 'REASON TO BELIEVE' MUST RECEIVE AN INTERPRETATION WHICH IS IN CONSONANCE WITH THE SCHEME OF THE LAW. THERE CANNOT BE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSMENT ON THE BASIS OF MERE CHANGE OF OPINION. THE ASSESSING OFFICER HAS NO POWER TO REVIEW. HE HAS ONLY A POWER TO REASSESS. IN THE GARB OF REOPENING THE ASSESSMENT REVIEW CANNOT TAKE PLACE..HAVING REGARD TO THE PURPOSE OF THE SECTION, WE ARE OF THE VIEW THAT THE POWER CONFERRED BY SECTION 147 DO ES NOT PROVIDE A FRESH OPPORTUNITY TO THE ASSESSING OFFICER TO CORRECT AN INCORRECT ASSESSMEN T MADE EARLIER..THE DECISION TO REOPEN ASSESSMENT WAS NOT BASED ON PROPER REASONS BUT OBVI OUSLY WAS A RESULT OF CHANGE OF OPINION.THIS WAS IMPERMISSIBLE. THE NOTICE OF REASS ESSMENT WAS NOT VALID AND WAS LIABLE TO BE QUASHED. 5.5. IN OUR VIEW,THE ENTIRE APPROACH OF THE AO AND THE F AA,IN THE BACKGROUND OF THE PRESENT CASE,IS MISCONCEIVED.THE RE-ASSESSMENT ORDER IS BAS ED ON ALLOWABILITY OF PROVISION OF BAD AND DOUBTFUL DEBTS.PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT SUCH DETAILS WERE CALLED FOR BY THE AO.IT IS FURTHER FOUND THAT THE DETAILS OF THE PROVISIONS FOR BAD AND DOUBTFUL DEBTS FURNISHED BY THE ASSESSEE WERE SCRUTINIZED DURING THE ORIGINAL ASSESSMENT PROCEEDINGS.IN THE NOTES ACCOMPANYING THE RETURN OF INCOME THE ASSESSE E HAD SPECIFICALLY MENTIONED THE FACT AND BASIS OF TREATING THE AMOUNT IN QUESTION IN A PARTI CULAR MANNER.IN THESE CIRCUMSTANCES,THERE DOES NOT APPEAR TO THE TANGIBLE MATERIAL/REASON FOR THE AO TO REOPEN THE ASSESSMENT PROCEEDINGS IN THE FACTS OF THE PRESENT CASE.HE HIM SELF ADMITS THAT SCRUTINY OF THE RECORDS REVEALED THAT THERE WAS ESCAPEMENT OF INCOME.SO,TH E REASONS,RECORDED BY HIM,HAVE TO BE ANALYSED CONSIDERING THE POST SCRUTINY EVENTS.AN AU DIT OBJECTION WAS RAISED BY THE AUDIT AUTHORITIES-VIDE HIS LETTER,DTD.25/8/2011,THE SR.AU DIT OFFICER INTIMATED THE AO AS UNDER :- SUBJECT:- INCORRECT COMPUTATION OF BUSINESS INCOME AS PER PROVISION OF SECTION 37 OF IT ACT ENVISAGES THAT AN AMOUNT DEBITED IN THE PROFIT & LOSS A/C IN RESPECT OF ACCRUED OR ASCERTAINED LIAB ILITY ONLY IS AN ADMISSIBLE DEDUCTION, WHILE ANY PROVISION IN RESPECT OF ANY UNASCERTAINED L IABILITY OR LIABILITY WHICH HAS NOT ACCRUED, DO NOT QUALIFY FOR DEDUCTION. IN THIS REGARD CBDT A LSO INSTRUCTED ALL ASSESSING OFFICER VIDE 1991 & 2021/M/15-YES BANK 20 INSTRUCTION NO17/2008 TO VERIFY THE PROVISIONS ON D IFFERENT ACCOUNTS CLAIMED BY THE BANK PROBABLY UNDER THE RBI GUIDELINES( I.E PROVISION