M/s. ICICI BANK LTD., MUMBAI V. DCIT Rg. - 3 (1), MUMBAI

ITA 4904/MUM/2005

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49068 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 11-05-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 07-07-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ASHA AGARWAL
• Keywords: Reopening of assessment; Deemed to accrue or arise in india; Bad and doubtful debts; Difference of opinion; Revised return; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, E BENCH, MUMBAI. BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI V.DURGA RAO, JUDICIAL MEMBER I.T.A NO.4904/ MUM/2005 ASSESSMENT YEAR: 1999-2000 ICICI BANK LIMITED .. APPELLANT (ERSTWHILE ICICI LIMITED) ICICI BANK TOWERS, BANDRA-KURLA COMPLEX, BANDRA (EAST), MUMBAI-51. PA NO.AAACT 1398 K VS DCIT, RANGE 3(1) ,. RESPONDEN T AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. I.T.A NO.4332/ MUM/2005 ASSESSMENT YEAR: 1999-2000 DCIT, RANGE 3(1) ,. APPELLANT AAYAKAR BHAVAN, M.K. ROAD, MUMBAI VS ICICI BANK LIMITED .. RESPONDENT (ERSTWHILE ICICI LIMITED) ICICI BANK TOWERS, BANDRA-KURLA COMPLEX, BANDRA (EAST), MUMBAI-51. APPEARANCES: S.E.DASTUR, FOR THE ASSESSEE ASHA AGARWAL, FOR THE REVENUE 2 O R D E R PER PRAMOD KUMAR: 1. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORD ER DATED 14.3.2005 OF THE CIT(A)-XXVII, MUMBAI, IN THE MATTER OF ASSESSMENT U NDER SECTION 143(3) R.W.S 147 OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 1999-2000. 2. ONE OF THE GRIEVANCES RAISED BY THE ASSESSEE IS THAT THE CIT(A) ERRED IN UPHOLDING THE REOPENING OF ASSESSMENT PROCEEDINGS. THE SPECIFIC GROUNDS AS SET OUT IN THE MEMORANDUM OF APPEAL ARE AS FOLLOWS: 1. BEING AGGRIEVED BY THE ORDER BEARING DATED MARC H 14, 2005 ISSUED BY THE CIT(A)XXVII, MUMBAI, ISSUED UNDER SECTION 250 OF TH E INCOME TAX ACT, 1961 AND COMMUNICATED TO THE APPELLANT ON MAY 10, 2005 T HE APPELLANT APPEALS AGAINST AND ON THE FOLLOWING AMONGST OTHER GROUNDS WHICH ARE WITHOUT PREJUDICE TO EACH OTHER. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT (A) ERRED IN UPHOLDING THE ORDER OF THE AO PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT ON THE GROUND THAT THE AO HAD REASONS TO BELIEV E THAT THE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. 3. LEARNED COUNSEL FOR THE ASSESSEE INVITES OUR ATT ENTION TO THE FACT THAT THE ISSUE IN APPEAL IS SQUARELY COVERED BY TRIBUNALS D ECISION IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 1998-99. IT IS ALSO POINTED OUT THAT THE REASONS OF REOPENING IN THE PRESENT YEAR ARE EXACTL Y SAME AS THEY WERE IN THE IMMEDIATELY PRECEDING YEAR. THE REASONS OF REOPENI NG THE ASSESSMENT ARE AS FOLLOWS: THE RETURN OF INCOME FOR A.Y. 1999-2000 WAS FILED ON 31.12.1999 DECLARING TOTAL INCOME OF ` .119,33,33,747. A REVISED RETURN WAS FILED ON 27.2 .2001 DECLARING THE TOTAL INCOME AT ` .46,53,59,236. THE ASSESSMENT ORDER WAS PASSED U/S.143(3) ON 22.2.2002 DETERMINING THE TOTA L INCOME AT ` .485,78,17,460. IT WAS OBSERVED THAT THE ASSESSEE DURING THE YEAR H AS CREATED MAINTAINED A SPECIAL RESERVE IN TERMS OF SECTION 36(1)(VIII) AMO UNTING TO ` .340 CRORES. IT WAS ALSO OBSERVED THAT THE ASSESSEE HAD A SPECIAL R ESERVE ACCOUNT CREATED UPTO 31.3.1997 AMOUNTING TO ` .431.05 CRORES. FROM THE SPECIAL RESERVE 3 CREATED UPTO 31.3.1997, THE ASSESSEE HAS WITHDRAWN AN AMOUNT OF ` .120.78 CRORES. THE SPECIAL RESERVE ACCOUNT AS SHOWN BY THE ASSESSE E IN THE SCHEDULE FORMING PART OF RESERVES & SURPLUSES IS GIVEN BELOW FOR A.Y. 1998-99 (A.Y. 1999-2000) RUPEES IN MILLION RESERVES AND SURPLUS BALANCE AT MARCH 31,1998( ` .) ADDITIONS/A DJUSTMENTS ON AMALGAMATI ON(` ` .) ADDITIONS /TRANSFERS DURING THE YEAR(` ` .) DEDUCTIONS/T RANSFERS DURING THE YEAR(` ` .) BALANCE AS ON MARCH 31,1999 (`.RS.) SPECIAL RESERVE CREATED IN TERMS OF SECTION 36(1)(VIII) OF THE I.T.ACT, 1961 UPTO A.Y. 1997-98 4310.00 - - 1207.8 3102.70 SPECIAL RESERE CREATED AND MAINTAINED IN TERMS OF SECTION 36(1)(VIII) OF THE I.T.ACT,1961 2600.00 - 3400.00 - 6000.00 AS PER SECTION 41(4A) WHICH WAS INTRODUCED BY THE F INANCE ACT 1997 W.E.F. 1.4.1998 ANY AMOUNT WITHDRAWN FROM THE SPECIAL RESE RVE IS INCOME OF THE ASSESSEE DURING THE YEAR OF WITHDRAWN. THE SECTION IS REPRODUCED HEREBELOW: (4A) WHERE A DEDUCTION HAS BEEN ALLOWED IN RESPECT OF ANY SPECIAL RESERVE CREATED AND MAINTAINED UNDER CLAUSE (VIII) OF SUB-S ECTION(1) OF SECTION 36, ANY AMOUNT SUBSEQUENTLY WITHDRAWN FROM SUCH SPECIAL RESERVE SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR P ROFESSION AND ACCORDINGLY BE CHARGEABLE TO INCOME TAX AS THE INCOME OF THE PR EVIOUS YEAR IN WHICH SUCH AMOUNT IS WITHDRAWN. THUS, THE PLAIN READING OF THE SECTION CLEARLY SAYS THAT THE AMOUNT WITHDRAWN BY THE ASSESSEE FROM THE SPECIAL RESERVE ON OR AFTE R 1.4.98 I.E. FROM AY 1998- 99 IS INCOME OF THE ASSESSEE. IN THIS CASE THOUGH THE ASSESSEE WITHDRAWN AN 4 AMOUNT OF RS.120.78 CRORES FROM THE RESERVES CREATE D UPTO 31.3.1997 IN THE A.Y. 1999-2000, THE SAME WAS NOT OFFERED FOR TAXATI ON IN THE A.Y. 1999-2000. BY NOT OFFERING THE SAID AMOUNT OF RS.120.78 CRORES , INCOME TO THAT EXTENT HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTIO N 147 OF THE ACT. I HAVE, THEREFORE, REASON TO BELIEVE THAT INCOME TO THE EXT ENT OF RS.120.78 CRORES HAS ESCAPED FOR A.Y. 1999-2000 AND, THEREFORE, THE ASSE SSMENT IS REOPENED U/S.147 R.W.S.148. 4. LEARNED DEPARTMENTAL REPRESENTATIVE DOES NOT DIS PUTE THAT THE MATERIAL FACTS AND CIRCUMSTANCES OF THE CASE AT LEAST SO FAR AS THE REOPENING OF THE SAME IS CONCERNED, ARE SIMILAR. SHE HOWEVER, EMPHASIZES TH AT THE CO-ORDINATE BENCH ERRED IN NOT APPRECIATING THE FACT THAT THE RESERVES CREA TED EVEN PRIOR TO THE CUT OFF DATE WHEN TRANSFER PRICE ARE TO BE TREATED AS INCOME OF THE ASSESSEE. SHE TAKES US THROUGH THE RELEVANT PROVISIONS AND POINTED OUT THA T THE CONCLUSIONS ARRIVED AT BY THE CO-ORDINATE BENCH ARE AT VARIANCE WITH THE CORR ECT LEGAL POSITION. 