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TMI Blog2021 (2) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... h bad in law. 2.2 The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the re-opening was based on existing material and evidences and not based on any new evidences 2.3. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the re-opening beyond 4 years is hit by the First Proviso to section 147. 2.4. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the matters with respect to which the additions have been made are subject matter of appeal before CIT(A) and Hon'ble ITAT and therefore they cannot be considered in the re-assessment proceedings in view of the Third Proviso to section 147. 3. The Assessee is a banking company carrying on business of banking. In its return of income filed for AY 2008-09 on 6.10.2010, the Assessee claimed deduction of a sum of Rs. 200,03,24,219 on account of Provision for Bad and Doubtful Debts in respect of rural advances, u/s. 36(1)(viia) of the Act. The provisions of Section 36(1)(viia)(a) of the Act lays down as follows: "viia) in respect of any provision for bad and doubtful debts made by - (a) a scheduled bank not being a bank incorporated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itled to 10% of the AARA as deduction u/s. 36(1)(viia) of the Act. Against the order of CIT(A), the revenue filed appeal before Tribunal in ITA No. 538/Bang/2012 and the said appeal was decided along with appeal ITA No. 673/Bang/2012 filed by the Assessee. In the said appeal in Ground No. 2 the Revenue projects the grievance of the Revenue against the order of the CIT(A) whereby the CIT(A) allowed the claim of the Assessee for deduction u/s. 36(1)(viia) of the Act of Rs. 192,57,72,764/- which according to the revenue was in excess of the provisions made in the accounts by the Assessee. It was the stand of the revenue that the deduction u/s. 36(1)(viia) of the Act ought to be allowed only to the extent provision is made in the books of accounts for bad and doubtful debts. The Tribunal by its order dated 27.2.2015 reversed the decision of the CIT(A) and restored the order of the AO by relying on the decision of the ITAT Bangalore Bench in the case of Canara Bank in ITA No. 58/Bang/2004 dated 9.6.2006 wherein it was held that after considering the decision of the ITAT in the case of Syndicate Bank 78 ITD 103(Bang) and the decision of the Hon'ble Punjab and Haryana High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge. However, the branches below are situated in places which are defined as urban agglomerate by the census of India 2001. They are places which are defined as town panchayat, municipality etc. The evidence gathered is placed on record. Sl. No : Name of branch 1. Gonikop pal 2. Bajpe 3. Thumbe 4. Manjeshwar 5. Belthangadi Further, in case of the following 12 branches, the population of the area exceeds 10,000. Therefore, the place cannot be said to be rural. The explanation (ia) to clause 36(i)(viia) reads as "rural branch means a branch of a scheduled bank or a non-scheduled Bank situated in a place which has a population of not more than 10,000 according to the last proceeding census of which the relevant figures have been published before the first day of the previous year. Sl. No. : Name of the branch 1. B.C. Road 2. Kankalitala 3. Duppalli 4. Kalichamaram 5. Moodlupalya 6. Nagnoor 7. Vamanjoor 8. Salvady 9. Mulki 10. Jakribettu 11. Halebedanur Hence, it is evident that the claim deduction u/s. 36(1)(viia) of Rs. 172,70,57,425/- was incorrect and the assessee has made excess claim u/s. 36(1)(viia) the IT Act, 1961. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng matters which are subject matter of any appeal. In other words, in respect of any matter which was subject matter of appeal, the Assessing Officer is debarred from re-assessing. In other words, the matters which got merged with the appellate orders cannot be re-assessed in the reopened proceedings. 7. The AO however held that the Assessee did not file population and location of rural branches in the course of original assessment proceedings. The places where the rural branches were located at a population exceeding 10,000 and that the bank had failed to disclose the necessary details. The AO also held that though the census data was available in the website, it was the duty of the assessee to have furnished necessary details. The AO also relied on the fact that in the course of assessment proceedings for Assessment Year 2010-11, verification of population of rural branches have been carried out and it turned out that many of the rural branches had population in excess of 10,000. The AO also relied on certain judicial pronouncements in support of his conclusion on the validity of initiation of reassessment proceedings. The AO also rejected the contention of the assessee that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision has been overruled by a subsequent decision in the case of Indian & Eastern Newspaper Society vs CIT 119 ITR 986, in which Hon'ble Supreme Court held that power to re-open does not include power to review. This has been further reiterated by the Apex Court in ALA Firm vs CIT 183 ITR 285. It was contended that the Assessing Officer was therefore not right in holding that he can review the order of the previous assessing officer. 10. It was submitted that the Assessing Officer in the reasons recorded has noted that some of the branches are located in place which are defined as town panchayat, municipality etc., as per the census data. Therefore, these branches cannot be treated as rural branches. Further, he has also observed that in the case of 12 branches the population of the area exceeded 10000 and therefore, they cannot be treated as rural. It was contended that both the above observations are based on incorrect appreciation of law and factually not correct. The Assessee pointed out that the term rural branch is defined in the Act. The definition reads as follows: "(ia) "rural branch" means a branch of a scheduled bank [or a non-scheduled bank situated in a place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demonstrate that the branches considered by the Assessing Officer in the reasons recorded before issuing notice u/s. 148 of the Act are only rural branches and the conclusion of the Assessing Officer that they are non rural branches is without any basis and is erroneous. The Assessee thus submitted that the entire recorded reasons are based on Surmises and conjunctures and as such, the re-opening based on the same is not tenable. 