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TMI Blog2006 (3) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure for both the assessment years. The Assessing Officer found that in view of the judgment of the Supreme Court in the case of Vijaya Bank Ltd., the interest paid by the assessee on purchasing securities would form part of capital expenditure, therefore, the assessee is not entitled to any allowance. According to the learned D.R., the interest component on purchasing securities which is otherwise known as broken period interest is not an allowable expenditure or deduction in view of the judgment of the Apex Court in the case of Vijaya Bank Ltd. The learned D.R. further submitted that in view of Explanations (1) and (2) to section 147 of the Income-tax Act, the Assessing Officer has validly reopened the assessment for the purpose of assessing the interest component which was otherwise escaped from assessment. The learned D.R. placed his reliance on the judgment of the Delhi High Court in the case of Rakesh Aggarwal v. Asstt. CIT [1997] 225 ITR 496 and submitted that after amendment of section 147 of the Income-tax Act with effect from 1-4-1989, the power of the Assessing Officer to reopen the assessment in respect of income which has escaped assessment is much wider, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the material facts which were necessary for completing the assessment. According to the learned representative, it is not the case of the Assessing Officer that the assessee has not furnished the material and primary facts fully. The learned representative invited our attention to para 5.5 of the CIT(A) order for the assessment year 1990-91 and submitted that in fact, the Assessing Officer conceded that the assessee bank have disclosed fully and truly all the material facts necessary for the assessment. The only objection of the Assessing Officer is that the subsequent judgment of the Supreme Court constitutes an information. Therefore, according to the learned representative, the assessee has furnished all the primary and material facts which are essential for completing the assessment. 5. The learned representative for the assessee further submitted that before amendment of section 147 with effect from 1-4-1989, the Assessing Officer had power to reopen the assessment provided the Assessing Officer has reason to believe that by reason of omission or failure on the part of the assessee to file a return under section 139 or to disclose fully and truly all material facts which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no action shall be taken after expiry of four years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment by reason of failure on the part of the assessee either to file a return under section 139(1) or 148 or to disclose fully and truly all material facts necessary for assessment would come into operation immediately after expiry of four years from the end of the relevant assessment year. The learned representative placed his reliance on the judgment of the Apex Court in the case of CIT v. Indo-Mercantile Bank Ltd. [1959] 36 ITR 1. According to the learned representative, proviso to section 147 provides for exceptional circumstances after expiry of four years from the end of the assessment year. Therefore, unless and until it was shown that there was a negligence on the part of the assessee to disclose fully and truly all material facts, according to the learned representative, the assessment cannot be reopened after expiry of four years. According to the learned representative, for all earlier assessment years, the assessee claimed the interest component in purchasing securities as revenue expenditure and the same was allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for the purpose of assessing the income which escaped assessment. For the purpose of convenience, the provisions of section 34 of the Income-tax Act, 1922 is reproduced hereunder: "34. (1) If in consequence of definite information which has come into his possession, the Income-tax Officer discovers that income, profits or gains chargeable to income-tax have escaped assessment in any year, or have been under assessed, or have been assessed at too low a rate, or have been the subject of excessive relief under this Act the Income-tax Officer may, in any case in which he has reason to believe that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof, at any time within eight years, and in any other case at any time within four years of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22, and may proceed to assess or re-assess such income, profits or gains, and the provisions of this Act shall, so fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has reason to believe that, by reason of the omission or failure on the part of the assessee to make a return under section 139 for any assessment year to the Assessing Officer or to disclose fully or truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that income chargeable to tax escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 453, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). Explanation 1.- For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment namely:- (a) where income chargeable to tax has been under-assessed; or (b) where such income has been assessed at too low a rate; or (c) where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 1.- Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.