FO R WAGE ARREARS FOR WHICH NEGOTIATIONS ARE YET TO BE FINALIZED, PROVISION FOR STANDARD ASSETS/ ADVANCES ETC .... ). A CONTINGENT LIABILITY CANNOT CONSTITUTE DEDUCTIBLE EXPENDITURE FOR THE PU RPOSE OF INCOME TAX ACT. THUS, PUTTING ASIDE OF MONEY WHICH MAY BECOME EXPENDITURE ON THE HAPPENING OF AN EVENT WOULD NOT CONSTITUTE AN ALLOWABLE EXPENDITURE UNDER THE INCOM E TAX ACT. IT WAS NOTICED FROM THE RELEVANT RECORDS OF CAPTION ED ASSESSMENT YEAR 2008-09 THAT ASSESSING OFFICER DETERMINED ASSESSED INCOME OF RS 337700831 5/- AFTER DISALLOWANCE OF PROVISION ON INVESTMENT, UNDER SECTION 14A AND DISALLOWANCE U/S 35D. AUDIT SCRUTINY OF COMPUTATION OF INCOME REVEALED THAT ASSESSEE HAS CLAIMED DEDUCTIO N U/S 36(1)(VIIA) FOR AN AMOUNT OF RS. 200734588/- AND THE SAME WAS ALLOWED BY THE DEPARTM ENT AS GIVEN BELOW:- A.Y.2008-09 A.Y.2007-08 A.Y.2006-07 GENERAL LOAN LOSS PROVISION (I.E., PROVISION FOR STANDARD ASSET/ADVANCES AS PER RBI GUIDELINES) . A 179594700 254229012 72962742 PROVISION FOR NPA . B 21139888 NIL NIL TOTAL PROVISIONS (C)=A+B 200734588 254229012 72962742 TOTAL INCOME BEFORE DEDUCTION D 3409899537 1682358394 831125223 7.5% 255742465 126176880 62334392 DEDUCTION U/S.36(1)(VIIA) LOWER C AND D 200734588 126176880 62334392 IT COULD BE SEEN FROM THE ABOVE THAT ASSESSEE IS RE GULARLY CREATING PROVISION FOR STANDARD ASSETS/ADVANCES (SEE NOTE FORMING PART OF THE ACCOU NTS 18.4.3) UNDER THE HEAD GENERAL 10 PROVISION EXCLUDING PROVISION FOR NPA AND CLAIMING 36(1)(VIIA) ON THAT FROM THE LAST THREE ASSESSMENT YEARS. THUS, ASSESSEE BANKING COMPANY IS SIMPLY PUTTING ASIDE MONEY BY CREATING PROVISION FOR STANDARD ASSET/ADVANCES TO MEET UNASC ERTAINED LIABILITY THAT MAY BECOME EXPENDITURE ON THE HAPPENING OF AN EVENT IN FUTURE( LAST THREE-YEARS NOT BAD DEBTS) WHICH IS INADMISSIBLE DEDUCTION AND CONTRADICTORY TO THE CBD T'S INSTRUCTION. HOWEVER,THE THE AO WAS OF THE OPINION THAT STAND TA KEN BY HIM ABOUT THE PROVISIONS OF BAD AND DOUBTFUL DEBTS WAS AS PER LAW.HE STUCK TO THE S TAND THAT WAS TAKEN BY HIM DURING THE ORIGINAL ASSESSMENT.THE AO,VIDE HIS LETTER DT.18.1. 2013,ADDRESSED TO THE DIRECTOR OF AUDIT (ITRA)INTIMATED THAT OBJECTIONS RAISED BY AUDIT AUT HORITIES WERE UNACCEPTABLE.HIS LETTER READS AS UNDER :- SUB:- REVENUE AUDIT OBJECTION IN THE CASE OF YES BA NK LTD. FOR A.Y. 2008-09 (AQ NO. 3& 4 51ST CYCLE) PLEASE REFER TO THE ABOVE. THE AUDIT HAS POINTED OUT THAT (I) THE AO HAS NOT A DDED BACK PRELIMINARY EXPENSES OF RS.5677691/-AND (II) A.O. HAS ALLOWED DEDUCTION