TMI Blog2017 (3) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... sment for the assessment year 2007-08, 2008-09 & 2009-10 is bad in law Question of non-furnishing the reasons for re-opening on already concluded assessment goes to very route of the matter and that the assessee is entitled to be furnished reasons for such re-opening and that if reasons are not furnished to the assessee, then the proceedings for the re-assessment cannot be taken any further, and re-opening of the assessment would be bad in law. A.O. had issued notice u/s 148 of the Act, on 30.6.2011 calling upon the assessee to furnish return of income. In response, the assessee has filed a letter on 18.7.2011 requesting for time of atleast 30 days for submitting the required details. Thereafter, the A.O. has issued a letter dated 25.7.2011 to furnish returns in response to notice issued u/s 148 of the Act. In response to letter, the assessee has filed a letter on 8.8.2011 and requested the A.O. to furnish reasons recorded for re-opening of the assessment for all the assessment years. Thereafter, the assessee has filed one more letter on 26.8.2011 and requested the A.O. to treat the return filed earlier u/s 139(1) of the Act, as the return filed in response to notice issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing reasons for reopening of assessment, as per which the A.O. stated that while arriving at income under the head income from business , the assessee claimed deduction u/s 36(1)(viia) of the Act, towards provision for bad and doubtful debts for an amount of 7.5% of the total income, computed before making any deduction under this clause and chapter VIA and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner, whereas, the assessee has actually created reserve for bad and doubtful debts, which is less than deduction claimed u/s 36(1)(viia) of the Act. Therefore, in terms of Board s instruction no.17/2008 dated 26.11.2008, the assessee is entitled for deduction u/s 36(1)(viia) of the Act, towards provision for bad and doubtful debts as worked out as per the provisions, subject to maximum amount actually created in the books of accounts in the relevant accounting year. Since, the assessee has claimed deduction towards bad and doubtful debts u/s 36(1)(viia) of the Act, in excess of actual reserve created in the books of accounts and which was not subjected to verification at the time of completion of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified deduction towards provision for bad and doubtful debts in the case of Co-operative banks. The assessee also made a fresh claim towards exclusion of amount withdrawn from reserves for bad and doubtful debts created for the previous financial years, which was not made either in the original return of income filed u/s 139(1) of the Act or revised return filed u/s 148 of the Act. The assessee contended that it has withdrawn certain amount from reserves created in the earlier years towards provision for bad and doubtful debts and credited to the profit loss account and failed to exclude the same from the total income for the respective assessment years on the plea that the total income after claiming deduction towards provision for bad and doubtful debts u/s 36(1)(viia) of the Act reduced to Nil. 6. The CIT(A) after considering the submissions of the assessee and also by relied upon plethora of judgements, held that the assessee has not provided necessary information neither along with return of income nor during the course of assessment proceedings, therefore, the arguments of the assessee that the assessment has been re-opened merely on change of opinion is incorrect. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 297. 8. Aggrieved by the CIT(A) order, the assessee preferred an appeal before us and raised the following grounds of appeal. Since, the assessee has raised common grounds for all the 3 years, for the sake of convenience, we extract grounds raised for the assessment year 2007-08. 1.The Impugned Order of the Ld. Commissioner of (Appeals), Visakhapatnam is opposed to law, facts and in the circumstances of the case. 2. Under the facts and circumstances of the case, the Appellate Order passed by the Ld. CIT(A) is illegal and against the principles of natural justice, without giving ample opportunity to the Appellants during the course of hearing and against the provisions of the Income Tax Act, 1961. 3. The Ld. Commissioner of Income Tax (Appeals) erred in not appreciating the fact that the Original Assessment was completed by the then Ld. Assessing Officer, ward-2, Kakinada and the Order passed by the succeeding Ld. Assessing Officer u/s 147/148 of the Income Tax Act, 1961 is bad in law. 4. The Ld. Commissioner of Income Tax (Appeals) erred in upholding the order of the Ld. Assessing Officer, who passed the impugned order purely on the basis of mere cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds challenging the validity of re-assessment proceedings on the ground that the reasons recorded for re-opening of assessment has not been furnished, despite a specific request made by the assessee, in the light of the decision of Hon ble Supreme Court in the case of G.K.N. Drive Shaft s India Ltd. Vs. Income Tax Officer and Others (2003) 259 ITR 19 (SC). The additional grounds raised by the assessee are reproduced as under: 7A) The Learned Commissioner of Income Tax (Appeals), ought to have appreciated the facts that the Assessing officer had not given the copy of the reasons recorded for the re opening of the assessment U/s147of the Act, after filing of the Return and before commencement of the proceedings even at the instance of the request of assessee for the same vide letter 8th August 2011, which is mandatory on the part of the A.O. failing which the proceedings become invalid and bad in law as for the Supreme Court on in GKN Driveshaft's (India) Ltd. (2003) 259 ITR 19 SC 7B). The Learned Commissioner of Income Tax (Appeals), has