The Prudential Co-op Urban Bank Ltd., Secunderabad V. ACIT, Hyderabad

ITA 508/HYD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69973 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-02-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 08-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: C P RAMASWAMY
• Keywords: Reopening of assessment; Tangible material; Difference of opinion; Assessment record; Tax effect; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI CHANDRA POOJARI, A.M. AND SMT. ASHA VIJAYARAGHAVAN, J.M. ITA.NO.508/HYD/2010 ASSESSMENT YEAR 2005-2006 THE PRUDENTIAL COOP URBAN BANK LTD. SECUNDERABAD. PAN AABCT7077J VS. THE ACIT, CIRCLE 2(3) HYDERABAD. (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI C.P. RAMA SWAMY FOR RESPONDENT : SHRI P. SOMASEKHAR REDDY DATE OF HEARING : 26.11.2013 DATE OF PRONOUNCEMENT : 26.11.2013 ORDER PER SMT. ASHA VIJAYARAGHAVAN, J.M. THIS APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-III, HYDERABAD DATED 27.01.2010 FOR THE ASSESSMENT YEAR 2005-2006. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A COOPERATIVE SOCIETY REGISTERED UNDER MUTUALLY AIDED COOPERATIVE SOCIETIES ACT, 1995. ORIGINALLY THE ASS ESSMENT WAS COMPLETED UNDER SECTION 143(1) ON 31.12.2005. SUBSEQUENTLY, A NOTICE UNDER SECTION 148 WAS ISSUED ON 07.01.2008. THE PRESENT WAS COMPLETED UNDER SECTION 143(3) READ WITH SECTION 147. AS THE ASSESSEE SOCIE TY IS UNDER LIQUIDATION, THE NOTICE WAS SERVED ON THE OFF ICIAL LIQUIDATOR. DURING THE COURSE OF ASSESSMENT CERTAIN ADDITIONS WERE MADE BY A.O. SUCH AS ASSESSEE IS NOT ELIGIBLE 2 TO AVAIL BENEFIT U/S. 80P OF THE I.T. ACT, PROVISIO N TOWARDS NPA DEBITED TO THE P & L A/C. DISALLOWED RS.12,52,5 2,762/- AND ADDITION TOWARDS CONTINGENT PROVISION ON STANDA RD ASSETS NOT ALLOWED RS.1,98,392/-. 3. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). DURING THE HEARING OF THE APPEAL, THE LEARNED A.R. FILED A PETITION FOR ADMISSION OF THE FOLLOWING ADD ITIONAL GROUND : THE NOTICE ISSUED UNDER SECTION 148 AND SUBSEQUENT ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 1 47 ARE BAD IN LAW SINCE ALL THE INFORMATION WAS FILED ALON G WITH THE RETURN OF INCOME. 4. THE CIT(A) HELD AS FOLLOWS : THE CIT(A) HELD THAT THOUGH ADDITIONAL GROUNDS HAV E BEEN RAISED, THE ASSESSEE FAILED TO SATISFY EXISTEN CE OF GOOD REASON FOR OMISSION OF SUCH GROUNDS IN THE ORI GINAL APPEAL MEMO. THE CIT(A) FURTHER HELD THAT SINCE THE ASSESSEE FAILED TO ADDUCE ANY CONVINCING REASONS, ADDITIONAL GROUNDS ARE NOT ADMISSIBLE AND HENCE TO BE REJECTED. THE LEARNED CIT(A) FURTHER HELD WITHOUT PREJUDICE TO THE ABOVE, EVEN IF IT IS ACCEPTED, THO UGH NOT ADMITTED THAT SUCH ADDITIONAL GROUNDS ARE ENTERTAINABLE, THEN ALSO THERE IS NO MERIT IN SUCH GROUNDS AND HENCE TO BE DISMISSED. 