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TMI Blog2022 (3) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... as well. When the revenue voiced its concern, the petitioner, as the record indicates, revived the claim for deduction under section 36(1)(viia). We have delved into the matter in a greater detail to satisfy ourselves that the assessee has not had unjustified deduction. In the affidavit-in-reply, an endeavour was made to demonstrate that the random verification of the branches revealed that the assessee had incorrectly claimed as many as eight non-rural branches as rural branches (Paragraph No. 16 of the affidavit-in-reply). We have compared the said information with the list of branches furnished by the assessee along with the letter dated 26th November 2007, during the course of the original assessment. Except the branch at Palakkad, District Palakkad, Kerala, none of the rest seven branches was claimed by the assessee as rural branch for the assessment year 2006-07. We also notice that along with the annexure to the said letter, the assessee had furnished copies of the license issued by the RBI to open a branch at the rural centre, Chandranagar, in Palakkad District, Kerala. It seems that the respondents have considered the branch at the Palakkad District Headquarters i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rural branches of the petitioner. (b) The petitioner is also entitled to deduction under section 36(1)(vii) of bad debts which is written off as irrecoverable in the accounts of the petitioner for the previous year. However, in computing the deduction under section 36(1)(vii), the bad debts which are written off as irrecoverable are required to be reduced to the extent of the provision of bad and doubtful debt which was allowed to the petitioner under clause (viia), in earlier assessment year. (c) In the light of the aforesaid tax regime, on 27th November 2006, the petitioner filed return of income declaring a total income of ₹ 10,69,47,48,495/-, inter-alia, after claiming deduction under section 36(1)(viia) of ₹ 96,87,97,764/- being 7 % of the total income and 10% of the average rural advances. The petitioner also claimed deduction of bad debts under section 36(1)(vii) of the Act aggregating to ₹ 418.60 Crores. The said amount of ₹ 418.60 Crores was arrived at after reducing the provision allowed under section 36(1)(viia) of the Act in the earlier assessment years which had not been adjusted by then. (d) During the course of the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 2006-07, on the premise that he had reason to believe that income had escaped assessment within the meaning of section 147 of the Act, 1961. Upon being requested, the AO furnished the reasons in the nature of the order-sheet, dated 26th March 2013, for the proposed reopening. (i) The AO premised the justification for reassessment on the ground that during the assessment proceedings for assessment year 2010- 11, when the assessee was called upon to submit details of rural branches and advances in justification of its claim for deduction under section 36(1)(viia), the assessee had withdrawn/given up the claim of deduction under section 36(1)(viia) and the assessee revised its return for assessment year 2011-12 also giving up its claim for deduction under section 36(1)(viia). Nonetheless, during the assessment proceeding for the year 2011-12, it was found that many branches projected as rural by the assessee were not, in fact, rural branches, within the meaning of section 36(1)(viia) of the Act, 1961. The AO, thus, concluded that since the assessee had claimed incorrect deduction under section 36(1)(viia), the assessee was likely to have claimed incorrect deduction under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 on the same ground on which the impugned notice was issued, in respect of assessment year 2006-07. However, the petitioner had not assailed those notices for reopening. The respondents have further contended that the deduction claimed by the petitioner by projecting its non-rural branches as rural branches can, by no stretch of imagination, be construed as a true disclosure of material facts relevant for the assessment. As the subsequent enquiry revealed such mis-classification of branches, the AO was justified in reopening the assessment. 6. An affidavit-in-rejoinder was filed on behalf of the petitioner to meet the grounds raised by the respondents in the affidavit-in-reply. 7. We have heard Mr. J.D. Mistri, the learned Senior Counsel for the petitioner, and Mr. Suresh Kumar, the learned counsel for the respondents-revenue. With the assistance of the learned counsel for the parties, we have carefully perused the material on record including the previous assessment orders for the assessment year 2006-07, notices issued during the course of those assessment proceedings and response thereto on behalf of the petitioner. 8. Mr. Mistri, the learned Senior Counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the AO to suffer another round of arbitrary assessment, especially when the issues, on which the assessment is sought to be reopened, were fully considered and a conclusive view was recorded thereon. 11. The legal position as regards the assessment or reassessment under section 147 of the Act, 1961 as it stood before it suffered the amendment under the Finance Act, 2021, is well crystallized. Section 147 enables the AO to assess or reassess any income chargeable to tax, which he had reason to believe, has escaped assessment in an assessment year. The existence of the reason to believe that income chargeable to tax has escaped assessment is a jurisdictional condition for invoking the power under section 147 of the Act, 1961, both within and beyond the period of four years from the end of the relevant assessment year. The AO is, therefore, statutorily enjoined to record reasons and obtain the approval of the Competent Authority, before a notice to reopen the assessment under section 148 of the Act, 1961 is issued. Additionally, where the assessment is proposed to be reopened beyond the period of four years, and there has been an assessment under section 143(3) of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se provisions, it has to be seen as to what was the nature of the deduction claimed by the assessee for the assessment year 2006-07. Under the initial return of income filed by the assessee for assessment year 2006-07, the petitioner had claimed deduction under section 36(1)(viia) to the tune of ₹ 96,87,97,764/-. On 12th September 2007, the AO sought information / clarification under section 143(3) of the Act, 1961. As regards the deduction claimed under section 36(1)(viia), the AO had solicited, inter-alia, information under query No.13. In response thereto, the assessee, by letter dated 16th November 2007, had furnished following particulars : (i) Details of deduction claimed under section 36(1) (viia); (ii) List of rural branches with copies of licenses; (iii) Copy of the relevant extract of RBI master circular on branch authorization. 