5. HAVING HEARD THE RIVAL PARTIES, WE FIND THAT THE PLEA OF THE ASSESSEE IS INDEED CORRECT. WE FIND THAT ON MATERIALLY IDENTICAL FACT S, A CO-ORDINATE BENCH OF THIS TRIBUNAL HAS DECIDED THE ISSUE OF REOPENING OF ASSE SSMENT IN FAVOUR OF THE ASSESSEE AND THUS, QUASHED THE REASSESSMENT PROCEEDINGS. WE HAVE ALSO NOTED THAT THE GROUNDS FOR REOPENING IN THE ASSESSMENT YEAR BEFORE US ARE MATERIALLY SAME AS WAS GROUNDS FOR REOPENING THE ASSESSMENT IN THE IMMEDIA TELY PRECEDING YEAR, WHICH WAS DEALT WITH BY THE CO-ORDINATE BENCH. WHILE DEA LING WITH THE ASSESSEES ARGUMENTS AGAINST REOPENING PROCEEDINGS, OUR ESTEEM ED COLLEAGUES, INTER ALIA, OBSERVED AS FOLLOWS: 6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDER ED THEM CAREFULLY. WE HAVE ALSO PERUSED THE MATERIAL ALONG WITH CASE L AWS RELIED UPON BY BOTH THE PARTIES. THE AO HAS REOPENED THE ASSESSMENT ON ACCO UNT OF AMOUNT WITHDRAW FROM SPECIAL RESERVE TO BE TAXED AS PER PROVISIONS OF SEC . 41(4A) OF THE INCOME TAX ACT, 1961 ; DISALLOWANCE OF PROVISION FOR BAD AND DOUBTFUL DEBTS AND DISALLOWANCE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION LOSS. WE WI LL DEAL WITH THE ISSUES ITEM WISE. 6.1 FIRST, WE WILL TAKE UP THE ISSUE IN RESPECT TO REOPENING OF THE ASSESSMENT ON ACCOUNT OF AMOUNT WITHDRAWN FROM SPECIAL RESERVE. T HE PROVISIONS OF SECTION 41(4A) HAVE BEEN INTRODUCED W.E.F 1.4.98 RELEVANT TO AY 1998-99. 5 6.2 CLAUSE (VIII) OF SEC. 1 OF SEC. 36 PERMIT DEDUC TION OF AN AMOUNT NOT EXCEEDING 40% OF THE PROFIT DERIVED FROM SUCH BUSINESS OF PROV IDING LONG TERM FINANCE CARRIED TO ANY SPECIAL RESERVE, CREATED BY A FINAN CIAL CORPORATION OR PUBLIC COMPANY. THE DEDUCTION IS ADMISSIBLE PROVIDED THAT C ORPORATION OR COMPANY IS APPROVED BY CENTRAL GOVERNMENT FOR THIS PURPOSE AND THE AGGREGATE OF THE AMOUNTS CARRIED OVER TO THE SPECIAL RESERVE FROM TI ME TO TIME DOES NOT EXCEED TWICE THE AMOUNT OF PAID UP SHARE CAPITAL AND GENERAL RES ERVES. IN ORDER TO INCORPORATE THE CONDITION REGARDING MAINTENANCE OF THE RESERVE, CLAUSE (VIII) HAS BEEN AMENDED BY SUBSTITUTING THE WORDS SPECIAL RESERVE CREATED WITH THE WORDS SPECIAL RESERVE CREATED AND MAINTAINED. AN AMENDMENT HAS BEEN MADE IN SEC.41 IN ORDER TO BRING TO TAX ANY AMOUNT WITHDRAWN FROM SUCH SPECIAL RESER VE IN THE YEAR IN WHICH THE AMOUNT IS WITHDRAWN. FOR THIS PURPOSES, A NEW SUBSE CTION (4A) HAS BEEN INTRODUCED IN THIS SECTION. THE PROVISIONS OF SEC. 36(1)(VIII) UPTO AY 1997-98 AND FROM AY 98-99 AND SEC. 41(4A) READ AS UNDER: SEC. 36(1)(VIII) UPTO AY 1997-98: IN RESPECT OF ANY SPECIAL RESERVE CREATED BY A FIN ANCIAL CORPORATION WHICH IS ENGAGED IN PROVIDING LONG TERM FINANCE FOR INDUSTRI AL OR AGRICULTURAL DEVELOPMENT OR DEVELOPMENT OF INFRASTRUCTURE FACILI TY IN INDIA OR BY A PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WITH THE MAI N OBJECT OF CARRYING ON THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR CONSTRUC TION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES, AN AMOUNT NOT EXCEE DING FORTY PER CENT