Official Judicial Order
Verbatim JudgmentAuthor: S.S.Sundar
Bench: S.S.Sundar, C.Saravanan
T.C.A.No.760 of 2008
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 19.02.2025
CORAM :
THE HONOURABLE MR.JUSTICE S.S.SUNDAR
and
THE HONOURABLE MR.JUSTICE C.SARAVANAN
T.C.A.No.760 of 2008
Commissioner of Income Tax,
Chennai. ... Appellant
Vs.
M/s.Indbank Merchant Banking
Services Limited,
rd
3 Floor, Krest Building,
No.2, Jehangir Street,
Second Line Beach,
Chennai – 600 001. ... Respondent
Prayer: Appeal under Section 260A of the Income Tax Act, 1961, against the
order of the Income Tax Appellate Tribunal, Madras “A” Bench, Chennai dated
30.11.2007 in I.T.A.No.915/Mds/2006 for the Assessment Year 1997-1998 and
for setting aside the same.
For Appellant : Mr.Avinash Krishnan Ravi
and Mr.T.Ravikumar
Senior Standing Counsel
For Respondent : Mr.G.Baskar
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1/20
T.C.A.No.760 of 2008
JUDGMENT
(Judgment of this Court was delivered by C.SARAVANAN, J.) The present appeal has been admitted on 08.07.2008. Following substantial questions of law were framed for answering in this appeal:
i. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the reopening beyond four years is bad in law, merely because the schedule to the accounts contained the fact of non- recognition of certain income, inspite of Explanation 1 to Section 147 of the Income Tax Act?
ii. Whether income from non-performing assets can be offered only on cash basis, even though the assessee is following a mercantile system of accounting?
2. By the Impugned Order dated 30.11.2007, the Appellate Tribunal had partly allowed/partly dismissed I.T.A.(TR) No.59/2005- 2006/I.T.A.No.76/2005-2006 filed by the respondent / assessee against the Assessment Order dated 07.03.2006 of the Appellate Commissioner, against the Assessment Order dated 28.03.2005 passed under Section 143(1) of the Income Tax Act, 1961.
3. The Appellate Commissioner had allowed the aforesaid appeal of the respondent / assessee against the Assessment Order dated 07.03.2006 insofar as https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/03/2025 05:08:17 pm ) i. Non-Recognition of Income from Non-Performing Assets for Rs.4,38,95,858/- by following order dated 01.12.2004. ii. Expenditure relatable to exempt income for Rs.30,58,660/-.
4. The dispute pertains to the Assessment Year 1997-1998. The respondent / assessee had filed a return of income on 25.11.1997. In the return of income, the respondent / assessee had declared a loss of Rs.4,85,81,394/-. The said return was processed under Section 143(1)(a) of the Income Tax Act, 1961 on 01.07.1998. An amount of Rs.5,94,33,892/- was added to the taxable income. It appears, the appellant had filed I.T.A.No.171/1998-1999 dated 22.01.1999. The Appellate Commissioner vide Order dated 22.01.1999 opined that Assessing Officer was free to examine the issue in the regular Assessment.
5. Thereafter, a scrutiny assessment order was passed on 14.03.2000 under Section 143(3) of the Income Tax Act, 1961 whereby, the net taxable income of the respondent / assessee was determined as Rs.4,59,19,240/-. In the aforesaid scrutiny assessment order, the following income were added:-
Heads Amount
Amount written off as income Rs.5,94,33,892/-
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Heads Amount
towards Non-Preferential Assets
Lease Income towards Lease Rs.3,50,66,737/-
Equalization
Total Rs.9,45,00,629/-
6. Thus, the total income of the respondent / assessee was determined as Rs.5,94,33,892/- + Rs.3,50,66,737/- - Rs.4,85,81,394/- = Rs.4,59,19,235/- (Rs.4,59,19,240/-)
7. It appears that earlier against the order dated 01.07.1998 passed under Section 143(1)(a) of the Income Tax Act, 1961, the respondent / assessee had filed an appeal in I.T.A.No.171/1998-1999. The Appellate Commissioner by an Order dated 22.01.1999 in I.T.A.No.171/1998-1999, held that the issue was debatable and cannot form part of the assessment under Section 143(1) of the Income Tax Act, 1961 and opined that the Assessing Officer was however, free to examine the issue in the regular assessment. It is, in the course of the regular assessment on the aforesaid sum of Rs.5,94,33,892/-, a sum of Rs.3,50,66,737/- was added from lease income towards lease equalization.
