Wp/1367/2022 Of Dcb Bank Ltd v. Deputy Commissioner Of Income Tax, Circle -2(3)(1, Mumbai)

1 wp-1367-2022ASHVINIBAPPASAHEBIN THE HIGH COURT OF JUDICATURE AT BOMBAYKAKDEDigitally signed byORDINARY ORIGINAL CIVIL JURISDICTIONASHVINIBAPPASAHEB KAKDEDate: 2023.08.1018:36:18 +0530WRIT PETITION NO.1367 OF 2022DCB Bank Ltd.(Formerly Development Credit Bank Ltd.)6[th] Floor, Tower A, Peninsula, Business Park, Senapati Bapat Marg,Lower Parel, Mumbai-400013.PAN: ...PetitionerV/s.1.Deputy Commissioner of Income TaxCircle-2(3)(1) Mumbai Room No.552, 5[th] Floor,Aayakar Bhavan, M.K. Road,Mumbai-400 020.2.Principal Commissioner of Income Tax-2Aayakar Bhavan, M.K. Road.Mumbai-400 020.3.Union of India, through theSecretary, Ministry of FinanceNorth Block, New Delhi-110001...Respondents-----Mr. Satish Mody a/w. Ms. Aasifa Khan for Petitioner.Mr. Suresh Kumar for Respondents.-----CORAM :K. R. SHRIRAM &FIRDOSH P. POONIWALLA, JJ.DATE :1[st] AUGUST 2023. ORAL JUDGMENT (Per Firdosh P. Pooniwalla J.):- 1.The present Writ Petition challenges a Notice dated 24[th] March2021 issued under Section 148 of the Income Tax Act, 1961 (“the Act”) andan Order dated 13[th] January 2022, rejecting the Petitioner’s objectionsagainst the reopening of the Assessment for Assessment Year 2014-15 underthe provisions of Section 148 of the Act. 2.The Petitioner is a company engaged in the banking business.The Petitioner e-filed its original Return of Income for the Assessment Year2014-15 on 27[th] November 2014, declaring NIL Income after setting offbrought forward losses. The Petitioner subsequently filed the Computation ofIncome, a copy of the Audited Balance Sheet, the Profit and Loss Accountand Tax Audit Report under Section 44AB in Form No.3 CD of the Act. TheReport dated 25[th] November 2014, under Section 115JB of the Act, in FormNo.29B, was uploaded on the Income Tax website. 3.The Assistant Commissioner of Income Tax-2(3)(1), who wasthen the Assessing Officer of the Petitioner, initiated scrutiny assessment andissued various notices/questionnaires to the Petitioner. The Assessing Officer issued a Notice dated 28[th] August 2015, under Section 143(2) of the Act, tothe Petitioner. 4.The Petitioner e-filed its revised Return of Income for theAssessment Year 2014-15 on 29[th] March 2016, once again declaring NILIncome. 5.Further notices and questionnaires were also issued to thePetitioner. A Notice dated 4[th] July 2016 under Section 142(1) of the Act,along with a questionnaire, was issued to the Petitioner. In the questionnaire,details regarding computation of MAT liability, Bad Debts Written Off and theprovisions made in the account and deduction claimed under Section 14A ofthe Act, with detailed computation, were called for by the Assessing Officer. 6.By its letter dated 27[th] July 2016, the Petitioner submitted (i) thecomputation of MAT liability, (ii) explanation regarding the deductionclaimed under Section 14Aof the Act and (iii) the details of the Bad Detbs.By its letter dated 11[th] August 2016, the Petitioner once again furnished thecomputation of MAT liability and details of Bad Debts. By a letter dated 16[th]September 2016, the Petitioner again submitted the working of the MAT liability. Further, by a letter dated 18[th] November 2016, the Petitionerspecifically gave complete explanation and details regarding thedisallowance under Section 14A of the Act, read with Rule 8D of the IncomeTax Rules, 1962 (“the Rules”). Hence, during the course of the assessmentproceedings, the Petitioner specifically provided details of Bad Debts WrittenOff, working of the MAT liability and the disallowance under Section 14A ofthe Act. The details regarding the above three points were specificallyenquired into in the course of original scrutiny assessment and all the factsregarding the same were disclosed to the Assessing Officer. liability. Further, by a letter dated 18[th] November 2016, the Petitionerspecifically gave complete explanation and details regarding thedisallowance under Section 14A of the Act, read with Rule 8D of the IncomeTax Rules, 1962 (“the Rules”). Hence, during the course of the assessmentproceedings, the Petitioner specifically provided details of Bad Debts WrittenOff, working of the MAT liability and the disallowance under Section 14A ofthe Act. The details regarding the above three points were specificallyenquired into in the course of original scrutiny assessment and all the factsregarding the same were disclosed to the Assessing Officer. 