State Bank Of India, Mumbai v. Asst. Commissioner Of Income Tax, Circle2(2)(1), Mumbai & Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. WRIT PETITION NO. 3588 OF 2018 State Bank of India, Mumbai..Petitioner Versus Asst. Commissioner of Income Tax, Circle2(2)(1), Mumbai & Ors...Respondents ................... Mr. Percy Pardiwalla, Sr. Counsel a/w Mr. Nitesh Joshi i/by AtulJasani for the Petitioner Mr. Percy Pardiwalla, Sr. Counsel a/w Mr. Nitesh Joshi i/by AtulJasani for the Petitioner Mr. P.C. Chhotaray for Respondent Nos. 1 and 2Mr. P.C. Chhotaray for Respondent Nos. 1 and 2 ................... CORAM : AKIL KURESHI & M.S. SANKLECHA, JJ. DATE : JANUARY 17, 2019. P.C.: 1.Heard learned counsel for the final disposal of thepetition. 2.Through this petition, the petitioner challenges a noticeof reopening of assessment dated 8.6.2017 as an 'Annexure L" to the petition. This challenge arises in followingbackground:- Petitioner State Bank of India had filed a return ofincome for the assessment year 2011-12 on 29.11.2011 which was later on revised on 25.2.2013. In such revisedreturn, the petitioner had declared total income of Rs.2670.12 crores which return was taken in scrutiny byAssessing OfÏcer who passed order under Section 143(3) ofthe Income Tax Act, 1961 ("the Act" for short) on 19.3.2013determining the petitioner's total income at Rs.15676.05crores. To reopen such assessment, the Assessing OfÏcerissued the impugned notice. In order to do so, he hadrecorded the following reasons :- "The Scrutiny assessment u/S. 143(3) of the I.T. Act, 1961 wascompleted by the DCIT - 2(2), Mumbai on 19.3.2013 assessing theincome Rs. 15676,05,70,980/-. In this case, on verification of thecase record, it is noticed that: 1.From Note No. 27 to return of income that assessee bank hadcredited Rs. 42.90 crore, being outstanding credit entries in draftpayable account outstanding for more than 10 years as on30.09.2010 in terms of directives of R.B.I. dated 05.10.2010.However, assessee bank did not offer the same to tax. It is evidentthat when an amount is credited in the books, it is not anunreasonable inference to draw that it is a receipt from business.Accordingly, the aforesaid credit was required to be included in theincome while computing overall income for tax purpose. This showsthe failure on the part of the assessee to include the aforesaidincome in its return and this omission has resulted in the under-assessment of income by Rs. 42.90 crores, which forms one of thebasis of the reopening of the present case. 2.Further, it is noticed that assessee bank had offered shortterm capital gain of Rs. 3,79,19,837/- from non-STT paid venturecapital fund and Rs. 89,67,474/- from sale proceed of depreciableassets. However, it is noted from the return of income filed bythe assessee that this short term capital gain totaling to Rs.4,68,87,311/- was not offered to tax by the assessee. Notdisclosing this capital gains in the return of income filedamounts to failure on the part of the assessee to disclose fullyand truly all material facts necessary for assessment and hence,I have reason to believe that income to the extent of Rs. 46.88crore, has escaped assessment. 3.It is further noticed vide note No. 24 to revised return ofincome for A.Y. 2011-12 claimed reduction in respect of dividentreceived during A.Y. 2009-10 & 2010-11 u/S. 1150(1A)(i) of Rs.6,46,06,47,635/- and consequently claimed refund of DDT of Rs.46,91,80,180/- as detailed below. 3.It is further noticed vide note No. 24 to revised return ofincome for A.Y. 2011-12 claimed reduction in respect of dividentreceived during A.Y. 2009-10 & 2010-11 u/S. 1150(1A)(i) of Rs.6,46,06,47,635/- and consequently claimed refund of DDT of Rs.46,91,80,180/- as detailed below. ParticularsAmountTotal Dividend paid during F.Y. 2010-1112,69,76,52,88012,69,76,52,880Final Dividend of F.Y. 2009-10Less:Dividend Received during the F.Y. 2009-10 and2010-11 from the subsidiarity deductible underSec. 