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ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 1194 OF 2016
YES BANK LIMITED, 9th
Floor, Nehru Centre, Discovery of India
Building, Dr. A. B. Road, Worli, Mumbai 400
018. …Petitioner
Floor, Aayakar Bhavan, M. K. Road, Mumbai 400 020.
2. Deputy Commissioner of Income-tax, Range
7(3), Mumbai, Aayakar Bhavan, M. K. Road, Mumbai 400
020.
3. The Principal Commissioner of Income-tax, Range-8, Room No.611, 6th
Floor, Aayakar Bhavan, M. K. Road, Mumbai 400 020.
4. Union of India, Through the Secretary, Department of
Revenue, Ministry of Finance, Government of India, North Block, New Delhi 110 001. …Respondents
Mr. Madhur Agrawal, i/b. Mr. Atul K. Jasani, for Petitioner.
Mr. N. C. Mohanty, for Respondents-Revenue.
DATED : 7th March 2024.
ORAL JUDGMENT
1. Petitioner which is a bank registered as a banking company with Reserve Bank of India is challenging a notice dated 31st March Gaikwad RD 2024:BHC-OS:4000-DB 2015 issued by Respondent No.1 under Section 148 of the Income Tax Act, 1961 (“the Act”) to reopen the assessment for Assessment Year 2010-11 and an order dated 29th February 2016 passed by Respondent No.1 rejecting Petitioner’s objections to the proposed reassessment.
2. The proposed reopening by Respondent No.1 is with respect to the claim of deduction under Section 36(1)(viia) of the Act. Clause (viia) as applicable to the assessment year in question, was inserted in Sub-section (1) of Section 36 by the Finance Act, 1979 with effect from 1st April 1980 and the amended version, as applicable to assessment year in question, reads as under: “Other deduction 36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28-
(i) xxxxxxxxxxxxxxx
(viia) in respect of any provision for bad and doubtful debts made by- (a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a nonscheduled bank or a co-operative bank other than a primary agricultural credit society or primary cooperative agricultural and rural development bank, an amount not exceeding seven and one-half per cent of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner: xxxxxxxxxxxx”
3. Petitioner filed its return of income (“ROI”) on 8th October 2010 for AY 2010-11 declaring a total income of Rs.790,10,18,157/-. Subsequently, Petitioner filed a revised ROI on 30th March 2012. In the ROI, Petitioner added back an amount of Rs.121,64,09,590/being a provision for Non Performing Advances as per the RBI Regulations. Petitioner has also claimed an amount of Rs.65,37,16,370/- as deduction under Section 36(1)(viia) of the Act being 7.5% of the profit of Petitioner. The claim was disclosed in the computation of income and the notes to the computation gives the basis of the working of the claim.
4. Petitioner’s case was selected for scrutiny assessment and during the course of scrutiny assessment, a show cause notice dated 12th August 2010 under Section 142(1) of the Act was issued. Petitioner was called upon to: “……………
2. Give the details of outstanding balance in provision for bad and doubtful debt created u/s.36(1)(viia) of the I.T. Act for the past three years. Also give the amount of bad debt written off in each of these years. Reconcile the same with the closing balance in provision for bad and doubtful debt if there are any differences.
3. Give the working of creation of provision for bad and doubtful debts for the past three years giving details of prior to 31.03.2003 and thereafter and also in respect of rural branches separately. Give the proof of such rural branches. ……………..”
5. By its letter dated 23rd January 2013, Petitioner provided the details of provision for Non Performing Assets (“NPA”) created during the relevant assessment year and details of outstanding balances and deductions under Section 36(1)(viia) of the Act for the last three years and also details of provision for doubtful advances and advances relating to rural branches. For AY 2010-11, the details of outstanding balances and deductions under Section 36(1)(viia) of the Act read as under: Rs. AY 2010-2011 Total Provision for non performing assets 1,216,409,590 Total Income (computed before making any deduction under this clause and Chapter VIA)
(C) Sec 36(1) viiia - Refer computation of income.
