Hdfc Bank Ltd.,Hdfc Bank House,Senapati Bapat Marg,Lower Parel (West), Mumbai -400 013 v. Assistant Commissioner Of Income-Tax-2(3),Room

Digitallysigned bySHRADDHASHRADDHAKAMLESHKAMLESHTALEKARTALEKARDate:2022.03.0113:45:57+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 1787 OF 2014 HDFC BANK LTD.,HDFC Bank House,Senapati Bapat Marg,Lower Parel (West), Mumbai -400 013 ....Petitioner Versus 1. Assistant Commissioner of Income-tax-2(3),Room No. 552, 5[th] Floor, Ayakar Bhavan, M.K. Road, Mumbai-400 020. 3. Commissioner of Income-tax-2,Room No. 344, 3[rd] foor, Ayakar Bhavan, M.K. Road, Mumbai-400 020. 4. Union of India,through the Secretary, Department ofRevenue, Ministry of Finance, North Block,New Delhi-110001...Respondents ---- Mr.J.D. Mistri, Senior Advocate a/w. Mr.Madhur Agrawal i/b Mr.Atul K. Jasani for petitioner. Mr.Suresh Kumar for respondents-revenue. CORAM :K.R. SHRIRAM &N. J. JAMADAR, JJ.JUDGMENT RESERVED ON :11[th] FEBRUARY, 2022PRONOUNCED ON : 1[st] MARCH, 2022 JUDGMENT (PER N.J. JAMADAR, J.) : 1.Rule. Rule made returnable forthwith. With the consent of learned counsel for the parties, heard fnally. 2.This petition, under Article 226 of the Constitution of India, assails the notice dated 26[th] March 2013 under section 148 of theIncome Tax Act, 1961 (‘the Act, 1961’) proposing to reopen theassessment for the assessment year 2006-07, and the order, dated19[th] August 2013 disposing the objections of the petitioner to thesaid notice of reopening. 3.The background facts leading to this petition can be stated,in brief, as under : (a) The petitioner is registered as a bankingcompany with the Reserve Bank of India (‘RBI’) and isengaged in the business of banking. The petitionerhas numerous branches across India. The petitioner,being a scheduled bank and having branches in ruralareas, is entitled to deduction under section 36(1)(viia) of the Act, 1961 for bad and doubtful debtsequivalent to 7½ % of the total income and 10% ofthe aggregate average advances made by the ruralbranches of the petitioner. (b)The petitioner is also entitled to deductionunder section 36(1)(vii) of bad debts which iswritten off as irrecoverable in the accounts of the petitioner for the previous year. However, incomputing the deduction under section 36(1)(vii),the bad debts which are written off as irrecoverableare required to be reduced to the extent of theprovision of bad and doubtful debt which wasallowed to the petitioner under clause (viia), inearlier assessment year. (c)In the light of the aforesaid tax regime, on27[th] November 2006, the petitioner fled return ofincomedeclaringatotalincomeofRs.10,69,47,48,495/-,inter-alia,after claimingdeductionundersection36(1)(viia)ofRs.96,87,97,764/- being 7½ % of the total incomeand 10% of the average rural advances. Thepetitioner also claimed deduction of bad debtsunder section 36(1)(vii) of the Act aggregating toRs.418.60 Crores. The said amount of Rs.418.60Crores was arrived at after reducing the provisionallowed under section 36(1)(viia) of the Act in theearlier assessment years which had not beenadjusted by then. (d)During the course of the assessment, theAssessing Offcer (‘AO’) issued a notice on 12[th]September 2007 and sought clarifcation/information. The petitioner gave a detailed point-wise reply, on 16[th] November 2007. Thereupon, theAO passed an assessment order on 19[th] December2008 under section 143(3) of the Act, 1961determining the total taxable income of Rs.138,080Lakhs. (e)On 18[th] February 2011, the jurisdictionalAssessing Offcer issued a notice under section148 of the Act, 1961 proposing to reopen theassessment. The Assessing Offcer was of the viewthat there was failure to take into account theenhanced deduction under section 36(1)(viia) whileallowing the deduction towards bad debts inassessment year 2006-07, and, thus, he hadreason to believe that income of Rs.25,73,25,815/- (e)On 18[th] February 2011, the jurisdictionalAssessing Offcer issued a notice under section148 of the Act, 1961 proposing to reopen theassessment. The Assessing Offcer was of the viewthat there was failure to take into account theenhanced deduction under section 36(1)(viia) whileallowing the deduction towards bad debts inassessment year 2006-07, and, thus, he hadreason to believe that income of Rs.25,73,25,815/- had escaped assessment for assessment year2006-07. Eventually, an assessment order waspassed on 9[th] November 2011 under section 143(3) read with section 147 of the Act, 1961 revising