7.Thereafter, the Assessment was completed and an AssessmentOrder dated 20[th] December 2016 was passed under Section 143(3) of theAct. The Assessment Order determined the Income of the Petitioner at NILunder the normal provisions and income of Rs.3,82,53,206/- under Section115JB of the Act. 8.After a period of over four years from the end of the relevantAssessment Year, i.e, Assessment Year 2014-15, the Assessing Officer issuedto the Petitioner a Notice dated 24[th] March 2021 under Section 148 of theAct. 9.In response to the said Notice, the Petitioner e-filed its Return ofIncome on 29[th] May 2021, which was the same as the revised Return ofIncome filed on 29[th] March 2016. 10.By a letter dated 23[rd] July 2021, Respondent No.1 furnished tothe Petitioner the reasons for re-opening the Assessment of the Petitioner.The reasons were essentially regarding three issues, i.e., (i) Bad DebtsWritten Off to the tune of Rs.1,24,96,27,594/- claimed as deduction; (ii)Computation of MAT liability under Section 115JB of the Act; and (iii)Disallowance under Section 14(A) of the Act. 11.The Petitioner objected to the said re-opening by a letter dated18[th] August 2021 addressed to Respondent No.1. The Petitioner stated thatduring the assessment proceedings under Section 143(3) for Assessment Year2014-15, as requested by the Assessing Officer, the Petitioner had submittedthe details of Bad Debts Written Off by its letters dated 27[th] July 2016 and11[th] August 2016. These details of Bad Debts Written Off were examined andallowed by the Assessing Officer. Further, during the assessment proceedingsunder Section 143(3) of the Act, the Petitioner has submitted the details ofMAT computation along with various deductions claimed under the MAT provisions. As requested by the Assessing Officer, the Petitioner had madespecific submission regarding deduction of unabsorbed depreciationby itsletter dated 11[th] August 2016. The details of the Petitioner’s claim ofunabsorbed depreciation, along with the working of the same, wereexamined and allowed by the Assessing Officer. Further, the Petitioner statedthat, during the assessment proceedings under Section 143 (3), as requestedby the Assessing Officer, the Petitioner had submitted a reply dated 27[th] July2016 in response to the specific query raised by the Assessing Officerregarding justifying allowability of Section 14A of the Act in the case of thePetitioner. As requested by the Assessing Officer, the Petitioner had submitteddetails of Section 14A disallowance by its letter dated 18[th] November 2016.The Petitioner had disallowed expenses related to exempt income underSection 14A of the Act, read with Rule 8D of the Rules, amounting to Rs.5,57,92,968/- in the original Income Tax Return filed on 27[th] November2014. Thereafter, considering the judgment of this Court in the case of HDFCBank (383 ITR 529), the Petitioner had filed revised Income Tax Returns on27[th] July 2016 and disallowed expenses relating to exempt incomeamounting to Rs.7,24,194 (1% of exempt income of Rs.7,26,19,398/-),whereas in the original Income Tax Return Rs.5,57,92,968/- was disallowed.The above facts and submissions were examined by the Assessing Officer during the assessment proceedings under Section 143(3) of the Act. TheAssessing Officer had passed a speaking Assessment Order for AssessmentYear 2014-2015, which specifically covered disallowance under Section 14Aof the Act. The Petitioner further submitted that, considering the said facts, ithad disclosed fully and truly all material facts before the Assessing Officer forAssessment Year 2014-15 within the meaning of Section 147 of the Act. TheAssessing Officer had examined all the facts and allowed the deductions.Therefore, there was no reason to believe that income chargeable to tax hasescaped assessment by reason of the failure on the part of the Petitioner todisclose fully and truly any material fact necessary for assessment. By thesaid letter, the Petitioner therefore submitted that, subsequent to thecompletion of the Assessment, no new evidence or data/information hadbeen found or unearthed as would lead to the conclusion that there waslapse on the part of the Petitioner in the matter of disclosure of any materialinformation to the Assessing Officer at the time of the assessmentproceedings. The Petitioner further submitted that it was well settled thatreopening of assessment due to change of opinion was not permissible andtherefore the reopening of Assessment by the Assessing Officer was illegaland void ab-initio. 12.The Petitioner thereafter, by its letter dated 9[th] September 2021,once again filed its objections to the reopening of its assessment andreiterated what was stated in its letter dated 18[th] August 2021. 12. 13.By an Order dated 13[th] January 2022, Respondent No.1 rejectedthe Petitioner’s objections against reopening of the Assessment. 14.The present Writ Petition was lodged on 12[th] February 2022. Byan Order dated 21[st] February 2022, this Court granted ad-interim reliefstaying the operation and implementation of the said Notice dated 24[th]March 2021 issued under Section 148 of the Act and the said Order dated13[th] January 2022. 15.Mr. Mody, the learned Counsel for the Petitioner, reiterated thesubmissions made by the Petitioner in its aforesaid letters dated 18[th] August2021 and 9[th] September 2021 and submitted that, for the reasons stated inthe said letters, the Assessment of the Petitioner could not be reopenedunder the provisions of Section 148 of the Act. On the other hand, Mr.Suresh Kumar, the learned Counsel for the Respondents, supported the saidOrder dated 13[th] January 2022 and submitted that, for all the reasons given in the said Order, the reopening of assessment had been initiated on validgrounds and the Assessment Officer had sufficient reasons to believe that thePetitioner had not disclosed fully and truly the material facts necessary forAssessment in its case. 16.In the present case, it is an admitted position that the saidNotice dated 24[th] March 2021 had been issued after the expiry of four yearsfrom 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 substitutionby the Finance Act, 2021w.e.f. 1[st] April 2021) is applicable and reads asunder:- “Provided that where an assessment under sub-section (3) ofSecion 143 or this section has been made for the relevantassessment year, no action shall be taken under this sectionafter the expiry of four years from the end of the relevantassessment year, unless any income chargeable to tax hasescaped assessment for such assessment year by reason of thefailure on the part of the assessee to make a return undersection 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fullyand truly all material facts necessary for his assessment, forthat 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 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 Assessment Year 2014-15, the assessment could not be reopened unless anyincome chargeable to tax had escaped assessment for such assessment yearby reason of the failure on the part of the Petitioner to disclose fully andtruly all material facts necessary for his assessment, for that assessment year. 18.The aforesaid position in law is well settled and has been accepted bythis Court in the case of Ananta Landmark (P) Ltd. Vs. Deputy Commissioner ofIncome-tax, Central Circle 5(3), Mumbai[1]. Paragraph Nos.8 and 9 of the saidjudgment are relevant and read as under:- “8. It is settled law that where the assessment is sought to bereopened after the expiry of a period of four years from the endof the relevant year, the proviso to Section 147 stipulates arequirement that there must be a failure on the part of theassessee to disclose fully and truly all material facts necessary.Since in the case at hand, the assessment is sought to bereopened after a period of four years, the proviso to Section 147is applicable. It is also settled law that the Assessing Officer has no power toreview an assessment which has been concluded. If a period offour years has lapsed from the end of the relevant year, theAssessing Officer has to mention what was the tangible materialto come to the conclusion that there is an escapement of incomefrom assessment and that there has been a failure to fully andtruly disclose material fact. After a period of four years even ifthe Assessing Officer has some tangible material to come to theconclusion that there is an escapement of income fromassessment, he cannot exercise the power to reopen unless hediscloses what was the material fact which was not truly andfully disclosed by the assessee. If we consider the reasons forreopening, except stating in paragraph 3 that a sum ofRs.7,66,66,663/- which was chargeable to tax has escapedassessment by reason of failure on the part of the assessee to 1[2021] 131 taxmann.com 52 (Bombay) 1[2021] 131 taxmann.com 52 (Bombay) disclose fully and truly all material facts necessary, there isnothing else in the reasons. In an unreported judgment of thisCourt in First Source Solutions Limited V/s. Asst. CIT[WPNo.2762 of 2019, dated 31-8-2021], relied upon by Mr.Pardiwalla, the Court held that a general statement that theescapement of income is by reason of the failure on the part ofthe assessee to disclose fully and truly all material factsnecessary for his assessment is not enough. The AssessingOfficer should indicate what was the material fact that was nottruly and fully disclosed to him. In the affidavit in reply, it isstated that the reassessment proceedings was based on auditobjections. In another unreported judgment of this Court inJainam Investments V/s. Asst. CIT[WP No. 2760 of 2019, dated24-8-2021] relied upon by Mr. Pardiwalla, it is held that thereasons for reopening an assessment should be that of theAssessing Officer alone who is issuing the notice and he cannotact merely on the dictates of any another person in issuing thenotice. In Indian and Eastern Newspaper Society V/s. CIT[19792 Taxman 197/119 ITR 996 (SC), also relied upon by Mr.Pardiwalla, the Court held that in every case, the Income TaxOfficer must determine for himself what is the effect andconsequence of the law mentioned in the audit note andwhether in consequence of the law which has come to his noticehe can reasonably believe that income had escaped assessment.The basis of his belief must be the law of which he has nowbecome aware. The opinion rendered by the audit party inregard to the law cannot, for the purpose of such belief, add toor colour the significance of such law. Therefore, the trueevaluation of the law in its bearing on the assessment must bemade directly and solely by the Income Tax Officer. 9. Mr. Suresh Kumar relied upon a judgment of this Court inCrompton Greaves Ltd. V/s. Assist. CIT [2015] 55 taxmann.com59/229 Taxman 545 to submit that even if the reason forreopening does not specifically state that there was any failureon the part of petitioner to disclose fully and truly all materialfacts necessary for its assessment for the relevant assessmentyear, it will not be fatal to the assumption of jurisdiction underSections 147and 148 of the Act. We would certainly agree withMr. Suresh Kumar but as held in Crompton Greaves Ltd.(Supra), this is subject to the rider that there must be cogentand clear indication in the reasons supplied, that in fact therewas failure on the part of the assessee to disclose fully and trulyall the material facts necessary for its assessment. If the factumof failure to disclose can be culled down from the reasons insupport of the notice seeking to reopen assessment, that will certainly not be fatal to the assumption of jurisdiction underSections 147 and 148 of the Act. The Court held "However, iffrom the reasons, no case of failure to disclose is made out, thencertainly the assumption of jurisdiction under Section 147 and148 of the Act would be ultra vires, being in excess of thejurisdictional restraints imposed by the first proviso to Section147of the Act".” 19.In our view, a perusal of the reasons for reopening set out in thesaid letter dated 23[rd] July 2021 show that there is no such failure on the partof the Petitioner to disclose fully and truly any material fact necessary for theAssessment. The first reason given in the said letter dated 23[rd] July 2021 forreopening the Assessment is in respect of the Bad Debts Written Off to thetune of Rs.1,24,96,27,594/- claimed as deduction. The said reasons arefound in paragraph 2.1 of the said letter which read as under:- 19.In our view, a perusal of the reasons for reopening set out in thesaid letter dated 23[rd] July 2021 show that there is no such failure on the partof the Petitioner to disclose fully and truly any material fact necessary for theAssessment. The first reason given in the said letter dated 23[rd] July 2021 forreopening the Assessment is in respect of the Bad Debts Written Off to thetune of Rs.1,24,96,27,594/- claimed as deduction. The said reasons arefound in paragraph 2.1 of the said letter which read as under:- “2.1On verification of records it is observed that theassessee claimed and was allowed a deduction of Rs.1249627594towards bad debts written off. In its justification, the assessee hadsubmitted the details. It was seen from the details submitted thatthere was a technical write off of Rs.124,96,27,594/- by theassessee which was treated by it as provision for bad debts.Against this provision, there were actual write off ofRs.95,74,20,093/-. The difference of Rs.29,22,07,502/- betweenthese two was taken to the P & L as provision for bad and doubtfuldebts which was added back by the assessee in the computation ofincome. The assessee, however, instead, claimed a deduction ofRs.124,96,27,594/- towards bad debts written off which amountedto patently wrong claim. This resulted in underassessment of income byRs.124,96,27,594/- with a short levy of tax of Rs.42,47,48,419/-(positive and potential). The exact potential and positive taxeffects have not been calculated in the absence of the exact amountof carry forward of losses.” 20.The reasons so recorded in paragraph 2.1 themselves clearlyshow that, even according to Respondent No.1, there was no failure todisclose any material fact. According to Respondent No.1, on the factsdisclosed by the Petitioner during the assessment proceedings, it hadwrongly 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 27[th]July 2016 of the Petitioner and paragraph 1 of the letter dated 11[th] August2016 of the Petitioner clearly showed that the Petitioner had in response tospecific queries raised during the assessment proceedings, disclosed to theRespondents all the material facts in respect of Bad Debts Written Off.Therefore, the reason given by Respondent No.1 in the said letter dated 23[rd]July 2021 for reopening the reassessment in respect of Bad Debts Writing Offcannot 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 dated23[rd] July 2021 is in respect of computation of MAT liability under Section115JB of the Act. The said reason is recorded in paragraph 2.2 of the saidletter and reads as under: “2.2The assessee had reduced a sum ofRs.50,99,00,000 from the 115JB computation towards Unabsorbed book depreciation. Form No.29B was neither submitted nor askedfor by the Department. Instead, the assessee submitted its ownworking of MAT income. The assessee submitted that the assesseehad right to pick and choose any component out of business loss ordepreciation for set off which is favourable to it. The departmentdid not contest the view taken by the assessee. The submission of the assessee was at variance from thefactual position. It was noticed that the Authority for AdvanceRulings (AAR) had vide 155 Taxman 60 [2006] had clearlydisapproved of the method adopted by the assessee in similar case.Similarly, the Circular No.495 dated 22.9.1987 of the CBDT hadclearly specified with example as to how the losses were to beadjusted in cases of MAT. Thus, the submission of the assessee wasfactually incorrect. Factually incorrect submission on part ofassessee led the Department to believe the submission of theassessee. It was seen from the records that the figure for bookdepreciation or book loss was Nil for the assessee for the currentyear. The submission of the assessee was at variance from thefactual position. It was noticed that the Authority for AdvanceRulings (AAR) had vide 155 Taxman 60 [2006] had clearlydisapproved of the method adopted by the assessee in similar case.Similarly, the Circular No.495 dated 22.9.1987 of the CBDT hadclearly specified with example as to how the losses were to beadjusted in cases of MAT. Thus, the submission of the assessee wasfactually incorrect. Factually incorrect submission on part ofassessee led the Department to believe the submission of theassessee. It was seen from the records that the figure for bookdepreciation or book loss was Nil for the assessee for the currentyear. Incorrect application of provisions of the Act by theDepartment resulted in underassessment of income ofRs.50,99,00,000 with a consequent short levy of tax ofRs.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 “incorrectapplication of provisions of the Act by the Department resulted in underassessment of income of Rs.50,99,00,000/- with a consequent short levy oftax of Rs.10,68,77,590/-”. This itself shows that there is merely a change ofopinion on the part of Respondent No.1 and no failure to disclose anymaterial fact on the part of the Petitioner. Further, in paragraph 1 of its letterdated 27[th] July 2016 and in paragraph 3 of its letter dated 16[th] September 2016 in response to specific queries raised during the assessmentproceedings, the Petitioner had given the computation in respect of of MATliability. This once again shows, that the Petitioner had disclosed all materialfacts in respect of computation of MAT liability and there was no failure onits part to disclose any material fact. 23.The third reason given in the said letter dated 23[rd] July 2021 forreopening the Assessment of the Petitioner is in respect of disallowanceunder Section 14A of the Act. The said reason is given in paragraph 2.3 ofthe said letter and reads as under:- “2.3Assessment record revealed that the Tax auditorafter audit arrived at the figure of Rs.55792968 under Section 14Adisallowance. However, the AO instead of calling for records to seethe cash flow to identify the sources of investments in earningexempt income, assumed that the assessee had enough own fundsand levied disallowance under Section 14A at Rs.4114887 insteadof the figures arrived at by the Tax Auditor. No notice was foundserved on the Tax Auditor to enquire as to how the said figurearrived at by him and concurred by the assessee at the time of filingof return was wrong. Thus, the rejection of the professional advice simply onthe basis of assumption resulted in short disallowance ofRs.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 Thus, the rejection of the professional advice simply onthe basis of assumption resulted in short disallowance ofRs.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 fact. The reasons given in paragraph 2.3 of the said letter attribute thealleged short disallowance and the alleged consequent short levy of tax tothe rejection of professional advice by the Petitioner and not to any failure todisclose any material fact. In fact, in paragraph 4 of the Assessment Orderdated 20[th] December 2016 passed under Section 143(3) of the Act, theAssessing Officer had discussed in detail this disallowance under Section 14Aand had passed orders in respect thereof. This, by itself, shows that there isno failure on the part of the Petitioner to disclose any material fact in respectof the disallowance under Section 14A of the Act. Further, in paragraph 25 ofits letter dated 27[th] July 2016, and in paragraph 1 of its letter dated18[th]November 2016, the Petitioner has given the facts and the reasons as to whyno disallowance can be made under Section 14A of the Act, exceptdissallowance of 1% of exempt income considered by the Petitioner as anadministrative expenditure relating to exempt income. Thus, the saidAssessment Order and the said letters once again clearly show that there isno failure on the part of the Petitioner to disclose any material fact even inrespect of the issue of disallowance under Section 14A of the Act. 25.In the impugned Order dated 13[th] January 2022, RespondentNo.1 has only held that the Assessment of the Petitioner could be reopened as there was tangible material on record to believe that income chargeable totax had escaped assessment. Respondent No.1 has not given any reason inthe said Order as to why, according to him, as required by the first proviso toSection 147 of the Act, the Petitioner had failed to disclose any material fact.The said Order dated 13[th] January 2022 does not deal with the specificobjections of the Petitioner that there was no failure on its part to discloseany material fact and therefore its assessment cannot be reopened under theprovisions of Section 148 of the Act. In our view, without arriving at afinding that the Petitioner had failed to disclose any material fact, it was notopen to Respondent No.1 to reopen the Assessment of the Petitioner. Thesame is a sine qua non for reopening the Assessment under Section 148 ofthe Act. Even otherwise, for all the reasons stated hereinabove, we are of theview that the reasons for reopening stated in the said letter dated 23[rd] July2021 do not at all show that there is any failure on the part of the Petitionerto disclose any material fact. 26.In the aforesaid circumstances, and for all the reasons statedhereinabove, the present Writ Petition is allowed in terms of prayer (b)which reads as under:- “(b)Issue a writ of certiorari or a writ in the nature ofcertiorari or any other appropriate writ, order or direction underArticle 226 of the Constitution of India, quashing the impugnednotice under section 148 of the Act dated 24[th] March, 2021(Exhibit G), and the impugned order dated 13[th] January, 2022(Exhibit M) as being wholly without jurisdiction, illegal andarbitrary;” 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.)