8,716,218,272 7.5% of (D) 65,3716,370 Deduction under Sec 36(1) viia. Lower of (C) and (D) 653,716,370 The Closing balance under Sec 36(1) viia is as follows: Financial Year Claim in the return under Sec 36(1) viia Fin Year 2005-06 62,334,392 Fin Year 2006-07 126,176,880 Fin Year 2007-08 200,734,588 Fin Year 2008-09 412,298,107 Utilised towards write offs in AY 2010-2011 (801,543,967) Fin Year 2008-09 653,716,370 Total-Balance carried forward 653,716,370
6. As regards doubtful advances and advances relating to rural branches, Petitioner stated “…...The Bank did not claim any deduction for rural advance as on 31st March 2010”.
7. The Assessing Officer (“AO”) passed an order dated 29th January 2013 assessing the total income of Petitioner at Rs.814,50,04,230/-. The AO did not discuss the issue of Section 36(1)(viia) of the Act in the assessment order.
8. Petitioner, thereafter, received on 4th April 2015 a notice dated 31st March 2015 under Section 148 of the Act in which it was alleged that there were reasons to believe that income chargeable to tax for AY 2010-11 has escaped assessment. Petitioner was also provided the reasons recorded for initiating proceedings under Section 147 of the Act and the same reads as under: “The assessee company e-filed its original return of income on 08.10.2010 for A.Y. 2010-11. Subsequently, the assessee revised its return of income on 30.03.2012 declaring total income at Rs.790,10,18,157/-. The assessment u/s.143(3) of the Income Tax Act, 1961 was completed on 29/01/2013 at an income of Rs.814,50,04,230/-
2. The assessee has claimed deduction of Rs.65,37,16,370/- u/s.36(1)(viia) of the Income Tax Act, 1961 on account of provision for bad and doubtful debts. The claim of Rs.65,37,16,370/- was allowed on account of provision for bad and doubtful debts u/s.36(1)(viia).
3. During the proceedings for A.Y. 2012-13, the assessee was asked whether the claim of provision for bad and doubtful debts relates to rural advances. The assessee vide its reply dated 24.03.2015 has submitted "Since inception, the bank has not claimed any deduction u/s.36(1)(viia) qua 10% of the aggregate advances made by the rural branches.” The bank has further submitted that it has not claimed any deduction u/s 36(1)(viia) on rural advances and has also not submitted any evidence for having rural branches.
4. The Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. vs CIT reported in 343 ITR 270(SC), has held that the provision for bad and doubtful debts u/s.36(1)(viia) is available only in case of rural advances and not in cases of urban advances. The assessee has claimed provision for bad and doubtful debts on non-rural advances which is not in accordance with the law as confirmed by the decision in the case of Catholic Syrian Bank Ltd.(Supra).
5. I have carefully considered the material available on record and found that the assessee has failed to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year. Since, in respect of the above mentioned assessee scrutiny assessment u/s.143(3) of the Income Tax Act. 1961 has already been completed on 29.01.2013, therefore, I have reason to believe that the income of Rs.65,37,16,370/- has escaped assessment due to wrong claim by the assessee, as per Explanation 2(c) of provisions of section 147 of the Income Tax Act. Issue notice u/s.148 of the Income Tax Act, 1961.”
9. In the reasons recorded, it is admitted that Petitioner had claimed deduction of Rs.65,37,16,370/- under Section 36(1)(viia) of the Act on account of provision for bad and doubtful debts which was allowed by the AO. It is also recorded that during the proceedings for AY 2012-13, Assessee has submitted that bank has not claimed any deduction under Section 36(1)(viia) of the Act on rural advances and has also not submitted any evidence for having rural branches. The entire basis for reopening is that the Hon’ble Supreme Court in Catholic Syrian Bank Ltd. v. Commissioner of Income Tax[1] has held that the provision for bad and doubtful debts under Section 36(1) (viia) of the Act is available only in case of rural advances and not in case of urban advances and Assessee has claimed provision for bad and doubtful debts on non-rural advances which is not in accordance with the law as confirmed by the decision in the case of Catholic Syrian Bank Ltd. (supra).