1150(1A)(i)6,46,06,47,635Dividend on account of shares held on record dateby / on behalf of NPS deductible u/S. 1150-1A(ii)30,78,8406,46,37,26,475Balance 6,23,39,26,405Dividend Distribution Tax payable thereon @16.60875%1,03,53,77,252Dividend Distribution Tax (DDT) paid1,50,45,57,4321,50,45,57,432DDT Refundable(46,91,80,180) The assessee bank had declared final dividend of Rs.126.76 crore during F.Y. 2009-10 and was paid during followingyear. The assessee had deducted therefore Rs. 646.06 croreu/S. 1150(1A)(i) of the Act in respect of dividend received duringF.Y. 2009-10 and 2010-11. However, as per express provision cited in preamble assesseewas entitled to deduct only dividend received from subsidiaries duringthe relevant F.Y. 2009-10. Further from schedule-14 to Profit andLoss account and cash flow statement assessee bank had receivedincome by way of dividend from its subsidiaries of Rs.5,73,48,34,000/- during the relevant F.Y. 2009-10. Accordingly,assessee bank was entitled to the deduction u/S. 1150(1A)(i) of Rs.573.48 crore as against Rs. 646.06 claimed. Therefore, this omissionof excess allowance of deduction u/S. 1150(1A)(i) by Rs.72,58,13,635/-, a failure on the part of the assessee, is required to bedisallowed by reopening the case. In view of the above, for the failure on the part of theassessee, I have reason to believe that the assessee's income to thetune of Rs. 162.36 crore has escaped assessment for A.Y. 2011-12within the meaning of Section 147 of the I.T. Act and the same isrequired to be brought to tax as well as any other income chargeableto tax which may be found to have escaped assessment as per theexplanation 3 to Section 147 of the Income Tax Act, 1961." 3.The petitioner raised objections to the notice ofreopening under a communication dated 21.8.2017. Suchobjections were, however, rejected by the Assessing OfÏcerby order dated 16.11.2017. Hence, this petition. 4.Taking us through the reasons recorded by theAssessing OfÏcer, learned counsel for the petitioner raisedfollowing contentions:- i. Notice of reopening of assessment was issued beyond theperiod of four years from the end of relevant assessment year.There was no failure on the part of the assessee to disclosetruly and fully all material facts. The Assessing Officer hasproceeded on materials already on record which was availableduring the original assessment. The notice of reopening,therefore, is without jurisdiction.period of four years from the end of relevant assessment year.There was no failure on the part of the assessee to disclosetruly and fully all material facts. The Assessing Officer hasproceeded on materials already on record which was availableduring the original assessment. The notice of reopening,therefore, is without jurisdiction. ii.With respect to the ground of capital gain not being offered totax, the learned counsel took us through the return and theaccompanying documents and the order of the assessmentpassed by the Assessing Officer to contend that there was notonly true and full disclosure but capital gain was alsoofficered to tax and which the Assessing Officer had alsotaxed. tax, the learned counsel took us through the return and theaccompanying documents and the order of the assessmentpassed by the Assessing Officer to contend that there was notonly true and full disclosure but capital gain was alsoofficered to tax and which the Assessing Officer had alsotaxed. ii.With respect to the ground of capital gain not being offered totax, the learned counsel took us through the return and theaccompanying documents and the order of the assessmentpassed by the Assessing Officer to contend that there was notonly true and full disclosure but capital gain was alsoofficered to tax and which the Assessing Officer had alsotaxed. tax, the learned counsel took us through the return and theaccompanying documents and the order of the assessmentpassed by the Assessing Officer to contend that there was notonly true and full disclosure but capital gain was alsoofficered to tax and which the Assessing Officer had alsotaxed. iii. Learned counsel lastly contended on the question ofdistribution of dividend, no income chargeable to tax can bestated to have escaped assessment. distribution of dividend, no income chargeable to tax can bestated to have escaped assessment. 5.On the other hand, learned counsel for the Revenue opposed the petition contending that :- i. There was failure on the part of the assessee to disclose trueand full material facts. Mere production before the AssessingOfficer all account books or other evidence from whichand full material facts. Mere production before the AssessingOfficer all account books or other evidence from which material evidence could with due diligence have beendiscovered by the Assessing Officer will not necessarilyamount of disclosure within the meaning of the first proviso toSection 147. ii.The assessee has claimed wrong deduction referring to R.B.I.directives. The amount was taken to the Profit & Loss accountbut such amount was not offered to tax on income.directives. The amount was taken to the Profit & Loss accountbut such amount was not offered to tax on income. iii.Whether the assessee had offered short term capital gain totax or not and whether the same was actually taxed or not aredisputed questions which the Assessing Officer should beallowed to examine. tax or not and whether the same was actually taxed or not aredisputed questions which the Assessing Officer should beallowed to examine. iv.On the issue of distribution of dividend also, the petitioner'sstand is incorrect and there is clear case of escapement ofincome chargeable to tax.stand is incorrect and there is clear case of escapement ofincome chargeable to tax. In support of these contentions, the learned counsel for the Revenue relied on following decisions:- 1. CIT Vs. M/s. T.V. Sundaram Iyengar & Sons.