TMI Blog2023 (10) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed as under . All materials in relation to foreign currency borrowings and transfer of assets to Asset Reconstruction Companies have been fully and comprehensively placed before the Officer, even at the time of scrutiny proceedings. The original assessment order passed on 29.12.2017 specifically recorded detailed examination of the financials of the petitioner. One of the issues dealt with under original assessment relates to disallowance under Section 14A r/w Rule 8 of Income Tax Rules in the course of which the investments of the petitioner have been subject to minute scrutiny. Interest from investments, including external commercial borrowings, income from venture capital funds and deduction under Section 36(1)(viii) in relation to transfer to special reserve, have not escaped the Officer s scrutiny. An addition has been made under capital gain and disallowance of deduction of interest cost on zero coupon bonds. Thus, there is no doubt that the Officer has examined all aspects of the return and framed an assessment after thorough scrutiny. While so, the impugned proceedings are initiated based on the financial records already available with the Officer and indicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The import of the phrase books of income has been considered by a Division Bench of this Court in Commissioner of Income-tax vs Taj Borewells [ 2007 (4) TMI 203 - MADRAS HIGH COURT ] that makes reference to an earlier decision in S.Rajagopala Vandayar vs. CIT [ 1990 (1) TMI 36 - MADRAS HIGH COURT ] as held Profit and Loss Account and the Balance Sheet are not the books of account as contemplated under the provisions of the Act. The learned Standing Counsel for the Revenue has not placed any authority or any case law or any other material or evidence to show that the books of account includes Profit and Loss Account and Balance Sheet. Thus the impugned notices and proceedings for reassessment are quashed. Assessee appeal allowed. - Honourable D R. Justice Anita Sumanth For the Petitioners : Mr.Niraj Sheth For Mr.S.P.Chidambaram For the Respondents : Ms.Hema Muralikrishnan COMMON ORDER The petitioner in these writ petitions is a Bank and an assessee on the file of the respondents under the provisions of the Income-Tax Act, 1961 (in short, 'Act'). The challenge relates to proceedings for re-assessment for assessment years (in short, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der and notice, not noting that liberty granted by the Hon'ble Supreme Court was subject to all defenses available to the assessee under the newly substituted scheme of re-assessment. Specific reference has been made to the bar of limitation as per Section 149, particularly the first proviso thereof, which states that a notice may be issued after 01.04.2021 in respect of a particular year only, subject to such notice being legally permissible under the provisions of the Act as they stood prior to substitution of the Scheme of re-assessment on and from 01.04.2021. 9. According to petitioner, the time available under the erstwhile provisions for re-assessment as relating to AY 2014 2015, would normally expire on 31.03.2019. Even assuming without admitting that the maximum period of six years be reckoned in light of the first proviso to Section 147, limitation expired on 31.03.2021. Thus, the issuance of notice on 30.07.2022 is way beyond the statutory time limit. 10. Without prejudice to the above argument and on merits, the petitioner would submit that the issue sought to be addressed by the respondents does not constitute information as per the risk management strateg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been initiated on 30.06.2021 within the extension provided. For this purpose, they specifically rely on Section 3 of the TOLA read with Notification 10 of 2021 dated 01.03.2021 and Notification No.38 of 2021 dated 27.04.2021. 17. As per the above notifications, time was extended in respect of notices falling within the period 20.03.2020 to 31.03.2021, to 30.06.2021. Thus according to them, the impugned notice has been issued within the time extended and is hence saved. They also rely wholly on the judgment of the Supreme Court in Ashish Agarwal . 18. On merits, they state that the matter would be duly considered in assessment proceedings and it is premature for the petitioner to contest the matter in writ petition. The suppression of income by an assessee results in addition to the assets of the business. In the present case, the information relates to NPA loan and value of shares that constitute assets. 