10. It is Petitioner’s case, as submitted by Mr. Agrawal, that (a) it was a clear case of change of opinion since during the course of the original assessment proceedings, a query was raised which was replied to and the AO having been satisfied with the explanation did not consider it necessary even to discuss the issue in the assessment order dated 29th January 2013; (b) there is no new tangible material on the basis of which Respondent No.1 has come to the conclusion that there is an 1 343 ITR 270 (SC). escapement of income because the decision of the Apex Court in Catholic Syrian Bank Ltd. (supra) was pronounced on 17th February 2012, whereas the assessment order is dated 29th January 2013. Therefore, the AO was aware about the law as laid down by the Apex Court and nevertheless proceeded to pass the assessment order after accepting the explanation of Petitioner; and
(c) the AO was satisfied that Petitioner had not claimed any deduction for rural advances as on 31st March 2010 and had made the maximum permissible provision for NPAs at Rs.65,37,16,370/-.
11. Mr. Agrawal further submitted that in the objections dated 16th November 2015 filed by Petitioner to the proposed reopening, Petitioner had brought to the notice of the AO that no deduction was claimed for rural advances as on 31st March 2010. Despite that the AO has passed the impugned order dated 29th February 2016 rejecting Petitioner’s objections on an incorrect basis that as the assessment order does not speak about deduction under Section 36(1)(viia) of the Act, no opinion was formed by the AO with regard to the same and a factually incorrect statement that no specific query was raised during assessment proceeding about the claim of deduction under Section 36(1)(viia) of the Act. Hence, no opinion was formed. Mr. Agrawal added, the AO has conveniently ignored or not dealt with Petitioner’s factually averred statement that no deduction was claimed by Petitioner for rural advances as on 31st March 2010.
12. Mr. Mohanty submitted that (a) in CSB Ltd (supra) the Apex Court has categorically stated, “indisputably, Clause (viia) applies only to rural advances”; (b) the Apex Court in Assistant Commissioner of Income Tax v. Saurashtra Kutch Stock Exchange Ltd.2, has held that nonconsideration of a decision of jurisdictional Court or of the Supreme Court can be stated to be a mistake apparent on the record and since notwithstanding the judgment of the Apex Court in Catholic Syrian Bank Ltd. (supra) having been pronounced before the assessment order was passed, the Revenue should be given an opportunity to apply the judgment for the assessment in this case. This judgment of the Apex Court does not appear to have been cited because there is no reference into any communication or in the assessment order;
(c) in Kalyanji Mavji & Co. v. Commissioner of Income Tax, West it is held, where the information is as to the true and correct state of the law derived from relevant judicial decisions, the AO will have complete jurisdiction to reopen the original assessment. FINDINGS:
13. The indisputable fact is Catholic Syrian Bank Ltd. (supra) was the law when the assessment order dated 29th January 2013 was passed. Even in the reasons recorded, it is not stated that this 2 2008 (305) ITR 227 (SC). 3 1976 (102) ITR 287 (SC). judgment was not cited. The fact is the issue of deduction under Section 36(1)(viia) of the Act was under active consideration of the AO. The AO had called upon Petitioner to give details of outstanding balance in provision for bad and doubtful debts created under Section 36(1)(viia) of the Act and also raised a specific query in respect of rural branches separately and called for proof of such rural branches. It is also stated in the Petition, and that has not been denied, that Petitioner was called upon to make submissions for the relevant assessment year on the basis of the notice dated 12th August 2010 issued for AY 2008-09. It is also averred in the petition that Petitioner vide its letter dated 23rd January 2013 submitted the details including, inter alia, details of bad debts written off, details of outstanding balance and deduction claimed under Section 36(1) (viia) of the Act for the last three years. It is also averred in the petition that Petitioner clarified that Petitioner had claimed deduction under Section 36(1)(viia) of the Act only for 7.5% of total income but had not claimed any deduction for rural advances as on 31st March 2010 and the 7.5% being Rs.65,37,16,370/-. In the affidavit in reply, there is no denial and it is just stated, “I offer no comments as facts are stated”.