OF PROVISION FOR STANDARD ASSET OF RS. 179594700/ -. THE ABOVE OBJECTIONS ARE NOT ACCEPTAB LE ON THE FOLLOWING GROUNDS:- (I) DEDUCTION U/ S.35D BEFORE COMMENCEMENT OF BUSINESS IN THE FINANCIAL YE AR ENDED 31.3.2004, THE ASSESSEE BANK HAS INCURRED THE FOLLOWING EXPENSES: PARTICULARS AMOUNT REGISTRATION FEE AND OTHER CHARGES UNDER THE COMPAN IES ACT ON INCORPORATION OF THE COMPANY. 27,117,200 LEGAL FEES FOR DRAFTING OF MEMORANDUM AND ARTICLES OF ASSOCIATION ON INCORPORATION OF THE COMPANY. 1,271,254 1991 & 2021/M/15-YES BANK 21 TOTAL 28,388,454 THE ABOVE EXPENSES ARE COVERED UNDER SEC 35D(2) AND THE CLAIM IS MADE UNDER SEC 35D (1). (I) OF THE INCOME TAX ACT. AS THE CLAIM IS UNDER SE C 35D (1) (I), THE RESTRICTION FOR INDUSTRIAL UNDERTAKINGS DOES NOT APPLY AND THE SECTION IS AVAI LABLE TO ALL ASSESSES. THE READING OF THE SECTION IS AS BELOW: QUOTE 35D. (1) WHERE AN ASSESSEE, BEING AN INDIAN-COMPAN Y OR A PERSON (OTHER THAN A COMPANY) WHO IS RESIDENT IN INDIA, INCURS, AFTER TH E 31ST DAY OF MARCH, 1970, ANY EXPENDITURE SPECIFIED IN SUB-SECTION (2),- (I) BEFORE THE COMMENCEMENT OF HIS BUSINESS, OR (II) AFTER THE COMMENCEMENT OF HIS BUSINESS, IN CONNECTI ON WITH THE EXTENSION OF HIS 2-[***] UNDERTAKING OR IN CONNECTION WITH HIS S ETTING UP A NEW 2.[***] UNIT, UNQUOTE FROM THE ABOVE READING, IT IS CLEAR THAT SEC 35D (1 ) (I) IS APPLICABLE TO ALL ASSESSEES AND NOT RESTRICTED TO 'INDUSTRIAL UNDERTAKING'. SEC 35D (1) (II) IS APPLICABLE TO UNDERTAKING/ INDUSTRIAL UNDERTAKING. SINCE THE EXPENDITURE OF RS.28,388,454 WAS INCURRED BEFORE THE COMMENCEMENT OF BUSINESS, AS PER SEC 35D (1) (I), 1/5TH OF AMOUNT OF PRELIMIN ARY EXPENSE CAN BE CLAIMED OVER A PERIOD OF 5 YEARS. ACCORDINGLY, ONE FIFTH OF THE AMOUNT I. E. RS.5,677,691/- HAS BEEN CLAIMED IN THE TAX RETURNS FOR PERIODS COMMENCING ASSESSMENT YEAR 2005 -06 TO 2009-10 (II) PROVISION FOR STANDARD ASSET RESERVE BANK OF INDIA ('RBI') HAS ISSUED VARIOUS CI RCULARS ON PRUDENTIAL NORMS INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVIS IONING PERTAINING TO ADVANCES. THESE CIRCULARS ALSO PRESCRIBE THE PROVISIONS TO BE MADE IN RESPECT OF NON PERFORMINGADVANCES ('NPA'S). NPAS 'ARE FURTHER CLAS SIFIED AS SUB-STANDARD, DOUBTFUL AND LOSS ADVANCES. APART FROM NPAS, RBI CIRCULARS ALSO PRESCRIBE PROVISIONS TO BE MADE IN RESPECT OF STANDARD ADVANCES, I.E. ADVANCES OTHER T HAN NP AS. AS PER CURRENT REGULATIONS, BANKS ARE REQUIRED TO MAKE A GENERAL PROVISION 0.40 % AND IN CASE OF SENSITIVE ADVANCES LIKE PERSONAL