Case Note & Summary
The petitioner, HDFC Bank Ltd., a scheduled bank registered with RBI, filed its return of income for assessment year 2006-07 and claimed deductions under section 36(1)(viia) for provision for bad and doubtful debts and under section 36(1)(vii) for bad debts written off. The original assessment under section 143(3) was completed on 31 December 2008, allowing the deductions after scrutiny. Subsequently, on 26 March 2013, the Assessing Officer issued a notice under section 148 proposing to reopen the assessment on the ground that the deduction under section 36(1)(vii) should have been reduced by the provision allowed under section 36(1)(viia), leading to alleged escapement of income. The petitioner filed objections, which were rejected by order dated 19 August 2013. The petitioner then filed the present writ petition under Article 226 of the Constitution challenging the reopening notice and the rejection order. The court examined whether the reopening was based on a change of opinion or failure to disclose material facts. The court noted that during the original assessment, the Assessing Officer had specifically examined the claim for deduction under section 36(1)(viia) and 36(1)(vii) and had allowed the same after due consideration. The court held that the reopening was based on a mere change of opinion as there was no new tangible material and the petitioner had disclosed all primary facts. The court also observed that the Assessing Officer had not recorded any failure on the part of the petitioner to disclose material facts. Consequently, the court quashed the notice under section 148 and the order rejecting objections, allowing the writ petition.
Headnote
A) Income Tax - Reopening of Assessment - Section 147/148 - Reason to Believe - The Assessing Officer must have tangible material and a reason to believe that income escaped assessment; mere change of opinion on same facts does not justify reopening. (Paras 10-15) B) Income Tax - Bad Debts Deduction - Section 36(1)(viia) and 36(1)(vii) - Scheduled banks are entitled to deduction for provision for bad and doubtful debts and for bad debts written off; the deduction under section 36(1)(vii) must be reduced by the provision allowed under section 36(1)(viia). (Paras 3-5) C) Income Tax - Reassessment - Failure to Disclose - Section 147 - Where the assessee has disclosed all primary facts during original assessment, reopening on ground of inadequate deduction is not permissible without fresh tangible material. (Paras 16-20)
Issue of Consideration
Whether the notice under section 148 of the Income Tax Act, 1961 for reopening assessment for AY 2006-07 was valid, and whether the reassessment was based on a change of opinion or failure to disclose material facts.
Final Decision
Writ petition allowed. Notice dated 26 March 2013 under section 148 of the Income Tax Act, 1961 and order dated 19 August 2013 rejecting objections are quashed and set aside.
Law Points
- Reopening of assessment under section 147/148 of Income Tax Act
- 1961 requires tangible material and failure to disclose material facts
- mere change of opinion not sufficient
- deduction under section 36(1)(viia) and 36(1)(vii) for bad debts by scheduled banks
- scope of 'reason to believe'.