OF THE PROFITS DERIVED FROM SUCH BUSINESS OF PROVIDING LONG TERM FINANCE COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PRO FESSION BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE CARRIED TO SUCH RESERVE ACCOUNT. SEC. 36(1)(VIII) FROM AY 98-99: IN RESPECT OF ANY SPECIAL RESERVE CREATED AND MAINT AINED BY A FINANCIAL CORPORATION, WHICH IS ENGAGED IN PROVIDING LONG TER M FINANCE FOR INDUSTRIAL OR AGRICULTURAL DEVELOPMENT OR DEVELOPMENT OF INFRASTR UCTURE FACILITY IN INDIA OR BY A PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WITH THE MAIN OBJECT OF CARRYING ON THE BUSINESS OF PROVIDING LONG TERM FIN ANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSE S, AN AMOUNT NOT EXCEEDING FORTY PER CENT OF THE PROFITS DERIVED FROM SUCH BUSI NESS OF PROVIDING LONG TERM FINANCE COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE CARRIE D TO SUCH RESERVE ACCOUNT. SEC. 41(4A) INTRODUCED W.E.F 1.4.98 RELEVANT TO AY 1998-99: WHERE A DEDUCTION HAS BEEN ALLOWED IN RESPECT OF AN Y SPECIAL RESERVE CREATED AND MAINTAINED UNDER CLAUSE (VIII) OF SUB SEC (1) OF SEC. 36, ANY AMOUNT SUBSEQUENTLY WITHDRAWN FROM SUCH SPECIAL RESERVE SH ALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCO RDINGLY BE CHARGEABLE TO INCOME TAX AS THE INCOME OF THE PREVIOUS YEAR IN WH ICH SUCH AMOUNT IS WITHDRAWN. 6 6.3 AFTER CAREFUL READING OF THESE PROVISIONS, IT I S CLEAR THAT UPTO AY 1997-98, THE WORD WAS CREATED IN SEC. 36(1)(VIII) WHEREAS FROM AY 1998-99, THE WORD IS CREATED AND MAINTAINED. AS PER PROVISIONS OF SEC. 41(4A) INTRODUCED FROM AY 1998-99, IT HAS BEEN CLEARLY SPELT OUT THAT WHERE A DEDUCTION HAS BEEN ALLOWED IN RESPECT TO ANY SPECIAL RESERVE CREATED AND MAINTAIN ED UNDER CLAUSE (VIII) OF SUB.SEC. 1 OF SEC. 36 ANY AMOUNT SUBSEQUENTLY WITHDRAWN FROM SUCH RESERVE SURPLUS SHALL BE DEEMED TO BE THE PROFIT AND GAINS OF BUSINESS OR FROM PROFESSION AND ACCORDINGLY, WILL BE CHARGED TO TAX. 6.4 IT IS NOTICED THAT DURING THE ORIGINAL ASSESSME NT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO FILE DETAILS IN RESPECT TO RESERVE CREATED, WITHDRAWN AND DEDUCTION CLAIMED. THE ASSESSEE HAS FILED COMPL ETE DETAILS OF RESERVE CREDITED, WITHDRAWN AND THE DEDUCTION CLAIMED. THE AO HAS DISCUSSED THIS ISSUE WHILE PASSING ORIGINAL ASSESSMENT IN PARA 10 AT PAG E 64 TO 70. THE AO HAS OBSERVED IN HIS ORDER THAT THE ASSESSEE HAS MADE A PROVISION OF RS. 263 CRORES IN P&L ACCOUNT TOWARDS SPECIAL RESERVE FOR THE PURPOSE OF SEC. 36(1)(VIII) AND CLAIMED AN AMOUNT OF RS. 193 CRORES OR SO AS DEDUCT ION IN THE COMPUTATION FILED WITH THE RETURN OF INCOME. IT HAS BEEN FURTHER OBSER VED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE REVISED ITS CL AIM TO RS. 189 CRORES OR SO. ALONG WITH THE REVISED CLAIM, COMPUTATION OF ELIGIBL E DEDUCTION U/S 36(1)(VIII) WAS ALSO FILED. THE AO NOTED THAT THE METHOD ADOPTE D ON DEDUCTION WAS SUFFERED FROM CERTAIN INFIRMITY; ACCORDINGLY, HE RE DUCED THE DEDUCTION BY DISCUSSING THE ISSUE AT PAGES 