DCB Bank Ltd. v. Deputy Commissioner of Income Tax

15. Mr. Mody, the learned Counsel for the Petitioner, reiterated the submissions made by the Petitioner in its aforesaid letters dated 18th August 2021 and 9th September 2021 and submitted that, for the reasons stated in the said letters, the Assessment of the Petitioner could not be reopened under the provisions of Section 148 of the Act. On the other hand, Mr. Suresh Kumar, the learned Counsel for the Respondents, supported the said Order dated 13th January 2022 and submitted that, for all the reasons given 9 wp-1367-2022 in the said Order, the reopening of assessment had been initiated on valid grounds and the Assessment Officer had sufficient reasons to believe that the Petitioner had not disclosed fully and truly the material facts necessary for Assessment in its case.

16. In the present case, it is an admitted position that the said Notice dated 24th March 2021 had been issued after the expiry of four years from the end of the relevant Assessment Year, i.e., Assessment Year 2014-15. Therefore, the first proviso to Section 147 of the Act (prior to its substitution by the Finance Act, 2021 w.e.f. 1st April 2021) is applicable and reads as under:- “Provided that where an assessment under sub-section (3) of Secion 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:”

17. In the present case, an Assessment Order under Section 143(3) of the Act had been made for the relevant Assessment Year, i.e, Assessment Year 2014-15. Therefore, after the expiry of four years from the end of the 10 wp-1367-2022 Assessment Year 2014-15, the assessment could not be reopened unless any income chargeable to tax had escaped assessment for such assessment year by reason of the failure on the part of the Petitioner to disclose fully and truly all material facts necessary for his assessment, for that assessment year.

18. The aforesaid position in law is well settled and has been accepted by this Court in the case of Ananta Landmark (P) Ltd. Vs. Deputy Commissioner of Income-tax, Central Circle 5(3), Mumbai[1]. Paragraph Nos.[8] and 9 of the said judgment are relevant and read as under:-

19. In our view, a perusal of the reasons for reopening set out in the said letter dated 23rd July 2021 show that there is no such failure on the part of the Petitioner to disclose fully and truly any material fact necessary for the Assessment. The first reason given in the said letter dated 23rd July 2021 for reopening the Assessment is in respect of the Bad Debts Written Off to the tune of Rs.1,24,96,27,594/- claimed as deduction. The said reasons are found in paragraph 2.[1] of the said letter which read as under:- “2.[1] On verification of records it is observed that the assessee claimed and was allowed a deduction of Rs.1249627594 towards bad debts written off. In its justification, the assessee had submitted the details. It was seen from the details submitted that there was a technical write off of Rs.124,96,27,594/- by the assessee which was treated by it as provision for bad debts. Against this provision, there were actual write off of Rs.95,74,20,093/-. The difference of Rs.29,22,07,502/- between these two was taken to the P & L as provision for bad and doubtful debts which was added back by the assessee in the computation of income. The assessee, however, instead, claimed a deduction of Rs.124,96,27,594/- towards bad debts written off which amounted to patently wrong claim. This resulted in underassessment of income by Rs.124,96,27,594/- with a short levy of tax of Rs.42,47,48,419/- (positive and potential). The exact potential and positive tax effects have not been calculated in the absence of the exact amount of carry forward of losses.” 13 wp-1367-2022

20. The reasons so recorded in paragraph 2.[1] themselves clearly show that, even according to Respondent No.1, there was no failure to disclose any material fact. According to Respondent No.1, on the facts disclosed by the Petitioner during the assessment proceedings, it had wrongly claimed and was allowed a deduction of Rs.1,24,96,27,594/towards Bad Debts Written Off. Further, paragraph 29 of the letter dated 27th July 2016 of the Petitioner and paragraph 1 of the letter dated 11th August 2016 of the Petitioner clearly showed that the Petitioner had in response to specific queries raised during the assessment proceedings, disclosed to the Respondents all the material facts in respect of Bad Debts Written Off. Therefore, the reason given by Respondent No.1 in the said letter dated 23rd July 2021 for reopening the reassessment in respect of Bad Debts Writing Off cannot be a reason to reopen the Assessment under Section 148 of the Act.

21. The second reason given by Respondent No.1 in his letter dated 23rd July 2021 is in respect of computation of MAT liability under Section 115JB of the Act. The said reason is recorded in paragraph 2.[2] of the said letter and reads as under: “2.[2] The assessee had reduced a sum of Rs.50,99,00,000 from the 115JB computation towards Unabsorbed 14 wp-1367-2022 book depreciation. Form No.29B was neither submitted nor asked for by the Department. Instead, the assessee submitted its own working of MAT income. The assessee submitted that the assessee had right to pick and choose any component out of business loss or depreciation for set off which is favourable to it. The department did not contest the view taken by the assessee. The submission of the assessee was at variance from the factual position. It was noticed that the Authority for Advance Rulings (AAR) had vide 155 Taxman 60 [2006] had clearly disapproved of the method adopted by the assessee in similar case. Similarly, the Circular No.495 dated 22.9.1987 of the CBDT had clearly specified with example as to how the losses were to be adjusted in cases of MAT. Thus, the submission of the assessee was factually incorrect. Factually incorrect submission on part of assessee led the Department to believe the submission of the assessee. It was seen from the records that the figure for book depreciation or book loss was Nil for the assessee for the current year. Incorrect application of provisions of the Act by the Department resulted in underassessment of income of Rs.50,99,00,000 with a consequent short levy of tax of Rs.10,68,77,590.”

