BANK OF INDIA, MUMBAI V. ACIT 2(1), MUMBAI

ITA 2609/MUM/2011

• Counselvise Citation: 260919914 RSA 2011
• Duration Of Justice: 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-05-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 05-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN VARMA
• Keywords: Gift; Bad and doubtful debts; Difference of opinion; Revised return; Change of opinion; Reassessment proceedings
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH BEFORE SHRI G.E. VEERABHADRAPPA, PRESIDENT AND SHRI S.S.GODARA, JUDICIAL MEMBER ITA NO.2609/M/2011 ASSESSMENT YEAR 2004-05 BANK OF INDIA, 8 TH FLOOR, STAR HOUSE, TAXATION DEPARTMENT, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. PAN: AAACB 0472C APPELLANT VS. ACIT 2(1), AAYAKAR BHAVAN, MUMBAI 400 020. RESPONDENT APPELLANT BY: SHRI C. NARESH RESPONDENT BY: SHRI PRAVIN VARMA DATE OF HEARING: 9.5.2012 DATE OF ORDER:15.6 .2012 ORDER PER S.S. GODARA, JM: THIS ASSESSEES APPEAL IS DIRECTED AGAINST LD CIT ( A)S ORDER DATED 11.2.2011 FOR A.Y. 2004-05. 2. THE FOLLOWING EFFECTIVE GROUNDS ARE RAISED IN TH E APPEAL :- 1. THE LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN RE-OPENING U/S.147, THE ASSESSMENT ALREA DY COMPLETED U/S 143(3). THE REOPENING WAS INITIATED BY ISSUE OF NOT ICE U/S.148 ON 29.05.06 AND REASON WAS FURNISHED ON 21.07.06. THE CIT (A) FAILED TO APPRECIATE THAT THE ASSESSMENT WAS RE-OPENED TO DISALLOW THE CLAIM OF EXCHANGE LOSS ON ACCOUNT OF CONVERSION OF CURRENT ASSETS AND LIABILITIES OF BRANCHES AT KENYA, SINGAPORE AND JAPAN. BASED ON THE SUBMISSIONS MADE BY THE APPELLANT, THE AD HAD A CCEPTED THE 2 ITA NO.2609/M/2011 CLAIM AND NO DISALLOWANCE WAS MADE. THEREFORE, WHEN THE REASONS FOR WHICH THE REOPENING WAS INITIATED WAS ITSELF FO UND TO BE NOT VALID, THE ENTIRE REASSESSMENT PROCEEDINGS SHOULD BEEN STR UCK DOWN AS INVALID. FURTHER THE CLAIM IN RESPECT OF A PORTION OF BAD DEBTS WRITTEN OFF, THE DETAILS OF WHICH WAS FILED ALONG WITH THE ORIGINAL RETURN OF INCOME AND DURING ASSESSMENT PROCEEDINGS, WAS DISAL LOWED IN THE RE-OPENED PROCEEDINGS. HENCE THE REOPENING WAS ONLY BASED ON A CHANGE OF OPINION AND THEREFORE AS HELD IN VARIOUS JUDICIAL DECISIONS, THE ENTIRE RE-OPENING IS BEYOND JURISDICTION AND NE EDS TO BE STRUCK DOWN AS INVALID. 