- For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment namely:- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure has added two more instances of deeming cases in which the income chargeable to tax escaped assessment. Therefore, as rightly pointed out by the learned representative for the assessee, the provisions of section 147 before amendment and after amendment substantially remains the same except to the extent of prohibiting the Assessing Officer from reopening of assessment after expiry of four years by way of a provision and the power of the Assessing Officer to reopen the case on the basis of the information in his possession was also taken away. 12. The amended provisions of section 147 specifically provides for reopening of assessment subject to provisions of sections 148 to 153 of the Income-tax Act. Therefore, the Assessing Officer necessarily has to comply with the provisions of sections 148 to 153 of the Income-tax Act while reopening the assessment under section 147. Section 149 of the Income-tax Act provides for limitation for issuing notice under section 148. Section 149(1)(a) says that no notice shall be issued under section 148 after expiry of four years from the end of the relevant assessment year unless the case falls under sub-clause (b). Sub-clause (b) says that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons recorded by the Income-tax Officer that it is a fit case for issue of notice. In view of this judgment of the Apex Court, the assessment, cannot be reopened unless there is a failure on the part of the assessee for disclosing fully and truly the material facts which are necessary for assessments. 14. The Madras High Court in the case of Revathy C.P. Equipments Ltd. considered the provisions of sections 147, 148 and 149 and held that the provisions of sections 147 and 149 are to be simultaneously complied with and the requirement of both the provisions of sections are to be fulfilled before a valid notice can be issued under section 148 of the Income-tax Act. The Madras High Court specifically observed that the notice can be sustained, only if it can be held that there had been failure on the part of the assessee to disclose fully and truly all material facts that were necessary for the assessment. The Madras High Court in Revathy C.P. Equipments Ltd.'s case has observed as follows:- "Section 147 of the Act deals with the income escaping assessment. Before a notice under section 148 of the Act can be issued, all further requirements of section 147 of the Act must be fully met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y his mind to material facts and on that ground also the notice issued could be vitiated. 16. The Madras High Court in the case of Precot Mills Ltd. examined the provisions of sections 147 and 149 and found that income escaped assessment as a result of failure to examine the books of account produced by the assessee would be sufficient justification in making re-assessment. The High Court further observed that section 147 is subject to sections 148 to 153, therefore, if four years have elapsed from the relevant assessment year, but not seven years, the assessment can be reopened if the income escaped assessment amounts to Rs. 50,000 or more. The High Court observed that four years prescribed under provisions of section 147 have to be read with section 149 where the four years have been extended to seven years if the income chargeable to tax that escaped assessment is more than Rs. 50,000. The Madras High Court distinguished its earlier judgment in the case of Fenner (India) Ltd. on the ground that Explanations (1) and (2) to section 147 were not considered in the case of Fenner (India) Ltd. Ultimately, the High Court in the case of Precot Mills Ltd. observed that on merits whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod of time up to seven years would be available to Assessing Officer provided there was a negligence on the part of the assessee in furnishing full and true material facts which are required for assessment. Therefore, the reasoning given by the jurisdictional High Court in the case of Revathy C.P. Equipment Ltd. would give effect to all the provisions of sections 147 and 149, therefore, the judicial propriety requires to follow the judgment of the jurisdictional High Court in the case of Revathy CP Equipment Ltd. In view of the above, in our opinion, the judgment of the Madras High Court in the case of Precot Mills Ltd. may not be applicable to the facts of this case in view of the judgment in the case of Revathy CP Equipment Ltd. In our opinion, the reasoning and observation of the Madras High Court in the case of Revathy CP Equipment Ltd. would be squarely applicable to the facts of this case. Therefore, by following the judgment of the Madras High Court in the case of Revathy CP Equipment Ltd., we hold that unless there was a failure on the part of the assessee for furnishing fully and truly all material facts relevant for assessment, the completed assessment cannot be reopened ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt assessment year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year. Explanation.