[1]; 2. S.D.F. Industrial P Ltd Vs. Ass. CIT[2]; 3. Dr. Amin's Path. Laboratory Vs. P.N. Prasad[3] 4. Honda Siel Power Products Ltd Vs. Dy. CIT(Delhi)[4] 5. Raymond Woollen Mills Ltd Vs. Income Tax Officer & Ors.[5] 6. Asst. CIT Vs. Rajesh Jhaveri Stock Brokers P. Ltd[6] 6.Having heard learned counsel for the parties and having perused the documents on record, we may recall that 1222 ITR 344 2339 ITR 595 3252 ITR 673 4340 ITR 53 5236 ITR 346291 ITR 5004340 ITR 53 5236 ITR 346291 ITR 500 the impugned notice has been issued beyond the period offour years from the end of relevant assessment year in acase in which original assessment was made after scrutiny.The mandatory requirement of income chargeable to taxhaving escaped assessment due to failure on the part of theassessee to disclose truly and fully all material facts,therefore would apply. Since the days of the decision ofSupreme Court in the case of Calcutta Discount Co. LtdVs. I.T.O.[7], it is well settled that the responsibility of theassessee is to make true and full disclosure of primary facts.What inference in law should be made on the basis of suchfacts is within the jurisdiction of the Assessing OfÏcer.Following observations in case of Calcutta Discount Co. Ltd. (supra), may be noted:- the impugned notice has been issued beyond the period offour years from the end of relevant assessment year in acase in which original assessment was made after scrutiny.The mandatory requirement of income chargeable to taxhaving escaped assessment due to failure on the part of theassessee to disclose truly and fully all material facts,therefore would apply. Since the days of the decision ofSupreme Court in the case of Calcutta Discount Co. LtdVs. I.T.O.[7], it is well settled that the responsibility of theassessee is to make true and full disclosure of primary facts.What inference in law should be made on the basis of suchfacts is within the jurisdiction of the Assessing OfÏcer.Following observations in case of Calcutta Discount Co. Ltd. (supra), may be noted:- " Before we proceed to consider the materials on record to seewhether the appellant has succeeded in showing that the Income-taxOfficer could have no reason, on the materials before him, to believethat there had been any omission to disclose material facts, asmentioned in the section, it is necessary to examine the precisescope of disclosure which the section demands. The words used are" omission or failure to disclose fully and truly all material factsnecessary for his assessment for that year ". It postulates a duty onevery assessee to disclose fully and truly all material facts necessaryfor his assessment. What facts are material, and necessary for741 ITR 191 assessment will differ from case to case. In every assessmentproceeding, the assessing authority will, for the purpose of computingor determining the proper tax due from an assessee, require to knowall the facts which help him in coming to the correct conclusion. Fromthe primary facts in his possession, whether on disclosure by theassessee, or discovered by him on the basis of the facts disclosed, orotherwise-the assessing authority has to draw inferences as regardscertain other facts; and ultimately, from the primary facts and thefurther facts inferred from them, the authority has to draw the properlegal inferences, and ascertain on a correct interpretation of thetaxing enactment, the proper tax leviable. Thus, when a questionarises whether certain income received by an assessee is capitalreceipt, or revenue receipt, the assessing authority has to find outwhat primary facts have been proved, what other facts can beinferred from them, and taking all these together, to decide what thelegal inference should be. There can be no doubt that the duty of disclosing all theprimary facts relevant to the decision of the question before theassessing authority lies on the assessee. To meet the possiblecontention that when some account books or other evidence hasbeen produced, there is no duty on the assessee to disclose furtherfacts, which on due diligence, the Income-tax Officer might havediscovered, the Legislature has put in the Explanation, which hasbeen set out above., In view of the Explanation, it will not be open tothe assessee to say, for example-- "I have produced the accountbooks and the documents: You, the assessing officer examine them,and find out the facts necessary for your purpose: My duty is donewith disclosing these account-books and the documents". Hisomission to bring to the assessing authority's attention thoseparticular items in the account books, or the particular portions of thedocuments, which are relevant, will amount to "omission to disclosefully and truly all material facts necessary for his assessment." Norwill he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence,which might have been discovered by the assessing authority if hehad pursued investigation on the basis of what has been disclosed.The Explanation to the section gives a quietus to all suchcontentions; and the position remains that so far as primary facts areconcerned, it is the assessee's duty to disclose all of them--includingparticular entries in account books, particular portions of documentsand documents, and other evidence, which could have beendiscovered by the assessing authority, from the documents and otherevidence disclosed. Does the duty however extend beyond the full and truthfuldisclosure of all primary facts ? In our opinion, the answer to thisquestion must be in the negative. Once all the primary facts arebefore the assessing authority, he requires no further assistance byway of disclosure. It is for him to decide what inferences of facts canbe reasonably drawn and what legal inferences have ultimately to bedrawn. It is not for somebody else-far less the assessee--to tell theassessing authority what inferences, whether of facts or law shouldbe drawn. Indeed, when it is remembered that people often differ asregards what inferences should be drawn from given facts, it will bemeaningless to demand that the assessee must disclose whatinferences-whether of facts or law-he would draw from the primaryfacts. If from primary facts more inferences than one could bedrawn, it would not be possible to say that the assessee should havedrawn any particular inference and communicated it to the assessingauthority. How could an assessee be charged with failure tocommunicate an inference, which he might or might not have drawn ? It may be pointed out that the Explanation to the sub- sectionhas nothing to do with " inferences " and deals only with the questionwhether primary material facts not disclosed could still be said to beconstructively disclosed on the ground that with due diligence the Income-tax Officer could have discovered them from the factsactually disclosed. The Explanation has not the effect of enlargingthe section, by casting a duty on the assessee to disclose"inferences" -to draw the proper inferences being the duty imposedon the Income-fax Officer. We have therefore come to the Conclusion that while the dutyof the assessee is to disclose fully and truly all primary relevant facts,it does not extend beyond this." In this context, we may peruse the reasons recorded bythe Assessing OfÏcer. These reasons cite three independentand distinct elements of income chargeable to tax havingescaped assessment. These are as follows:- i. Of an amount of Rs. 42.90 crores which is an amount whichwas outstanding credit entries which had remainedoutstanding for more than 10 years as on 30.9.2010. In termsof directives of R.B.I. dated 05.10.2010, the bank did not offerthe same to tax.was outstanding credit entries which had remainedoutstanding for more than 10 years as on 30.9.2010. In termsof directives of R.B.I. dated 05.10.2010, the bank did not offerthe same to tax. ii.A sum of Rs. 3.79 crores (rounded off) was assessee's shortterm capital gain and further a sum of Rs. 89.67 lacs whichaccrued on account of non-STT paid venture capital fund andRs. 89,67,474/- from sale proceed of depreciable assets.According to the Assessing Officer, the total of two i.e 4.68crores (rounded off) which is short term capital gain of theassessee was not offered to tax.term capital gain and further a sum of Rs. 89.67 lacs whichaccrued on account of non-STT paid venture capital fund andRs. 