8. On the aforesaid sum, the respondent / assessee was required to pay https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/03/2025 05:08:17 pm ) the following amounts toward tax as detailed below:-
Income-tax @ 40% Rs. 1,83,67,696/-
ADD Sur-charge @ 7.5% Rs. 13,77,577/-
Rs. 1,97,45,273/-
LESS TDS credit Rs. 24,46,717/-
Rs. 1,72,98,556/-
LESS Advance tax paid Rs. 96,75,000/-
Tax payable Rs. 76,23,556/-
ADD 234-B interest Rs. 54,88,920/-
234-C interest Rs. 1,64,647/-
Tax payable Rs. 1,32,77,123/-
LESS Demand raised under Rs. 35,72,030/-
Section 143(1)(a) dated
01.07.1998
Additional Tax Rs. 97,05,093/-
9. Meanwhile, the assessment was reopened by issuance of a Notice dated 16.03.2004 under Section 148 of the Income Tax Act, 1961, which ultimately culminated in a Re-Assessment Order dated 28.03.2005 wherein, the following taxable income of the respondent / assessee was redetermined:-
1. income from the alleged non-performing assets - Rs.4,38,95,858/-
2. The expenditure relatable to exempt income - Rs.3,05,86,604/-
3. The expenses disallowed - Rs.31,13,223/- (as dealt in order dated 28.03.2002 for the Assessment Year 1996-1997).
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4. write off amount - Rs.1,32,56,081/-
10. Thus, total income of the respondent / assessee was redetermined as follows:-
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11. As mentioned above, on further appeal, the Appellate Commissioner in I.T.A.(TR) No.59/2005-2006 (I.T.A.No.76/2005-2006) vide order dated 07.03.2006, partly allowed and partly dismissed the appeal of the respondent / assessee.
12. Snapshot of the order of the Appellate Commissioner is summarized in the following table:-
Grounds Heading Order Result
Ground No.1 Non-recognition The Assessing Officer is Allowed
of income from directed to delete the addition non-performing made on account of income assets from Non-performing assets and modify the order. This ground of appeal is Allowed.
Ground No.2 Expenditure The Assessing Officer is Allowed
relatable to directed to modify the order.
exempt income This ground of appeal is
Allowed.
Ground No.3 Disallowance of Having regard to the sum Dismissed
depreciation totality of facts, the Appellate
Commissioner therefore
confirmed the order of the
Assessing Officer. This ground
of appeal is Dismissed.
Ground No.4 Disallownace The appellant has not been able Dismissed
under Section to file any evidence in support
35D of this claim at the appeal stage.
Resultantly, the disallowance
made is hereby confirmed. This
ground of appeal is dismissed.
Ground No.5 Additional In the order under appeal, the Dismissed
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Grounds Heading Order Result
Ground Assessing Officer has addressed
the issue at great length and
justified the issue of notice
under Section 148 dated
16.03.2004. Further it has also
been found from the records that
notice under section 143(2) in
this case was issued on
24.08.2004 and served on the
assessee on 26.08.2004 in
responde to which Shri
Mukundan, Vice President of
the company attended the
hearing before the Assessing
Officer on 09.09.2004. For the
reasons stated, the additional
ground raised is Dismissed.
