TMI Blog2021 (2) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... f appeal before the CIT(A) and ITAT, it was no longer amenable to reassessment proceedings under section 147 of the Act. In the case of ACIT vs BSES Ltd. [ 2011 (9) TMI 135 - ITAT, MUMBAI] the Tribunal analysed the issue of merger and the applicability of the 3rd proviso to Sec. 147 of the Act and held additions made by the learned Assessing Officer all pertain to the matters which got merged with the order of CIT(A). Therefore, the same could not have been considered in the re-opened assessment as per the Third Proviso to section 147. Also see M/S. RELIANCE ENERGY LTD. [ 2013 (6) TMI 844 - BOMBAY HIGH COURT] - Decided in favour of assessee. - ITA Nos. 1832 and 1837/Bang/2018 - - - Dated:- 13-1-2021 - N.V. Vasudevan, Vice President And Chandra Poojari, Member (A) For the Appellant : S. Ananthan, CA For the Respondents : Pradeep Kumar, CIT (DR) ORDER N. V. Vasudevan , Vice President ITA No. 1832/Bang/2018 is an appeal by the Revenue and ITA No. 1837/Bang/2018 is an appeal by the assessee. Both these appeals are directed against the order dated 27.03.2018 of CIT(A)-14, Bangalore, relating to Assessment Year 2008-09. 2. We shall first take up for cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; 4. In an order passed u/s. 143(3) of the Act dated 19.11.2010, the AO disallowed claim for deduction of ₹ 192,57,72,764/- out of the total claim of the Assessee for deduction of ₹ 200,03,24,219/- on the ground that the provision for bad and doubtful debts in respect of rural advances was created by debit to profit and loss account of only a sum of ₹ 7,45,51,455 whereas the claim for deduction actually made u/s. 36(1)(viia) of the Act was a sum of ₹ 200,03,24,219/-. The AO was of the view that as laid down by the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala Vs. CIT 272 ITR 53 (P H), claim for deduction u/s. 36(1)(viia) of the Act can be granted only to the extent provision for bad and doubtful debts is debited in the profit and loss account. The deduction to be allowed cannot be greater than the amount debited to the profit and loss account as provision. The AO rejected the plea of the Assessee that 10% of Average Advances of Rural Branches (AARA) can be granted as ad h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a notice under section 148 of the Act dated 21.03.2013 proposing to reassess the income that has escaped assessment within the meaning of section 147 of the Act. The assessment was re-opened on the allegation that the Assessee did not give details of rural branches and it had included various branches which are not rural as per the provisions of section 36(1)(viia). The sum and substance of the reason so recorded by the AO was that it transpired in the course of assessment proceedings of the Assessee for AY 2010-11 that some of the branches which were claimed as rural branches were in fact located in an area which cannot be defined as rural and that in areas where some of the branches are situate, the population was more than 10,000. The reasons recorded b the AO before issue of notice under section 148 of the Act is as follows: The assessee has claimed deduction u/s. 36(1)(viia) of ₹ 14,79,66,9349/- in the computation of income. This was calculated as 10% of average aggregate rural advances of ₹ 1479,66,93,490/-. During the course of assessment proceedings of the assessee hank for the AY 2010-11 the claim of deduction made by the bank u/s. 36(1)(viia) was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 36(1)(viia) of ₹ 172,70,57,425/- was incorrect and the assessee has made excess claim u/s. 36(1)(viia) the IT Act, 1961. In the present case the income chargeable to tax which has escaped the assessment amounts to or is likely to amount to one lakh rupees or more for the AY 2006-07. Therefore, I have reason to belief that income chargeable to tax has escaped assessment by reason of failure on part of assessee to disclose fully and truly all materials fact necessary for his assessment for the AY 2007-08 . 6. The assessee challenged the validity of initiation of reassessment proceedings before AO on the ground that the reopening of assessment is based on already existing material and on an incorrect appreciation of law and that the initiation of reassessment proceedings is purely based on change of opinion. It was contended by the Assessee that the entire assessment has been re-opened based on the verification conducted by the learned Assessing Officer during the assessment year 2010-11. However, what is to be seen is the details of rural branches based on 2001 census which was available even at the time of original assessment. Further, the claim u/s. 36(1)(viia) was a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support of his conclusion on the validity of initiation of reassessment proceedings. The AO also rejected the contention of the assessee that the third proviso to section 147 of the Act is not applicable because the reassessment proceedings were initiated based on facts that came to notice of the AO during the assessment proceedings for Assessment Year 2010-11 regarding the incorrect declaration of rural branches. 8. Before CIT(A), the assessee reiterated the contentions as put forth before the AO. In particular, the Assessee placed on the decision of Hon'ble Supreme Court in the case of CIT Vs Kelvinator of India Ltd., [2010] 320 ITR 561 (SC), wherein the Hon'ble Supreme Court held that the assessment cannot be re-opened on mere change of opinion. Once the Assessing Officer raises any specific query about an item, it is to be deemed that he has applied his mind and allowed it. Therefore, in respect of those items, no action can be taken u/s. 147. It was pointed out by the Assessee that in the case of the Assessee, the details of the deduction claimed u/s. 36(1)(viia) were part of the return and it was a specific claim made in the computation. In fact the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in the Act. The definition reads as follows: (ia) rural branch means a branch of a scheduled bank [or a non-scheduled bank situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year . The definition lays down that any branch situated in a place not having a population of more than 10000 as per the last preceding census has to be considered as rural branch. Therefore, what is to be seen is the population of the place. The category of the place as per the census data is not the criteria to decide whether a branch is a rural branch or not. For eg., if a branch is in a village and the population of which is more than 10000, it cannot be considered as a rural branch. Likewise, if a branch is in a place which is classified as municipality, town or panchayat, which has a population of less than 10000, then, the same has to be treated as a rural branch. Therefore, it is only the population that decides the fact whether it is rural or non rural. 