The initiation of proceedings under Section 147 of the Income Tax Act must be based on a valid and subsisting judgment, and Section 43D of the Act does not apply to non-recoverable interest on NPA debts that have already been credited in the Profit & Loss account in an earlier year.

JUDGMENT

K.S. Jhaveri, J. - By way of these appeals, the appellant has challenged the judgment and order passed by the Tribunal whereby the Tribunal has dismissed the appeal confirming the order passed by the CIT(A) and AO.

2. This court while admitting the appeals has framed following questions of law:-

D.B. Income Tax Appeal No.602/2008 admitted on 19.08.2010:-

1. Whether under the facts and circumstances, initiation of proceedings under Section 147 of the Income Tax Act in respect of Assessment Year 1998-99 are legal and proper?

2. Whether Tribunal was justified in holding the additions made by the AO towards non-recoverable interest on NPA debts is inconformity with the requirement of Section 43D of the Act?"

D.B. Income Tax Appeal No.202/2009 admitted on 19.09.2011:

"Whether Tribunal was justified in holding the additions made by the AO towards non-recoverable interest on NPA debts is inconformity with the requirement of Section 43D of the Act?

3. Counsel for the appellant contended that the AO has issued notice under Section 148 and proceedings under Section 147 of the I.T. Act were initiated against the appellant relying on the decision of the Supreme Court in the case of Madhya Pradesh Cooperative Bank Ltd. vs. Addl. CIT reported in 218 ITR 483 (SC) and has reopened the assessment which was done under Section 143(1). The notice was issued on 11.3.2003 and not only that, the issue of Section 80P(2) which was covered by the judgment in the case of Madhya Pradesh Co-operative Bank Ltd. vs. Addl. CIT 218 ITR 438(SC) but it has also covered under Section 43D, the expenses which are deducted and the account which was write off on a back date which was accepted, was also re-opened.

4. He contended that these issues were raised before the ITO that the judgment of M.P. High Court has now been overruled by the Supreme Court in the case of Commissioner of Income Tax vs. Karnataka State Cooperative Bank reported in 251 ITR 194 (SC) dated 22.8.2001 on the date on which the notice was issued, and therefore, the notice was issued on an overruled judgment. In spite of that, the Assessing Officer has added income and reassessed against which the appeal was carried out and tribunal has confirmed the order.

5. Counsel for the appellant has relied on the judgment of this Court in the case of C.I.T. Bikaner vs. Shri Ram Singh, 2009 (1) WLC 136 wherein it has been observed as under:-

"27. If considered on that principle, leaving apart for the moment, the aspect of interpretation of the word "and" as "or", the existence of the word "also" is of a great significance, being of conjunctive nature, and leaves no manner of doubt in our opinion, that it is only when, in proceedings under Section 147 the Assessing Officer, assesses or reassesses any income chargeable to tax, which has escaped assessment 16 for any assessment year, with respect to which he had "reason to believe" to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under Section 147.

28. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under Section 147, the Assessing Officer were to come to conclusion, that any income chargeable to tax, which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then, the mere fact, that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under Section 147.

29. It is a different story that for such other income, the Assessing Officer may have recourse to such other remedies, as may be available to him unde