1 wp2393-10 agk IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2393 OF 2010 HDFC Bank Limited, Mumbai ..Petitioner. Versus The Dy. Commissioner of Income-tax – 2(3), Mumbai & Ors. ..Respondents. Mr.J.D. Mistry i/by Mr.Atul K. Jasani for the petitioner. Mr.Vimal Gupta for the respondents. CORAM : J.P. Devadhar & Smt.R.P. Sondurbaldota, JJ. DATE : 8th June, 2011. P.C. : 1. Heard. Rule. Rule is made returnable forthwith. By consent of both the parties, taken up for final hearing. 2. This petition is filed to challenge the notice dated 26th March 2010 issued under Section 148 of the Income Tax Act, 1961 to reopen the assessment for assessment year 2005-2006 and also the order dated 19th October 2010 rejecting the objections raised by the petitioner for reopening of the assessment. 3. In the present case, assessment for the assessment year 2005-06 2 wp2393-10 was passed under Section 143(3) of the Income Tax Act, 1961 on 28th February 2007, wherein certain interest expenses were disallowed under Section 14A as also certain ad-hoc administrative expenses incurred by the assessee were disallowed. Challenging the aforesaid assessment order, the assessee filed an appeal and the Commissioner of Income Tax (Appeals) partially allowed the claim of the assessee. Challenging the order of the Commissioner of Income Tax (Appeals), both the assessee as well as the Revenue have filed appeals before the Income Tax Appellate Tribunal and the same are pending. 4. In the meantime, by the impugned notice dated 26-3-2010, the assessment for the assessment year 2005-06 is sought to be reopened by recording following reasons : “1. In this case, return of income was filed on 29-10-2005 declaring total income of Rs.910,41,00,000/-. The assessment was completed under Section 143(3) on 28-02-2007 determining a total income of Rs.1227,85,00,000/-. While determining the total income, the Assessing Officer has disallowed interest related to tax free income under Section 4A to the extent of Rs.152,34,00,000/- and other expenses related to tax free income to the extent of Rs.2,77,00,000/-. CIT (A)- XXX, Mumbai vide his order No.CIT(A)XXX/ IT-214/Rg. 2(3)/07-08 dated 14-11-2007 has restricted the disallowance to 1% of tax free income as against 2% levied by the Assessing Officer. 2. Perusal of the records show that following the Special Bench, Mumbai’s decision in the case of In the circumstances, following the decision of M/s.Daga Capital Management Pvt.Ltd. And others, the disallowance u/s.14A, r.w. Rule 8D in this case works out to Rs.640.11 crores as per the following working. 3 wp2393-10 Opening Balance Closing Balance Amount in Lacs (i) The amount of expenditure directly relating to income which does not form part of total income (ii) In case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accorance with the following formula. A Amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year 131,556 B The average value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year 1936346 1934981 1935664 C The average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year 4230699 5142900 4686800 AxB/C 54,333 (iii) 0/5% of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. 9.678 DISALLOWANCE U/S.14A (i) + (ii) + (iii) 64,011 3. In the circumstances, I have reason to believe that income of Rs.640.11 crores has escaped assessment for A.Y. 2005-06.” 5. On perusal of the reasons recorded by the Assessing Officer, it is 4 wp2393-10 evident that the assessment is sought to be reopened on the issues, which are admittedly subject matter of appeal before the Income Tax Appellate Tribunal. As per the second proviso to Section 147 of the Income Tax Act, 1961, the Assessing Officer cannot invoke jurisdiction to assess or re-assess income involving matters which are subject matter of any appeal. In these circumstances, in our opinion, re-opening of the assessment by the impugned notice dated 26-03-2010 issued under Section 148 of the Income Tax Act, 1961 cannot be sustained. 6. In this view of the matter, the impugned notice dated 26th March 2010 as also the order dated 19th October 2010 rejecting the objections raised by the assessee, are quashed and set aside. Rule is made absolute in above terms with no order as to costs. (Smt.R.P. Sondurbaldota, J.) (J.P. Devadhar, J.)