12. In support of the claim of the Assessee that the initiation of reassessment is not valid owing to the prohibition in the 3rd proviso to Sec. 147 of the Act, the Assessee relied on the following decisions: ICICI Bank Ltd. vs DCIT [2012] 246 CTR 292 (Bom.) CIT vs Reliance Energy Ltd. [2013] 214 Taxman 64 (Bombay) CIT vs Nirma Ltd. [2014] 47 taxmann.com 415 (Gujarat) ACIT vs Major Deepak Mehta [2012] 344 ITR 641 (Chattisgarh) ACIT vs BSES Ltd. & ors 2011 (9) TMI 135 - ITAT Mumbai 13. The CIT(A) did not agree with the contentions put forth by the assessee and he upheld the order of the AO. He held that the Assessee had wrongly disclosed non-rural branches as rural branches and made provision for bad and doubtful debts and claimed deduction u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia) of the Act was a sum of Rs. 200,03,24,219/-. The AO was of the view that as laid down by the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala Vs. CIT 272 ITR 53 (P & H), claim for deduction u/s. 36(1)(viia) of the Act can be granted only to the extent provision for bad and doubtful debts is debited in the profit and loss account. The deduction to be allowed cannot be greater than the amount debited to the profit and loss account as provision. The AO rejected the plea of the Assessee that 10% of Average Advances of Rural Branches (AARA) can be granted as ad hoc deduction irrespective of the provision created and debited in the profit and loss account. The AO therefore disallowed a sum of Rs. 192,57,72,764/- (Difference between Rs. 200,03,24,219 and Rs. 7,45,51,455). The CIT(A) by order dated 19.1.2012, deleted the addition made by the AO. Against the order of CIT(A), the revenue filed appeal before Tribunal in ITA No. 538/Bang/2012 and the Tribunal by its order dated 27.2.2015 reversed the decision of the CIT(A) and restored the order of the AO. In the first round of proceedings the AO did not question the correctness of the classification by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court. The Hon'ble Court after examining various decisions held as follows: "38. It is beneficial to refer to the CBDT circular dated 17.01.2013 issued by the Government of India, Ministry of Finance, Department of Revenue wherein, it is clarified thus: "[b] It has also been brought to notice that it is a common practice in the software industry to depute Technical Manpower abroad [at the client's place] for software development activities [like upgradation, testing, maintenance, modification, trouble- shooting etc.,], which often require frequent interaction with the clients located outside India. Due to the peculiar nature of software development work, it has been suggested that such deputation of Technical Manpower abroad should not be considered detrimental to the benefits of the exemption under Sections 10A, 10AA and 10B merely because such activities are rendered outside the eligible units/undertakings. The matter has been examined. Explanation 3 to sections 10A and 10B and Explanation 2 to section 10AA clearly declare that profits and gains derived from 'services for development of software' outside India would also be deemed as profits derived from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue from foreign companies for deputing the technical members independent of software development work. 42. For the reasons aforesaid, this Court is of the opinion that there was no material on record before the Assessing Authority to establish failure on the part of the assessee to disclose truly and fully the relevant material while passing the original assessment order under Section 143[3] of the Act and as such the respondent authority had no jurisdiction to invoke Section 147 and 148 of the Act for the assessment years in question. Writ petitions are allowed. The impugned notices at Annexure-E dated 30.03.2011 [Assessment Year 2004-05], Annexure-F dated 01.03.2012 [Assessment Year 2005-06] and Annexure-E dated 13.09.2012 [Assessment Year 2006-07] issued under Section 148 read with Section 147 of the Act as well as the orders passed by the respondent - Deputy Commissioner of Income Tax, Circle-11[4], Bengaluru rejecting the preliminary objection as to his jurisdiction in the respective writ petitions are quashed." (Emphasis supplied) 18. Two aspects that emerge from paragraph-40 of the aforesaid decision of the Hon'ble High Court that is relevant for the present ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 310 (Karna) and hence the reference to the said decision by the CIT(A) is not of any use. Regarding the decision of the Hon'ble Kerala High Court in the case of Popular Vehicles & services Ltd. (2010) 19 taxmann.com 333 (ker), the same is contrary to the law laid down by the Hon'ble Supreme Court in the case of Kelvinators India Ltd. (supra). 21. As far as the applicability of the third proviso to section 147 of the Act is concerned, 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Suffice to say that on facts and in law the issue having merged with the orders of ITAT was not amenable for reassessment". 22. The aforesaid decision is squarely applicable to the facts of the appellant bank case. In this case also, the 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. The decision of the ITAT, Mumbai Bench, in the case of Reliance Energy Ltd., Vs. DCIT (2010) 40 SOT 314 (Mum) on similar lines also supports the plea of the assessee in this regard. 23. For the reasons given above, we allow grounds raised with regard to validity of initiation of reassessment proceedings u/s. 147 of the Act and hold that the proceedings u/s. 147 of the Act were not validly initiated. Therefore, order of the reassessment is liable to be annulled and is hereby annulled. Since the re-assessment order has been annulled, the other grounds raised by the Assessee in its appeal and by the Revenue in its appeal do not require any adjudication. 24. In the result, the appeal of the assessee is allowed while ..... X X X X Extracts X X X X X X X X Extracts X X X X
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