13. Aggrieved by the same, both the appellant herein and the respondent filed Appeals in I.T.A.No.1732/Mds/2006 and I.T.A.No.915/Mds/2006 respectively before the Appellate Tribunal.
14. The Appellate Tribunal has allowed the respondent / assessee's appeal and dismissed the appellant's appeal. In other words, the additions made in the assessment order dated 28.03.2005 pursuant to Notice dated 16.03.2004 issued under Section 148 of the Income Tax Act, 1961 with the approval of the Commissioner dated 24.08.2004 has been completely reversed by the Appellate Tribunal.
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15. The Appellate Tribunal has allowed the appeal of the respondent / assessee and dismissed the appeal of the appellant Department on the ground that there was no failure on the part of the respondent / assessee to truly and fully disclose all material facts necessary for determining the tax in the light of the decision of this Court in Commissioner of Income Tax Vs. Elgi Finance Company Limited, 286 ITR 674 and that of the decision of the Hon'ble Supreme Court in Commissioner of Income Tax Vs. Foramer France, 264 ITR 566.
16. Learned counsel for the appellant Income Tax Department has stated that what was added to the income of the respondent / assessee was a sum of Rs.5,94,33,892/- vide Order dated 14.03.2000 and lease equalization of Rs.3,50,66,737/- and after deducting / reducing the admitted loss of Rs.4,85,81,394/-, the taxable income was arrived at Rs.4,59,19,235/-. It is submitted that the respondent / assessee had failed to disclose all the facts that all income has not been recognized from certain advances as detailed above in the table, which have been allowed.
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17. It is submitted that the Appellate Tribunal has only referred to the 1st proviso to Section 147 of the Income Tax Act, 1961 but has ignored Explanation 1 to Section 147 of the Income Tax Act, 1961. It is submitted that mere production of Books of Account or other evidence from which material evidence could be gathered with due diligence or discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of 1st Proviso to Section 147 of the Income Tax Act, 1961. Hence, submits that the Impugned Order of the Tribunal has to be set aside.
18. Learned counsel for the appellant has placed reliance on the following decisions:-
i. Phool Chand Bajrang Lal and others V. Income Tax Officer and others, [1993] 203 ITR 456 (SC) ii. Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and others, [1961] 41 ITR 191 (SC) iii. Amin's Pathology Laboratory Vs. P.N.Prasad and others, [2001] 252 ITR 673 (Bom.) iv. T.N.Power Finance and Infrastructure Development Corporation https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/03/2025 05:08:17 pm ) Limited Vs. Joint Commissioner of Income Tax, (2006) 280 ITR 491. v. First Leasing Company of India Limited Vs. Assistant Commissioner of Income Tax, Company Circle-II (1), 2019 SCC OnLine Mad 5429. vi. Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Private Limited, [2007] 291 ITR 500 (SC). vii. Southern Technologies Limited Vs. Joint Commissioner of Income Tax, Coimbatore, [2010] 320 ITR 577 (SC).
viii. Sundaram Finance Limited Vs. Assistant Commissioner of Income Tax, Chennai, [2012] 349 ITR 356 (SC).
ix. Aparanjitha Finance Co. Limited Vs. The Joint Commissioner of Income Tax Special Range-II, Madurai, 2015 SCC Online Mad. 1999. x. Commissioner of Income Tax, Kolkata-II, Kolkata Vs. Universal Industrial Fund Limited, 2015 SCC OnLine Cal 5686. xi. Principal Commissioner of Income Tax-6 Vs. Khyati Realtors Private Limited, [2022] 447 ITR 167 (SC).
xii. Commissioner of Income Tax, Kolkata-II, Kolkata Vs. M/s.Arco Impex Limited, 2017 SCC OnLine Cal 9156.
xiii. Commissioner of Income Tax Vs. Sakthi Finance Limited, [2013] 352 ITR 102 (Mad.).
