Reopening due to change in method of accounting for NPA-SC dismisses SLP of ITD

Reopening due to change in method of accounting for NPA quashed as it was notified in audited accounts. SC dismissed SLP of Revenue

ABCAUS Case Law Citation:
ABCAUS 3069 (2019) (07) SC

The Assessing Officer (AO) had initiated re-assessment proceedings against the respondent bank under Section 147 read with Section 148 of the Income Tax Act, 1961 (the Act) on the ground that the assessee had not made full and true disclosure of material facts regarding the change of accounting method in respect of Non-Performing Assets (‘NPAs’).

According to the AO, the jurisdictional pre-condition as stipulated in the first proviso to Section 147 of the Act which requires failure to disclose fully and truly all material facts necessary for assessment was not satisfied.

As per the earlier method, the assessee was accounting for payments received first towards interest and thereafter towards the principal amount. As per the new method adopted by the respondent/assessee from this assessment year, payments received were accounted for first towards the principal amount and then towards the interest.

Both CIT(A) and the ITAT gave the concurrent findings that the new method of accounting was duly notified and recorded in schedule of the audited accounts for the relevant assessment year.

The Hon’ble High Court noted that the findings of the lower authorities were not disputed or factually challenged. Moreover, the Assessing Officer had noticed this objection but did not dwell and specifically examine and answer the same in the reassessment order. The AO had impliedly admitted the factual position of full and true disclosure of material facts.

The Hon’ble High Court noted that it was not a case where inference or interpretation on the basis of the note was to be drawn. In fact the new and amended method of accounting for NPAs was declared and notified in clear words. Therefore the High Court had declined to interfere with the finding on absence of failure to disclose full and true material facts.

Not satisfied with the verdict of the Hon’ble High Court, the Revenue had challenged the order before the Hon’ble Supreme Court by way of filing a special leave petition which has also been dismissed.

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