1 wp2312-10 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2312 OF 2010 HDFC Bank Ltd. ..Petitioner. V/s. The Deputy Commissioner of Income-tax 2(3) & Ors. ..Respondents. Mr. J.D. Mistri, senior Advocate i/b. Mr. A.K. Jasani for the petitioner Mr. Vimal Gupta with Padma Divakar for respondents. CORAM : J.P. DEVADHAR AND SMT. R.S. DALVI, JJ. DATED : 14TH MARCH, 2011 P.C. :- 1. Rule, returnable forthwith. By consent, the petition is taken up for final hearing. 2. This petition is filed to challenge the show cause notice dated 30/3/2010 issued under Section 148 of the Income Tax Act, 1961 ('the Act' for short) to reopen the assessment for AY 2003-04 and also to challenge the order dated 19/10/2010 whereby the objections raised by the petitioner for reopening of the assessment have been rejected. 2 wp2312-10 3. For the assessment year in question, the petitioner ('assessee') had filed return of income declaring total income of Rs. 499,69,05,000/-. During the course of the assessment proceedings, the assessing officer called upon the assessee to show cause as to why disallowance of the expenditure should not be made under section 14A of the Act in relation to earning income exempt from tax. After considering the explanation given by the assessee, the assessing officer in his assessment order disallowed the expenditure relating to earning tax free income to the extent of Rs.59.11 crores. Challenging the aforesaid order, the assessee filed an appeal before the the CIT(A), who by his order dated 9/3/2006 partially allowed the claim of the assessee and held that the disallowance made by the assessing officer be restricted to only 1% of the total tax free income. 4. By the impugned notice dated 30/3/2010 the assessment for AY 2003-04 is sought to be reopened by recording the following reasons:- " 1. In this case, return of Income was filed on 01-12-2003 declaring total income of Rs.499,69,05,000/-. The assessment was completed u/s.143(3) on 15-3-2005 determining a total income of Rs.579,76,57,924/-. While determining the total income, the Assessing Officer has disallowed interest related to tax free income u/s.14A to the extent of Rs.59,11,00,000/- and other expenses related to tax free income to the extent of Rs. 3 wp2312-10 1,59,25,478/-. CIT(A) XXXII, Mumbai vide his order no CIT(A) XXXIII/Rg.2(3)/IT/14-H/05-06 dated 09-03-2006 has directed that no disallowance should be made to the extent of share capital and the profit reserve available with the bank. He has further directed the Assessing Officer to compute the disallowance accordingly and while doing so, the Assessing Officer should take into account the gross amount during the year under consideration. It is however, seen from the order dated 12-06-2006 giving effect to the CIT(A)'s order, the Assessing Officer has deleted the disallowances made in assessment order in full. 2. Perusal of the record 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.621.78 crores as per the following working :- 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 accordance 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 119,196 4 wp2312-10 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 1200402 1338808 1,269,605 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 2378738 3042408 2,710,573 A X B / C 55,830 (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 6,348 DISALLOWANCE U/S.14A (i) + (ii) + (iii) 62,178 3. In the circumstances, I have reason to believe that income of Rs.621.78 crores has escaped the assessment for A.Y. 2003-04." 5. Perusal of the aforesaid reasons recorded by the assessing officer shows that the assessment is sought to be reopened on the basis of the decision of the ITAT in the case of Daga Capital Management Pvt. Ltd. and not on account of any failure on the part of the assessee to 5 wp2312-10 disclose fully and truly all material facts necessary for the assessment. As per the proviso to section 147 of the Act, assessment beyond four years from the end of the relevant assessment year can be reopened only if there failure on the part the assessee to disclose fully and truly all material facts. In the present case, the reasons recorded for reopening the assessment do not even remotely suggest that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. In this view of the matter, the notice dated 30/3/2010 as well as the order dated 19/10/2010 are quashed and set aside. 6. Rule is made absolute in the above terms with no order as to costs. (SMT. R.S. DALVI, J.) (J.P. DEVADHAR, J.)