2. WITHOUT PREJUDICE TO THE ABOVE CONTENTION, AS TO JURISDICTION EVEN ON MERITS, THE ENTIRE CLAIM IN RESPECT OF BAD DEBTS WRITTEN OFF AMOUNTING TO RS.3,48,79,62,055/- OUGHT TO HAVE BEEN ALLOWED AS DEDUCTION. THE CIT(A) HAVING REPRODUCED THE SUBMISS IONS OF THE APPELLANT, THAT THERE WAS ONLY A DEBIT BALANCE IN T HE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT, ERRED IN CONCLUDING THAT THE APPELLANT HAD NOT CONTRADICTED THE FINDINGS OF THE AD THAT THERE WAS SUFFICIENT BALANCE IN THE PROVISION FOR BAD AND DOU BTFUL DEBTS ACCOUNT. THE CIT (A) FAILED TO APPRECIATE THAT THE APPELLANT HAD FURNISHED A DETAILED SUBMISSION OF THE BALANCE IN T HE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT, A COPY OF WHICH IS ENCLOSED, ACCORDING TO WHICH, THERE IS NO OPENING CREDIT BALA NCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT ALLOWE D U/S 36(1)(VIIA) AND THEREFORE THE ENTIRE BAD DEBTS WRITTEN OFF OUGH T TO HAVE BEEN ALLOWED AS DEDUCTION. THE CIT (A) ERRED IN CONSIDER ING THE PROVISION ALLOWED U/S 36 (1)(VIIA) FOR THE A.Y. 2003-04 AND A Y 2004-05, AS THE OPENING BALANCE IN THE PROVISION ACCOUNT, WHICH IS WITHOUT ANY BASIS SINCE THE ACT REQUIRES THE CREDIT BALANCE TO BE ARR IVED AT AND MERELY TREATING THE PROVISION ALLOWED IN THE PREVIOUS ASSE SSMENT YEAR AS THE BALANCE IS NOT CORRECT AND THERE IS NO PROVISION IN THE ACT TO JUSTIFY THE CONTENTION OF THE CIT(A). THE CIT (A), THEREFOR E OUGHT TO HAVE ALLOWED THE CLAIM IN RESPECT OF ENTIRE BAD DEBTS WR ITTEN OFF IN COMPUTING THE TOTAL INCOME. 3. THE RELEVANT STATEMENT OF FACTS QUA BOTH GROUNDS IS THAT THE ASSESSEE IS A PUBLIC SECTOR BANK WHO FILED ITS RETURN ON 30.10.20 04 DECLARING TOTAL INCOME AS `. 8,46,32,11,640/- FOLLOWED BY REVISED RETURN, THIS T RUE INCOME DERIVED WAS STATED AS `. 4,26,22,65,630/-. 4. IN THE ASSESSMENT PROCESS, THE ASSESSEE HAD CLAI MED A SUM OF `. 5,08,90,28,469/- AS BAD DEBTS U/S.36(I)(VII) OF THE I.T. ACT IN REVISED RETURN. THE 3 ITA NO.2609/M/2011 A.O. ONLY ACCEPTED IT IN PART, ONLY TO THE EXTENT O F `. 1,32,93,97,624/- VIDE ORDER U/S.143(3) DATED 30.12.2005 AS UNDER :- 1. DISALLOWANCE OF BAD DEBTS `. 375,96,30,845/- : ASSESSEE HAS CLAIMED A SUM OF `. 508,90,28,469/- AS BAD DEBTS U/S.36(I)(VII) OF THE I.T. ACT IN THE REVISED RETURN OF INCOME. IN T HE ORIGINAL RETURN OF INCOME THE CLAIM OF BAD DEBTS WAS `. 550,03,05,865/-, THE SAME IS REDUCED BY `. 41,12,77,396/- IN THE REVISED RETURN OF INCOME. ASSESSEE HAS FURTHER CLAIMED DEDUCTION U/S.36(I)(VI IA) AS UNDER : 7.5% OF TOTAL INCOME `. 60,20,39,885/- 10% OF RURAL ADVANCES `. 305,92,25,746/- TO THE EXTENT OF PROFIT ON BUY BACK GOVT. SECURITIES `. 9,83,65,220/- TOTAL `. 