89,67,474/- from sale proceed of depreciable assets.According to the Assessing Officer, the total of two i.e 4.68crores (rounded off) which is short term capital gain of theassessee was not offered to tax. ii.A sum of Rs. 3.79 crores (rounded off) was assessee's shortterm capital gain and further a sum of Rs. 89.67 lacs whichaccrued on account of non-STT paid venture capital fund andRs. 89,67,474/- from sale proceed of depreciable assets.According to the Assessing Officer, the total of two i.e 4.68crores (rounded off) which is short term capital gain of theassessee was not offered to tax.term capital gain and further a sum of Rs. 89.67 lacs whichaccrued on account of non-STT paid venture capital fund andRs. 89,67,474/- from sale proceed of depreciable assets.According to the Assessing Officer, the total of two i.e 4.68crores (rounded off) which is short term capital gain of theassessee was not offered to tax. ii.The assessee had claimed reduction in respect of dividendreceived of Rs. 6.46 crores and consequently claimed refundof DDT of Rs. 46.91 crores. According to the Assessingreceived of Rs. 6.46 crores and consequently claimed refundof DDT of Rs. 46.91 crores. According to the Assessing Officer, the bank had declared final dividend of Rs. 126.76crores during the financial year 2009.10 which was paid duringthe following financial year. According to him, the assesseewas entitled to deduct only dividend received from subsidiariesduring the relevant financial year 2009-10. 7.In the context of these three grounds sought to bepressed in service by the Assessing OfÏcer, the reasonsrecorded eloquently establish that the Assessing OfÏcer wasproceeding on the material already on record. Apart fromthere being no allegations even in the reasons recorded thatthere was any failure on the part of the assessee to disclosetrue and full material fats, in fact, at every important stage,the Assessing OfÏcer has referred to and relied upon thematerial on record. There is not a single item, no documentand no material which did not form part of the originalassessment proceedings on the basis of which the AssessingOfÏcer has formed a belief that the income chargeable to taxhas escaped assessment. In clear terms, the mandatoryrequirement flown from first proviso to Section 147 of the Actis not established. The beginning portion of the reasonsitself which is in the nature of preamble referred that, "In thiscase, on verification of the case record, it is noticed that ......". Thus, entire reasons proceed on verification of thecase records. Even, with respect to each individual groundraised by the Assessing OfÏcer, he has referred to thedocuments, material and information already on recordduring the assessment proceedings. 8.We have also perused the documents which form partof the original assessment proceedings and find that theassessee had made all necessary disclosures. We notice thatin the computation of income along with return filed, theassessee had shown amount of outstanding debit / creditinterest in inter-branch account transferred to Profit & LossA/c as per R.B.I. instructions a sum of Rs. 42.90 crores. Alongwith this entry, the assessee had referred to a note No. 32.This note No. 32 reads as under:- "32. An amount of Rs. 42.90 crores was credited to Profitand Loss Account in accordance with RBI Letter No.DBOD.BP. No. 5562/21.04.18/2010-11 dated 05.10.2010, beingoutstanding credit entries in draft payable account which were10 years or more old as on 30th September, 2010. The samehas not been offered to tax, in accordance with the Delhi ITATdecision in the case of Punjab National Bank Vs. Addl. CIT(ITA Nos. 2014 & 2873 / Del /2007)." In clear terms, therefore, the assessee had furnished "32. An amount of Rs. 42.90 crores was credited to Profitand Loss Account in accordance with RBI Letter No.DBOD.BP. No. 5562/21.04.18/2010-11 dated 05.10.2010, beingoutstanding credit entries in draft payable account which were10 years or more old as on 30th September, 2010. The samehas not been offered to tax, in accordance with the Delhi ITATdecision in the case of Punjab National Bank Vs. Addl. CIT(ITA Nos. 2014 & 2873 / Del /2007)." In clear terms, therefore, the assessee had furnished the necessarily details before the Assessing OfÏcer of thesaid amount having been shown in Profit & Loss A/c but notoffering it to tax. If during the original assessmentproceedings, the Assessing OfÏcer desired to inquire furtherinto such claim of the assessee, nothing prevented him fromdoing so. At any rate, he cannot do so in the assessmentproceedings which are sought to be commenced beyond theperiod of four years from the end of relevant assessmentyear. 