5. WITHOUT PREJUDICE TO THE ABOVE DECISION, THE CIT (A) DISCUSSED ELABORATELY AT PARA 8.3 OF HIS ORDER AS F OLLOWS : 3 THE CIT(A) POINTED OUT THAT IN ITS ADDITIONAL GROU ND NO.1, THE ASSESSEE HAS OBJECTED TO THE RE-OPENING O F ASSESSMENT U/S.147 OF THE ACT IN THIS CASE. THE CIT (A) OBSERVED THAT AS SEEN FROM THE ASSESSMENT ORDER AND ALSO FROM THE ASSESSMENT RECORD, THE ASSESSEE HAS N OT RAISED ANY OBJECTION IN THIS REGARD, DURING THE ASSESSMENT PROCEEDINGS. THE CIT(A) HELD THAT UNDER THIS CIRCUMSTANCE, I.E. WHEN THE ASSESSEE HAS NOT RAISED ANY OBJECTION ON ABOVE ISSUE BEFORE THE A.O. HE CANNOT BE PERMITTED TO RAISE OBJECTION IN THAT REGA RD DURING THE APPEAL PROCEEDINGS. CIT(A) FURTHER POINT ED OUT THAT AS STATED BY THE AO, THE RETURN FILED BY T HE ASSESSEE ORIGINALLY IN THIS CASE, WAS MERELY PROCES SED BY THE A.O. U/S.143( 1) OF THE ACT. NO SCRUTINY ASSESSMENT HAS BEEN MADE EARLIER. FURTHER, THE A.O. CAN REOPEN THE ASSESSMENT IN A CASE, SO LONG AS THE RE EXIST REASONS FOR THE SAME. IN THE INSTANT CASE, TH E A.O. HAS ALREADY BRIEFLY REFERRED TO THE REASONS FO R REOPENING THE ASSESSMENT IN THIS CASE IN THE ASSESSMENT ORDER. FURTHER, THE CIT(A) HELD THAT FRO M THE REASONS RECORDED BY THE A.O. LYING IN THE ASSESSMENT RECORD, IT IS SEEN THAT HE HAS CLEARLY M ADE OUT A CASE AS TO HOW INCOME CHARGEABLE TO TAX FOR T HE ASSESSMENT YEAR 2005-06, HAS ESCAPED ASSESSMENT IN THIS CASE AND THE SOURCE OF INFORMATION FOR COMING TO SUCH CONCLUSION ON THE PART OF THE A.O. IS IMMATERI AL. THE CIT(A) OBSERVED THAT AS LONG AS THERE EXIST REASONS, WHICH SHOW THAT INCOME HAS ESCAPED ASSESSMENT, THE A.O. CAN REOPEN THE ASSESSMENT DULY COMPLYING WITH THE PROVISIONS OF LAW. IN SUPPORT OF THIS CONTENTION, THE CIT(A) RELIED ON THE DECISION OF THE 4 HON'BLE SUPREME COURT IN THEIR LANDMARK JUDGMENT IN THE CASE OF CIT V S. RAJESH JHAVERI STOCK BROKERS PVT. LTD., (291 ITR 500), WHEREIN IT WAS HELD THAT FAILURE TO TAKE STEPS U/S.143( 3) WILL NOT RENDER T HE A.O. POWERLESS TO INITIATE RE-ASSESSMENT PROCEEDING S AND THE HON'BLE MADRAS HIGH COURT IN THEIR JUDGMENT IN ITO VS. K.M. PACHIAPPAN (311 ITR 31) WHEREIN IT HAS BEEN HELD THAT ABSENCE OF AN ASSESSMENT ORDER U/S.143(3) IS NOT A BAR TO RE-OPENING OF THE ASSESSMENT U/S.147. THE CIT(A), THUS, CONCLUDED THA T HAVING REGARD TO THE REASONS MENTIONED BY THE AO, CLEARLY POINTING OUT ABOUT ESCAPEMENT OF TAXABLE INCOME AND FOLLOWING THE ABOVE JUDGMENTS OF THE HONBLE SUPREME COURT AND THE HONBLE MADRAS HIGH COURT, THE CIT(A) HELD THAT REOPENING OF ASSESSMENT U/S. 147 OF THE ACT BY THE A.O. IN THIS CASE AND TH E ISSUANCE OF NOTICE U/S. 148 OF THE ACT ARE JUSTIFIE D AND HENCE THE SAME IS TO BE UPHELD. 