375,96,30,845/- ASSESSEES CLAIM WAS EXAMINED AS PER THE PROVISIONS OF THE I.T. ACT, THE COMBINED PROVISIONS OF SECTION 36(I)(VII) AND S ECTION 36(2) ENUMERATES THE DEDUCTION OF BAD DEBTS ONLY TO THE E XTENT OF ACTUAL WRITTEN OFF AND IN EXCESS OF THE PROVISIONS MADE. ASSESSEE HAS ADDED BACK TOTAL BAD DEBTS WRITTEN OFF, PRUDENTIAL WRITTEN OFF, ACTUAL WRITTEN OFF, PARTIAL WRITE OFF AND PROVISION OF BAD AND DOUBTFUL DEBTS. THE LEGISLATURE HAS QUALIFIED CLEARLY 36(I)(VII) SU BJECT TO THE PROVISION OF SUB-SECTION 2 OF SECTION 36. SINCE, IN THE ASSE SSEES CASE, BAD DEBTS WRITTEN OFF IS MORE THAN THE PROVISION CLAIME D U/S.36(I)(VIIA) ONLY THE EXCESS CLAIM IS ALLOWED AS DEDUCTION U/S.3 6(I)(VII) I.E. `. 50890,28,469/- (-) `. 375,96,30,845 = `. 132,93,97,624. AS MENTIONED ABOVE, ASSESSEE HAS CLAIMED BAD DEBTS AMO UNTING TO `. 508,90,28,469/-, HOWEVER, AS PER THE PROVISIONS OF SECTION 36(I)(VII) R.W.S 36(2) ONLY A SUM OF `. 132,93,97,624/- IS ALLOWED. THE DISALLOWANCE UNDER THIS HEAD WORKS OUT TO `. `.`. `. 375,96,30,845/-. THE ISSUE IS RECURRING IN NATURE AND SIMILAR DISALL OWANCES HAVE BEEN MADE IN EARLIER YEARS ALSO. THE FACTS OF THE CASE AND ASSESSEES REPLY BEING SAME, THE ADDITIONS ARE MADE IN THIS ASSESSME NT ALSO. FURTHER, SINCE THE ASSESSEE HAD CLAIMED LOSS OF FLU CTUATION OF EXCHANGE RATE, THE A.O. DECIDED IT AS : 2. LOSS ON FLUCTUATION OF EXCHANGE RATE `. `.`. `. 23,37,37,442/- : IN THE COMPUTATION OF INCOME ASSESSEE HAS CLAIMED A SUM OF `. 23,37,37,442/- ON ACCOUNT OF LOSS DUE TO FLUCTUATIO N OF EXCHANGE RATE WITH REGARD TO THE ASSETS OF FOREIGN BRANCHES. THE BREAK UP IS AS UNDER : 4 ITA NO.2609/M/2011 PAIRS `. 2,20,22,101/- U.K. (-) `. 14,17,82,353/- SINGAPORE (-) `. 2,24,69,459/- U.S.A. `. 11,15,62,214/- KENYA (-) `. 2,92,17,194/- JAPAN `. 1,89,52,617/- HONGKONG (-) `. 19,08,05,367/- (-) `. 23,37,37,442/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS EES CLAIM WAS EXAMINED AND ASSESSEE WAS ASKED TO JUSTIF Y ITS CLAIM. IN RESPONSE, ASSESSEE VIDE LETTER DATED 05.12.2005 THR OUGH THEIR REPRESENTATIVE SUBMITTED THE FOLLOWING : AS REGARDS EXCHANGES GAINS AND/OR LOSSES ARISING ON CONVERSION OF ASSETS AND LIABILITIES LOCATED IN VAR IOUS FOREIGN COUTRIES, IT MAY BE NOTED THAT THE ASSESSEE BANK IS VALUING I TS FOREIGN ASSETS AND LIABILITIES OF THE CLOSE OF ITS ACCOUNTING YEAR IN TERMS OF INDIA CURRENCY AND THE CORRESPONDING PROFITS OR LOSSES RE SULTING FROM SUCH EXCHANGE FLUCTUATIONS ARE CREDIBTED OR DEBITED TO T HE EXCHANGE FLUCTUATION RESERVE. THE EXCHANGE FLUCTUATION RESE RVE ACCOUNT IS AN ITEM APPEARING AND SHOWN IN BANKS BALANCE SHEET . THUS, THE PROFIT OR LOSS ARISING FROM EXCHANGE FLUCTUATION IN