- In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year." 19. Therefore, up to 31-3-1989, the Legislature provided in section 149 itself the prohibition to reopen the assessment after expiry of four years from the end of the relevant assessment year, notwithstanding that there was no failure or omission on the part of the assessee to furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 149(1)(b) as it stood up to 31-3-1989 and held that the assessee's omission or failure to disclose fully and truly all material facts because it was realised that after expiry of four years from the end of the assessment year no action for reopening of assessment could be taken on the basis of the detection of mistake alone unless there was also an allegation that the income has escaped assessment because of failure or omission on the part of the assessee to disclose fully and truly material facts. Therefore, it is very clear that before 31-3-1989, whenever there was failure or omission on the part of the assessee to disclose fully and truly all material facts, the assessment could be reopened up to eight years, in case income chargeable to tax escaped assessment amounts to or is likely to amount to Rs. 50,000 or more, the assessment can be reopened up to sixteen years from the end of the relevant assessment year. In case there was no omission or failure on the part of the assessee to disclose fully and truly all material facts, then the case may fall under sub-section (b) of section 147. In that case, the assessment cannot be reopened after expiry of four years from the end of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on the ground that it was not assessable either as revenue or capital. The Assessing Officer accepted the claim of the assessee. However, subsequently, the Assessing Officer came to know the judgment of the Madras High Court in the case of G.R. Ramachari & Co. v. CIT [1961] 41 ITR 142. On the basis of the above judgment of the Madras High Court, the Assessing Officer reopened the case under section 147(b) of the Income-tax Act as it stood up to 31-3-1989. The Supreme Court after analysing the entire case laws on the subject and the provisions of section 34 of the Income-tax Act, 1922 and section 147 of the Income-tax Act, 1961 held that the judgment of the jurisdictional High Court would constitute an information within the meaning of section 147 (b), therefore, the reopening of assessment was upheld by the Apex Court. In the case of ALA Firm as well as in the case of Saradbhai M. Lakhani, the cases were reopened within four years on the basis of the judgment of the Supreme Court, therefore, the Supreme Court held that the judgment of the jurisdictional High Court would constitute an information. Since the assessments were reopened within four years from the end of the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has substituted a new section 147 which contains simplified provisions as follows:- (i) Separate provisions contained in clauses (a) and (b) of the old section have been merged into a single new section, which provides that if the Assessing Officer is of the opinion that income chargeable to tax for any assessment year has escaped assessment, he can assess or reassess the same after recording in writing the reasons for doing so. (ii) The requirements in the old provisions that the Income-tax Officer should have "reason to believe" or "information in possession" before taking action to assess or reassess the income escaping assessment, have been dispensed with. (iii) The existing legal interpretation that once an assessment has been reopened, any other income that has escaped assessment and comes to the notice of the Assessing Officer subsequently during the course of proceedings under this section can also be included in the assessment, has been incorporated in the new section itself. (iv) A proviso to the new section provides that an assessment, which has been completed under section 143(3) or 147, i.e., a scrutiny assessment, can be reopened after the expiry of four years fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax had escaped assessment within the meaning of section 147. While examining the provisions of section 147 for reopening the assessment, the Delhi High Court observed that the amended provisions of section 147 not only merges clauses (a) and(b) of the pre-amended section 147 but also brings about a significant change in the preliminary requirement of certain mandatory conditions before reassessment proceedings could be initiated under the old section. Under the old section 147(a), the Assessing Officer could initiate reassessment proceedings if he had reason to believe that income chargeable to tax had escaped assessment by reason of failure or omission on the part of the assessee to disclose fully and truly all material facts. In the original unamended section twin conditions are spelt out in clauses (a) and (b) of section 147 as conditions precedent for reopening. It is not so in the amended section. The only condition for action now is that the Assessing Officer should have reason to believe that the income has escaped assessment which belief can be reached in any manner, and is not qualified by the pre-condition of failure by the assessee to make full and true disclosure of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which accompanied the return of income discloses the interest on purchase of securities. Admittedly, the assessee all along claiming the interest payment as revenue expenditure. The Assessing Officer was continuously allowing the claim of the assessee as revenue expenditure, therefore, for these years also the assessee claimed the interest payment as revenue expenditure. In those factual circumstances, it is an admitted case of both parities that the assessee has furnished the entire particulars with regard to payment of interest on purchase of securities. Once the assessee furnished the entire particulars and the Assessing Officer has also for earlier assessment years accepted the claim of