19. Hence, the phrase in the form of asset should not be restricted to tangible and visible assets alone. They further state that the information available with the officer was in consonance with the unamended provisions of Section 148 of the Act which is valid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired, with the prior approval of specified authority under section 148A(a) is hereby dispensed with as a one-time measure vis- -vis those notices which have been issued under section 148 of the unamended Act from 01.04.2021 till date, including those which have been quashed by the High Courts. Even otherwise as observed hereinabove holding any enquiry with the prior approval of specified authority is not mandatory but it is for the concerned Assessing Officers to hold any enquiry, if required; (iii)The assessing officers shall thereafter pass orders in terms of section 148A(d) in respect of each of the concerned assessees; Thereafter after following the procedure as required under section 148A may issue notice under section 148 (as substituted). (iv)All defences which may be available to the assesses including those available under section 149 of the IT Act and all rights and contentions which may be available to the concerned assessees and Revenue under the Finance Act, 2021 and in law shall continue to be available. (v)The above order shall also govern the pending writ petitions, pending before the various High Courts in which similar notices u/s. 148 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice. Explanation 1.-For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,- (i) any information flagged in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time; (ii) any final objection raised by the Comptroller and Auditor General of India to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act. 28. Section 148A deals with the conduct of enquiry and provision of opportunity prior to issuance of notice under section 148 of the Act. Section 149 deals with time limit for issuance of notice under section 148 and the provision, (as it stood then), reads thus: 149. Time limit for notice .-(1) No notice under section 148 shall be issued for the relevant assessment year,- (a) if four years have elapsed from the end of the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced, the new scheme of re-assessment is seen to have incorporated the procedure set out in the judgement of the Supreme Court in GKN Driveshafts (India) Ltd., vs. Income Tax Office r (259 ITR 19), statutorily. The statute now requires the officer to supply the reasons upon which the re-assessment is proposed, solicit objections for the proposed reopening and pass an order upon such objections, in terms of Section 148A(d). If the aforesaid order is adverse to the assessee, it will be followed/accompanied by a notice under section 148. 32. The respondents argue that the new scheme, with the omission of the phrase reason to believe has done away with the requirement that the officer must establish escapement of tax , prima facie, at the stage of assumption of jurisdiction. I do not agree. Such requirement continues in light of the proviso under section 148 that casts a statutory burden upon the officer to be in possession of information suggesting that income chargeable to tax has escaped assessment for the concerned year. If the existence of such information is not established even at the initial stage, the foundation of the proceedings stand vitiated in law. 33. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. As already mentioned, this cannot be said in the present case. The appeal is consequently allowed. 35. The assumption of jurisdiction of the officer in time must thus be tested in light of the reasons adduced by the officer, and on the anvil of whether such reasons qualify as information under the proviso to new section 148 of the Act, defined as any information flagged in the case of the assessee for that AY in accordance with the risk management strategy formulated by the Board, or a final objection raised by the Comptroller Auditor General of India that the assessment of that assessee for that year has not been made in accordance with the provisions of the Act. 36. The facts in relation to the original assessment relating to A Y 2014-15 are that, pursuant to the filing of returns in time, the assessment was selected for scrutiny and notice was issued u/s 143(2) on 28.05.2015. Since the petitioner had entered into international transactions with associated enterprises, there was a refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold to ARC 133.43 Aggregate consideration: Security receipts 175.30 Cash 16.23 Aggregate gain over net book value not credited to the statement of profit and loss 51.11 Aggregate gain over net book value credited to the statement of profit and loss 7.00 Fee (net) 129.48 crore Profit amortised on assignment/sale of loans 0.02 crore It is seen that the assessee had not offered entire sale consideration of Rs. 51.11 crore but amortised the income over the future years. The method of recognition of revenue with regard to assignment of loans through follows RBI Guidelines, the unamortised income of Rs. 51.11 crore needs to be taxed under the Income tax Act, as there is no concept of amortisation and the sale value is received in full at the time assignment of such loan. 38. The impugned proceedings have commenced with issuance of notice u/s 148 on 07.04.2021, seven years from the end of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d put to the authorised representative. Thus, all materials in regard to issues arising from the returns of income were made available at the time of completion of the assessment. 