RESPECT OF FOREIGN ASSETS AND LIABILITIES ARE NOT ROUTED THROUGH P & L A/C. IN THE COMPUTATION OF INCOME ATTACHED TOGETHER WITH THE RE TURN, THE PROFIT ARISING ON FLUCTUATION IN FOREIGN EXCHANGE ON CIRCU LATING CAPITAL IS OFFERED TO TAX WHILE THE LOSS ARISING ON ACCOUNT OF FLUCTUATION IN FOREING EXCHANGE IS CLAIMED AS A DEDUCTION. THE NE XT EXCHANGE LOSS RESULTING FROM THE CONVERSION OF ITS CURRENT FOREIG N ASSETS AND LIABILITIES INTO INDIAN CURRENCY IS CLAIMED AS DEDU CTION RELYING ON THE JUDGEMENT OF HONOURABLE BOMBAY HIGH COURT IN THE AS SESSEE BANKS OWN CASE I.E. COMMISSIONER OF INCOME TAX VS. BANK O F INDIA (1996) 218 ITR 371 (BOM). ASSESSEES REPLY HAS BEEN CAREFULLY CONSIDERED AND THE SAME IS NOT ACCEPTED FOR THE FOLLOWING REASONS : (1) AS PER AMENDED SECTION 43A OF THE I.T. ACT W.E.F. 0 1.04.2002 RELATING TO A.Y. 2003-04, THE LIABILITY ON ACCOUNT OF EXCHANGE RATE FLUCTUATION CAN BE ALLOWED ONLY IF THE SUM HAS BEEN ACTUALLY INCURRED. IN THE INSTANT CASE THE LIABILITY DEBITED BY THE AS SESSEE IS ONLY NOTIONAL IN NATURE IN AS MUCH AS NO ACTUAL LOSS HAS BEEN INCURRED BY THE ASSESSEE. HENCE, ON THIS GROUND ALONE, THE ASS ESSEES CLAIM IS LIABLE TO BE REJECTED. (2) WITHOUT PREJUDICE TO THE ABOVE CONTENTION OF THE R EVENUE, ASSESSEE HAS CLAIMED IN PRINCIPLE THE PROFITS OF VA RIOUS FOREIGN BRANCHES AS EXCLUSION FROM ITS TOTAL INCOME. IN SO ME CASES, ASSESSEES CLAIM HAS BEEN ALLOWED AND IN OTHER, TH E SAME IS IN DISPUTE AT VARIOUS LEVELS. 5 ITA NO.2609/M/2011 5. THEREAFTER, THE A.O. ON 29.05.2006 ISSUED REOPEN ING NOTICE U/S.148 TO THE ASSESSEE CITING FOLLOWING REASONS : ASSESSEE HAS CLAIMED A SUM OF RS. 3.27 CRORES AS EX CHANGE LOSS ON ACCOUNT OF CONVERSION OF CURRENT ASSETS AND LIABILITIES PERTAINING TO THE BRANCHES OF KENYA, SINGAPORE & JA PAN. ASSESSEE HAS CLAIMED THE PROFITS OF THESE BRANCHES AS EXCLUS ION FROM THE TOTAL INCOME. SINCE, ASSESSEE HAS CLAIMED THE PROFITS AS EXCLUSION I.E. NOT OFFERED TO TAX IN INDIA, THE LOSS ON ACCOUNT OF THE SE BRANCHES CANNOT BE ALLOWED AS EXPENSE IN THE INCOME TAX ASSESSMENT. ACCORDINGLY DUE TO FAILURE ON THE PART OF THE ASSESSEE TO FURNI SH TRUE AND MATERIAL FACTS FULLY, INCOME TO THE EXTENT OF RS. 3.27 CRORE S HAS ESCAPED ASSESSMENT. 6. THE A.O. IN RE-ASSESSMENT DID NOT MAKE ANY DISA LLOWANCE QUA REASON OF REOPENING. BUT, RE BAD DEBTS (SUPRA), HELD AS UNDE R : HOWEVER, IT IS NOTICED THAT PROVISIONS FOR BAD AN D DOUBTFUL DEBTS CLAIMED U/S.36(I)(VIIA) FOR A.Y. 2003-04 WAS REDUCED TO `. 