LOANS, CAPITAL MARKETS, REAL ESTATE, THERE ARE HIGHER%'S PRESCRIBED WHICH AT PRESENT IS 2%. REQUIREMENT OF ADDITIONAL PROVISIONING IS TO REDUCE THE RISK IN THE CASE OF GROWTH IN THE BALANCE SHEET AND SERVES AS A BUFFER WHEN THE A SSETS ARE CLASSIFIED AS NPA. FOR THE FINANCIAL YEAR ENDED 31.3.2007, THE PROVISI ON WAS BASED ON THE RBI CIRCULAR DATED JANUARY 31, 2007, RBI/ 2006-2007/240 DBOD.NO.BP.BC. 53 /21.04.048 / 2006-2007 (COPY ATTACHED). . THE WORKINGS AS ON 31.03.2007 AND THE P AND L EXPEN SE FOR THE YEAR IS AS BELOW: BREAKUP OF ADVANCES INTO GROSS VALUE OF ADVANCES RATE OF PROVISIONING AMOUNT DIRECT AGRICULTURE 9,934,332,360 0.25% 24,835,831 LOANS TO STAFF 4,051,308 1.00% 40,513 PERSONAL LOANS 489,801,475 SECURED COMMERCIAL REAL ESTATE 4,415,510,653 CAPITAL MKT EXPOSURE 2,079,747,510 6,985,059,638 2.00% 139,701,193 EXPOSURE TO SMALL AND MICRO ENTERPRISES 322,271,534 0.25% 805,679 NON DEPOSIT TAKING NBFCS ALL OTHER LOANS AND ADVANCES INCLUDING ADVERSELY LABELED ACCOUNTS 1,931,503,527 75,040,926,121 2.00% 0.40% 38,630,071 321,803,168 1991 & 2021/M/15-YES BANK 22 TOTAL PROVISION REQUIRE AS ON MARCH 31, 2008 525,816,454 PROVISION AS ON MARCH 31,2007 346,221,754 P&L EXPENSE FOR THE FINANCIAL YEAR 2007-08 179,594,700 IN THE TAX RETURN FOR ASSESSMENT YEAR 2008-09, THE ENTIRE AMOUNT OF RS. 179,594,700 ADDED IN THE RETURN OF INCOME AND WAS CONSIDERED FOR THE PUR POSE OF THE SEC 36(1)(VIIA) AS FOLLOWS: A.Y 2008-09 GENERAL LOAN LOSS PROVISION (AS PER THE GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA ) (A) 179,594,700 PROVISION FOR NON-PERFORMING ASSESTS(AS PER THE GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA ).. (B) 21,139,888 TOTAL PROVISION (C)= (A)+(B) 200,734,588 TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) (D) SEC 36(1)(VIIA)- REFER COMPUTATION OF INCOME 3,409,899,537 7.5% 255,742,465 DEDUCTION UNDER SECTION 3691)(VIIA) LOWER OF (C) AN D (D) 200,734,588 IN ASSESSMENT YEAR 2009-201Q AND 2010-2011, WHEN CE RTAIN BAD LOANS WHICH WERE WRITTEN OFF, THE BENEFIT FOR THE ACTUAL WRITE -OFF OF DEBTS WAS TAKEN ONLY AFTER REDUCING THE BALANCE UNDER SEC 36 (1) (VIIA) (WHICH INCLUDED THE ABOVE M ENTIONED BALANCE) AND THE WORKINGS ARE GIVEN BELOW: FINANCIAL YEAR CLAIM IN THE RETURN UNDER SEC.36(1)( VIIA) 2005-06 62,334,392 2006-07 126,176,880 2007-08 200,734,588 2008-09 412,298,107 TOTAL 801,543,967 WRITE OFF IN FY 2008-09 136,168,701 WRITE OFF IN FY 2009-10 826,029,606 TOTAL 962,198,307 (A) BALANCE IN 36(1)(VIIA) 801,543,967 (B) WRITE