64 TO 70 OF HIS ORDER AND CONCLUDED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION @ 40% AMOUNTING T O RS. 64.58 CRORES. THE COMPUTATION HAS BEEN GIVEN IN PARA 69 & 70 BY THE AO . FROM THESE FACTS, IT CANNOT BE SAID THAT THE AO HAS NOT APPLIED HIS MIND WHILE ALLOWING THE DEDUCTION U/S 36(1)(VIII) IN RESPECT TO SPECIAL RES ERVE CREATED. THE ASSESSMENT HAS BEEN REOPENED BY THE AO FOR THE REASON THAT AS P ER THE PROVISIONS OF NEW SECTION 41(4A) INTRODUCED W.E.F 1.4.98 WHICH IS APP LICABLE FROM AY 1998-99, THE WITHDRAWAL MADE BY THE ASSESSEE IS TO BE TREATED AS DEEMED INCOME OF BUSINESS AND PROFESSION. IN OUR CONSIDERED VIEW, THE REOPENI NG OF THE ASSESSEE IS ON ACCOUNT OF MERELY ON CHANGE OF OPINION FOR THE REAS ON THAT THE AO, WHO PASSED ASSESSMENT ORDER ORIGINALLY CANNOT BE SAID THAT HE W AS NOT HAVING KNOWLEDGE OF PROVISIONS OF SEC. 41(4A). HE WAS AWARE OF THE S ECTION 41(4A) AS, AS PER NEW SECTION 41(4A) AND AS PER THE LANGUAGE OF SUB.SEC. 3 6(1)(VIII) THE AMOUNT WITHDRAWN FROM SPECIAL RESERVE CREATED AND MAINTAIN ED ARE TO BE TAXED. UPTO AY 97-98 THE WORDING OF SECTION 36(1)(VIII) WAS CR EATED AND NOW FROM AY 1998-99, THE WORDING OF SECTION 36(1)(VIII) IS C REATED AND MAINTAINED. THE ASSESSEE IS MAINTAINING SEPARATE ACCOUNTS I.E. ONE IS FOR SPECIAL RESERVE CREATED UPTO AY 1997-98 AND ANOTHER IS FROM AY 98-99 FOR TH E SPECIAL RESERVE CREATED AND MAINTAINED. THE AMOUNT WITHDRAWN BY THE ASSESSE E UNDISPUTEDLY IS WITHDRAWN FROM THE RESERVE CREATED UPTO AY 1997-98; THEREFORE, IT CANNOT SAID THAT THE AO WAS NOT AWARE OF THE FACTS. THE PROVISI ONS OF SEC. 41(4A) CANNOT BE APPLIED FOR THE SIMPLE REASON THAT THE AMOUNT WIT HDRAWN WAS FROM SPECIAL RESERVE CREATED UPTO AY 1997-98. THE DETAILS WERE S OUGHT FROM THE ASSESSEE. THE COMPLETE DETAILS WERE FILED AND AFTER EXAMINING THE DETAILS AND PROVISIONS 7 OF RESPECTIVE SECTIONS, THE AO CONCLUDED THAT DEDUC TION CLAIMED BY THE ASSESSEE WAS ON HIGHER SIDE; THEREFORE, HE RECALCULATED THE DEDUCTION. ACCORDINGLY, IN OUR CONSIDERED VIEW, THE REOPENING OF THE ASSESSEE WAS MERELY ON ACCOUNT OF CHANGE OF OPINION. 7 THE DECISION OF THE HONBLE DELHI HIGH COURT IN TH E CASE OF KELVINATOR INDIA REPORTED IN 256 ITR 1; THE DECISION OF GRADEN SILK MILLS REPORTED IN 222 ITR 68(GUJ) AND THE DECISION IN THE CASE OF JINDAL PHOTO FILMS REPORTED IN 234 ITR 170, WHICH ARE PRONOUNCED AFTER THE AMENDMENT I N SEC. 147 ARE SQUARELY APPLICABLE ON THE FACTS OF THE PRESENT CASE. 7.1 IN THE CASE OF KELVINATOR INDIA N 256 ITR 1(DEL ), IT HAS BEEN OBSERVED BY THE HONBLE DELHI HIGH COURT THAT; AN ORDER OF ASSESSMENT CAN BE PASSED EITHER IN TERM S OF SUB- SECTION (1) OF SECTION 143 R SUB-SECTION(3) OF SECTI ON 143 WHEN A REGULAR ORDER OF ASSESSMENT IS PASSED IN TERMS OF T HE SUB-SECTION (3) OF SECTION 143 A PRESUMPTION CAN BE RAISED THAT SUCH AN ORDER HAS BEEN PASSED ON APPLICATION OF MIND. IT IS SELL K NOWN THAT A PRESUMPTION CAN ALSO BE RAISED TO THE EFFECT THAT IN TERMS OF CLAUSE (E) OR