348,79,62,055/- AS PER REVISED RETURN FILED BY THE ASSESSEE. THE BAD DEBTS DISALLOWED IN A.Y. 2003-04 HAVE BEEN REVI SED U/S.154 TO `. 549,60,45,703/-. DESPITE THESE CHANGES IT CAN CLEA RLY BE SEEN THAT IN A.Y. 2004-05, THE PROVISIONS FOR BAD AND DOUBTFU L DEBTS WHICH WAS ALLOWED U/S.36(I)(VIIA) WAS `. 375,96,30,845/-. APART FROM THIS, BAD DEBTS TO THE EXTENT OF `. 132,93,97,624/- WERE ALLOWED. APART FROM THE PROVISONS OF BAD AND DOUBTFUL DEBTS OF `. 375,96,30,845/- WHICH HAD BEEN ALLOWED, IT CAN BE SEEN THAT IN A.Y. 2003- 04 NO BAD DEBTS WERE ALLOWED BUT THE PROVISIONS OF `. 3,48,79,62,055/- WAS ALLOWED. THUS, CUMULATIVELY IT CAN BE SEEN THAT THE PROVISIO NS FOR BAD DEBTS FOR IN A.Y. 2004-05 AND THE EARLIER YEAR I.E. A.Y. 2003-04 WERE MORE THAN SUFFICIENT TO COVER THE ACTUAL BAD DEBTS OF `. 132,93,97,624/- WHICH WERE ALLOWED U/S.36(I)(VII) IN A.Y. 2004-05. A PLAIN READING OF THE PROVISIONS OF SECTION 36(1)( VII) AND SECTION 36(2) ENUMERATED THE DEDUCTION OF BAD DEBTS ONLY TO THE EXTENT OF ACTUAL WRITTEN OFF AND IN EXCESS OF THE P ROVISIONS MADE. THE LEGISLATURE HAS QUALIFIED CLEARLY 36(1)(VII) SU BJECT TO THE PROVISIONS OF SUB-SECTION 2 OF SECTION 36. AS THE ASSESSEE BANK HAD SUFFICIENT AMOUNT IN ITS PROVISIONS OF BAD DEBTS AC COUNT, THIS DEDUCTION SHOULD NOT HAVE BEEN ALLOWED. IN VIEW OF THE ABOVE, THE ACTUAL DEDUCTION OF BAD DEBTS AMOUNTING TO `. 132,93,97,624/- IS HEREBY DISALLOWED UNDER THE PROVISIONS OF SECTION 3 6(1)(VII). HOWEVER, AS THE ASSESSEE HAD SUFFICIENT BALANCE IN ITS PROVISIONS FOR BAD DEBTS ACCOUNT, THE AMOUNT ALLOWED U/S.36(I)(VII A) REMAINS UNTOUCHED. SUBJECT TO THE ABOVE REMARKS, THE INCOME OF THE ASS ESSEE IS COMPUTED AS BELOW : 6 ITA NO.2609/M/2011 INCOME AS PER ORDER U/S.143(3) DATED `. 14,59,09,86,270/- ADD : AMOUNT OF BAD DEBTS ALLOWED WRONGLY U/S.36(I)(VII) (AS DISCUSSED ABOVE) `. 1,32,93,97,624/- TOTAL INCOME `. 15,92,03,83,894/- 7. THE ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) ASSAILING REOPENING IN QUESTION ON LEGALITY AS WELL AS ON MERITS. BUT LOW ER APPELLATE AUTHORITY HAS REJECTED PLEAS RESPECTIVELY AS UNDER : I DO NOT AGREE WITH THE SUBMISSIONS OF THE A.R. U NDER THE AMENDED PROVISIONS OF SECTION 147, THE A.O. IS EMPO WERED TO REOPEN THE ASSESSMENT U/S.147 IF HE HAS A REASON TO BELIE VE THAT ANY INCOME HAS ESCAPED ASSESSMENT. THERE IS NO QUESTIO N OF ANY CHANGE OF OPINION IN THIS CASE AS THE A.O. HAS NOTED THAT THE APPELLANT HAS BEEN ALLOWED EXCESS DEDUCTION AS BAD DEBT. SINCE T HE A.O. WAS HAVING A REASONABLE BELIEF THAT INCOME HAS ESCAPED ASSESSMENT, AS IS EVIDENT FROM THE FACTS OF THIS