A division bench of the Bombay High Court has invalidated a re-assessment order passed by the income tax department against HDFC Bank as the jurisdictional condition for invoking the power under section 147 of the Income Tax Act was not satisfied.
The petitioner, HDFC Bank has numerous branches across India. The petitioner, being a scheduled bank and having branches in rural areas, is entitled to deduction under section 36(1) (viia) of the Act, 1961 for bad and doubtful debts equivalent to 71⁄2 % of the total income and 10% of the aggregate average advances made by the rural branches of the petitioner.
During the relevant year, the Assessing Officer issued a notice under section 148 of the Act, 1961 proposing to reopen the assessment by observing that there was failure to take into account the enhanced deduction under section 36(1)(viia) while allowing the deduction towards bad debts in assessment year 2006-07, and, thus, he had reason to believe that income had escaped assessment for assessment year 2006-07. Eventually, an assessment order was passed under section 143(3) read with section 147 of the Act, 1961 revising the total income.
Counsel for the petitioner, urged with a degree of vehemence, that the impugned action manifests arbitrariness of highest order.The petitioner submitted that since the notice came to be issued beyond four years of the end of the assessment year 2006-07, and assessment under section 143(3) of the Act, 1961 had been effected, not once but twice, the resort to the provisions contained in section 147 of the Act was impermissible unless there was failure on the part of the petitioner to disclose fully and truly all the material facts for the purpose of the assessment.
The division bench of Justice N.J.Jamadar and Justice K.R.Shriram has observed that 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 preceding or succeeding years.
The court noted that it is trite law that once the AO on consideration of the material on record and the explanation offered, arrives at a final conclusion that the assessee is entitled to the deduction as claimed then, on the basis of the very same material, the AO cannot form a prima facie opinion that the deduction is not allowable and accordingly reopen the assessment on the ground that income chargeable to tax has escaped assessment.
HDFC BANK LTD. vs Assistant Commissioner of Income-tax-2(3)
CITATION: 2022 TAXSCAN (HC) 135
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