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19. Learned counsel for the respondent / assessee has relied on the decisions of the Courts in the following cases:-
i. Assistant Commissioner of Income-tax V. CEAT Limited, [2023] 146 taxmann.com 108 (SC).
ii. Commissioner of Income Tax Vs. ECO Media (P) Limited, (2012) 81 CCH 0085 ChenHC.
iii. Commissioner of Income Tax Vs. BAER shoes (India) (P) Limited, (2011) 331 ITR 0435.
iv. Commissioner of Income Tax Vs. M/s.Indbank Merchant Banking Services Limited in T.C.A.Nos.2097 to 2099 of 2008 dated 30.07.2019.
20. Defending the Impugned Order, the learned counsel for the respondent / assessee submits that there was no failure on the part of the appellant Income Tax Department to disclose any material evidence for completing the assessment either before the return was processed under Section 143(1)(a) of the Income Tax Act, 1961 on 01.07.1998 or in the course of Assessment Order dated 14.03.2000 under Section 143(3) of the Income Tax Act, 1961 pursuant to Order of the Commissioner of Income Tax (Appeals) or the Appellate Commissioner dated 22.01.1999 in I.T.A.No.171/1998-1999. https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/03/2025 05:08:17 pm )
21. Learned counsel for the respondent / assessee took us through the return of income filed by the respondent / assessee under Section 139 of the Income Tax Act, 1961 on 25.11.1997 and Part-VI attaching the list of documents / statements appended to the return of income filed on 25.11.1997.
22. It is submitted that since the respondent / assessee had taken a bona fide stand that not only a sum of Rs.594.33 lakhs (Rs.5,94,33,892/-) was not recognized as per the prudential norms of the Reserve Bank of India (RBI) but also a sum of Rs.438.96 lakhs comprising of Rs.179.12 lakhs under leasing, Rs.201.34 lakhs under Hire Purchase, Rs.17.50 lakhs under interest on Debentures and Rs.41 lakhs under interest on Inter Corporate Deposit was not recognised as income in the current year.
23. It is submitted that in the return that was processed under Section 143(1) of the Income Tax Act, 1961 itself, the aforesaid sum of Rs.594.33 lakhs was added and that the Appellate Commissioner vide Order dated 22.01.1999 in I.T.A.No.171/1998-1999 against the return that was processed under Section 143(1)(a) of the Income Tax Act, 1961 on 01.07.1998, given liberty to the Assessing Officer to examine the issue in the regular assessment. https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/03/2025 05:08:17 pm )
24. It is submitted that during the regular assessment, all the informations were available and there was no suppression of any information that was required for completing the assessment under Section 143(3) of the Income Tax Act, 1961.
25. Learned counsel for the respondent / assessee also referred to the Annual Report of the Financial Year 1996-1997 for the relevant Assessment Year 1997-1998 wherein in Schedule-M in the notes of accounts, the above details were furnished and it is based on the Scheme, the Assessing Officer while processing the return under Section 143(1) of the Income Tax Act, 1961, had included a sum of Rs.594.33 lakhs vide Order dated 01.07.1998.
26. Thus, it is submitted that in the Assessment Order that was passed on 14.03.2000, the Assessing Officer added a sum of Rs.3,50,66,737/- being the amount that was deducted from the Lease Income towards Lease Equalization.