CASE, THE A.O. IS JU STIFIED IN REOPENING THE ASSESSMENT. THE CASE LAWS CITED BY THE APPELLA NT ARE DISTINGUISHABLE ON FACTS. HENCE, THIS GROUND OF APP EAL IS DISMISSED. SIMILARLY, FINDING RE BAD DEBTS READS AS FOLLOWS :- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE A.R. AND THE FACTS OF THE CASE. THE A.O. HAS POINTED OUT TH AT THERE WAS SUFFICIENT BALANCE IN THE PROVISION FOR BAD AND DOU BTFUL DEBTS. AS PER PROVISO TO SECTION 36(1)(VII) ONLY THE EXCESS AMOUN T OVER AND ABOVE THE PROVISION FOR BAD AND DOUBTFUL DEBTS IS REQUIRE D TO BE ALLOWED AS BAD DEBTS IN RESPECT OF BANKS. HENCE, THE A.O. IS JUSTIFIED IN DISALLOWING THE CLAIM OF BAD DEBTS ON THE GROUND TH AT THE APPELLANT WAS HAVING SUFFICIENT BALANCE IN THE DOUBTFUL BEBT PROVISION ACCOUNT. THE A.R. HAS NOT CONTRADICTED THIS FINDING OF THE A .O. THAT THERE WAS SUFFICIENT PROVISION FOR BAD AND DOUBTFUL DEBTS WIT H EVIDENCE BUT SIMPLY ARGUED THAT THE A.O. SHOULD HAVE CHECKED YEA R-WISE BALANCE IN THE PROVISION A/C. AND THE BAD DEBTS ALLOWED. A S PER INSTRUCTION NO.17 OF 2008 THE A.O. SHOULD ALLOW THE BAD DEBTS O VER AND ABOVE THE OPENING BALANCE OF PROVISION FOR BAD AND DOUBTF UL DEBTS AS DOUBLE CLAIM IS NOT INTENDED BY THE LEGISLATURE. I N THIS YEAR THERE WAS MORE PROVISION IN THE PROVISION FOR BAD DEBT. IN FACT THERE WAS PROVISION FOR BAD AND DOUBTFUL DEBT OF `. 375,79,62,055/- FOR A.Y. 2003-04 AND FOR A.Y. 2004-05 THE PROVISION WAS `. 375,96,30,845/-. AS A MATTER OF FACT NO BAD DEBT WAS ALLOWED IN A.Y. 2003-04. HENCE, THE SAME IS AVAILABLE FOR ADJUSTING THE CLAIM OF BA D DEBT OF `. 132,93,97,624/- IN THIS YEAR. SINCE THE CLAIM OF B AD DEBT IS LESS THAN THE PROVISION, THE A.O. HAS RIGHTLY DISALLOWED THE CLAIM OF THE APPELLANT. THE DISALLOWANCE IS CONFIRMED AND APPEA L ON THIS GROUND IS DISMISSED. 7 ITA NO.2609/M/2011 8. GROUND NO.1 IN SUPPORT OF THE ISSUE, LD. AR HAS REFERRED TO PA PER BOOK COMPRISING ASSESSMENT ORDER U/S.143(3), REASON OF R EOPENING, RE-ASSESSMENT ORDER AND LD. CIT(A) ORDER AND ARGUED THAT THE AUTHORITIE S BELOW HAVE ERRED IN MAKING DISALLOWANCE WHICH WAS NOT EVEN SUBJECT MATTER OF R EOPENING NOTICE (SUPRA). TO SIMPLIFY, THE CONTENTION OF THE LD. COUNSEL IS THAT ONCE SEC 148 NOTICE IS ISSUED FOR A PARTICULAR INCOME TO HAVE ESCAPED ASSESSMENT, THE A .O. CANNOT PROCEED ON TO MAKE ANY OTHER DISALLOWANCE. IN ADDITION TO THIS, HE HAS ALSO CITED CASE LAW I. E. 331 ITR 236 (BOMBAY HIGH COURT) CIT V/S. JET AIRWAYS, HON'BLE DELHI HIGH COU RTS UNREPORTED JUDGEMENT IN RANBAXY LAB V/S. CIT IN ITA 148/008 DATED 03.06.201 1. 