OFF CLAIMED IN FY 2009-10 160,654,340 (A)-(B) THE TOTAL WRITE OFFS FOR ASSESSMENT YEAR 2009-10 WA S RS 136,168,701/- AND FOR ASSESSMENT YEAR 2010-11 WAS RS 826,029,606 AND THE SAME WERE A DDED IN THE RETURN OF INCOME. HOWEVER,THE CLAIM FOR WRITE OFF OF BAD LOANS FOR AS SESSMENT YEAR 2009-10 WAS RS. NIL AND WAS LIMITED TO RS 160,654,340/- ONLY, FOR ASSESSMEN T YEAR 2010-11. IN VIEW OF THE ABOVE, THE OBJECTION IS NOT ACCEPTABLE AND IT IS REQUESTED THAT THE SAME MAY BE WITHDRAWN AND TREATED AS SETTLED UNDER INTIMATION TO THIS OFFICE. EVEN A CURSORY LOOK AT THE REPLY OF THE AO LEAVES N O DOUBT THAT THE AO WAS NOT CONVINCED ABOUT THE REASONS GIVEN BY THE AUDIT PARTY FOR DISA LLOWING THE CLAIM.NOT ONLY HE STATED THAT CLAIM WAS SUSTAINABLE AS PER THE PROVISIONS OF THE ACT,BUT,ALSO INDIRECTLY QUESTIONED THE VALIDITY OF THE OBJECTION.BUT,IT IS A FACT THAT HE HAD ISSUED A NOTICE U/S.148 OF THE ACT.A COMPARISON OF THE AUDIT OBJECTION RAISED BY THE AUD IT PARTY AND THE NOTICE ISSUED BY THE AO AS PER THE PROVISIONS OF SECTION 148 CLEARLY PROVE THA T IT WAS SOLELY BASED ON THE AUDIT OBJECT - 1991 & 2021/M/15-YES BANK 23 TIONS.THUS,THE AO HAS TAKEN TWO DIAGONALLY OPPOSITE STANDS IN THE ORIGINAL ASSESSMENT/ IN THE REPLY SENT TO THE AUDIT PARTY AND WHILE ISSUING THE NOTICE U/S.148 OF THE ACT.THERE IS NOT AN IOTA OF DOUBT THAT IT IS A CLEAR CASE OF CHANGE OF OPINION. A QUESTION MAY ARISE,THAT IF HE WAS NOT CONVINCED T HAT THE VALIDITY OF THE OBJECTION RAISED BY THE AUDIT PARTY THEN WHY DID HE ISSUE A RE-ASSESSME NT NOTICE.THE SIMPLE AND OBVIOUS ANSWER IS BINDING NATURE OF PROVISIONS OF SECTION 119 OF T HE ACT WHICH STIPULATES THAT THE CIRCULARS/ INSTRUCTIONS ISSUED BY THE CDBT HAVE TO BE FOLLOWED BY THE OFFICERS OF FIELD FORMATION AND AT THAT TIME CIRCULAR NO.9/2006 WAS VERY MUCH THERE.TH E SAID CIRCULAR HAD TIED DOWN THE HANDS OF THE AO.S.THERE WAS NO OPTION WITH THE THEM AT TH AT TIME.ONCE THEY RECEIVED AN OBJECTIONS FROM THE AUDIT WING, THEY HAD TO TAKE A REMEDIAL AC TIONS COMPULSORILY.IN SHORT,THE AO HAD INVOKED THE PROVISIONS OF SECTION 147 OF THE ACT NO T BECAUSE HE WAS CONVINCED ABOUT THE ESCAPEMENT OF INCOME,BUT BECAUSE HE HAD NO ALTERNAT IVE. 5.6. IN THE EARLIER PART OF OUR ORDER,WE HAVE DELIBERATE D UPON THE CASES DEALING WITH AUDIT OBJECTIONS.FROM THE SAID DISCUSSION IT IS CLEAR THA T THE QUASI JUDICIAL POWERS OF THE AO CANNOT BE CURTAILED BY CIRCULARS OR INSTRUCTION OF THE CBD T.THE BOARD(CBDT) VIDE ITS CIR.NO. 8/2016(DATED-17.3.2016) HAS MODIFIED THE