TMI Blog2011 (11) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... t to have granted a deduction of an amount of 7.5% of the total income and not of the lesser amount of the business income. Hence, on this aspect of the matter, we are of the view that Assessing Officer duly informed in law could not possibly come to the conclusion that there is an escapement on this ground. Thus, the notice issued u/s 148 is set aside - Decided in favor of assessee. - WRIT PETITION NO. 1765 OF 2011 - - - Dated:- 9-11-2011 - DR. D.Y. CHANDRACHUD AND A. A. SAYED, JJ. S.E. Dastoor, Ms. Aarti Vissanji and S.J. Mehta for the Petitioner. Vimal Gupta for the Respondent. JUDGMENT Dr. D.Y. Chandrachud, J. Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal. 2. The challenge in these proceedings under Article 226 of the Constitution of India is to a notice issued by the Assessing Officer on 30 March 2010 under Section 148 of the Income Tax Act, 1961 seeking to re-open an assessment for Assessment Year 2003-04. 3. The notice has been issued admittedly after a period of four years from the end of the relevant Assessment Year. The issue which falls for det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of which the assessment is sought to be re-opened, are as follows :- "In the case, assessment u/s. 143(3) of the I.T. Act, 1961 was completed on 28.02.2006. (i) On perusal of the records, it is found that the assessee has claimed bad debts in respect of such parties in whose respect the income was claimed exempt u/s. 10(23G) of the I.T. Act. As the income was not offered for tax in the previous years, no deduction can be allowed u/s. 36(2) of the I.T. Act. After prima facie verification, it is found that the total underassessment of income on this count is to the tune of Rs. 8,11,54,142/-. Therefore, the income to the tune of Rs. 8,11,54,142/- has escaped assessment. (ii) Further, it is found that the total income before allowing deduction u/s. 36(1)(viia) and 36(2)(viii) was determined at Rs. 4,14,07,89,503/-. Deduction of Rs. 50,00,00,000 was allowed u/s. 36(1)(viii). Hence for the purpose of allowing deduction u/s.36(1)(viia), the total income should have been taken at Rs. 3,64,07,89,513 and deduction u/s. 36(1)(viia) should have been allowed to the extent of Rs. 27,30,59,213/-. However, it is seen from Assessment order that assessee was allowed deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel appearing on behalf of the Revenue submitted that (i) The Assessee should have disclosed, while filing the returns that the bad debts in respect of which a write off had been claimed under Section 36(1)(vii) pertained at least in part to income which had been exempted under Section 10(23G). In failing to do so, the Assessee must be held to have failed to disclose fully and truly all the material facts necessary for the assessment; (ii) In computing the deduction under Section 36(1)(viia), the deduction which had been allowed under Section 36(1)(viii) ought to have been excluded. Hence, the Assessing Officer was justified, in the second reason for re-opening the assessment in forming the opinion that income had escaped assessment; (iii) The Assessee, while claiming bad debts in the amount of Rs. 733.31 crores had in the NPA returns submitted to the Reserve Bank of India claimed that non-performing assets were to the extent of Rs. 152 crores; this would warrant an investigation by the Assessing Officer for which the assessment could be reopened. 9. Before dealing with the rival submissions, it would be at the outset necessary to have due regard to the nature of the enquiry th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pans over nearly fifty pages. The Assessing Officer, as already noted earlier, dis-allowed the claim on account of bad debts to the total extent of Rs. 769.75 crores. During the course of Assessment order, the Assessing Officer specifically applied his mind to the deduction under Section 10(23G). The Assessing Officer noted that the Assessee had claimed an exemption under Section 10(23G) in the amount of Rs. 124.71 crores. The claim was allowed in part to the extent of Rs. 53.80 crores. 13. Now, it is in this background that the reasons which have been formulated by the Assessing Officer need to be considered. 14. The re-opening of the assessment in the present case is sought to be effected admittedly beyond a period of four years of the end of the relevant Assessment Year. The notice under Section 148 was issued on 30 March 2010 and the assessment for Assessment Year 2003-04 is sought to be re-opened. By virtue of the first proviso to Section 147, the jurisdictional condition for the exercise of the power to reopen beyond four years is that there must be a failure on the part of the Assessee to fully and truly disclose all material facts necessary for the assessment. This requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to fully and truly disclose all necessary facts, necessary for the purpose of assessment. In these circumstances, the condition precedent to a valid exercise of the power to reopen the assessment, after a lapse of four years from the relevant assessment year, is absent in the present case. There is merit in the submission which has been urged on behalf of the assessee that an exceptional power has been conferred upon the Revenue to reopen an assessment after a lapse of four years. The conditions which are prescribed by the statute for the exercise of such a power must be strictly fulfilled and in their absence, the exercise of power would not be sustainable in law." 16. Now, in the present case, ex-facie, there is no statement in the reasons disclosed by the Assessing Officer that there was a failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment for Assessment Year 2003-04. The first and the third reasons both have a bearing on the claim of the Assessee to a write off of bad debts under Section 36(1)(vii). As noted earlier, the Assessee had claimed a total write off in the amount of Rs. 1503.06 crores of which the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcise of the power to re-open the assessment on the first and third ground, both of which relates to the write off of bad debts under Section 36(1)(vii) is in excess of jurisdiction, once the write off formed the subject matter of an appeal before the CIT(Appeals) and which resulted in an order of 29 September 2010 of the appellate authority. The power to reopen an assessment cannot be exercised to re-open what formed the subject matter of an appeal to the CIT (Appeals). 18. The second ground that has weighed with the Assessing Officer is that according to him, there has been an excessive deduction under Section 36(1)(viia). Now, so far as this aspect is concerned, the order of Assessment would show that the Assessing Officer allowed a deduction to the extent of 7.5% of the total business income computed at Rs. 414.07 crores. The total income of the Assessee has been computed at Rs. 1241.63 crores. Ex-facie, Section 36(1)(viia) allows a deduction in respect of a provision for bad and doubtful debts made by a Scheduled Bank of an amount not exceeding 7.5% of the total income (computed before making any deduction in that clause and Chapter VI-A). As a matter of fact, it is the grie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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