ORDER
Riyaz S. Padvekar, J.M.
I. ITA No. 34(Coch.)/2005 – A.Y 1993-94
1. This appeal by the revenue is directed against the order of the CIT(Appeals)II, Kochi dated 1-9-2004 for the assessment year 1993-94.
2. The revenue has taken four grounds in this appeal. Ground Nos. 1 and 4 are general in nature. As far as ground No. 3 is concerned, the learned departmental Representative was fair enough to admit that this ground does not arise from the order of the CIT (Appeals). As far as ground No. 2 is concerned, the only issue for our consideration is whether the CIT(Appeals) was justified in holding that there was no failure or omission on the part of the assessee to disclose all the material facts and hence reopening of the assessment after the period of four years cannot be held to be valid.
3. The facts in brief can be stated as follows : The assessee is a banking company and original assessment for the assessment year 1993-94 was completed under section 143(3) of the Act on 28-3-1996. Subsequently, reassessment proceedings were under section 147 of the Act were initiated and notice under section 148 was issued on 28-3-2001. As noted by the assessing officer, in the original return, the assessee had offered interest on Government securities only on due date basis. It is further noted by the assessing officer that interest on Government securities credited in the accounts and excluded for separate consideration in the adjustment statement was Rs. 2,12,95,282 as against Rs. 1,84,11,970 and that was only considered. The assessing officer was of the opinion that interest offered by the assessee for assessment was on due basis, but the assessee should have offered the same on accrual basis. The assessing officer therefore, completed the assessment by making the addition in respect of the difference between the interest as offered by the assessee on due date basis and that he should have offered on the accrual basis.
4. The assessee challenged the impugned order before the CIT(Appeals). The CIT(Appeals) held that there was no failure on the part of the assessee bank to disclose any material facts for reopening the assessment after the period of four years. Now, the revenue has challenged the impugned order of the CIT(Appeals) before us.
5. We have heard the learned Advocate Shri Vijayaraghavan for the assessee and the learned departmental Representative Shri V. Sreekumar for the revenue. The learned Counsel reiterated his arguments which were advanced before the CIT(Appeals). On the other hand, the learned departmental Representative vehemently submitted that the CIT (Appeals) was not justified in holding that there was no omission or failure on the part of the assessee. He further submitted that by virtue of the Explanation to section 147, merely because the assessee has produced the documents and books of account, that cannot be the reason for stating that there was no failure or omission on the part of the assessee to disclose all material facts. He, therefore, submitted that the CIT(Appeals) was not at all justified in holding that the assessing officer was not right in initiating the re-assessment proceedings.
6. We have heard the rival submissions of the parties. We have carefully considered the facts of this case as per record available before us. In this case, it is not disputed that the original assessment of the assessee was completed under section 143(3) on 28-3-1996. It is also not disputed in this case that the notice under section 148 was issued on 28-3-2001. Now, we have to examine the provisions of section 147 of the Act. Section 147 is a machinery provision but the Legislature has vested powers on the assessing officer to assess or reassess the income which has escaped assessment for any assessment year. We would like to reproduce the relevant provisions of section 147 which are as under :-
“147. If the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)
Explanation 1.Production before the assessing officer of account books or other evidence 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 the foregoing proviso.”
7. It is clear from the proviso to section 147 that if the original assessment is made under section 143(3). then the assessing officer has no jurisdiction to initiate action under this section except in the following two situations :
(i) If the assessee has failed to make a return under section 139 or in response to notice issued under sub-section (1) of section 142 or section 148.
(ii) If the assessee failed to disclose fully and truly all material facts necessary for his assessment.
8. Explanation I is also added which is certainly related to situation No. (ii) ,which states that merely because the assessee produces before the assessing officer books of account or other evidence, that will not necessarily amount to disclosure within the meaning of the proviso. As far as the facts of this case are concerned, it is clear from the order of the assessing officer that the issue of interest has already been examined by the assessing officer. The only question was whether the assessee should have offered the same on accrual basis or as offered by the assessee on the due date basis was correct. The legislative intent in putting the bar on the assessing officer for taking action in those cases where the assessments are completed under section 143(3) of the Act is clear that the assessing officer has ample scope of enquiry while completing the assessment under section 143(3). On a perusal of the facts, we are of the opinion that there was no failure on the part of the assessee to disclose truly and fully all material facts. This issue was already before the assessing officer and the assessment was completed under section 143(3). As regards the contention of the learned D.R. that by virtue of Explanation 1, merely because the assessee has produced the books of account and other evidence, that will not necessarily be presumed that there was no failure on the part of the assessee, we do not find any substance in the argument of the learned D.R. There may be occasion when voluminous transactions may be before the assessing officer and just to protect the revenue in those cases for limited extent, Explanation I is added to proviso. We find no infirmity in the order of the CIT(Appcals). In the result, ground No. 2 is rejected.