INSTRUCTIO N NO.9 OF 2006.BY ISSUING THE SAID CIRCULAR THE CBDT HAS FOLLOWED THE OBSERVATIONS OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SETH BROTHERS(SUPRA)AND HAS RESTORED BACK T HE EARLIER POSITION I.E.,THAT IF THE DEPARTMENTAL AUTHORITIES ARE NOT SATISFIED ABOUT TH E CORRECTNESS OF THE OBJECTIONS,THEY NEED NOT TO TAKE ANY REMEDIAL ACTION.IN SHORT,THE INSTRUCTIO N HAS DONE AWAY WITH COMPULSORY INITIATION OF REMEDIAL ACTION IN CASE OF AN AUDIT OBJECTION AN D HAS RESTORED THE LEGITIMATE POWERS OF THE AO.S.,AFTER THE HONBLE COURTS HAD CLEARLY OPINED T HAT EARLIER CIRCULAR WAS NOT IN ACCORDANCE WITH THE PROVISIONS AND SPIRIT OF THE ACT. AUDIT AUTHORITIES,AN OUTSIDE AGENCY,DEFINITELY HAS AN IMPORTANT ROLE TO POINT OUT IRREGULARI - TIES OF ASSESSMENT ORDERS. BUT,A LAXAMN-REKHA HAS T O BE THERE FOR AUDIT PARTY.IT IS NOT THE JOB OF AN AUDIT PARTY TO INTERPRET THE LAW WITH REGARD TO FACTS OF A CASE.ACT DOES NOT GIVE MANDATE TO THE AUDIT PERSONNEL TO HOLD THAT THE PROVISIONS SHOULD BE INTERPRETED IN A PARTICULAR MANNER OR TO ASSESS THE INCOME OF AN ASSESSEE IN A PARTICU LAR MANNER.IT IS THE PREROGATIVE OF AN AO.IN THE CASE UNDER CONSIDERATION THE IT WAS NOT THE CAS E OF THE AUDIT THAT THE AO,WHILE COMPLETING THE SCRUTINY ASSESSMENT,HAD IGNORED THE JUDGMENT OF THE HONBLE APEX COURT OR THE HONBLE JURISDICTIONAL HIGH COURT RESULTING IN UNDER ASSESS MENT OF THE TAXABLE INCOME.NO ARITHMETICAL MISTAKE OR CALCULATION ERROR WAS ALSO POINTED OUT B Y THE AUDIT PARTY.IT HAD INTERPRETED THE LAW 1991 & 2021/M/15-YES BANK 24 WITH REGARD TO PROVISIONS OF SECTION 35D AND 36(VII IA)OF THE ACT IN A PARTICULAR MANNER AND HELD TAXABLE INCOME HAD ESCAPED ASSESSMENT.IN OUR O PINION,SUCH AN OBSERVATION IS BEYOND THE POWER OF ANY AUDIT PARTY AND SAME CANNOT BE TERMED INFORMATION FOR THE PURPOSES OF SECTION 147 OF THE ACT.SUCH AN OBSERVATION IS NOT A RELIABL E MATERIAL-LEAVE APART THE TANGIBLE MATERIAL- THAT CAN BE LEGALLY RELIED UPON FOR DISTURBING A SC RUTINY ASSESS -MENT.IN THE INSTANT CASE,THE AO HAS REVIEWED/RE-APPRAISED THE ISSUE OF PROVISION S OF DOUBTFUL DEBTS,WHILE PASSING ORDER U/S.147 OF THE ACT.BUT,THE SECTION DOES NOT PERMIT THE REVIEW OR RE-APPRAISAL OF FACTS DELIBERATED AND DECIDED IN THE ORIGINAL SCRUTINY AS SESSMENT. 