22. Again a perusal of the said reasons given clearly show that there is no failure on the part of the Petitioner to disclose any material fact. In fact, in paragraph 2.[2] itself, Respondent No.1 records that the “incorrect application of provisions of the Act by the Department resulted in under assessment of income of Rs.50,99,00,000/- with a consequent short levy of tax of Rs.10,68,77,590/-”. This itself shows that there is merely a change of opinion on the part of Respondent No.1 and no failure to disclose any material fact on the part of the Petitioner. Further, in paragraph 1 of its letter dated 27th July 2016 and in paragraph 3 of its letter dated 16th 15 wp-1367-2022 2016 in response to specific queries raised during the assessment proceedings, the Petitioner had given the computation in respect of of MAT liability. This once again shows, that the Petitioner had disclosed all material facts in respect of computation of MAT liability and there was no failure on its part to disclose any material fact.

23. The third reason given in the said letter dated 23rd July 2021 for reopening the Assessment of the Petitioner is in respect of disallowance under Section 14A of the Act. The said reason is given in paragraph 2.[3] of the said letter and reads as under:- “2.[3] Assessment record revealed that the Tax auditor after audit arrived at the figure of Rs.55792968 under Section 14A disallowance. However, the AO instead of calling for records to see the cash flow to identify the sources of investments in earning exempt income, assumed that the assessee had enough own funds and levied disallowance under Section 14A at Rs.4114887 instead of the figures arrived at by the Tax Auditor. No notice was found served on the Tax Auditor to enquire as to how the said figure arrived at by him and concurred by the assessee at the time of filing of return was wrong. Thus, the rejection of the professional advice simply on the basis of assumption resulted in short disallowance of Rs.51678081 with a consequent short levy of tax of Rs.17565380 (potential).”

24. Again a perusal of the contents of paragraph 2.[3] clearly shows that there is no failure on the part of the Petitioner to disclose any material 16 wp-1367-2022 fact. The reasons given in paragraph 2.[3] of the said letter attribute the alleged short disallowance and the alleged consequent short levy of tax to the rejection of professional advice by the Petitioner and not to any failure to disclose any material fact. In fact, in paragraph 4 of the Assessment Order dated 20th December 2016 passed under Section 143(3) of the Act, the Assessing Officer had discussed in detail this disallowance under Section 14A and had passed orders in respect thereof. This, by itself, shows that there is no failure on the part of the Petitioner to disclose any material fact in respect of the disallowance under Section 14A of the Act. Further, in paragraph 25 of its letter dated 27th July 2016, and in paragraph 1 of its letter dated 18th November 2016, the Petitioner has given the facts and the reasons as to why no disallowance can be made under Section 14A of the Act, except dissallowance of 1% of exempt income considered by the Petitioner as an administrative expenditure relating to exempt income. Thus, the said Assessment Order and the said letters once again clearly show that there is no failure on the part of the Petitioner to disclose any material fact even in respect of the issue of disallowance under Section 14A of the Act.

25. In the impugned Order dated 13th January 2022, Respondent No.1 has only held that the Assessment of the Petitioner could be reopened 17 wp-1367-2022 as there was tangible material on record to believe that income chargeable to tax had escaped assessment. Respondent No.1 has not given any reason in the said Order as to why, according to him, as required by the first proviso to Section 147 of the Act, the Petitioner had failed to disclose any material fact. The said Order dated 13th January 2022 does not deal with the specific objections of the Petitioner that there was no failure on its part to disclose any material fact and therefore its assessment cannot be reopened under the provisions of Section 148 of the Act. In our view, without arriving at a finding that the Petitioner had failed to disclose any material fact, it was not open to Respondent No.1 to reopen the Assessment of the Petitioner. The same is a sine qua non for reopening the Assessment under Section 148 of the Act. Even otherwise, for all the reasons stated hereinabove, we are of the view that the reasons for reopening stated in the said letter dated 23rd July 2021 do not at all show that there is any failure on the part of the Petitioner to disclose any material fact.

26. In the aforesaid circumstances, and for all the reasons stated hereinabove, the present Writ Petition is allowed in terms of prayer (b) which reads as under:- 18 wp-1367-2022 “(b) Issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction under Article 226 of the Constitution of India, quashing the impugned notice under section 148 of the Act dated 24th March, 2021 (Exhibit G), and the impugned order dated 13th January, 2022 (Exhibit M) as being wholly without jurisdiction, illegal and arbitrary;”

27. In the facts and circumstances of the case, there shall be no order as to costs. (FIRDOSH P. POONIWALLA., J.) (K. R. SHRIRAM, J.)