14. Therefore, as held by this Court in Aroni Commercials Limited v. Deputy Commissioner of Income Tax–2(1),[4] it is settled law that 4 (2014) 44 taxmann.com 304 (Bombay). once a query is raised during the assessment proceedings and Assessee has replied to it, it follows that the query raised was a subject of consideration of the AO while completing the assessment. It is also not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. Therefore, the reopening of the assessment, in our view, is merely on the basis of change of opinion of the AO from that held earlier during the course of assessment proceedings and this change of opinion does not constitute justification and/or reason to believe that income chargeable to tax has escaped assessment.
15. Further, when the assessment order was passed on 29th January 2013, the decision of the Apex Court in Catholic Syrian Bank Ltd. (supra) was available. In our view, the AO was supposed to be aware of the decision of the Apex Court in Catholic Syrian Bank Ltd. (supra), but did not refer to the said judgment or deal with the said judgment because he was satisfied with Petitioner’s explanation that Petitioner had claimed deduction under Section 36(1)(viia) of the Act only for 7.5% of the total income and had not claimed any deduction for rural advances as on 31st March 2010.
16. Therefore, this is a clear case of change of opinion and that cannot be a basis for reopening the assessment.
17. One more point which requires mention is Petitioner has categorically stated and it has been accepted in the assessment order that it has not claimed any deduction for rural advances. If that is the case, there is no basis for any escapement of income.
18. In fact, when the petition was admitted on 20th April 2016 also the Court had expressed a prima facie view that the AO would have formed a necessary opinion taking a view that the decision of the Apex Court in Catholic Syrian Bank Ltd. (supra) would not militate against the view canvassed by Assessee and allow the claim of Petitioner for deduction under Section 36(1)(viia) of the Act. The order passed by this Court at the time of admitting the petition reads as under: “1. Heard. Rule.
2. Both these petitions under Article 226 of the Constitution of India challenge Notices dated 31st March, 2015 seeking to reopen assessments for Assessment Years 2010-11 and 2011-12. The reasons recorded by the Assessing Officer in support of both the impugned notices are identical save and except the quantum involved.
3. The reasons in support of the impugned notices for coming to the reasonable belief that income chargeable to tax has escaped assessment is on the interpretation of Section 36(1)(viia) of the Act. In support the reasons place reliance upon the decision of the Apex Court in Catholic Syrian Bank Ltd. Vs. Commissioner of Income Tax, 343 ITR 270. During the assessment proceedings for both the assessment years, the petitioners had brought to the notice of the Assessing Officer, the basis of its claim of deduction under Section 36(1)(viia) of the Income Tax Act, 1961 on the specific query of the Assessing Officer.
4. On being satisfied with the basis of the petitioner's claim for deduction under Section 36(1)(viia) of the Act, the Assessing Officer passed orders dated 29th January, 2013 for Assessment Year 2010-11 and 12th March, 2014 for Assessment Year 2011-12. On the date when the Assessing Officer passed the orders under Section 143(3) of the Act, the decision of the Apex Court in Catholic Syrian Bank Ltd. (supra) was very much available. Thus, prima facie, the Assessing Officer would have formed a necessary opinion taking a view that the decision of the Apex Court in Catholic Syrian Bank Ltd. (supra) would not militate against the view canvassed by the respondent assessee and allow the claim of the petitioner for deduction under Section 36(1)(viia) of the Act.
5. In the above view, prima facie, this is a case of change of opinion. Consequently, without jurisdiction. Accordingly interim relief in both the petitions in terms of prayer clause (d).
19. In the circumstances, we make the rule absolute in terms of prayer clause (a) which reads as under: “(a) that this Hon'ble Court be pleased to issue a Writ of Certiorari or any other Writ, Order or Direction under Article 226 of the Constitution of India, calling for the records of the case leading to the issue of the impugned notice and passing of the impugned order and after going through the same and examining the question of legality thereof quash, cancel and set aside the impugned notice (Exhibit E) and the impugned order (Exhibit K).” (DR.