6. CONSIDERING THE FACTS THAT THE ASSESSEE HAD FILED A LL THE NECESSARY DETAILS ABOUT THE BAD AND DOUBTFUL DEBTS,CALLED FOR BY THE AO,DURING THE ASSE SSMENT PROCEEDINGS,THAT THE AO HAD PASSED AN ORDER U/S.143(3)OF THE ACT AFTER CONSIDER ING THE SAID DETAILS,THAT HE SUPPORTED THE SAID ORDER WHILE REPLYING TO THE AUDIT OBJECTIONS,T HAT THE AO HAD NO OPTION BUT TO TAKE A REMEDIAL ACTION IN PURSUANCE OF THE BOARD CIRCULAR NO. 9/2006 AND RESPECTFULLY FOLLOWING THE JUDGMENTS OF INDIAN EXPERESS(SUPRA),TURNER BROADCAS TING SYSTEMS ASIA PACIFIC INC.(SUPRA), ANIL STARCH PRODUCTS LTD.(SUPRA), ARYODAYA SPINNING AND WEAVING COMPANY LIMITED (SUPRA) AND ARONI COMMERCI-ALS LTD. SUPRA),WE HOLD THAT THE ORDER OF THE FAA CANNOT BE ENDORSED. THE FACTS AND CIRCUMSTANCES REVEAL AND WE ARE SATIS FIED THAT IN THE PRESENT CASE, THE ORDER OF REOPENING OF THE ASSESSMENT WAS NOT BE JUSTIFIED.TH E DECISION TO REOPEN THE ASSESSMENT WAS NOT BASED ON PROPER REASONS,BUT WAS OBVIOUSLY A RES ULT OF CHANGE OF OPINION- IT WAS SOLELY BASED ON THE AUDIT OBJECTION.THIS IS IMPERMISSIBLE AND THEREFORE NOT VALID. WE WOULD LIKE TO REFER TO THE CASE OF RAJESH JHAVER I STOCK BROKERS (P.) LTD. (SUPRA).IN THAT CASE IT WAS FOUND THAT THE RETURN WAS PROCESSED U/S . 143(1). THE AO ISSUED A NOTICE U/S.148 ON THE BASIS OF AN AUDIT OBJECTION AND THE MATTER T RAVELLED UPTO THE HON'BLE SUPREME COURT . DECIDING THE CASE, THE HONBLE COURT HELD AS UNDER :- UNDER THE SCHEME OF SECTION 143(1) OF THE INCOME-TA X ACT, 1961, AS SUBSTITUTED WITH EFFECT FROM APRIL 1, 1989, AND PRIOR TO ITS SUBSTITUTION W ITH EFFECT FROM JUNE 1, 1999, WHAT WERE PERMISSIBLE TO BE ADJUSTED UNDER THE FIRST PROVISO TO SECTION 143(1)(A) WERE : (I) ONLY APPARENT ARITHMETICAL ERRORS IN THE RETURN, ACCOUNTS OR DOCU MENTS ACCOMPANYING THE RETURN, (II) LOSS CARRIED FORWARD, DEDUCTION, ALLOWANCE OR RELIEF, WH ICH WAS PRIMA FACIE ADMISSIBLE ON THE BASIS OF INFORMATION AVAILABLE IN THE RETURN BUT NO T CLAIMED IN THE RETURN, AND SIMILARLY (III) THOSE CLAIMS WHICH WERE, ON THE BASIS OF THE INFORM ATION AVAILABLE IN THE RETURN, PRIMA FACIE INADMISSIBLE, AND WERE TO BE RECTIFIED/ALLOWED/DIS- ALLOWED. WHAT WAS PERMISSIBLE WAS CORRECTION OF ERRORS APPARENT ON THE BASIS OF THE D OCUMENTS ACCOMPANYING THE RETURN. THE ASSESSING OFFICER HAD NO AUTHORITY TO MAKE ADJUSTME NTS OR ADJUDICATE UPON ANY DEBATABLE ISSUES. IN OTHER WORDS, THE ASSESSING OFFICER HAD N O POWER TO GO BEHIND THE RETURN, ACCOUNTS AND DOCUMENTS, EITHER IN ALLOWING OR IN DISALLOWING DEDUCTIONS, ALLOWANCE OR RELIEF. THOUGH TECHNICALLY THE INTIMATION ISSUED WAS DEEMED TO BE A DEMAND NOTICE UNDER SECTION 156, THAT 1991 & 2021/M/15-YES BANK 25 DID NOT PRECLUDE THE RIGHT OF THE ASSESSING OFFICER TO PROCEED UNDER SECTION 