1987 (9) TMI 60 - AT - Income Tax

Summary

Issues Involved:
1. Assumption of jurisdiction for reopening assessments under Section 147(b) of the Income Tax Act.
2. Disallowance of bad debt claims.
3. Charge of interest under Section 139(8) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Assumption of Jurisdiction for Reopening Assessments under Section 147(b):

Summary of Arguments and Findings:
- The assessee, a nationalized bank, objected to the reopening of assessments for the years 1977-78 and 1978-79 under Section 147(b) of the Income Tax Act, arguing that no new information was provided to justify the reopening.
- The Income-tax Officer (ITO) initially allowed claims for bad debts, but later issued a notice under Section 148, alleging that income had escaped assessment due to incorrect claims.
- The Commissioner (Appeals) upheld the reopening, stating that the ITO had formed a belief based on incorrect information provided by the assessee.
- The Tribunal found that the ITO did not record specific reasons for reopening, merely stating he had "information in his possession," which did not meet the legal requirements under Section 148(2).
- The Tribunal concluded that the reopening was based on a reappraisal of the same evidence rather than new information, thus invalidating the jurisdiction for reopening under Section 147(b).

Key Judgments and Legal Principles:
- The Tribunal referenced the Supreme Court's decision in *Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996*, which held that an error discovered on reconsideration of the same material does not justify reopening.
- The Tribunal also noted that the decision in *Kalyanji Mavji & Co. v. CIT [1976] 102 ITR 287 (SC)* was partially overruled, emphasizing that mere reappraisal does not constitute new information.

2. Disallowance of Bad Debt Claims:

Summary of Arguments and Findings:
- The assessee claimed deductions for bad debts, which were disallowed by the ITO on the grounds that the debts were not completely written off in the books and recovery proceedings were ongoing.
- The Tribunal examined the bank's internal procedures for evaluating and writing off bad debts, including reviews by various management levels and statutory auditors.
- The Tribunal found that the bank had followed a systematic and thorough process for identifying and writing off bad debts, which was consistent with banking norms and accepted by the Reserve Bank of India and statutory auditors.
- The Tribunal held that the ITO's disallowance was unjustified, as the bank had provided sufficient evidence to support the bad debt claims, and the ITO could not sit in judgment over the bank's expert authorities.

Key Judgments and Legal Principles:
- The Tribunal cited several judicial pronouncements, including *Vithaldas H. Dhanjibhai Bardanwala v. CIT [1981] 130 ITR 95 (Guj.)*, which supported the bank's method of creating provisions for bad debts.
- The Tribunal also referenced circulars and instructions from the Ministry of Finance, which advocated a sympathetic approach towards bad debt claims by banks.

3. Charge of Interest under Section 139(8):

Summary of Arguments and Findings:
- The assessee argued that the ITO did not pass a speaking order for charging interest under Section 139(8) and that the assessee could not have anticipated the additions and disallowances made by the revenue.
- The Tribunal did not delve deeply into this issue, noting that since other grounds were decided in favor of the assessee, there would be a substantial reduction in the amount of interest charged under Section 139(8).

Conclusion:
- The Tribunal allowed the appeals in part, canceling the reassessment due to invalid jurisdiction under Section 147(b) and accepting the bad debt claims made by the assessee.
- The orders passed by the first appellate authority were modified, and the ITO was directed to pass appropriate orders in accordance with the Tribunal's findings.