6. THUS, THE CIT(A) REJECTED THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL. THE 5 TH GROUND RAISED BY THE ASSESSEE IS AS FOLLOWS : THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE NOT ICE ISSUED UNDER SECTION 148 BY THE A.O. IS IN ACCORDAN CE WITH LAW. 5 8. BEFORE THE TRIBUNAL, THE LEARNED COUNSEL FOR TH E ASSESSEE SRI C.P. RAMASWAMY SUBMITTED THAT THE LEAR NED COMMISSIONER OF INCOME TAX OUGHT NOT TO HAVE HELD T HAT THE NOTICE ISSUED UNDER SECTION 148 BY THE A.O. IS IN A CCORDANCE WITH THE LAW. THE LEARNED COUNSEL DREW OUR ATTENTIO N TO THE REASONS RECORDED BY THE A.O. VIDE HIS LETTER DATED 24.11.2008 ADDRESSED TO THE ASSESSEE-BANK, WHICH RE ADS AS UNDER : IN COMPUTING THE PROFIT, THE ASSESSEE DEBITED AN AMOUNT OF RS.19,52,52,762/- TO THE PROFIT AND LOSS ACCOUNT TOWARDS NPA PROVISION. IN VIEW OF THE CANCELLATION OF LICENCE BY THE RESERVE BANK OF INDI A, THE ASSESSEE IS NOT ENTITLED FOR ALLOWANCE OF PROVISION UNDER SUB-SECTION (VIIA) OF SECTION 36 OF THE INCOM E TAX ACT. THE INADMISSIBLE CLAIM OF NPA PROVISION OF RS.19,52,52,762/- RESULTED IN EXCESS DETERMINATION OF LOSS OF RS.9,06,34,836/- WITH A CONSEQUENTIAL POTEN TIAL TAX EFFECT OF RS.3,25,15,247/- AND SHORT COMPUTATIO N OF INCOME OF RS.104617927/-. THE CONSEQUENTIAL TAX EFF ECT WORKS OUT TO RS.4,17,27,772/- INCLUDING INTEREST U/ S. 234B. AS SEEN FROM SCHEDULE 5, FORMING PART OF BALANCE SH EET, THE INCREASE IN PROVISION ON NON-PERFORMING ASSETS WAS RS.18,28,01,546/- FOR THE ASSESSMENT YEAR 2004-05. THE ASSESSEE DEBITED AN AMOUNT OF RS.198392/- TO PROFIT AND LOSS ACCOUNT TOWARDS CONTINGENT PROVISIO N ON STANDARD ASSETS WHICH IS NOT ADDED BACK WHILE COMPUTING THE TOTAL INCOME. THE INADMISSIBLE CLAIM OF RS.198392/- RESULTED IN SHORT COMPUTATION OF INCOME TO 6 THAT EFFECT WITH A CONSEQUENTIAL TAX EFFECT OF RS.6 9437/- THE AGGREGATE TAX EFFECT WORKS OUT TO RS.7,43,12,40 6/- IN VIEW OF THE FOREGOING REASONS, THE ASSESSMENT IS REOPENED UNDER SECTION 147 OF THE INCOME TAX ACT, 1961. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO TANGIBLE MATERIAL IS AVAILABLE WITH THE A.O . FOR ISSUING OF NOTICE UNDER SECTION 148 OF THE ACT. IN SUPPORT OF HIS CONTENTION, THE LEARNED COUNSEL FOR THE ASSESSE E RELIED ON THE JUDGMENTS IN THE CASES OF CIT VS. ORIENT CRA FT LIMITED (2013) 354 ITR 536 (DEL.) (H.C.), CIT VS. U SHA INTERNATIONAL LIMITED (2012) 348 ITR 485 (DEL.) (F. B.) (H.C.) AND IN THE CASE OF DELTA AIRLINES INC. VS. ITO (I NTERNATIONAL TAXATION) (2013) 33 TAXMANN.CO. 192 (MUM.). 10. THE LEARNED D.R. ON THE OTHER HAND, RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD. (2 007) 291 ITR 500 (S.C.). 