11. It was submitted that the AO while rejecting the objections of the Assessee placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the AO. He held that the Assessee had wrongly disclosed non-rural branches as rural branches and made provision for bad and doubtful debts and claimed deduction u/s. 36(1)(viia) of the Act. Since the Assessee concealed true particulars and made wrongful claim for deduction, Explanation 1 to Sec. 147 of the Act was applicable and initiation of reassessment was valid. It may be clarified here that Explanation 1 to Sec. 147 of the Act is applicable only in the case of reassessment initiated to which proviso to Sec. 147 of the Act applies, i.e., to a case where reassessment is initiated beyond 4 years from the end of the relevant Assessment year and where an assessment has already been completed u/s. 143(3) of the Act. In the present case, reassessment was initiated within 4 years and therefore the proviso to Sec. 147 of the Act is not applicable. The CIT(A) relied on the decision of the Hon'ble Kerala High Court in the case of Popular Vehicles services Ltd. (2010) 191 Taxman 333 (Ker.) which again is a case where proviso to Sec. 147 of the Act was applicable. The CIT(A) also relied on the decision Hon'ble Karnataka High Court in the casse of Rinku Chakraborth (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal by its order dated 27.2.2015 reversed the decision of the CIT(A) and restored the order of the AO. In the first round of proceedings the AO did not question the correctness of the classification by the Assessee of rural branches for the purpose of claiming deduction u/s. 36(1)(viia) of the Act. 17. The assessment was re-opened on the allegation that the Assessee did not give details of rural branches and it had included various branches which are not rural as per the provisions of section 36(1)(viia). According to the AO, it transpired in the course of assessment proceedings of the Assessee for AY 2010-11 that some of the branches which were claimed as rural branches were in fact located in an area which cannot be defined as rural and that in areas where some of the branches are situate, the population was more than 10,000. The question that would arise for consideration is, can it be said that any fact which comes to the notice of an Assessing Officer while framing assessment subsequently for another Assessment year is fresh material? The learned counsel for the Assessee has in support of his plea that facts coming to notice of the AO in the course of subsequent a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation 3 to sections 10A and 10B and Explanation 2 to section 10AA clearly declare that profits and gains derived from 'services for development of software' outside India would also be deemed as profits derived from export. It is therefore clarified that profits earned as a result of deployment of Technical Manpower at the client's place abroad specifically for software development work pursuant to a contract between the client and the eligible unit should not be denied benefits under sections 10A, 10AA and 10B provided such deputation of manpower is for the development of such software and all the prescribed conditions are fulfilled. 39. Though the aforesaid circular was not available before the Assessing Authority at the time of issue of notice under Section 147/148 of the Act, the same throws light on the aspect of deployment of technical manpower vis-a-vis deduction under Section 10A of the Act. This circular clarifies that the profits earned as a result of deployment of technical manpower at the client's place specifically for software development work pursuant to contract between the client and the eligible unit should not be denied benefits under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minary objection as to his jurisdiction in the respective writ petitions are quashed. (Emphasis supplied) 18. Two aspects that emerge from paragraph-40 of the aforesaid decision of the Hon'ble High Court that is relevant for the present appeal are (i) when the AO examines the claim for deduction u/s. 36(1)(viia) of the Act while completing the assessment u/s. 143(3) of the Act, he is deemed to have examined the same from all angle including the correctness of the classification of branches as rural branches for the purpose of deduction u/s. 36(1)(viia) of the Act. (ii) Disallowance of deduction u/s. 36(1)(viia) of the Act on the ground that the rural branches were not properly classified in AY 2011-12 cannot be regarded as tangible material that has come to possession of the AO, so as to justify reopening of assessment. 19. In view of the conclusion that there was no fresh tangible material in the possession of AO at the time of recording of reasons for initiating proceedings u/s. 147 of the Act., the law laid down by the Hon'ble Supreme Court in the case of CIT vs. Kelvinator India Ltd. 320 ITR 561 (SC), has to be applied. It was held by the Hon'ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attracted. In this regard, we find that since the issue of deduction under section 36(1)(viia) of the Act was a subject matter of appeal before the CIT(A) and ITAT, it was no longer amenable to reassessment proceedings under section 147 of the Act. In the case of ACIT vs BSES Ltd. ors 2011 (9) TMI 135 - ITAT Mumbai, the Tribunal analysed the issue of merger and the applicability of the 3rd proviso to Sec. 147 of the Act and held as follows: 10.4 Merger of the Order It was also one of the contention that the issue of quantification of deduction under section 80IA in respect of the Dahanu plant by the Assessing Officer, in the original assessment order has merged with the orders of the CIT(A) and ITAT and, therefore, the re-computation thereof by adopting a different method of working of profit eligible for deduction u/s. 80IA was beyond the powers of the Assessing Officer. The Learned Departmental Representative vehemently argued that the issue in original assessment was entirely different. We are not in a position to accept the contention. The issue in original assessment was determination of profit for the purpose of deduction u/s. 80IA on the Dahanu Generation Plant. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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