9. THE CIT(A)S ORDER HAS BEEN DEFENDED BY REVENUE BY RAISING AN ARGUMENT THAT SINCE IN THE RE-ASSESSMENT PROCEEDINGS, THE A. O. HAD COME ACROSS DEDUCTION OF BAD DEBTS WRONGLY ALLOWED, SO DISALLOWANCE HAD BEEN MADE AS PER LAW. 10. WE HAVE HEARD BOTH PARTIES AT LENGTH, NECESSARY FINDINGS AND CASE LAW (SUPRA) HAVE BEEN GONE INTO. IT EMERGES FROM THE F ACTS OF THE CASE THAT AFTER COMPLETING ASSESSMENT U/S.143(3), THE A.O. HAD ISSU ED RE-OPENING NOTICE CITING REASON THAT ASSESSEES CLAIM OF EXCHANGE LOSS RE OV ERSEAS BRANCHES ETC. IN RE- ASSESSMENT, DISALLOWANCE OF BAD DEBTS (WHICH STOOD ACCEPTED EARLIER U/S.143(3) ORDER) HAS BEEN MADE WITHOUT ANY NOTICE U/S.148. T O SIMPLIFY, THE REASON AS STATED IN NOTICE U/S.148 IS A AND DISALLOWANCE IS ON GRO UND B. 11. IN SUCH A SITUATION, THE HON'BLE BOMBAY HIGH CO URT IN THE CASE OF JET AIRWAYS HAS HELD AS UNDER :- SECTION 147 HAS THIS EFFECT THAT THE ASSESSING OFF ICER HAS TO ASSESS OR REASSESS THE INCOME (SUCH INCOME) WHICH ESCAPED ASSESSMENT AND WHICH WAS THE BASIS OF THE FORMATION OF BELIEF AND IF HE DOES SO, HE CAN ALSO ASSESS OR REASSESS ANY OTHE R INCOME WHICH 8 ITA NO.2609/M/2011 HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTIC E DURING THE COURSE OF THE PROCEEDINGS. HOWEVER, IF AFTER ISSUI NG A NOTICE UNDER SECTION 148, HE ACCEPTED THE CONTENTION OF THE ASSE SSEE AND HOLDS THAT THE INCOME WHICH HE HAS INITIALLY FORMED A REA SON TO BELIEVE HAD ESCAPED ASSESSMENT, HAS AS A MATTER OF FACT NOT ESC APED ASSESSMENT, IT IS NOT OPEN TO HIM INDEPENDENTLY TO ASSESS SOME OTHER INCOME. IF HE INTEND TO DO SO, A FRESH NOTICE UNDE R SECTION 148 WOULD BE NECESSARY, THE LEGALITY OF WHICH WOULD BE TESTED IN THE EVENT OF A CHALLENGE BY THE ASSESSEE. 12. SIMILARLY, THEIR LORDSHIPS OF HON'BLE DELHI HIG H COURT IN CASE OF RANBAXY LAB (SUPRA) HAVE ALSO REITERATED THE LEGAL POSITION AS UNDER : IN THE PRESENT CASE, AS IN NOTED ABOVE, THE ASSESS ING OFFICER WAS SATISFIED WITH THE JUSTIFICATIONS GIVEN BY THE ASSESSEE REGARDING THE ITEMS VIZ., CLUB FEES, GIFTS AND PRESENTS AND P ROVISION FOR LEAVE ENCASHMENT, BUT, HOWEVER, DURING THE ASSESSMENT PRO CEEDINGS, HE FOUND THE DEDUCTION UNDER SECTION 80 HH AND 80-I AS CLAIMED BY THE ASSESSEE TO BE NOT ADMISSIBLE. HE CONSEQUENTLY WHI LE NOT MAKING ADDITIONS ON THOSE ITEMS OF CLUB FEES, GIFTS AND PR ESENTS, ETC., PROCEEDED TO MAKE DEDUCTIONS UNDER SECTION 80HH AND 80-I AND ACCORDINGLY REDUCED THE CLAIM ON THESE ACCOUNTS. THE VERY BASIS OF INITIATION OF PROCEEDINGS FOR WHI CH REASONS TO BELIEVE WERE