2013 (7) TMI 445 - AT - Income Tax

Tribunal Validates Reassessment Under Income Tax Act, Denies Deductions, and Directs Interest Deletion

The Tribunal upheld the validity of reassessment proceedings under Section 147 of the Income Tax Act, deeming the initiation justified due to the ... Reopening of assessment - donations for scientific research or rural development - disallowance of deduction u/s 80GGA as assessee was having income/loss under the head ”income from business or profession” - Held that:- The assessment order passed u/s 143(3) does not reveal even semblance of enquiry by the AO with regard to claim of deduction u/s 80GGA. No other material was submitted to demonstrate that the AO had conducted any enquiry with regard to claim of deduction u/s 80GGA. When the assessee had made the claim of deduction u/s 80GGA for the first time in the revised return it was incumbent upon the AO to properly examine the allowability of the claim made by the assessee. In view of restriction imposed under sub-section (3) of section 80GGA AO having not at all considered the issue or applied his mind to the claim of deduction u/s 80GGA, there was escapement of income and as such initiation of proceeding u/s 147 is valid - not inclined to accept the contentions of assessee that the reopening of assessment was invalid. Against assessee. Since the assessee during the year had incurred loss from business and had no income chargeable to tax under the head ‘income from business or profession’ sub-section (3) of section 80GGA will not apply such contention is not acceptable for the simple reason that “income” as defined u/s 2(24) is an inclusive definition and also includes loss. As decided in CIT V/s. Hara Prasad & Co. Pvt. Limited (1975 (2) TMI 2 - SUPREME Court) the words “income” or “profit and gains” should be understood as including losses also, so that, in one sense “profits and gains” represent “plus income” whereas losses represent “minus income”. Loss is negative profit. Both positive and negative profits are of revenue character. Both must enter into computation, wherever it becomes material in the same mode of the taxable income of the assessee. Also see Reliance Jute and Industries Limited V/s. CIT (1979 (10) TMI 2 - SUPREME Court) and CIT V/s. Goldcoin Health (P) Ltd. (2008 (8) TMI 5 - SUPREME COURT ). Therefore, in view of the specific bar created under sub-section (3) of section 80GGA, the assessee is not entitled to avail deduction u/s 80GGA - grounds raised by the assessee are dismissed. Deduction alternatively claimed u/s 35AC in case deduction u/s 80GGA is not allowed - additional ground - Held that:- It is an undisputed fact that in the original return of income the assessee had claimed deduction u/s 35AC which was withdrawn in the revised return and claimed deduction u/s 80GGA. The original assessment u/s 143(3) was completed on the basis of the revised return filed by the assessee. Thus, the assessee having given up its claim u/s 35AC in the revised return filed by him, the claim of deduction/s 35AC cannot be allowed on the basis of the original return. See CIT V/s. Mahendra Mills (2000 (3) TMI 3 - SUPREME Court) - Against assessee. Interest u/s 234D levied - Held that:- The provision contained u/s 234D(1) along with Explanation-1 if construed harmoniously would mean that if there is no regular assessment i.e., assessment u/s 143(3) or section 144 in case of an assessee for an assessment year, then an assessment made for the first time u/s 147 or section 153A shall be regarded as a regular assessment. However, in case of the assessee an assessment has already been completed u/s 143(3). Therefore, it cannot be said that the assessment made u/s 147 is a regular assessment in terms with the Explanation-1 to section 234D, thus no interest u/s 234D is leviable on the assessee in the assessment completed u/s 147. See Dredging Corporation of India Ltd. V/s. ACIT (2011 (7) TMI 584 - ITAT VISAKHAPATNAM). In favour of assessee. Issues Involved:1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.2. Disallowance of deduction under Section 80GGA of the Income Tax Act.3. Alternative claim for deduction under Section 35AC of the Income Tax Act.4. Levy of interest under Section 234D of the Income Tax Act.Detailed Analysis:1. Validity of Reassessment Proceedings under Section 147:The assessee challenged the reassessment proceedings initiated under Section 147 of the Income Tax Act, arguing that the claim for deduction under Section 80GGA was already examined during the original assessment under Section 143(3). The assessee contended that the reassessment was based on a mere change of opinion without any new tangible material. However, the Tribunal observed that the original assessment order was cryptic and did not discuss the deduction claimed under Section 80GGA. The Tribunal concluded that the Assessing Officer had not examined the issue during the original assessment, leading to the escapement of income. Therefore, the initiation of proceedings under Section 147 was deemed valid, and the Tribunal upheld the CIT (A)'s conclusion on this issue.2. Disallowance of Deduction under Section 80GGA:The assessee claimed a deduction under Section 80GGA for donations made to a research foundation. The Assessing Officer disallowed the deduction, citing that the assessee had income or loss under the head 'income from business or profession,' which made the assessee ineligible for the deduction under Section 80GGA(3). The CIT (A) upheld this disallowance, interpreting that the term 'income' includes losses, thereby making the assessee ineligible for the deduction. The Tribunal agreed with this interpretation, referencing Supreme Court decisions that defined 'income' to include losses. The Tribunal concluded that the assessee, having a loss under the head 'income from business or profession,' was not entitled to the deduction under Section 80GGA and upheld the CIT (A)'s order.3. Alternative Claim for Deduction under Section 35AC:The assessee argued that if the deduction under Section 80GGA was disallowed, the Assessing Officer should have allowed the deduction under Section 35AC. The Tribunal noted that reassessment proceedings under Section 147 are limited to assessing the escaped income and cannot be used to reconsider the entire assessment. The Tribunal referenced the Supreme Court's decision in CIT vs. Sun Engineering Works Ltd., which stated that reassessment proceedings are confined to the income that escaped assessment. The Tribunal also observed that the assessee had initially claimed the deduction under Section 35AC in the original return but later revised it to claim under Section 80GGA. Therefore, the Tribunal concluded that the alternate claim under Section 35AC could not be entertained in the reassessment proceedings and dismissed the grounds raised by the assessee.4. Levy of Interest under Section 234D:The assessee challenged the levy of interest under Section 234D, arguing that it applies only to regular assessments under Section 143(3) or 144. The Tribunal agreed with the assessee, noting that the definition of 'regular assessment' under Section 2(40) and the explanation to Section 234D indicate that reassessment under Section 147 is not considered a regular assessment if an assessment under Section 143(3) has already been completed. The Tribunal referenced the decision of the ITAT Vizag Bench in Dredging Corporation of India Ltd. v. ACIT, which supported this view. Consequently, the Tribunal directed the Assessing Officer to delete the interest levied under Section 234D.Conclusion:The appeal was partially allowed. The Tribunal upheld the validity of the reassessment proceedings and the disallowance of the deduction under Section 80GGA. However, it rejected the alternate claim for deduction under Section 35AC and directed the deletion of interest levied under Section 234D.