Relief To HDFC Bank: Bombay High Court Quashes Reassessment Notice As Jurisdictional Condition Not Satisfied

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 petitioner/ assessee is engaged in the business of banking. The petitioner 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.

The jurisdictional Assessing Officer issued a notice under section 148 of the Act, 1961 proposing to reopen the assessment. The Assessing Officer was of the view 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.

The petitioner avered, 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 aspect of alleged mis-classification of 'non-rural' branches as 'rural' branches was specifically raised and enquired into by the AO. Thus, there was no reason for forming the belief that the income escaped assessment on account of failure to disclose fully and truly all material facts necessary for assessment, even remotely. At any rate, the said belief rested solely on the change of the opinion by the jurisdictional AO, who issued the impugned notice, on the same set of facts.

Counsel for the petitioner, urged with a degree of vehemence, that the impugned action manifests arbitrariness of highest order.

It was further submitted on behalf of the petitioner that an inference becomes inescapable that the AO had not recorded the reasons before obtaining the approval of the Competent Authority or, at any rate, the very reasons which were furnished to the petitioner were not placed before the Competent Authority and, thus, the impugned action is wholly vitiated.

Counsel on behalf of the revenue submitted 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.

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.

Case Title: HDFC Bank Ltd. Versus Assistant Commissioner of Income-tax-2(3)

Citation: 2022 LiveLaw (Bom) 61

Case No.: Writ Petition No. 1787 Of 2014

Counsel for Petitioner: Senior Advocate J.D. Mistri, along with Advocate Madhur Agrawal

Counsel for Respondent: Advocate Suresh Kumar

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