43. Notice had been issued, albeit under the old provision of section 148, on 20.06.2021. Thereafter, proceedings were continued vide a notice issued on 23.05.22 taking a cue from the judgement in Ashish Agarwal incorporating the reasons based upon which the proceedings had been initiated. The issues identified in the reasons are: (i) Bad debts written off (ii) Disallowance u/s 43B (iii) Disallowance of loss claimed on sale of NPA loan to ARC (iv) MAT computation 44. The reasons are extracted below, omitting the tables contained therein, in the interests of brevity: (A) Bad Debts Written Off: The assessee had claimed a sum of Rs. 111,94,95,405/- as deduction for bad debts written off and the working for the same was furnished in Annexure-II to the computation statement, as under: Table omitted During the security proceedings, the assessee had furnished the copy of the subscription statement dated 11.03.2016 entered with M/s. Lanco Infratech Limited, wherein the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clause carried to such reserve account. The assessee has not adopted the above method prescribed in section 36(1)(vii) and instead computed the eligible profits based on the books of accounts, which is liable to be rejected. If the correct method of computing the profits of the eligible business under the head profits and gains of business for the purpose of sec.36(1)(viii) is adopted, the eligible deduction would be Rs. 21,27,44,229/- instead of Rs. 61,92,43,093/- as under: Table omitted In the computation of income and tax statement, the assessee has claimed Rs. 1,16,00,000/- u/s 43B disallowed earlier (bonus). As per the annexure G to Form 3CD, note 1, it was stated that the amount has been reversed during the previous year. Since the amount of Rs. 1,16,00,000/- has only been reversed and not actually paid. The same needs to be disallowed. (C) Disallowance of Loss claimed on sale of NPA Loan to ARC: During AY 2017-18 the assessee has claimed Deduction of loss on assignment of loan of Rs. 1233.73 Crore in business income computation statement, which has occurred due to loss on sale of Non Performing Asset(NPA) loans to Asset Reconstruction Company(ARC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, in one issue, the officer has referred to, and relied upon a judgement of the Hon ble Supreme Court in the case of Southern Technologies vs JCIT (CA No.1337 of 2003 and 154 of 2010) which judgement was rendered on 11.01.2010, well available even at the time of original proceedings. 47. Thus, the question is as to whether, in a situation where all material in regard to the issues in respect of which reassessment is proposed have been placed on record even at the original instance, the assessment has been completed under scrutiny and no new material brought on record to warrant re-opening, there could be any legal justification for re-assessment. 48. It is relevant that in both years under consideration, the stand of the revenue is only that the methodology followed at the time of scrutiny assessment ought to have been different. The officer admittedly does not have any material over and above the material already with the department to justify the proceedings, which does not, in my view justify or warrant re-assessment in light of the new scheme. 49. The reference to information in the Explanation to Section 148 relates to information flagged in the risk management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limit for notice No notice under Section 148 shall be issued for the relevant assessment year. (a) If three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) If three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of- (i) an asset (ii)expenditure in respect of a transaction or in relation to an event or occasion: or (iii) an entry or entries in the books of account which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more. 55. Thus, with effect from 01.04.2022, even entries in the books of account could be pressed into service by an officer to initiate re-assessment after a period of three years. This cannot be resorted to prior to 01.04.2022 as the law, as it stood then, did not enable the same. Needless to state, the amendment of section 149 by way of substitution on 01.04.2022 is substantive making substantial inroads into the rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal entry. The Profit and Loss Account of a trade is the statement wherein the various items of profit and revenue on the one hand and the losses and expenditure on the other hand, are collected and offset, the one class against the other, that is, in compiling such an account being - debit all the losses, credit all the gains. The resulting balance of this account represents the Net Profits or the Net Losses for the period under review. The object of a Profit and Loss Account is to ascertain the income of a business and by offsetting the expenses of earning that income, to ascertain the net increase (profit) or decrease (loss) in the traders' net worth for the period. Balance Sheet lists the assets and liabilities and equity accounts of the company. It is prepared 'as on' a particular day and the accounts reflect the balances that existed at the close of business on that day. By following the judgment of the Madras High Court cited supra and taking note of the definition of the books or books of account in the Income-tax Act as well as in P.Ramanatha Aiyar's Advanced Law Lexicon, 3rd Edition 2005, and also the meaning of the Profit and Loss Account and Balanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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