143(2) : THAT RIGHT IS PRESERVED AND NOT TAKEN AWAY. WITH EFFECT FROM APRIL 1, 1998, THE SECOND PROVISO TO SECTION 143(1)(A) WAS SUBSTITUTED. DURING THE PERIOD BETWEEN APRIL 1, 1998, AND MAY 31 , 1999, SENDING OF AN INTIMATION WAS MANDATORY. THE LEGISLATIVE INTENT IS VERY CLEAR FRO M THE USE OF THE WORD INTIMATION AS SUBSTITUTED FOR ASSESSMENT THAT TWO DIFFERENT CON CEPTS EMERGE. WHILE MAKING AN ASSESSMENT, THE ASSESSING OFFICER IS FREE TO MAKE A NY ADDITION AFTER GRANT OF OPPORTUNITY TO THE ASSESSEE. BY MAKING ADJUSTMENTS UNDER THE FIRST PROVISO TO SECTION 143(1)(A) NO ADDITION WHICH IS IMPERMISSIBLE BY THE INFORMATION GIVEN IN THE RETURN COULD BE MADE BY THE ASSESSING OFFICER. THE INTIMATION UNDER SECTION 143(1)(A) CAN NOT BE TREATED TO BE AN ORDER OF ASSESSMENT. UNDER THE FIRST PROVISO TO THE NEWLY SUBSTITUTED SE CTION 143(1), WITH EFFECT FROM JUNE 1, 1999, EXCEPT AS PROVIDED IN THE PROVISION ITSELF, THE ACK NOWLEDGMENT 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 T HAT THE ACKNOWLEDGMENT IS NOT DONE BY ANY ASSESSING OFFICER, BUT MOSTLY BY MINISTERIAL STAFF. IT CANNOT THEREFORE BE SAID THAT AN ASSESSMENT IS DONE BY THEM. 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 APP LICATION ONLY RECOVERY INDICATED TO BE PAYABLE IN THE INTIMATION BECAME PERMISSIBLE. NOTHI NG MORE CAN BE INFERRED FROM THE DEEMING PROVISIONS. THEREFORE, THERE BEING NO ASSES SMENT UNDER SECTION 143(1) (A), THE QUESTION OF CHANGE OF OPINION DOES NOT ARISE. IN THE CASE BEFORE US,THE AO HAD COMPLETED THE ASSE SSMENT U/S.143(3)OF THE ACT AND DELIBERATED UPON THE ISSUE.NOT ONLY THIS HE DID NOT ACCEPT THE AUDIT OBJECTION ALSO.AN INTIMATION IS TOTALLY DIFFERENT FROM A SCRUTINY ASS ESSMENT.THEREFORE,THE CASE RELIED UPON BY THE DR IS OF NO HELP TO THE REVENUE. 7. WHILE DECIDING THE JURISDICTIONAL ISSUE WITH REGARD TO RE-OPENING,WE HAVE HELD THAT THE ORDER OF THE AO WAS INVALID, THEREFORE,WE ARE NOT D ECIDING THE ISSUE ON MERITS. ITA/2021/MUM/2015 8. CONSIDERING THE INVALIDITY OF THE RE-ASSESSMENT PRO CEEDINGS,AS HELD IN THE EARLIER PART OF OUR ORDER,GROUNDS OF APPEAL RAISED BY THE AO,ARE DISMIS SED. AS A RESULT,APPEAL FILED BY THE ASSESSEE STAND ALLO WED AND THE APPEAL OF THE AO IS DISMISSED. ORDER PRONOUNCED IN THE OPE N COURT ON 24 TH AUGUST,2016. 24 , 2016 SD/- SD/- ( / R.L.NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 24 .08.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 1991 & 2021/M/15-YES BANK 26 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.