9.With respect to the second ground raised by theAssessing OfÏcer, we notice that the same suffers fromfactual error and non application of mind on his part. In thereturn itself, the assessee had showed short term capitalgain of Rs. 3.79 crores and further gain of Rs. 89.67 lackstotal of which came to Rs. 4.68 crores which was duly offeredto tax. The Assessing OfÏcer had in the order of assessmentactually erroneously taxed a sum of Rs. 44.68 crores whichwas clearly an error. The assessee brought this error to thenotice of the Assessing OfÏcer by filing an application forrectification. Such rectification application was allowed by him by an order dated 9.5.2013 by making followingobservations:- v. Amount of capital gains wrongly considered :- Assesseehas submitted that the short term capital gains as per the revisedreturn of income of the Bank is Rs. 4,68,37,311/-, however, it waswrongly considered as Rs. 44,68,87,311/- in the assessment orderu/S. 143(3). On verification of the record the contention of theassessee was found to be correct. Accordingly, the amount of totalincome of the Bank is reduced by Rs. 40,00,00,000/-. In fact in the reasons recorded, the Assessing OfÏcerhad made contradictory statements. In the first part, he hasrecorded that the assessee had offered such sum to tax onshort term capital gain. In the later part, he contradictshimself by saying that the assessee had not offered it to tax.The Assessing OfÏcer now cannot contend that this issue isdebatable or is a factual aspect. The material on recordwould clearly suggest that on this ground, he had proceededon erroneous footing. 10. With respect to the third ground raised by him also, wefind that the Assessing OfÏcer has proceeded solely on thebasis of material already on record clearly debarring hisjurisdiction for issuing notice of reassessment beyond the period of four years from the end of relevant assessmentyear. In that view of the matter, it is not necessary for us todecide the contention of the assessee's counsel that suchincome was not taxable at all. 11. We may now refer to the judgments cited by Mr.Chhotaray for respondents. In the case of M/s. T.V.Sundaram Iyengar & Sons (supra), the Supreme Court hadconsidered an entirely different issue which has noconnection with question of reopening of assessment. 12. In the case of Raymond Woollen Mills Ltd (supra) andRajesh Jhaveri Stock Brokers P. Ltd (supra), the SupremeCourt held and observed that at the stage of reopening ofassessment, the Assessing OfÏcer must have reason tobelieve that the income chargeable to tax has escapedassessment and such reason to believe would be prima facieand not a requirement that additions would invariably madein the assessment. In the present case, we are notconcerned with this aspect at all. 11. We may now refer to the judgments cited by Mr.Chhotaray for respondents. In the case of M/s. T.V.Sundaram Iyengar & Sons (supra), the Supreme Court hadconsidered an entirely different issue which has noconnection with question of reopening of assessment. 12. In the case of Raymond Woollen Mills Ltd (supra) andRajesh Jhaveri Stock Brokers P. Ltd (supra), the SupremeCourt held and observed that at the stage of reopening ofassessment, the Assessing OfÏcer must have reason tobelieve that the income chargeable to tax has escapedassessment and such reason to believe would be prima facieand not a requirement that additions would invariably madein the assessment. In the present case, we are notconcerned with this aspect at all. 13. In case of S.D.F. Industrial P Ltd (supra), the DivisionBench of this Court did not lay down any ratio which can beapplied in the present petition. In fact, the Court left thequestion of true and full disclosures to be judged in theappellate proceedings. 14. In the case of Dr. Amin's Path. Laboratory (supra), againthe Court did not lay down a ratio which runs contrary to ourapproach in the present petition. There may strayobservations which the Revenue may want to highlight,nevertheless, such observations cannot be read in isolationand in any case, contrary to well laid down principles throughseries of judgments of the Supreme Court starting fromCalcutta Discount Co Ltd (supra) and later on in case of CITVs. Kelvinator of India Ltd[8]. 15. In case of Honda Siel Power Products Ltd (supra), theDivision Bench of Delhi High Court on facts found lack oftrue and full disclosure on the part of the assessee andtherefore, permitted reopening of assessment beyond fouryears. 8320 ITR 561 16. In the result, impugned notice is quashed. Petition disposed of accordingly. [ M.S. SANKLECHA, J. ] [ AKIL KURESHI, J ]