Pr. Commissioner Of Income Tax-2 v. Yes Bank Limited

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1879 OF 2017 Pr. Commissioner of Income Tax-2 vs. Yes Bank Limited ...Appellant ...Respondent ---- Mr. Suresh Kumar for the Appellant.Mr. Madhur Agrawal i/b Mr. Atul K. Jasani for the Respondent. ---- CORAM : K. R. SHRIRAM AND AMIT B. BORKAR, JJ. DATE : 26 OCTOBER 2021 P. C. : Order under Section 143(3) of the Income Tax Act 1961(for short, IT Act) was passed on 15/11/20210 determining theassessee’s income of Rs.3,37,70,08,315/- after disallowance ofprovision on investment under Section 14A and disallowance underSection 35D of the IT Act. Audit scrutiny revealed that the assessseehas claimed deduction under Section 36(1) (viia) of the I-T Act, 1961for an amount of Rs.200734588/-. Assessee created provision forstandard asset/advances under the General loan loss provisionexcluding provision for NPA and claiming deduction under Section36(1) (viia) of the I-T Act, 1961. In this way the assessee bankingcompany was putting aside money by creating provision for standardasset/advances to meet unascertained liability. rsk 2.The case was reopened and notice dated 5/3/2013 underSection 148 of the Act was issued. By order dated 17/2/2014Assessing Officer reassessed the income under Section 143(3) of theAct. Aggrieved by this order appeal was filed with the Commissionerof Income Tax(Appeals) (for short, CIT (A)) by respondent. CIT(A) byorder dated 30/12/2014 partly allowed the appeal filed byrespondent but upheld reopening of assessment being valid.Aggrieved by the order of CIT (A) respondent as well as the Appellantpreferred an appeal before Income Tax Appellate Tribunal (for short,ITAT). By order dated 24/8/2016 ITAT dismissed the appeal of theRevenue allowing the appeal of Respondent holding that reopening ofassessment was bad in law. It is this order which is impugned in thisappeal and the following substantial questions of law have beenproposed: a)Whether on the facts and circumstances of the caseand in law, the Hon'ble ITAT was justified in annulling thereopening of the assessment under Section 147 of the Actwithout appreciating the fact that after substitution of thesection 147 by direct tax laws (amendment) act 1987, w.e.1/4/1989 the assessing officer has power to reopen theassessment if there is tangible material to come toconclusion that there is an escapement of income fromassessment and that the reasons recorded has a link withthe formation of belief ? b)Whether on the facts and circumstances of the case 3. and in law, the Hon'ble ITAT was justified in annulling thereopening of the assessment under Section 147 of the Actmerely by giving undue importance to the trivial issue ofpreliminary reply sent to the audit which was withoutforming a concrete opinion on escapement of income andignoring the core issue of assessee wrong claim ofdeduction under Section 36(1) (viia) of the IT Act, 1961 ? c)Whether on the facts and circumstances of the caseand in law, the Hon'ble ITAT was justified in annulling thereopening of the assessment under Section 147 of the Actwithout appreciating the fact that the assesee is not entitledfor the deduction under section 36(1) (viia) of the I. T. Act,1961 amounting to Rs.17,95,94,700/-within the meaningof sub clause (a) of Section 36(1) (viia) of the I. T. Act,1961 in the absence of any advance made by the ruralbranches of the assessee bank ? d)Whether on the facts and circumstances of the caseand in law, the Hon'ble ITAT has failed to appreciate the factthat reopening of the assessment was not done in view ofthe Revenue Audit Objection per se but in view of the clearposition of law regarding the applicability of the deductionunder Section 36(1) (viia) of the I.T. Act. 1961 ? If one considers the orders passed by the Assessing Officer rsk d)Whether on the facts and circumstances of the caseand in law, the Hon'ble ITAT has failed to appreciate the factthat reopening of the assessment was not done in view ofthe Revenue Audit Objection per se but in view of the clearposition of law regarding the applicability of the deductionunder Section 36(1) (viia) of the I.T. Act. 1961 ? If one considers the orders passed by the Assessing Officer rsk as well as CIT(A), reopening of assessment has been decided onlybecause of audit objections. Of course the Assessing Officer, in hisorder has mentioned that compulsory scrutiny of the record hasrevealed, there was a statement of income but reopening has beenbecause of audit objection. We have also noted that Assessing Officerhad taken a stand contrary to the view expressed in the auditobjection and had even addressed a letter to the Director of Auditintimating that objections raised by audit authority were notacceptable. Nevertheless the Assessing Officer reopened and issuednotice under Section 148 of the Act. 4.It is settled law that the opinion of the Internal Auditparty of the Income Tax Department cannot be recorded asinformation within the meaning of section 147(b) of the Act for thepurpose of opening the assessment. The courts have also held thatnotice of reassessment cannot be issued based on informationreceived from audit objection. The Apex Court in Indian & EasternNewspaper Society vs. Commissioner of Income Tax1 in paragraph 20has held as under:- "20. Therefore, whether considered on the basis that thenature and scope of the functions of the internal auditorganisation of the Income-tax Department are co-extensivewith that of receipt audit or on the basis of the provisionsspecifically detailing its functions in the Internal AuditManual Vol. 2, we hold that the opinion of an internal audit party of the Income-tax Department on a point of lawcannot be regarded as "information" within the meaning ofsection 147(b) of the Income-tax Act, 1961" 5.In Indian and Eastern Newspaper Society (supra), thecourt further held that in every case, the Income Tax Officer mustdetermine for himself what is the effect and consequence of the lawmentioned in the audit note and whether in consequence of the lawwhich has come to his notice he can reasonably believe that incomehad escaped assessment. The basis of his belief must be the law ofwhich he has not become aware. The opinion rendered by the auditparty to the law cannot, for the purpose of such belief, add to orcolour the significance of such law. 6.In another unreported judgment of this Court in JainamInvestments vs. Assistant Commissioner of Income Tax, Central Circle-8 (1) and Ors2, it is held that the reasons for reopening an assessmentshould be that of the Assessing Officer alone who is issuing the noticeand he cannot act merely on the dictates of any another person inissuing the notice. Therefore, the true evaluation of the law in itsbearing on the assessment must be made directly and solely by theIncome Tax Officer. Considering this proposition of law, ITAT came tothe conclusion that reopening of assessment was not correct andallowed the appeal filed by respondent. 7.We have no reason to take a different view from the viewexpressed by our own High Court. In our view, ITAT has not 2Writ Petition No.2760/2019 Dated 24/8/2021 committed any perversity or applied incorrect principles to the givenfacts and when the facts and circumstances are properly analysedand correct test is applied to decide the issue at hand, then, we do notthink that question as pressed raised any substantial question of law. 8.Appeal is devoid of merit and is dismissed with no orderas to costs. (AMIT B. BORKAR, J) (K. R. SHRIRAM, J.) Digitally signedby RAJESHWARIRAJESHWARISUBODHSUBODHKARVEKARVEDate:2021.10.2910:47:02 +0530