thetotal income at Rs.1,22,632 Lakhs. (f)For assessment year 2010-11, pursuant tothe decision of the Supreme Court in CatholicSyrian Bank Ltd. Vs. CIT[1],the petitioner, asadvised, withdrew the claim for deduction undersection 36(1)(viia) and instead claimed higherdeduction under section 36(1)(vii) of the Act, 1961.In respect of the said assessment year 2010-11, anotice was issued to the petitioner on 28[th]December 2012 seeking explanation andjustifcation, so as to assist the AO to decidewhether notices under section 148 were required tobe issued for the last six assessment years. (g)By communication dated 17[th] January2013, the petitioner requested the AO to ignore thesaid letter dated 13[th] August 2012 for theassessment year 2010-11 as it had been advisedthat it was entitled to claim deduction undersection 36(1)(viia), the claim for which was sought to be withdrawn by the letter dated 13[th] August2012. Eventually, the assessment order was passedfor assessment year 2011-12 on 13[th] January 2013under section 143(3) rejecting the claim of thepetitioner for deduction under section 36(1)(viia) onthe ground that some of the branches claimed bythe petitioner to be rural branches did not satisfythe description of the rural branches under theAct, 1961. (h)By the impugned notice dated 26[th] March2013, the AO proposed to reopen the assessmentfor the assessment year 2006-07, on the premisethat he had reason to believe that income hadescaped assessment within the meaning of section147 of the Act, 1961. Upon being requested, the AOfurnished the reasons in the nature of the order-sheet, dated 26[th] March 2013, for the proposedreopening. (i)The AO premised the justifcation forreassessment on the ground that during theassessment proceedings for assessment year 2010- 11, when the assessee was called upon to submitdetails of rural branches and advances injustifcation of its claim for deduction undersection36(1)(viia),theassesseehadwithdrawn/given up the claim of deduction undersection 36(1)(viia) and the assessee revised itsreturn for assessment year 2011-12 also giving upits claim for deduction under section 36(1)(viia).Nonetheless, during the assessment proceeding forthe year 2011-12, it was found that many branchesprojected as rural by the assessee were not, in fact,rural branches, within the meaning of section36(1)(viia) of the Act, 1961. The AO, thus,concluded that since the assessee had claimedincorrect deduction under section 36(1)(viia), theassessee was likely to have claimed incorrectdeduction under the said section for assessmentyear 2006-07, as well by mis-classifying the ‘non-rural’ branches as ‘rural’ branches and, therefore,he had reason to believe that the deduction undersection 36(1)(viia) had been incorrectly allowed for assessment year 2006-07 and, resultantly, therewas escapement of income within the meaning ofsection 147 of the Act, 1961. assessment year 2006-07 and, resultantly, therewas escapement of income within the meaning ofsection 147 of the Act, 1961. (j)The petitioner fled objections to theproposed reopening of the reassessment. It was,inter-alia, pointed out that the petitioner hadrevived the claim for deduction under section 36(1)(viia), which was initially sought to be withdrawnand, thus, the very basis of reopening was non-est.The AO, by the impugned order, dated 19[th] August2012 rejected the objections and issued noticeunder section 142(1) of the Act, 1961. (k)The petitioner has, thus, invoked the writjurisdiction of this Court. The impugned action isassailed primarily on the count of non-satisfactionof the jurisdictional conditions to invoke theprovisions contained in section 147 of the Act,1961. 4.The petitioner avers, since the notice came to be issuedbeyond four years of the end of the assessment year 2006-07, andassessment under section 143(3) of the Act, 1961 had been effected, not once but twice, the resort to the provisions containedin section 147 of the Act was impermissible unless there wasfailure on the part of the petitioner to disclose fully and truly allthe material facts for the purpose of the assessment. The aspectof alleged mis-classifcation of ‘non-rural’ branches as ‘rural’branches was specifcally raised and enquired into by the AO.Thus, there was no reason for forming the belief that the incomeescaped assessment on account of failure to disclose fully andtruly all material facts necessary for assessment, even remotely.At any rate, the said belief was solely rested on the change of theopinion by the jurisdictional AO, who issued the impugned notice,on the same set of facts. 5.An affdavit-in-reply is fled on behalf of the respondentscontroverting the assertions in the petition. The respondents havemade an endeavour to support the impugned action. Therespondents have contended, inter-alia, that pursuant to thewithdrawal of claim of deduction under section 36(1)(viia) of theAct, 1961, notices for reopening were issued in respect ofassessment years 2007-08, 2008-09 and 2009-10 on the sameground on which the impugned notice was issued, in respect ofassessment year 2006-07. However, the petitioner had not assailed those notices for reopening. The respondents have furthercontended that the deduction claimed by the petitioner byprojecting its ‘non-rural’ branches as ‘rural’ branches can, by nostretch of imagination, be construed as a true disclosure ofmaterial facts relevant for the assessment. As the subsequentenquiry revealed such mis-classifcation of branches, the AO wasjustifed in reopening the assessment. 6.An affdavit-in-rejoinder was fled on behalf of the petitionerto meet the grounds raised by the respondents in the affdavit-in-reply. 7.We have heard Mr.J.D. Mistri, the learned Senior Counselfor the petitioner, and Mr. Suresh Kumar, the learned counsel forthe respondents-revenue. With the assistance of the learnedcounsel for the parties, we have carefully perused the material onrecord including the previous assessment orders for theassessment year 2006-07, notices issued during the course ofthose assessment proceedings and response thereto on behalf ofthe petitioner. 8.Mr. Mistri, the learned Senior Counsel for the petitioner,urged with a degree of vehemence, that the impugned action 6.An affdavit-in-rejoinder was fled on behalf of the petitionerto meet the grounds raised by the respondents in the affdavit-in-reply. 7.We have heard Mr.J.D. Mistri, the learned Senior Counselfor the petitioner, and Mr. Suresh Kumar, the learned counsel forthe respondents-revenue. With the assistance of the learnedcounsel for the parties, we have carefully perused the material onrecord including the previous assessment orders for theassessment year 2006-07, notices issued during the course ofthose assessment proceedings and response thereto on behalf ofthe petitioner. 8.Mr. Mistri, the learned Senior Counsel for the petitioner,urged with a degree of vehemence, that the impugned action manifests arbitrariness of highest order. Apart from the fact thatthe jurisdictional conditions to reopen the assessment are not atall made out, what, according to Mr. Mistri, impairs the impugnedaction is the utter disregard to the statutory provisions andsafeguards. Assailing the claim of the AO that on 25[th] March 2013,the AO had obtained the prior approval of the CompetentAuthority under section 151(1) of the Act, 1961, as refected in theOrder-Sheet (Exh. 1), Mr. Mistri would urge that the material onrecord belies the authenticity of the said version. Inviting theattention of the Court to the variance in the reasons recorded inthe Order Sheet (Exh.1 to the affdavit in reply) and the reasonspurportedly placed before the Commissioner of Income Tax, dated15[th] March 2013 for obtaining approval (Exh.2), Mr. Mistristrenuously submitted that an inference becomes inescapablethat the AO had not recorded the reasons before obtaining theapproval of the Competent Authority or, at any rate, the veryreasons which were furnished to the petitioner were not placedbefore the Competent Authority and, thus, the impugned action iswholly vitiated. 9.Mr. Suresh Kumar, the learned counsel for the revenuejoined the issue by canvassing a submission that the substance of the reasons recorded in the Order Sheet (Exh.1) and those placedfor approval before the Commissioner (Exh.2) is substantiallysame. The fact that a sentence or two does not fnd place in theOrder Sheet does not detract materially from the authenticity andveracity of the reasons recorded by the AO. In any event, since theassessment was proposed to be reopened on the ground that thepetitioner had claimed deduction by projecting its ‘non-rural’branches as ‘rural’ branches, the petitioner can satisfy the AO byplacing cogent material in justifcation of its claim and, thus, thisCourt may not exercise its writ jurisdiction, submitted Mr. SureshKumar. 10.Mr. Mistri stoutly submitted that the pivotal question iswhether the jurisdictional conditions to reopen the assessmentwere fulflled? If the petitioner succeeds in demonstrating that therequisite conditions to invoke the provisions contained in section147 of the Act, 1961 were not made out, the revenue cannot beheard to urge that the petitioner be relegated to the AO to sufferanother round of arbitrary assessment, especially when theissues, on which the assessment is sought to be reopened, werefully considered and a conclusive view was recorded thereon. 10.Mr. Mistri stoutly submitted that the pivotal question iswhether the jurisdictional conditions to reopen the assessmentwere fulflled? If the petitioner succeeds in demonstrating that therequisite conditions to invoke the provisions contained in section147 of the Act, 1961 were not made out, the revenue cannot beheard to urge that the petitioner be relegated to the AO to sufferanother round of arbitrary assessment, especially when theissues, on which the assessment is sought to be reopened, werefully considered and a conclusive view was recorded thereon. 11.The legal position as regards the assessment orreassessment under section 147 of the Act, 1961 as it stood beforeit suffered the amendment under the Finance Act, 2021, is wellcrystallized. Section 147 enables the AO to assess or reassess anyincome chargeable to tax, which he had reason to believe, hasescaped assessment in an assessment year. The existence of thereason to believe that income chargeable to tax has escapedassessment is a jurisdictional condition for invoking the powerunder section 147 of the Act, 1961, both within and beyond theperiod of four years from the end of the relevant assessment year.The AO is, therefore, statutorily enjoined to record reasons andobtain the approval of the Competent Authority, before a notice toreopen the assessment under section 148 of the Act, 1961 isissued. Additionally, where the assessment is proposed to bereopened beyond the period of four years, and there has been anassessment under section 143(3) of the Act, 1961, the AO isfurther enjoined to satisfy himself that the escapement of incomewas on account of the failure on the part of the assessee todisclose fully and truly all material facts necessary forassessment. Such reasonable belief as to the escapement of theincome ought to be based on tangible material. This requirement of existence of tangible material for formation of the reason tobelieve escapement of income saves the said exercise from the viceof arbitrariness. Lastly, the reason to believe the escapement ofincome should not partake the character of a mere change ofopinion on the same facts and material. A mere change of opiniondoes not furnish a justifable ground for reopening theassessment. 12.In the light of the aforesaid propositions which governthe justifability of the exercise of the power under section 147 ofthe Act, 1961, the submissions canvassed on behalf of the partiesnow fall for consideration in the context of the facts of the case,which we have narrated above. 13.The controversy lies in a very narrow compass. Whether theassessee had incorrectly claimed the deduction under section36(1)(viia) of the Act, 1961? Under clause (vii) of section 36(1), anassessee is entitled to allowance of the amount of any bad debt orpart thereof which is written off as irrecoverable in the accountsof the assessee for the previous year. Clause (viia) provides afurther allowance to an assessee which is a Scheduled Bank inrespect of any provision for bad debt and doubtful debts, anamount not exceeding 7½ % of the total income and an amount not exceeding ten per cent of the aggregate average advancesmade by the rural branches of such bank computed in theprescribed manner. For the purpose of the said clause, a ruralbranch means a branch of a scheduled bank situated in a placewhich has a population of not more than ten thousand accordingto the last preceding census of which the relevant fgures havebeen published before the frst day of the previous year. The frstproviso to clause (vii) further provides that in the case of anassessee to which clause (viia) applies, the amount of thededuction relating to any such debt or part thereof shall belimited to the amount by which such debt or part thereof exceedsthe credit balance in the provision for bad and doubtful debtsaccount made under that clause. not exceeding ten per cent of the aggregate average advancesmade by the rural branches of such bank computed in theprescribed manner. For the purpose of the said clause, a ruralbranch means a branch of a scheduled bank situated in a placewhich has a population of not more than ten thousand accordingto the last preceding census of which the relevant fgures havebeen published before the frst day of the previous year. The frstproviso to clause (vii) further provides that in the case of anassessee to which clause (viia) applies, the amount of thededuction relating to any such debt or part thereof shall belimited to the amount by which such debt or part thereof exceedsthe credit balance in the provision for bad and doubtful debtsaccount made under that clause. 14. In the light of these provisions, it has to be seen as to whatwas the nature of the deduction claimed by the assessee for theassessment year 2006-07. Under the initial return of income fledby the assessee for assessment year 2006-07, the petitioner hadclaimed deduction under section 36(1)(viia) to the tune of Rs.96,87,97,764/-. On 12[th] September 2007, the AO soughtinformation/clarifcation under section 143(3) of the Act, 1961. Asregards the deduction claimed under section 36(1)(viia), the AO had solicited, inter-alia, information under query No.13. Inresponse thereto, the assessee, by letter dated 16[th] November2007, had furnished following particulars : (i) Details of deduction claimed under section 36(1) (viia); (ii)List of rural branches with copies of licenses; (iii)Copy of the relevant extract of RBI master circular on branch authorization. on branch authorization. 15. At this juncture, we must note that the assessee hadfurnished copies of the orders/communication issued by the RBIauthorising the assessee to open the rural branches of which thelist was furnished as annexure-1 to the said reply dated 16[th]November 2007. It is imperative to note that on 19[th] December2008, the AO passed the assessment order under section 143(3) ofthe Act, 1961, and allowed the deduction under section 36(1)(viia),of Rs.939 Crores, as claimed by the assessee in the annexure-A tothe said reply dated 16[th] November 2007. We have noted that theassessment for assessment year 2006-07 was reopened on 14[th]February 2011 and an assessment order was passed on 9[th]November 2011 under section 143(3) read with section 147 of theAct, 1961; wherein also, the deduction under section 36(1)(viia) ofRs. 939 Crores was retained. 16.In the backdrop of the aforesaid material, it would be inconceivable to assert that the assessee had not made a fulldisclosure of all the material facts, so far as the claim fordeduction under section 36(1)(viia) of the Act, 1961. Through thisprism, the reasonability of the belief formed by the AO is requiredto be appreciated. The trigger for entertaining the belief about theescapement of income is apparently withdrawal by the assessee ofthe claim for deduction under section 36(1)(viia) for theassessment year 2010-11. This stand of the assessee, it seems,made the revenue to entertain doubt as regards the classifcationof the branches by the assessee as “rural branches” for thepurpose of deduction under section 36(1)(viia) for the precedingyears as well. When the revenue voiced its concern, the petitioner,as the record indicates, revived the claim for deduction undersection 36(1)(viia). 17.It was submitted on behalf of the assessee that at that pointof time, the assessee was advised not to claim deduction undersection 36(1)(viia) in view of the exposition of law in the case ofCatholic Syrian Bank Ltd. (Supra). We do not deem it necessary todelve into this aspect of the matter as it does not bear upon theexistence or otherwise of the jurisdictional condition for reopening the assessment, with which we are essentially and primarilyconcerned. 17.It was submitted on behalf of the assessee that at that pointof time, the assessee was advised not to claim deduction undersection 36(1)(viia) in view of the exposition of law in the case ofCatholic Syrian Bank Ltd. (Supra). We do not deem it necessary todelve into this aspect of the matter as it does not bear upon theexistence or otherwise of the jurisdictional condition for reopening the assessment, with which we are essentially and primarilyconcerned. 18.The thrust of the submission on behalf of the revenue wasthat though there was disclosure of material facts by theassessee, the disclosure was not true in the sense that theassessee had claimed deduction by projecting non-rural branchesas rural branches. 19.Keeping in view the object of the deduction allowed undersection 36(1)(viia) qua rural branches, we gave our anxiousconsideration to the aforesaid submission and minutelyscrutinized the material on record so that the assessee does notderive an unjust beneft on the strength of unjustifed claims asregards the nature of the branch. 20.The revenue assailed the disclosure as incomplete bypressing into service a submission that the mere classifcation ofthe branches as rural by RBI was not enough. In view of theExplanation (ia) to clause (viia), to claim beneft thereunder, it wasnecessary to demonstrate that the branch was situated in a placewhich had a population of not more than ten thousand, accordingto the last preceding census. 21.This submission raises the issue of the nature of thedisclosure expected of an assessee. In the facts of the case, thequestion would be, whether the assessee was under an obligationto place on the record further material as regards the populationof the particular place where the rural branch was openedpursuant to a license issued by the RBI ? 22.There can be no duality of opinion that it is the assessee’sduty to disclose all primary facts. Once the assessee discloses allthe primary facts, the inferences to be drawn thereon is a matterwithin the exclusive province of authority of the AO. This duty ofassessee does not extend beyond disclosure of primary facts. Theassessee is not expected to suggest an inference on those facts,correct or otherwise. In a given case, the fact that the assesseehad suggested a particular inference, which upon reconsideration,does not fnd favour with the Assessing Offcer subsequently, maynot furnish a justifable ground to hold that there was non-disclosure of primary facts. 23.A proftable reference, in this context, can be made to thepronouncement of the Supreme Court in the case of CalcuttaDiscount Co. Ltd. Vs. Income Tax Offcer [2], wherein the aforesaid2(1961) 41 ITR 191 (SC) aspect was illuminatingly postulated : (10)Does the duty however extend beyond the full andtruthful disclosure of all primary facts ? In our opinion, theanswer to this question must be in the negative. Once all theprimary facts are before the assessing authority, he requiresno further assistance by way of disclosure. It is for him todecide what inferences of facts can be reasonably drawn andwhat legal inferences have ultimately to be drawn. It is notfor somebody else-far less the assessee--to tell the assessingauthority what inferences-whether of facts or law should bedrawn. Indeed, when it is remembered that people oftendiffer as regards what inferences should be drawn from givenfacts, it will be meaningless to demand that the assesseemust disclose what inferences-whether of facts or law-hewould draw from the primary facts. (11)If from primary facts more inferences than onecould be drawn, it would not be possible to say that theassessee should have drawn any particular inference andcommunicated it to the assessing authority. How could anassessee be charged with failure to communicate aninference, which he might or might not have drawn ? (11)If from primary facts more inferences than onecould be drawn, it would not be possible to say that theassessee should have drawn any particular inference andcommunicated it to the assessing authority. How could anassessee be charged with failure to communicate aninference, which he might or might not have drawn ? (12)It may be pointed out that the Explanation to thesub- section has nothing to do with " inferences " and dealsonly with the question whether primary material facts notdisclosed could still be said to be constructively disclosed onthe ground that with due diligence the Income-tax Offcercould have discovered them from the facts actually disclosed.The Explanation has not the effect of enlarging the section,by casting a duty on the assessee to disclose " inferences "-todraw the proper inferences being the duty imposed on theIncome-fax Offcer. (13-14)We have therefore come to the Conclusion thatwhile the duty of the assessee is to disclose fully and trulyall primary relevant facts, it does not extend beyond this.” (emphasis supplied) 24.On the aforesaid touchstone, reverting to the facts of the case, frst and foremost, the assessee cannot be said to have madea selective disclosure. Since the list of the rural branches, asclaimed by the assessee, along with the supporting documents was placed before the AO, it was the duty of the AO to examinewhether the places where the branches were opened by theassessee, had population below the threshold prescribed underclause (ia) of the Explanation to clause (viia) of section 36(1). Theassessee was not expected to place even census data and collatethe information. It was for the AO to examine the matter, collatethe information and thereafter draw necessary inference.Secondly, the AO had the opportunity to examine the issue as towhether the branches projected as ‘rural’ satisfed the descriptionprescribed under clause (ia) of the Explanation, not once buttwice. What accentuates the situation is the fact that the specifcqueries were raised, information solicited and, thereafter, thededuction, as claimed, was allowed, not once but twice. 