RECORDED WERE INCOME ESCAPING ASSES SMENT IN RESPECT OF ITEMS OF CLUB FEES, GIFTS AND PRESENTS, ETC., BUT THE SAME HAVING NOT BEEN DONE, THE ASSESSING OFFICER PROCEED ED TO REDUCE THE CLAIM OF DEDUCTION UNDER SECTION 80HH AND 80-I WHIC H AS PER OUR DISCUSSION WAS NOT PERMISSIBLE. HAD THE ASSESSING OFFICER PROCEEDED NOT TO MAKE DIS-ALLOWANCE IN RESPECT OF THE ITMES O F CLUB FEES, GIFTS AND PRESENTS, ETC., THEN IN VIEW OF OUR DISCUSSION AS ABOVE, HE WOULD HAVE BEEN JUSTIFIED AS PER EXPLANATION 3 TO REDUCE THE CLAIM OF DEDUCTION UNDER SECTION 80 HH AND 8-I AS WELL. IN VIEW OF OUR ABOVE DISCUSSIONS, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE ASSESSING OFFICER HAD THE JURISDIC TION TO REASSESS ISSUES OTHER THAN THE ISSUES IN RESPECT OF WHICH PR OCEEDINGS ARE INITIATED BUT HE WAS NOT SO JUSTIFIED WHEN THE REAS ONS FOR THE INITIATION OF THOSE PROCEEDINGS CEASED TO SURVIVE. CONSEQUENTLY, WE ANSWER THE FIRST PART OF QUESTION IN AFFIRMATIVE IN FAVOUR OF REVENUE AND THE SECOND PART OF THE QUESTION AGAINST THE REV ENUE. 13. IT IS AN ADMITTED POSITION THAT CASE LAWS OF JE T AIRWAYS AND RANBAXY LAB HAVE BEEN FOLLOWED BY HON'BLE CHHATISGARH HIGH COUR T AT RAIPUR IN THE CASE OF ACIT V/S. DEEPAK MISHRA DATED 08.11.2011 IN ITA NO.04/20 06. 9 ITA NO.2609/M/2011 14. THE LEGAL POSITION AS IT EMERGES OUT FROM THE C ASE LAWS ABOVE IS THAT IF IN REASSESSMENT PROCEEDINGS, IF A.O. COMES ACROSS ANY INCOME OTHER THAN THAT MENTIONED IN THE NOTICE, ALLEGED TO HAVE ESCAPED AN D THERE CAN BE NO DISALLOWANCE IN ABSENCE OF ANY FRESH NOTICE. 15. WHILE APPLYING ABOVE PREPOSITION VIS-A-VIZ FACT S OF THE INSTANT CASE, WE FIND THAT THE DISALLOWANCE IN QUESTION OF BAD DEBTS WAS NEVER A SUBJECT MATTER OF RE- OPENING NOTICE (SUPRA). STILL, THE A.O. HAS PROCEE DED TO DECIDE THE ISSUE AGAINST THE ASSESSEE MORE SO, ALTHOUGH THERE WAS NO NOTICE TO T HE ASSESSEE. THE SAME, IN OUR CONSIDERED OPINION, IS NOT LIABLE TO BE SUSTAINED. 16. IN VIEW OF OUR ABOVE DISCUSSION, SINCE WE HAVE ACCEPTED ASSESSEES PLEA CHALLENGING THE VALIDITY OF REOPENING ITSELF, WE AR E NOT INCLINED TO DEAL WITH GROUND NO. 2 WHICH IS AN ALTERNATIVE PLEA TO GROUND NO. 1. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.6.2012. SD/- SD/- (G.E. VEERABHADRAPPA) (S.S. GODARA) PRESIDENT JUDICIAL MEMBER DATE :15.6.2012 AT :MUMBAI OKK COPY TO : 1. BANK OF INDIA, MUMBAI. 2. ACIT (2(1), MUMBAI. 3. THE CIT(A)-4, MUMBAI. 4. THE CIT, MUMBAI CONCERNED 5. THE DR B BENCH, ITAT, MUMBAI 6. GUARD FILD // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI