State Bank Of Saurashtra( Now Merged ... vs Assessee

The aforesaid appeal has been filed by the Assessee against order dated 28.07.2011, passed by Ld.CIT-5 Mumbai for the quantum of assessment passed u/s 143(3) r.w.s. 147 for the A.Y. 2001-02. In various grounds of appeal, the assessee has mainly challenged the impugned order on following points:-

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i). Validity of reopening u/s 147, on the ground that the reassessment proceedings have been initiated after the expiry of four years from the end of the relevant assessment years and therefore, such a reopening is bad in law in view of the proviso to section 147.

ii) Disallowance u/s 14A.

iii) Disallowance of depreciation on computer software.

2. The brief facts qua the legal issue raised vide ground 1 to 4 are that, assessee is a public undertaking engaged in the business of banking and allied activities. The assessee bank was later on merged with the State Bank of India on 13.08.2008. The return of income for the A.Y. 2001-02 was filed on 28.02.2002 at 'Nil' after claiming set off OF carried forward losses to the extent of Rs.59,61,23,649/-The said return was duly processed u/s 143(1) on 09.09.2002. Thereafter the assessee's case was selected for scrutiny and assessment order was passed u/s 143(3) vide order dated 22.03.2004 at an income of Rs.80,99,67,030/-. Against the said order, the assessee had preferred first appeal before the Ld. CIT(A), which was decided vide order dated 20.10.2004. After giving effect to the said appellate order, the income of the assessee was determined at Rs.27,34,39,370/-. Later on, the assessee's case was reopened u/s 147 by issuance of notice dated 05.02.2008 u/s 148, after recording the following "reasons":-

"The assessee follows mercantile system of account and accordingly in its accounts, at the end of the year, takes credit for interest accrued but not due on its investment in securities. However, in the return of income such interest is not offered to tax and only the interest which has become due and receivable during the year is offered to tax. From the A.Ys. 2003-04 onwards, such interest "Accrued but not due at the end of the year" was taxed by the Assessing Officer. Such additions have been confirmed and upheld by the CIT(A) in assessee bank's first 3 ITA No. 7115/Mum/2011 Assessment Year: 2001-02

appeal subject to the direction that the credit for similar amount of interest accrued but not due at the beginning of the year which was offered to tax should be allowed.

2. The appellate order of the CIT(A) on this aspect has become final as the assessee bank has not been granted permission by the COD to pursue further litigation on the decision. Accordingly, the amount liable to be taxed at the assessee bank's income for A.Y. 2001-02 on this ground is worked out as under:-

3. Interest accrued but not due on investment is worked out as under:-

Interest Accrued but not due as at end Rs.826397428/- of assessment year Less: Interest Accrued but not due as Rs.662014992/-

at beginning of assessment year Net Difference Rs.164382436/-

4. Amount of accrued interest during the year Rs.16,43,82,436/-

which is to be added back and is taken as the income of the year and the same is required to be taxed accordingly. As a result of which income chargeable to tax has escaped assessment.

5. In view of the above, I have to reason to believe that income chargeable to tax has escaped assessment and the case is fit for issue of notice u/s 148 of the I.T. Act.

In pursuance thereof, the assessing officer completed the assessment u/s 143(3) r.w.s. 147 vide order dated 29.12.2008 at an income of Rs.120,96,49,798/- and after setting off of brought forward losses, income was finally assessed at 'Nil' income.

3. In the first appeal before the Ld. CIT(A), so far as the issue of validity of reopening u/s 147, is concerned the Ld. CIT(A) dismissed the assessee's contention that reopening is bad in law in view of proviso to section 147 on the ground that AP had sufficient reasons to reopen the case. His finding in this regard are given in para 5 of the impugned order.

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4. Before us, learned counsel submitted that in the computation of income filed along with the return of income, the assessee has duly disclosed the details of interest of securities chargeable to tax and also the details of interest accrued but not due at the end of the year. All these details were available in the audited statement of account. In the course of the original assessment proceedings, the assessing officer has duly scrutinized all the book of account and the audit report and has passed detailed order making various disallowances. Now, after the expiry of four years from the end of the relevant assessment year, the case has been sought to be reopened, without their being any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment proceedings. From the perusal of the "reasons recorded", it can be seen that, merely because in the A.Y. 2003-04, the interest accrued but not due has been taxed by the AO and confirmed by the Ld. CIT(A), therefore, the completed assessment has been reopened for the A.Y. 2001-02. In the reasons recorded no failure has been ascribed on the part of the case. Thus reopening of the assessee is bad-in-law. In support of his contention, he strongly relied upon the decision of Hon'ble Bombay High Court in case of Talati and Panthakly Associate P. Ltd. Vs. DCIT reported in (2014) 362 ITR 362 (Bom).