erred in law and in facts related to no fresh tangible material available for reassessment and the material was already provided at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pening of assessment, whether the assessment is completed u/s 143(1) or 143(3) of the Act. The Ld. A.R. further submitted that the A.O. has recorded reasons, as per which he is referring to the return of income filed by the assessee and also CBDT instruction no.17/2008 dated 26.11.2008 to form a reason to believe that income chargeable to tax had escaped assessment. Except this, the A.O. has not referred to any fresh tangible material to form a reasonable belief that the income chargeable to tax had escaped assessment. Therefore, the formation of reason to believe is purely on the basis of change of opinion, but not based on any tangible material which is not permissible under the law. 11. The Ld. A.R. further submitted that the assessment for the assessment year 2007-08 has been completed u/s 143(3) of the Act, wherein the then A.O. had called for each and every information with regard to deduction towards provision for bad and doubtful debts and after thorough examination of the facts has allowed the deduction claimed by the assessee. The material relied upon by the A.O. to form a reason to believe is the return of income filed by the assessee which was already available with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s recorded for re-opening of the assessment before completion of assessment proceedings u/s 143(3) r.w.s. 147 of the Act. In support of his arguments, relied upon the following judgements: 1. GKN Driveshaft s (India) Ltd. Vs. DCIT (2003) 259 ITR 19(SC) 2. Asian Pain Ltd. Vs. DCIT (2008) 296 ITR 96 (Bom) 3. IOT Infrastructure and Eng. Services Ltd. Vs. ACIT (2010) 329 ITR 1(Bom) 4. Allanda Cold Storage Vs. ITO (2006) 287 ITR 1 (Bom) (Asst Yr.2001- 2002) 5. Bhabesh Chandra Panja Vs. ITO (2010) 41 SOT 390 (TM) (Kol) 6. Berger Paints India Ltd. Vs. Asst. Comm. Of Income Tax and Ors (2004) 266 ITR 462 (Cal) 7. Gujarat Fluorochemicals Ltd. Vs. DCIT (2008) 15 DTR (Guj) 1 8. Nandlal Tejmal Kothari Vs. Inspecting ACIT (1998) 230 ITR 943(SC) 9. CIT Vs. Safetax International India Pvt. Ltd. (Delhi High Court) 10. CIT Vs. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66 (Bom) 11. Tata International Mumbai ITAT ITA 3309 to 3361/M/2009 dated 29.6.2012. 13. On the other hand, the Ld. D.R. strongly supporting the order of the CIT(A), submitted that the A.O. has rightly re-opened the assessment as the assessee has claimed excessive ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the ground raised by the assessee that the A.O. has not furnished any reasons recorded for re-opening of the assessment. 15. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The factual matrix which leads to re-opening of assessment for the assessment year 2007-08 to 2009-10 are that the assessee has claimed deduction towards provision for bad and doubtful debts under the provisions of section 36(1)(viia) of the Act. The assessee has claimed deductions towards provision for bad and doubtful debts for an amount of 7.5% of the total income before allowing any deduction under this clause and chapter VIA of the Act and further deductions of 10% of the average advances of rural branches of the assessee. The assessment for the assessment year 2007-08 has been completed u/s 143(3) of the Act. In the assessment proceedings, the A.O. has allowed deductions towards bad and doubtful debts claimed by the assessee. The assessment for the assessment years 2008-09 2009-10 has been completed u/s 143(1) of the Act. In the assessment proceedings, the A.O. has issued intimation u/s 143(1)(a) of the Act, accepting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.5% of total income of 13,89,98,089 4,886 10% of Average advances of Rural branches 21,51,75,144 21,51,80,030 Restricted to income under the head Business 13,89,32,927 Business income 0 Income under House Property offered as the total income for the year 65,152 The working of the total income by allowing the correct deduction under sec.36(1)(viia) is given as under: Net profit as per profit and loss of account 1,69,96,099 Add: Reserves created (Sch. No.16A) 11,83,67,058 Add: Income Tax paid 48,63,075 Add: Municipal taxes considered under property income 1,05,789 14,03,32,021 Less: Rents received considered separately 1,98,863 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion without there being any fresh materials in the hand of the A.O. 17. The A.O. re-opened the assessment on the ground that income chargeable to tax had escaped assessment within the meaning of section 147 of the Act. The A.O. has recorded reasons which were reproduced in the assessment order. The A.O. formed reason to believe based on the instructions issued by the CBDT vide instructions no.17/2008 dated 26.11.2008, which explains the position of law with regard to deductions towards provision for bad and doubtful debts u/s 36(1)(viia) of the Act, except this no other tangible material available with the A.O. or came to his knowledge after the original assessment. The A.O. formed his reason to believe solely on the ground that excess deduction allowed u/s 36(1)(viia) of the Act, towards bad and doubtful debts, which is otherwise not allowable and hence opined that income chargeable to tax had escaped assessment. 