27. Learned counsel for the respondent / assessee also drew attention to Order passed under Section 154 of the Income Tax Act, 1961 on 08.06.2000 and had ordered refund of Rs.21,51,179/- taking note of Tax Free Bonds for a https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/03/2025 05:08:17 pm ) sum of Rs.3,05,86,604/-, and computed the aforesaid refund of Rs.21,51,179/- under Section 115JA of the Income Tax Act, 1961. He also drew attention the following calculation in Section 154 Order dated 08.06.2000:-
Heads Amount
Total Income Rs.1,28,74,400/-
Income-tax thereon @ 40% Rs. 51,49,760/-
Add : Surcharge @ 7.5% Rs. 3,86,232/-
Rs. 55,35,992/-
Less : TDS Credit given Rs. 25,76,787/-
Rs. 29,59,205/-
Less : Advance-tax paid Rs. 96,75,000/-
Refund Rs. 67,15,795/-
Less : 234-C Interest (as per NIL
143(1)(a) dated 01.07.1998)
Less : Additional Tax levied Rs. 51,56,960/-
under Section 143(1)(a) dated
01.07.1998
Refund Rs. 15,58,835/-
Add : Interest under Section 244- Rs. 5,92,344/-
A @ 1%
Total Refund Rs. 21,51,179/-
28. We have heard the learned counsel and learned Senior Standing Counsel for the appellant and the learned counsel for the respondent.
29. We are of the view that although the petitioner had failed to include a https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/03/2025 05:08:17 pm ) sum of Rs.5,94,33,892/- in the return that was filed on 25.11.1997, the Assessing Officer had included the same while processing the return on 01.07.1998 under Section 143(1)(a) of the Income Tax Act, 1961.
30. The aforesaid income of Rs.5,94,33,892/- was obtained by the Assessing Officer while passing the aforesaid order under Section 143(1)(a) of the Income Tax Act, 1961 on 01.07.1998 from the Annual Report filed by the respondent / assessee for the relevant Financial Year 1996-1997 and for the relevant Assessment Year 1997-1998.
31. As mentioned elsewhere above, the amount of Rs.438.96 lakhs which was added in the Re-Assessment Order dated 28.03.2005 was the 1st item which was left out by the Assessing Officer while including the aforesaid sum of Rs.5,94,33,892/- in the Order dated 01.07.1998 under Section 143(1)(a) of the Income Tax Act, 1961.
32. The option that was available at that point of time was to invoke jurisdiction under Section 263 of the Income Tax Act, 1961 as the Assessment Order that was passed on 14.03.2000 under Section 143(3) of the Income Tax Act, 1961, was both prejudicial to the interest of Revenue and erroneous. https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/03/2025 05:08:17 pm )
33. Instead, an order came to be passed under Section 154 of the Income Tax Act, 1961 on 08.06.2000 by computing the income under Section 115JA of the Income Tax Act, 1961, resulting in refund of Rs.21,51,179/-.
34. Against the aforesaid Order also, the appellant had the remedy under Section 263 of the Income Tax Act, 1961 as it resulted in wrongful refund of Rs.21,51,171/- to the respondent / assessee.
35. Although Explanation 1 to Section 147 of the Income Tax Act, 1961 as it stood till 31.03.2021 stipulated that mere production of Books of Account or other evidence before the Assessing Officer from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of 1st Proviso to Section 147 of the Income Tax Act, 1961, the fact remains that both the amount of Rs.594.33 lakhs and 438.96 lakhs were available and were seen by the Assessing Officer while processing the return under Section 143(1) of the Income Tax Act, 1961 and while passing the order on 01.07.1998. Therefore, the invocation of machinery under Section 148 of the Income Tax Act, 1961 for https://www.mhc.tn.gov.in/judis ( Uploaded on: 11/03/2025 05:08:17 pm ) passing reassessment order under Section 143(3) read with Section 147 of the Income Tax Act, 1961 was without any jurisdiction and has therefore been rightly interfered by the Appellate Tribunal.
36. Although for the purpose of claiming deductions, the respondent / assessee should have written off such income under Section 36(1)(vii) of the Income Tax Act, 1961.
37. In the light of the above discussion, we answer the substantial questions of law in favour of the respondent / assessee and against the appellant Income Tax Department.
38. This Writ Appeal stands dismissed. No costs.
[S.S.S.R., J.] [C.S.N., J.]
19.02.2025
Neutral Citation : Yes / No
arb
To:
Commissioner of Income Tax,
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Chennai.
S.S.SUNDAR, J.
and
C.SARAVANAN, J.
arb
19.02.2025
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