the assessee continuously, in our opinion, it cannot be said that there was a negligence on the part of the assessee in disclosing fully and truly the material facts required for completing the assessment. It is for the Assessing Officer to apply the law laid down by the Apex Court while completing the assessment. If there was a negligence or omission on the part of the Assessing Officer to apply the law laid down by Apex Court, it is open to the Assessing Officer to apply the law laid down by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed proportionate expenses relating to income on tax free investment. However, the CIT(A) allowed the claim of the assessee on the ground that the assessee without incurring any further expenditure towards salary, establishment, etc. could have earned income from tax free investments. During the course of hearing, it was pointed out that the provisions of section 14A was not examined by the lower authorities while deciding this issue. Therefore, it was prayed that the matter may be remitted back to the Assessing Officer for reconsideration of the issue in the light of the provisions of section 14A. We find some justification on the prayer made by both the parties. Admittedly, both the authorities below have not examined the provisions of section 14A. Therefore, in our opinion, the matter has to be re-examined in the light of the provisions of section 14A of the Income-tax Act. Accordingly, we set aside the orders of the lower authorities and remand back the issue to the file of the Assessing Officer. The Assessing Officer shall re-examine the issue in the light of the provisions of section 14A and thereafter decide the issue afresh in accordance with law after giving reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... works out to Rs. 14,182 only. Therefore, we set aside the orders of the lower authorities and remand back the issue to the file of the Assessing Officer to re-examine the issue afresh after considering the nature of the expenditure in our opinion, the actual nature of the expenditure has to be considered before deciding the issue one way or other. Accordingly, the Assessing Officer shall re-examine the issue in the light of the actual nature of expenditure and thereafter decide the issue afresh in accordance with law after giving reasonable opportunity to the assessee. 33. The next issue arises for consideration for the assessment years 1995-96 and 1996-97 in I.T.A. Nos. 1542(Mds)/99 and 767(Mds)/2000 is regarding lease charge. We heard the learned D.R. and the learned representative for the assessee. The assessee owned the safety lockers. Subsequently, the safety lockers were sold to ITC Classic Finance Ltd. for consideration of Rs. 67,50,000 on 20-3-1995. The Assessing Officer disallowed the claim of lease charges on the ground that sale and lease back transaction was arranged for tax avoidance. The CIT(A) after examining the factual situation found that if the lease and sale t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e surplus amount was not includible in the total income of the assessee since the surplus amount after adjusting the amount due was payable to the borrower. It is not in dispute that the assessee sold the pledged jewellery in realisation of the borrowed amount. Therefore, the excess amount realised in the auction proceedings would be the amount belongs to the borrower, therefore, there was an ascertainable liability to refund the amount to the respective borrowers. When the assessee received in excess in auction sale proceed coupled with ascertainable liability to refund the excess amount to the respective borrower, in our opinion, it cannot be treated as trading receipt. A similar view was taken by this Tribunal in the assessee's own case in I.T.A. No. 2842(Mds)/88 which became final. Therefore, we do not find any infirmity in the order of the lower authority on this issue. 35. The next issue arises for consideration is regarding subscription made by the assessee to SEBI. This issue arises for consideration for the assessment year 1996-97 in the Department's appeal in I.T.A. No. 767(Mds)/2000 and also in the assessee's appeal in I.T.A. No. 1406(Mds)/99 for the assessment year 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. We have carefully gone through the order of this Tribunal in I.T.A. No. 1161(Mds)/95. This Tribunal found that the difference between the provision made and the bad debt actually written off has to be allowed while computing the income of the assessee. At para 4 of the order dated 22-5-2003, this Tribunal observed as follows:- "Coming to the issue of deduction claimed under section 36(1)(viia), the arguments by both the parties have been considered. The assessee had filed various decisions of the Tribunal like Syndicate Bank v. DCIT [2001] 78 ITD 103; State Bank of Bikaner & Jaipur v. DCIT [1999] 65 TTJ 480; State Bank of Bikaner & Jaipur v. DCIT [2000] 74 ITD 203 and extracts from lading authors. These decisions have been filed by the assessee to impress upon the fact that the provisions of section 36(1)(vii) of the Act and section 36(1)(viia) of the Act read with Board's Circular dated 14-6-1979 indicate that both the sections run in a sequence. This is to suggest that in the event of deduction is allowed to the Bank on the basis of provision made, and in the year in which the actual write off is made and the amount so written off in the books exceeds the amount provided for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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