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2021 (2) TMI 317 - AT - Income TaxValidity of reopening of assessment - re-opening beyond 4 years - Merger of the Order - applicability of the third proviso to section 147 - deduction u/s 36(1)(viia) on provision for bad and doubtful debts in respect of rural advances - assessment was re-opened on the allegation that the Assessee did not give details of rural branches and it had included various branches which are not rural as per the provisions of section 36(1)(viia) - HELD THAT - We find that the reassessment proceedings were initiated by the AO by issue of notice dated 21.03.2013. The proceedings with reference to the original order of assessment passed under section 143(3) of the Act dated 19.11.2010 is pending before the Hon'ble ITAT and in those proceedings, the very same issue of quantum of deduction under section 37(1)(via) of the Act was pending for consideration before Hon'ble ITAT. Therefore, clearly the third proviso to section 147 of the Act was attracted. In this regard, we find that since the issue of deduction under section 36(1)(viia) of the Act was a subject matter of appeal before the CIT(A) and ITAT, it was no longer amenable to reassessment proceedings under section 147 of the Act. In the case of ACIT vs BSES Ltd. 2011 (9) TMI 135 - ITAT, MUMBAI the Tribunal analysed the issue of merger and the applicability of the 3rd proviso to Sec. 147 of the Act and held additions made by the learned Assessing Officer all pertain to the matters which got merged with the order of CIT(A). Therefore, the same could not have been considered in the re-opened assessment as per the Third Proviso to section 147. Also see M/S. RELIANCE ENERGY LTD. 2013 (6) TMI 844 - BOMBAY HIGH COURT - Decided in favour of assessee.
Issues Involved:
1. Validity of initiation of reassessment proceedings under section 147 of the Income Tax Act, 1961. 2. Deduction claimed under section 36(1)(viia) of the Income Tax Act, 1961. Detailed Analysis: 1. Validity of Initiation of Reassessment Proceedings under Section 147: The primary issue raised by the assessee was the validity of the initiation of reassessment proceedings under section 147 of the Income Tax Act, 1961. The assessee contended that the reopening was based on a mere change of opinion and not on any new evidence, thus making it bad in law. The assessee argued that the reopening was based on existing material and not on any fresh tangible material, which is a prerequisite for initiating reassessment proceedings as per the legal precedent set by the Hon'ble Supreme Court in CIT Vs. Kelvinator of India Ltd., 320 ITR 561 (SC). The assessee further argued that the reassessment was hit by the First and Third Proviso to section 147, which restricts reassessment beyond four years unless there is a failure to disclose fully and truly all material facts necessary for assessment, and prohibits reassessment on matters already subject to appeal, respectively. The Tribunal noted that the original assessment order dated 19.11.2010 had already dealt with the claim for deduction under section 36(1)(viia). The reassessment was initiated based on the allegation that some branches classified as rural did not meet the criteria, which came to light during the assessment for AY 2010-11. However, the Tribunal held that facts coming to notice in a subsequent assessment year cannot be regarded as fresh tangible material for reopening an assessment. The Tribunal relied on the decision of the Hon'ble Karnataka High Court in Infosys Ltd. Vs. DCIT: 2019 (6) TMI 1261 (Karn.), which held that reassessment based on facts noticed in a subsequent assessment year amounts to a change of opinion and is not permissible. The Tribunal concluded that there was no fresh tangible material in the possession of the AO at the time of recording reasons for initiating proceedings under section 147. Therefore, the reassessment proceedings were invalid as they were based on a mere change of opinion, and the order of reassessment was annulled. 2. Deduction Claimed under Section 36(1)(viia): The assessee, a banking company, claimed a deduction of ?200,03,24,219 on account of Provision for Bad and Doubtful Debts in respect of rural advances under section 36(1)(viia). The AO disallowed ?192,57,72,764 of this claim, stating that the provision for bad and doubtful debts debited to the profit and loss account was only ?7,45,51,455. The AO's view was supported by the Hon'ble Punjab and Haryana High Court's decision in State Bank of Patiala Vs. CIT 272 ITR 53 (P & H), which held that the deduction under section 36(1)(viia) could only be allowed to the extent of the provision debited to the profit and loss account. The CIT(A) initially deleted the addition made by the AO, following the ITAT's decision in Syndicate Bank, which allowed the deduction irrespective of the provision created and debited in the profit and loss account. However, the Tribunal, in a subsequent appeal, reversed the CIT(A)'s decision and restored the AO's order, relying on the ITAT Bangalore Bench's decision in Canara Bank and the Hon'ble Punjab and Haryana High Court's decision in State Bank of Patiala. The reassessment was initiated on the grounds that the assessee did not provide details of rural branches and included branches not meeting the rural criteria. The AO alleged that some branches classified as rural had populations exceeding 10,000, thus disqualifying them from being considered rural branches. The Tribunal, however, found that the reassessment proceedings were invalid due to the lack of fresh tangible material and the prohibition under the Third Proviso to section 147, as the issue was already subject to appeal. Conclusion: The Tribunal allowed the assessee's appeal, holding that the reassessment proceedings under section 147 were invalid and annulled the reassessment order. Consequently, the other grounds raised by the assessee and the Revenue did not require adjudication, and the Revenue's appeal was dismissed.
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