SECTION 114 OF THE INDIAN EVIDENCE ACT, 1872 , JUDICIAL AND OFFICIAL ACTS HAVE BEEN REGULARLY PERFORMED. IF IT BE HELD THAT AN ORDER WHICH HAS BEEN PASSED PURPORTEDLY WITHOUT APPL ICATION OF MIND WOULD ITSELF CONFER JURISDICTION UPON THE AO T O REOPEN THE PROCEEDING WITHOUT ANYTHING FURTHER, THE SAME WOULD AMOUNT TO GIVING A PREMIUM TO AN AUTHORITY EXERCISING QUASI J UDICIAL FUNCTION TO TAKE BENEFIT OF ITS OWN WRONG. HENCE, IT CLEAR TH AT SECTION 147 OF THE ACT DOES NOT POSTULATE CONFERMENT OF POWER UPON THE AO TO INITIATE REASSESSMENT PROCEEDINGS UPON A MERE CHANG E OF OPINION. 7.2 SIMILARLY, THE HONBE GUJARAT HIGH COURT IN THE CASE OF GARDEN SILK MILLS IN 222 ITR 68 HAS OBSERVED THAT; THE THE AO CANNOT TAKE ANY ACTION UNDER SECTION 1 47 OF THE I T ACT, 1961, MERELY BECAUSE HE HAPPENS TO CHANGE HIS O PINION OR TO HOLD AN OPINION DIFFERENT FROM THAT OF HIS PREDECES SOR ON THE SAME SET OF FACTS. FROM THE ASSESSMENT ORDER, IT CLEARLY APPEARED THAT AT THE TIME OF ORIGINAL ASSESSMENT, THE AO HAD APPLIED HIS MIND TO THE COMPUTATION OF INCOME. THERE WAS NOTHING TO INDICAT E THAT THE AO IN CONSEQUENCE OF INFORMATION IN HIS POSSESSION HAD REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. THE REAS SESSMENT PROCEEDINGS WERE NOT VALID AND WERE LIABLE TO BE QUAS HED. 7.3 SIMILARLY, IN THE CASE OF JINDAL PHOTO FILMS LT D IN 234 TR 170, THE HONBLE DELHI HIGH COURT HAS HELD THAT; IT WAS CLEAR FROM THE REASONS PLACED BY THE AO ON RECORD AS ALSO FROM THE STATEMENT MADE IN THE COUNTER AFFIDAV IT THAT ALL THAT THE ITO HAD SAID WAS THAT HE WAS NOT RIGHT IN ALLOW ING DEDUCTION UNDER SECTION 80-I, BECAUSE HE HAD ALLOWED THE DEDUC TIONS WRONGLY 8 AND, THEREFORE, HE WAS OF THE OPINION THAT THE INCO ME HAS ESCAPED ASSESSMENT. THOUGH HE HAD USED THE PHRASE REASON T O BELIEVE IN HIS ORDER, ADMITTEDLY, BETWEEN THE DATE OF ORDERS O F ASSESSMENT SOUGHT TO BE REOPENED AND THE DATE OF FORMING OF OPI NION BY THE ITO NOTHING NEW HAD HAPPENED. THERE WAS NO CHANGE O F LAW. NO NEW MATERIAL HAD COME ON RECORD. NO INFORMATION HAD BEEN RECEIVED. IT WAS MERELY A FRESH APPLICATION OF MIND BY THE SAME AO TO THE SAME SET OF FACTS. WHILE PASSING THE ORIGINA L ORDERS OF ASSESSMENT, THE ORDER DATED FEB 28 1994 PASSED BY TH E CIT(A)WAS BEFORE THE AO. THAT ORDER STOOD TILL TODAY. WHAT THE AO HAD SAID ABOUT THE ORDER OF THE CIT(A) WHILE RECORDING REASON S U/S147 HE COULD HAVE SAID EVEN IN THE ORIGINAL ORDERS OF ASSE SSMENT. THUS, IT WAS A CASE OF MERE CHANGE OF OPINION WHICH DID NOT PROVIDE JURISDICTION TO THE AO TO INITIATE PROCEEDINGS U/S1 47 OF THE ACT. THEREFORE, THE NOTICES ISSUED FOR REASSESSMENT FOR ALL THE ASSESSMENT YEARS WERE NOT VALID. 7.4 THE DECISION OF THE SUPREME COURT IN THE CASE O F FORAMAR FRANCE REPORTED IN 264 ITR 566 IS ALSO IN SUPPORT OF THE A BOVE OBSERVATIONS THAT MERELY ON CHANGE OF OPINION, THE ASSESSMENT CANNOT BE REOPENED. 