5. On the other hand, Ld. DR strongly relied upon the order of the Ld. CIT(A) and submitted that fresh material has come on record in the form of assessment order and Ld. CIT(A) order for the subsequent assessment years. This was sufficient material to acquire the jurisdiction to reopen the case u/s 147. In support of his contention, he relied upon 5 ITA No. 7115/Mum/2011 Assessment Year: 2001-02

the decision of Hon'ble Bombay High Court in the case of Dr. Amin's Pathology Laboratory Vs. JCIT reported in (2001) 252 ITR page 673.

6. We have heard rival submissions and also perused the relevant material on record qua the legal issue raised on reopening of case u/s

147. It is an undisputed fact that assessee's case was selected for scrutiny and assessment was completed u/s 143(3) and the reopening of such an assessment has been done after the expiry of four years from the end of the relevant assessment year. In such a case, time limit for reopening has to be examined in light of the proviso to section 147, which clearly lays down on embargo to reopen the case where the assessment has been completed u/s 143(3) the proviso clearly provides that no action shall be taken u/s 147 for reopening the assessment after the expiry of four years from the end of the relevant assessment years. Such a limitation is subject to two conditions, firstly, any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to furnish the return u/s 139 or S. 142(1) or S. 148 and secondly, failure on the part of the assessee to disclose truly and fully all material facts necessary for the assessment. In this case, there is no failure on the part of the assessee to furnish the return u/s

139. So far as second condition is concerned, it is evident from the record that the assessee has duly disclosed all the details of interest due and receivable and interest due and accrued during the year not only in the books but also in the statement of audited accounts. In the statement of interest on the securities for the period of 01.04.2000 to 31.03.2001 as appearing in the audited accounts the details of interest were disclosed in the following manner:-

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STATEMENT OF INTEREST ON SECURITIES FROM 1.04.2000 TO 31.03.2001

Particulars Interest on Govt. Interest on other Summary of claim Amount Securities Trustee securities & for tax deduction Rs. debentures at source Rs.

Total interest 2,38,91,40,185 25,36,10,802 On Government 1,43,09,438 income on Securities securities on other securities 11,36,86,944

Interest accrued ADD: On shares upto 31.03.2000 ADD: On Units of but not due SBI Magnium debited on 59,78,82,999 6,41,31,993 ADD: On success 82,500 01.04.2000 fee received St. No. 9F attached to our return of income for AY 2000-01 Sub total 2,98,70,23,184 31,77,42,795 12,80,78,882 Less: Interest accrued upto 73,83,38,715 8,80,58,710 31.03.2001 but not due (St No. 9F) 2,24,86,84,469 22,96,84,085

(Grand Total : Rs.2,47,83,68,554/-)

After this disclosure, the assessee's case have been completed under scrutiny proceeding and order has been passed by the assessing officer u/s 143(3). Such an assessment is being sought to be reopened without their being any failure on the part of the assessee to disclose folly and truly all material facts necessary for the assessment. Even in the "reason recorded", the assessing officer has not ascribed any failure on the part of the assessee as to what is the failure on the part of the assessee in making the full disclosure. If the assessee has made full disclosure as 7 ITA No. 7115/Mum/2011 Assessment Year: 2001-02

contemplated under the law then, it is upon the assessing officer to draw correct inference of law from the primary facts. Once there is no failure on the part of the assessee to disclose all the material facts then, statute provides that no action can be taken for reopening the case beyond the period of four years from the end of the relevant assessment years, where order has been completed u/s 143(3). Thus, on these facts the reopening of the case u/s 147 vide notice dated 05.02.2008 is bad- in-law and consequently the entire proceedings initiated vide notice u/s 148 is void ab initio. Accordingly, the assessment order is quashed and the ground raised by the assessee is allowed.

7. In view of the aforesaid finding the other grounds on merits have become purely academic.

8. In the result, the appeal of the Assessee is treated as allowed.

Order pronounced in the open court on this 25th day of March, 2015.

Sd/- Sd/- (D.KARUNAKAR RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 25.03.2015 *Srivastava

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "E" Bench

//True Copy//

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.