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IN THE C ASE OF RANJIT REDDY VS. DY.CIT, HYDERABAD (2013) 144 ITD 3 61 THE COORDINATE BENCH OF THIS TRIBUNAL HAS DWELLED ON TH E CONTENTION OF THE ASSESSEE THAT REOPENING OF THE AS SESSMENT IS NOT PERMISSIBLE AS THERE IS NO TANGIBLE MATERIAL . THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUND ER : ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO TH E WORDS REASONS TO BELIEVE FAILING WHICH, SECTION 147 7 WOULD GIVE ARBITRARY POWER TO ASSESSING OFFICER TO REOPEN ASSESSMENTS ON THE BASIS OF MERE CHANGE OF OPINION, WHICH CANNOT BE PER SE REASON TO REOPEN. T HE A.O. HAS NO POWER TO REVIEW; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE TAXED ON FULFILMENT OF CERTAIN PRE-CONDITIONS AND IF THE CON CEPT OF CHANGE OF OPINION IS REMOVED, THEN, IN THE GARB O F REOPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF CHANGE OF OPINION AS AN INBUILT TEST TO CHECK ABUSE OF POWER BY THE A.O. HE NCE, THE A.O. HAS POWER TO REOPEN, PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BEL IEF. 12. FURTHER, PARA 32 AT PAGE 483 IN THE CASE OF S. RANJIT REDDY (SUPRA) READS AS FOLLOWS : SAME VIEW WAS TAKEN BY THE THIRD MEMBER MUMBAI BENCH IN THE CASE OF TELCO DADAJEE DHACKAJEE LTD. V S. DY. CIT, ITA.NO.4613/MUM/2005, DATED 12 TH MAY, 2010. FURTHER SAME VIEW WAS TAKEN BY DELHI HIGH COURT IN THE CASE OF CIT VS. ORIENT CRAFTS LTD. (20 13) 29 TAXMANN.COM 392 AND ALSO BY GUJARAT HIGH COURT IN THE CASE OF INDUCTOTHERM (INDIA) (P) LTD. V. DY. CI T IN SPECIAL CIVIL APPLICATION 858 OF 2006 DATED 6.8.201 2. FURTHER, BOMBAY BENCH IN THE CASE OF DELTA AIRLINES INC. V. ITO (INTERNATIONAL TAXATION) (2013) 33 TAXMANN.C OM 192 (MUM.) 13. FURTHER, AT PAGE 485 IT IS STATED AS FOLLOWS : 8 'WHEN THE MATTER REACHED TO THE TRIBUNAL. THE LEARNED JUDICIAL MEMBER TOOK E VIEW THAT THERE WAS NO FRESH MATERIAL TO SUPPORT THE FORMATION OF THE BELIEF OF THE ASSESSING OFFICER THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT AND IN THE ABSENCE OF ANY FRESH TANGIBLE MATERIAL, HE CAME TO THE CONCLUSION THAT IT WAS NOT PERMISSIBLE FOR THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT. THE LEARNED ACCOUNTANT MEMBER, HOWEVER, TOOK A DIFFERENT VIEW RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RAJESLI JHAVERI STOCK BROKERS (P) LTD. (SUPRA) AND THE MATTER, THEREFORE, WAS REFERRED TO A THIRD MEMBER FOR RESOLVING INTER ALIA, THE FOLLOWING POINT OF DIFFERENCE :- 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE PROCEEDINGS INITIATED BY THE A.O. U/ S 147 IS LIABLE TO BE CONFIRMED OR QUASHED WHEN THERE WAS NO FRESH MATERIAL AVAILABLE WITH THE AO AND THE ASSESSMENT HAD BEEN COMPLETED ORIGINALLY U/ S 143( 1 ).' THE THIRD MEMBER AGREED WITH THE VIEW TAKEN BY THE LEARNED JUDICIAL MEMBER RELYING MAINLY ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA) AND EICHER LTD. 320 ITR 561. IT WAS HELD BY THE THIRD MEMBER THAT SECTION 147 APPLIES BOTH TO SECTION 143(1) AS WELL AS SECTION 143(3) AND, THEREFORE, 9 EXCEPT TO THE EXTENT THAT A REASSESSMENT NOTICE ISSUED U/ S 148 IN A CASE WHERE THE ORIGINAL ASSESSMENT WAS MADE U/ S 143( 1) CANNOT