2009 (7) TMI 912 - AT - Income Tax

Income escaping assessment - Non-disclosure of primary facts, Financial Corporation, reserve created by

Summary

Issues Involved:
1. Reopening of assessment under section 147.
2. Disallowance under section 36(1)(viii) due to withdrawal from reserves.
3. Deduction under section 36(1)(viii) for lease rentals.
4. Disallowance under section 36(1)(viia)(c).
5. Interdependence of deductions under sections 36(1)(viia)(c) and 36(1)(viii).
6. Opportunity to rectify shortfall in provisions for bad and doubtful debts and reserves.
7. Levy of interest under sections 234B, 234C, and 234D.

Detailed Analysis:

1. Reopening of Assessment under Section 147:
For the assessment years 1997-98 and 1998-99, the assessee challenged the validity of re-assessment proceedings initiated under section 147. The tribunal found that the Assessing Officer had recorded reasons for reopening the assessments, citing that the assessee had overstated deductions and understated total income, and had not fully disclosed material facts in the original assessment. Therefore, the reopening was upheld as valid. For the assessment year 1999-2000, the Committee of Disputes (COD) did not grant permission to pursue this issue.

2. Disallowance under Section 36(1)(viii) Due to Withdrawal from Reserves:
For the assessment year 1997-98, the issue of disallowance under section 36(1)(viii) due to the withdrawal from reserves was withdrawn by the assessee following directions from the Authority for Advance Rulings (AAR). The tribunal noted that this issue was decided in favor of the assessee by the AAR.

3. Deduction under Section 36(1)(viii) for Lease Rentals:
The tribunal allowed the deduction under section 36(1)(viii) for lease rental income for all the relevant assessment years. This decision was based on the precedent set in the assessee's own case for the subsequent assessment years 2001-02 and 2002-03, where the deduction was allowed by the tribunal.

4. Disallowance under Section 36(1)(viia)(c):
For the assessment years 1997-98, 1998-99, and 1999-2000, the disallowance under section 36(1)(viia)(c) was contested. The tribunal noted that the AAR had ruled in favor of the assessee, stating that debiting in the appropriation account does not disqualify the deduction. This view was also supported by the ITAT Delhi in the case of Power Finance Corporation Ltd. Consequently, the tribunal decided in favor of the assessee for these years.

5. Interdependence of Deductions under Sections 36(1)(viia)(c) and 36(1)(viii):
The assessee argued that deductions under sections 36(1)(viia)(c) and 36(1)(viii) are interdependent. The tribunal disagreed, stating that each deduction should be computed separately as per the provisions of the respective sections. The tribunal directed the Assessing Officer to recompute the deductions accordingly.

6. Opportunity to Rectify Shortfall in Provisions for Bad and Doubtful Debts and Reserves:
The assessee contended that it should be allowed to make good any shortfall in provisions for bad and doubtful debts and reserves. The tribunal found no merit in this contention, noting that the assessee had ample opportunity during the assessment proceedings to rectify any such shortfall. This ground was thus rejected for all relevant assessment years.

7. Levy of Interest under Sections 234B, 234C, and 234D:
The tribunal did not specifically address the issue of levy of interest under sections 234B, 234C, and 234D in detail, indicating that the primary focus was on the substantive issues related to deductions and reopening of assessments.

Conclusion:
The appeals were partly allowed, with the tribunal upholding the reopening of assessments under section 147, allowing deductions under section 36(1)(viii) for lease rentals, and directing the Assessing Officer to recompute deductions under sections 36(1)(viia)(c) and 36(1)(viii) separately. The tribunal rejected the assessee's contention regarding the opportunity to rectify shortfalls in provisions and reserves.