18. The provisions of section 147, provides for re-opening of assessment, if the A.O. has reason to believe that any income chargeable to tax had escaped assessment. In this case, admittedly, the re-opening is within 4 years, therefore, the second proviso to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieve should be based on subjective assessment of tangible material which suggests escapement of income chargeable to tax. What is tangible material has not been defined in the Act. But, the courts have interpreted to mean a fresh material, which was not available to the A.O. at the time of original assessment. Even though the law does not specify the condition of new material, it can be read in accordance with the legislative intention. For instance, the Hon ble Supreme Court in the case of G.K. Drive Shafts (2003) 259 ITR 19 has upheld passing of objective order. Similarly, concept of change of opinion is not prescribed by statute. But these concepts have been evolved in view of interpretation and observation of courts after going through the legislative intention and provisions of the Act, otherwise power to re-open will be abused by the A.O. to re-open the assessment and what he cannot do directly, he will do indirectly. Therefore, in the absence of tangible material, allowing the A.O. to re-open the assessment on the basis of assessment, whether completed u/s 143(1) or 143(3) of the Act, would amount to review of the earlier proceeding and abuse of power by the A.O. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to the knowledge of the A.O. after completion of the original assessment. If the original assessment is completed u/s 143(1) of the Act, and thereafter the A.O. has received fresh material which pinpoints escapement of income, action can be taken by the A.O. u/s 147 of the Act, as the A.O. never had an occasion to express any opinion in the assessment framed u/s 143(1) of the Act, as it is merely a processing of return and hence, the concept of change of opinion does not arise. But, in the absence of new material, whether assessment completed u/s 143(1) 143(3) of the Act, if the assessment is re-opened, then it would amount to mere change of opinion, which is not permissible under law. 23. Having said, let us examine the facts of the present case. In this case, the assessment for the assessment year 2007-08 has been completed u/s 143(3) of the Act. However, the assessment for the assessment year 2008-09 2009-10 has been completed u/s 143(1) of the Act. Admittedly, re-opening of assessment in all the 3 years is within 4 years, hence second proviso to section 147 of the Act, has no application. If you examine the facts of the present case with first proviso to section 147 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dra Ram (2013) 353 ITR 511, wherein the Hon ble High Court categorically held that such tangible material may be something that the A.O. did not notice at the time of original assessment either because the material did not form part of the record itself or was not brought to his notice. In any case, the circular of the CBDT would not satisfy such a test. As already noted, the circular only lays down general reference and expect the A.Os to examine the issues referred to in the said circular or instructions with reference to the provisions of law. Therefore, we are of the view that a general instruction, which is meant for the benefit of the A.O. and also which explains the position of law cannot be considered as a tangible material for re-opening the individual assessment of any assessee. We further noticed that the CBDT instruction no.17/2008 dated 26.11.2008 which is issued subsequent to the date of filing of the return by the assessee for the assessment year 2007-08 and 2008-09 i.e. on 30.10.2008 cannot be relied upon by the A.O. as a tangible material to re-open the assessment. We further observed that the words has reason to believe are stronger than the words is satisfied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nspite of request, the A.O. has not furnished reasons recorded for reopening of the assessment even before completion of assessment u/s 143(3) r.w.s. 147 of the Act, consequently, subsequent assessment proceedings are bad in law and liable to be quashed. In support of his arguments filed photocopy of letter addressed to the A.O. which was marked at pg.50 51 of the paper book filed by the assessee for the assessment year 2007-08. The assessee also filed an affidavit in support of his claim that the A.O. had not furnished reasons recorded for re-opening of the assessment. 27. Having heard both the sides and considered material on record, we find that the assessee has filed a letter requesting the A.O. to furnish reasons recorded for re-opening of the assessment. We further observed that the revenue failed to bring on record any evidence to counter the claim made by the assessee that the A.O. has not furnished reasons recorded for re-opening of assessment. The law is well settled now that in respect of re-opening of assessment, the Hon ble Supreme Court, in the case of G.K.N. Drive Shaft s India Ltd. 259 ITR 19, held that it is mandatory on the part of the A.O. to provide the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra). A similar view has been reiterated by Hon ble Karnataka High Court, in the case of Kothari Metals in writ appeal no.218/2015 (IT), wherein it has been held that the question of nonfurnishing the reasons for re-opening on already concluded assessment goes to very route of the matter and that the assessee is entitled to be furnished reasons for such re-opening and that if reasons are not furnished to the assessee, then the proceedings for the re-assessment cannot be taken any further, and re-opening of the assessment would be bad in law. From the reading of the above judgements, it is abundantly clear that the A.O. is bound to furnish reasons recorded for re-opening of the assessment, if the assessee made a specific request. In case the A.O. failed to furnish reasons recorded, despite a specific request made by the assessee, then the re-assessment proceedings is bad in law and liable to be quashed. 29. In the present case on hand, on perusal of the facts available on record, we find that the A.O. had issued notice u/s 148 of the Act, on 30.6.2011 calling upon the assessee to furnish return of income. In response, the assessee has filed a letter on 18.7.2011 requesting for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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