25.At this juncture, the potency of the reasons recorded by theAO assumes critical signifcance. An action of reopening theassessment under section 147 of the Act, 1961 must stand or fallby the weight of the reasons recorded by the AO and nothing else.The justifability of the reassessment thus hinges upon thesustainability of the reasons, recorded by the AO preceding theissue of notice under section 148 of the Act, 1961. Those reasonscannot be improved upon and/or supplemented, much less substituted, by affdavit and/or oral submissions, while meetingthe challenge to the proposed reassessment (Aroni CommercialsLtd. Vs. Deputy Commissioner of Income-tax 2(1) [3]. 26.In the case at hand, the reasons recorded by the AO, asmanifested in the Order-Sheet dated 26[th] March 2013 indicate thatthe action to reopen the assessment was driven by the stand ofthe assessee to withdraw the claim for deduction under section36(1)(viia) for the assessment year 2010-11, and submission ofthe revised return for the assessment year 2011-12, giving up theclaim for such deduction. The AO further recorded that manybranches of the assessee claimed as ‘rural’, for the purpose ofassessment for the assessment year 2010-11, were not found to berural branches as defned in Explanation (ia) to clause (viia). Withthis preface, the AO proceeded to reopen the assessment forassessment year 2006-07, observing that it was ‘likely’ that theassessee might have claimed incorrect deduction under the saidsection for assessment year 2006-07 by mis-classifying the ‘non-rural’ branches as ‘rural’ branches. 27.In the aforesaid reasons, two factors are conspicuous bytheir absence. First, there is no assertion that the income escaped 3[2014] 44 taxmann.com 304 (Bombay) 27.In the aforesaid reasons, two factors are conspicuous bytheir absence. First, there is no assertion that the income escaped 3[2014] 44 taxmann.com 304 (Bombay) assessment on account of the failure to disclose truly and fully allmaterial facts relevant for the assessment for assessment year2006-07. Second, the mis-classifcation of branches was notpremised on the population of the place, where those brancheswere operating, having exceeded the threshold prescribed inExplanation (ia) to clause (viia), as per census 2001. 28.The failure to record the formation of opinion that incomeescaped assessment on account of the failure to make a true andfull disclosure was sought to be met by banking upon the reasonssubmitted to the Commissioner for obtaining prior approval.Whereas, the non-mention of the mis-classifcation of branches,in the backdrop of the population, was sought to be met byrecording in the order on objection that though the branches wereinitially classifed as ‘rural’ based on the license issued by RBI,yet, in the census 2001, the population of those places might haveexceeded the threshold of ten thousand and those places wouldhave ceased to be ‘rural’. None of these explanations deservescountenance. 29.The frst explanation does more harm than good to theinterest of the revenue as it gives heft to the submission ofMr.Mistri that variance in the reasons recorded in the Order-Sheet (furnished to the petitioner) and those submitted to theCommissioner erodes the credibility and sanctity of those reasonsand the entire exercise of reopening the assessment. The secondexplanation falls foul of the fundamental principle that the noticefor reopening the assessment is to be tested on the reasons whichweighed with the AO. There is no room for supplementing orsubstituting those reasons. 