BE CHALLENGED ON THE GROUND OF A MERE CHANGE OF OPINION, IT IS OPEN TO AN ASSESSEE TO CHALLENGE THE NOTICE ON THE GROUND THAT THERE IS NO REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. AS REGARDS THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RAJESLI LHAVERI STOCK BROKERS (P) LTD. (SUPRA) CITED BY THE REVENUE AND RELIED UPON BY THE ACCOUNTANT MEMBER, THE THIRD MEMBER HELD THAT THE SAME WAS APPLICABLE IN CASES WHERE THE RETURN WAS PROCESSED U/ S 143( 1) BUT LATER ON NOTICE WAS ISSUED U/S 148 AND THE ASSESSEE CHALLENGES THE NOTICE ON THE GROUND THAT IT IS PROMPTED BY A MERE CHANGE OF OPINION. THE THIRD MEMBER THEN REFERRED TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA) WHEREIN IT WAS HELD THAT THERE SHOULD BE 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT INCOME HAD ESCAPED ASSESSMENT. RELYING ON THE SAID DECISION, IT WAS HELD BY THE THIRD MEMBER THAT WHILE RESORTING TO SECTION 147 EVEN IN A CASE WHERE ONLY AN INTIMATION HAD BEEN ISSUED U/S 143(1)(A), IT IS ESSENTIAL THAT THE ASSESSING OFFICER SHOULD HAVE BEFORE HIM 10 TANGIBLE MATERIAL JUSTIFYING HIS REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. SINCE THERE WAS NO SUCH TANGIBLE MATERIAL BEFORE THE AO FROM WHICH HE COULD ENTERTAIN THE BELIEF THAT INCOME OF THE ASSESSEE CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT, THE THIRD MEMBER HELD THAT REASSESSMENT PROCEEDINGS INITIATED BY THE ASSESSING OFFICER WERE LIABLE TO BE QUASHED ON THE GROUND THAT THERE WAS NO TANGIBLE MATERIAL BEFORE THE ASSESSING OFFICER EVEN THOUGH THE ASSESSMENT WAS COMPLETED ORIGINALLY U/S. 143(1). IN OUR OPINION, THE THIRD MEMBER DECISION OF THE TRIBUNAL IN THE CASE OF TELCO DADAJEE DHACKJEE LTD. (SUPRA) IS SQUARELY APPLICABLE IN THE PRESENT CASE AND RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE INITIATION OF REASSESSMENT PROCEEDINGS BY THE ASSESSING OFFICER ITSELF WAS BAD IN LAW AND THE REASSESSMENT COMPLETED IN PURSUANCE THEREOF IS LIABLE TO BE QUASHED BEING INVALID. WE ORDER ACCORDINGLY AND ALLOW GROUND NO. 1 OF THE ASSESSEE'S APPEAL. 14. RESPECTFULLY FOLLOWING THE ORDER OF THE HYDERABAD BENCH IN THE CASE OF RANJIT REDDY (SUPRA) , WE QUASH THE ORDER OF THE ASSESSING OFFICER PASSED UND ER SECTION 143(3) READ WITH SECTION 147 OF THE I.T. AC T, 1961. HENCE, THE OTHER ISSUES RAISED IN THE APPEAL OF THE ASSESSEE 11 HAVE BECOME INFRUCTUOUS AND WE DO NOT DEEM IT NECES SARY OR EXPEDIENT TO DECIDE THE SAME. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.11.2013. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATE 26 TH NOVEMBER, 2013 VBP/- COPY TO : 1. THE PRUDENTIAL COOP URBAN BANK LTD. 1-1-151/1, S AIRAM TOWERS, ALEXENDER ROAD, SECUNDERABAD. 2. ACIT, CIRCLE 2 (3), HYDERABAD. 3. CIT(A)-III, HYDERABAD. 4. CIT-II, HYDERABAD 5. D.R. ITAT A BENCH, HYDERABAD.