9. As far as ground No. 3 is concerned, it does not arise from the order of the CIT(Appeals) as the CIT(Appeals) has only allowed the appeal of the assessee on the issue of initiation of the reassessment proceedings. We, therefore, reject ground No. 3 also.
10. In the result, the revenues appeal stands dismissed.
II. ITA No. 607(Coch.)12004 – A. Y 1997-98
11. This appeal by the revenue is directed against the order of the CIT(Appeals)-H, Kochi for the assessment year 1997-98. The revenue has taken the following effective ground :
“The learned Commissioner (Appeals) erred in holding that the assessing officer erred in rectifying the order, in view of the proviso to section 14A. He failed to note that the proviso was introduced by Finance Act, 2002, with effect from and being procedural in nature was effective only for reopening or rectification done after that date. He ought to have seen that the order under consideration was made on 20-2-2001 much before the amendment into effect.”
12. The facts in brief can be stated as under : The original assessment of the assessee was completed under section 143(3) vide order dated 28-3-2000. Subsequently, the assessing officer initiated proceedings under section 154 as in his opinion, the interest on the tax-free bonds amounting to Rs. 1,03,98,493 was allowed without considering the expenses on earning the said amount. There were other reasons also for initiating proceeding under section 154, but we are only concerned with the reason given above. The assessing officer made the disallowance of Rs. 5 lakhs treating it as interest on the tax-free bonds.
13. The assessee carried the matter in appeal before the CIT(Appeals). After examining the provisions of section 14A of the Act, the CIT(Appeals) came to the conclusion that the assessing officer was not justified in making the rectification by invoking section 154. The reasons given by the CIT(Appeals) for the above finding are as under :
“(iii) I have considered the objections of the appellant. It is seen that the section 14A was inserted in the Income Tax Act by the Finance Act, 2001 with retrospective effect from 1-4-1962 providing that no deduction shall be allowed in respect of expenditure incurred by an assessee in relation to income which does not form part of the total income under the Act. However, by the Finance Act, 2002, a proviso was added with retrospective effect frorn 11-5-2001 providing that nothing contained in the section 14A would empower the assessing officer either to reassess under section 147 or to rectify under section 154 any assessment so as to increase the tax liability of the assessee for any assessment year beginning on or before the 1-4-2001. In the case of the appellant the assessment year involved is the assessment year 1997-98. The original assessment under section 143(3) had been completed on 28-3-2000. The proviso to section 14A has laid down that no action under section 147 or 154 shall be taken for enhancing the liability of the appellant under section 14A for any assessment year prior to and including the assessment year 2001-02. Therefore, the assessing officer was in error in rectifying the order under section 143(3) for the assessment year 1997-98 by enhancing the assessment by making the disallowance of Rs. 5 lakhs under section 14A of the Act. Hence the addition of Rs. 5 lakhs is liable to be deleted. Further, the issue as to the quantum of expenditure relatable to the exempted income is a debatable one. On this ground also, the assessing officer erred in rectifying under section 154 the order by making the disallowance of Rs. 5 lakhs. Under these circumstances, the addition of Rs. 5 lakhs by way of expenditure relating to exempted income is deleted.”
14. We have heard the rival submissions of the parties. We have also carefully perused the facts of this case. It is not disputed in this case that the original assessment of the assessee was completed under section 143(3) vide order dated 28-3-2000. Section 14A was brought on the statute book vide Finance Act, 2001 with retrospective effect. Subsequently, clarification was made vide proviso to section 14A which was inserted by the Finance Act, 2002 with effect from 11-5-2001. As far as section 14A is concerned, in computing the total income, no deduction shall be allowed in respect of the expenditure incurred by the assessee in relation to the income which does not form part of his total income. Subsequently, proviso was added to section 14A putting the bar on the reopening of the assessment or passing an order enhancing the assessment or reducing the refund or invoking section 154 for any assessment year prior to assessment year 2001-02. In short, if the assessment has reached finality up to the assessment year 2000-01, no proceedings under section 154 can be initiated for rectifying any mistake, if any. We do not find any infirmity in the reasons given by the CIT(Appeals) and there is no reason to interfere with the same. We, therefore, confirm the order of the CIT(Appeals) on this issue.
15. In the result, the revenues appeal stands dismissed.