15. At this juncture, we must note that the assessee had furnished copies of the orders/communication issued by the RBI authorising the assessee to open the rural branches of which the list was furnished as annexure-1 to the said reply dated 16th November 2007. It is imperative to note that on 19th December 2008, the AO pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record so that the assessee does not derive an unjust benefit on the strength of unjustified claims as regards the nature of the branch. 20. The revenue assailed the disclosure as incomplete by pressing into service a submission that the mere classification of the branches as rural by RBI was not enough. In view of the Explanation (ia) to clause (viia), to claim benefit thereunder, it was necessary to demonstrate that the branch was situated in a place which had a population of not more than ten thousand, according to the last preceding census. 21. This submission raises the issue of the nature of the disclosure expected of an assessee. In the facts of the case, the question would be, whether the assessee was under an obligation to place on the record further material as regards the population of the particular place where the rural branch was opened pursuant to a license issued by the RBI ? 22. There can be no duality of opinion that it is the assessee s duty to disclose all primary facts. Once the assessee discloses all the primary facts, the inferences to be drawn thereon is a matter within the exclusive province of authority of the AO. This duty of assessee does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to the Conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this. (emphasis supplied) 24. On the aforesaid touchstone, reverting to the facts of the case, first and foremost, the assessee cannot be said to have made a selective disclosure. Since the list of the rural branches, as claimed by the assessee, along with the supporting documents was placed before the AO, it was the duty of the AO to examine whether the places where the branches were opened by the assessee, had population below the threshold prescribed under clause (ia) of the Explanation to clause (viia) of section 36(1). The assessee was not expected to place even census data and collate the information. It was for the AO to examine the matter, collate the information and thereafter draw necessary inference. Secondly, the AO had the opportunity to examine the issue as to whether the branches projected as rural satisfied the description prescribed under clause (ia) of the Explanation, not once but twice. What accentuates the situation is the fact that the specific queries were raised, information solicited and, thereafter, the deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted to the Commissioner for obtaining prior approval. Whereas, the non-mention of the mis-classification of branches, in the backdrop of the population, was sought to be met by recording in the order on objection that though the branches were initially classified as rural based on the license issued by RBI, yet, in the census 2001, the population of those places might have exceeded the threshold of ten thousand and those places would have ceased to be rural . None of these explanations deserves countenance. 29. The first explanation does more harm than good to the interest of the revenue as it gives heft to the submission of Mr.Mistri that variance in the reasons recorded in the Order-Sheet (furnished to the petitioner) and those submitted to the Commissioner erodes the credibility and sanctity of those reasons and the entire exercise of reopening the assessment. The second explanation falls foul of the fundamental principle that the notice for reopening the assessment is to be tested on the reasons which weighed with the AO. There is no room for supplementing or substituting those reasons. 30. The position which thus emerges is that the assessee had placed all the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o notice that along with the annexure to the said letter, the assessee had furnished copies of the license issued by the RBI to open a branch at the rural centre, Chandranagar, in Palakkad District, Kerala. It seems that the respondents have considered the branch at the Palakkad District Headquarters in support of their claim that there was misclassification of the branch though, in fact, a rural branch was opened at Chandranagar in Palakkad District, Kerala. 33. The last submission on behalf of the revenue that the petitioner had not assailed the reopening of the assessment for the assessment years 2007-08, 2008-09 and 2009-10 on the same ground and, eventually, orders were by the ITAT in the context of the final assessment orders post reopening of the assessment in respect of those assessment years, though appears alluring at the first blush, yet does not advance the cause of the revenue. Once, it is held that the jurisdictional condition for invoking the power under section 147 is not satisfied for a particular assessment year, the notice for reopening cannot be sustained. Then, it does not matter that the assessee did not assailed the notice for reopening in respect of prece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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