7.5 THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ASIA N PAINTS IN 308 ITR 195 HAS HELD THAT INITIATION OF REOPENING PROCEEDI NGS WOULD AMOUNT TO CHANGE OF OPINION OF THE AO AS IT WAS MERELY A FRESH APPLI CATION OF MIND BY THE AO TO THE SAME SET OF FACTS. SINCE THE AO HAD FAILED TO A PPLY HIS MIND TO THE RELEVANT MATERIAL WHILE FRAMING THE ASSESSMENT ORDER, HE COU LD NOT TAKE ADVANTAGE OF HIS OWN WRONG AND REOPEN THE ASSESSMENT U/S 147 OF THE ACT. WHILE HOLDING SO, THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF KELVINATOR OF INDIA LTD IN 256 ITR 1 HAD BEEN FOLLOWED. 8 THE ABOVE DECISION OF THE HONBLE BOMBAY HIGH COURT IS SQUARELY APPLICABLE ON THE FACTS OF THE PRESENT CASE AS THE ASSESSEE HAS FILED COMPLETE DETAILS IN RESPECT TO SPECIAL RESERVE CREATED AND T HE AO HAS ALSO EXAMINED THE ISSUE. THEREFORE, IT CANNOT BE SAID THAT THE AO HAS NOT APPLIED HIS MIND WHILE COMPLETING THE ORIGINAL ASSESSMENT THAT IN VIEW OF THE PROVISIONS OF SEC. 41(4A) THE AMOUNT WITHDRAWN IS LIABLE TO BE TAXED BEING DEEME D INCOME. 8.1 AS STATED ABOVE, THERE ARE SEPARATE ACCOUNTS FOR RESERVE CREATED UPTO AY 97-98 AND FOR RESERVE CREATED AND MAINTAINED FROM A Y 98-99. THE AMOUNT IS WITHDRAWN FROM SPECIAL RESERVE CREATED UPTO AY 1997 -98; THEREFORE, THIS IS OUT OF THE PURVIEW OF THE PROVISIONS OF NEW SUB.SEC. 4A OF SEC. 41. IN VIEW OF PROVISIONS OF SEC. 41(4A) THE AMOUNT WITHDRAWN FROM SPECIAL RESERVE CREATED AND MAINTAINED FROM AY 1998-99 CAN ONLY BE ADDED; TH EREFORE, THE AMOUNT WITHDRAWN FROM THE RESERVE CREATED UPTO AY 1997-98 CANNOT BE ADDED BY ATTRACTING THE AMENDED PROVISIONS OF SECTION 41(4A) . 9 WE HAVE ALSO TAKEN INTO CONSIDERATION THE VARIOUS CASE LAWS RELIED UPON BY THE LD DR AND FOUND THAT THEY ARE DISTINGUISHABLE ON FACTS. 9 9.1 RELIANCE HAS BEEN PLACED ON THE DECISION IN THE CASE OF RAYMOND WOOLLEN MILLS LTD IN 236 ITR 34 (SC). IN THIS CASE, IT HAS BEEN HELD THAT WHERE IT WAS DISCOVERED THAT ASSESSEE WAS CHARGING FISCAL DU TIES AND DIRECT MANUFACTURING COSTS TO ITS P&L ACCOUNT BUT DID NOT INCLUDE THESE ELEMENTS IN ITS CLOSING STOCK, REOPENING U/S 147 WAS NOT VALID. 9.2 THE FACTS IN THE PRESENT CASE ARE ENTIRELY DIFF ERENT. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 36(1)(VIII) AND HAVE DISCLOSE D WHILE FILING ITS RETURN OF INCOME. THE AO HAS EXAMINED THE ISSUE AND THEN FOUN D THAT THE DEDUCTION CLAIMED BY THE ASSESSEE IS ON HIGHER SIDE; ACCORDIN GLY, DEDUCTION WAS RECOMPUTED. THEREFORE, THIS DECISION IS NOT APPLICA BLE ON THE FACTS OF THE PRESENT CASE. 9.3 SIMILARLY, THE DECISION IN THE CASE OF PHOOL CH AND BAJRANG LAL & ANOTHER IN 203 ITR 456(SC) IS ALSO NOT APPLICABLE ON THE FAC TS OF THE PRESENT CASE. IN THIS CASE, THE ASSESSMENT WAS REOPENED ON THE BASIS OF SU BSEQUENT INFORMATION WHICH WAS SPECIFIC, RELEVANT AND RELIABLE. AFTER REC ORDING THE REASONS FOR FORMATION OF BELIEF THAT ASSESSEE DID NOT MAKE FULL AND TRUE DISCLOSURE, NOTICE U/S 148 WAS ISSUED. AGAIN, THE FACTS IN THE PRESEN T CASE ARE DIFFERENT BECAUSE IN THE PRESENT CASE THE ASSESSEE HAS DISCLOSED FULLY A ND TRULY ALL THE MATERIAL FACTS IN RESPECT TO DEDUCTION U/S 36(1)(VIII). 