30.The position which thus emerges is that the assessee hadplaced all the relevant facts before the AO. Specifc queries wereraised as regards the allowability of deduction under section 36(1)(viia). Upon consideration of the explanation furnished by theassessee, the claim for deduction was allowed. Even the relevantmaterial in the nature of census 2001 data was available at thetime of original assessment and the subsequent assessmentunder section 143(3) read with section 147 of the Act, 1961. In theface of these hard facts, the reopening on the premise that it was‘likely’ that the assessee might have claimed incorrect deductionin the past assessment years is in the nature of a ‘guess’ hazardedby the AO without any tangible material. The expression ‘reasonto believe’ is not equivalent to a ‘hunch’ or ‘guess’. Nor does itimply a purely subjective satisfaction. The expression suggests that the belief must be that of an honest and reasonable personbased upon reasonable grounds, in contradistinction to meresuspicion. 31.It is trite law that once the AO on consideration of thematerial on record and the explanation offered, arrives at a fnalconclusion that the assessee is entitled to the deduction asclaimed then, on the basis of the very same material, the AOcannot form a prima facie opinion that the deduction is notallowable and accordingly reopen the assessment on the groundthat income chargeable to tax has escaped assessment. (CartiniIndia Limited Vs. Additional Commissioner of Income-Tax andOthers[4]).The case of the revenue at hand stands on an evenweaker foundation as the conclusive views were recorded by theAO, twice. 32.As indicated above, we have delved into the matter in agreater detail to satisfy ourselves that the assessee has not hadunjustifed deduction. In the affdavit-in-reply, an endeavour wasmade to demonstrate that the random verifcation of the branchesrevealed that the assessee had incorrectly claimed as many aseight ‘non-rural’ branches as ‘rural’ branches (Paragraph No. 16 of 4[2009] 314 ITR 275 (Bom.) 32.As indicated above, we have delved into the matter in agreater detail to satisfy ourselves that the assessee has not hadunjustifed deduction. In the affdavit-in-reply, an endeavour wasmade to demonstrate that the random verifcation of the branchesrevealed that the assessee had incorrectly claimed as many aseight ‘non-rural’ branches as ‘rural’ branches (Paragraph No. 16 of 4[2009] 314 ITR 275 (Bom.) the affdavit-in-reply). We have compared the said informationwith the list of branches furnished by the assessee along with theletter dated 26[th] November 2007, during the course of the originalassessment. Except the branch at Palakkad, District Palakkad,Kerala, none of the rest seven branches was claimed by theassessee as ‘rural’ branch for the assessment year 2006-07. Wealso notice that along with the annexure to the said letter, theassessee had furnished copies of the license issued by the RBI toopen a branch at the rural centre, Chandranagar, in PalakkadDistrict, Kerala. It seems that the respondents have consideredthe branch at the Palakkad District Headquarters in support oftheir claim that there was misclassifcation of the branch though,in fact, a rural branch was opened at Chandranagar in PalakkadDistrict, Kerala. 33.The last submission on behalf of the revenue that thepetitioner had not assailed the reopening of the assessment forthe assessment years 2007-08, 2008-09 and 2009-10 on the sameground and, eventually, orders were by the ITAT in the context ofthe fnal assessment orders post reopening of the assessment inrespect of those assessment years, though appears alluring at thefrst blush, yet does not advance the cause of the revenue. Once, it is held that the jurisdictional condition for invoking the powerunder section 147 is not satisfed for a particular assessment year,the notice for reopening cannot be sustained. Then, it does notmatter that the assessee did not assailed the notice for reopeningin respect of preceding or succeeding years. 34.The conspectus of the aforesaid consideration is that theimpugned notice of reopening and the order on objections deserveto be quashed and set aside. 35.Hence, the following order : O R D E R (i) The petition stands allowed in terms of prayer clause (a), which reads as under : (a)that this Hon’ble Court be pleased to issue aWrit of Certiorari or any other writ order ordirection under Article 226 of the Constitution ofIndia calling for the records of the case leading tothe issue of the Impugned Notice and passing of theImpugned Order and after going through the sameexamining the question of legality thereof, quash,cancel and set aside the Impugned Notice (ExhibitM) and Impugned Order (Exhibit Q). Rule made absolute in the aforesaid terms. No costs. ( N. J. JAMADAR, J. ) ( K.R. SHRIRAM, J. )