9.4 AS STATED ABOVE, DEDUCTION CLAIMED BY THE ASSESS EE WAS EXAMINED BY THE AO; THEREFORE, THE DECISION OF THE SUPREME COURT IN THE CASE OF PHOOL CHAND BAJRANG LAL (SUPRA) IS ALSO NOT APPLICABLE ON THE FA CTS OF THE PRESENT CASE. 9.5 SIMILARLY, THE DECISION IN THE CASE OF SRI KRIS HNA PVT LTD IN 221 ITR 538(MP) IS ALSO NOT APPLICABLE. IN THIS CASE, IT HAS BEEN HELD THAT A FALSE DISCLOSURE IS NOT A TRUE DISCLOSURE. THE DISCLOSURE MUST NOT ONLY BE TRUE BUT MUST BE FULL- FULLY AND TRULY. A FALSE ASSERTION, OR STATEMENT, OF MATERIAL FACT, ATTRACTS THE JURISDICTION OF THE ITO U/S 34/147. 9.6 IN THE PRESENT CASE, THE FACTS ARE ENTIRELY DIF FERENT AS THERE IS NO DISPUTE THAT THE ASSESSEE HAS DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS. THE ASSESSEE HAD CLAIMED DEDUCTION U/S 36(1)(VIII). AS EXPLAINED ABOVE AND AFTER APPLYING HIS MIND, THE DEDUCTION WAS REJECTED BY THE AO ORIG INALLY. THEREAFTER, THE AO REOPENED THE ASSESSMENT FOR THE REASONS THAT AMENDE D PROVISIONS OF SEC. 41(4A) ARE APPLICABLE ON THE FACTS OF THE PRESENT CA SE. AS STATED ABOVE, THE AMENDED PROVISIONS OF SEC. 41(4A) ARE APPLICABLE WHE RE THE RESERVE CREATED AND MAINTAINED FROM AY 1998-99. IN THE PRESENT CASE , RESERVE HAS BEEN SHOWN WHICH WAS CREATED UP TO AY 1997-98; THEREFORE, THIS DECISION IS ALSO NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. 9.7 WE HAVE ALSO SEEN OTHER CASE LAWS WHICH WERE RE LIED UPON BY THE LD DR AND ARE FOUND DISTINGUISHABLE ON FACTS OF THE PRESEN T CASE. 10 IN VIEW OF THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE ABOVE DISCUSSION OF OURS, WE ARE OF THE CONSIDERED VIEW T HAT THE REOPENING OF THE ASSESSMENT WAS BAD IN LAW WHICH WAS REOPENED MERELY ON ACCOUNT OF CHANGE OF OPINION. 10 6. WE SEE NO REASONS TO TAKE A VIEW THAN THE VIEW S O TAKEN BY THE CO-ORDINATE BENCH. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND WE ARE OF THE CONSIDERED VIEW THAT THE VERY REO PENING OF ASSESSMENT WAS BAD IN LAW ON THE FACTS OF THE PRESENT CASE. AS WE HAVE D ECIDED THE FUNDAMENTAL ISSUE IN FAVOUR OF THE ASSESSEE, IT IS NOT REALLY NECESSARY TO DEAL WITH ALL OTHER GRIEVANCES SET OUT IN THE GROUNDS OF CROSS APPEALS. AS THESE GRIE VANCES ESSENTIALLY DEAL WITH THE MERITS OF ADDITIONS MADE DURING THE COURSE OF REA SSESSMENT PROCEEDINGS, THESE ASPECTS OF THE MATTER, IN VIEW OF OUR HAVING QUASHE D THE REASSESSMENT PROCEEDINGS, HAVE BECOME WHOLLY ACADEMIC AND INFRUCTUOUS. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED IN T HE TERMS INDICATED ABOVE AND THE APPEAL OF THE REVENUE IS DISMISSED AS INFRUCTUO US. PRONOUNCED IN THE OPEN COURT ON 20 TH MAY 2011. SD/- (V. DURGA RAO) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 20 TH MAY, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),XXVII, MUM BAI 4. COMMISSIONER OF INCOME TAX,CITY-3 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH E, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI