2016 (5) TMI 1557 - AT - Income Tax

Invalid Reassessment under Income-tax Act; Disallowance Upheld; Scientific Research Expenditure Allowed

The reassessment proceedings initiated under Section 147 of the Income-tax Act were found invalid as the assessee had disclosed all material facts during ... Reopening of assessment u/s 147 - grant received by the assessee from the Central Government - whether assessee had disclosed truly and fully all material facts relating to the grant received by the assessee ? - CIT (A) was of the opinion that during the course of assessment proceedings AO had not considered whether expenditure could be considered as a capital outgo or not? - HELD THAT:- When the original assessments for both the impugned assessment years were passed, the AO had with him the reply given by the assessee during the course of assessment proceedings for A. Ys. 2003-04 as well as the order of the Tribunal in assessee’s own case for A. Y. 1995-96. Thus we cannot say that the AO was not aware of the claim of the assessee during the course of original assessment proceedings. Assessee had brought to the notice of the AO the Tribunal order wherein the observations clearly indicated that expenditure incurred from the grant was of capital nature. In such circumstances it cannot be said that assessee had failed to disclose fully and truly all material facts necessary for the assessment. Revenue also has to bring in tangible materials which had helped it to come to a conclusion that income chargeable to tax had escaped assessment. Main reason cited by the AO for coming to a conclusion that income of the assessee had escaped assessment is that the assessee had misrepresented and not furnished details of revenue expenditure claimed in the profit and loss account. In our opinion this is far from truth since the AO in the original assessment order clearly mentioned that the books were produced and verified.We are of the opinion that conditions which were required to be satisfied for invoking Section 147 of the Act for the impugned assessment years were not satisfied. We therefore set aside the assessments for the impugned assessment years. Grounds 2 and 3 of the assessee are allowed. MAT computation for Disallowance u/s.14A - HELD THAT:- We find this issue had come up before Hon’ble Delhi High Court in the case of CIT v. Goetze (India) Ltd2013 (12) TMI 607 - DELHI HIGH COURT] wherein their Lordship held that by virtue of Explanation (i)(f) to Section 115JB(2) of the Act, expenditure relatable to any income to which Section 10 apply was to be added back to book profit for MAT computation. - Decided against assessee. Disallowance u/s.37 - treating the expenditure out of capital grants received from Central Government, as capital outgo, and in the alternative not giving it the benefit of Section 35(1)(iv) of the Act, for scientific research - HELD THAT:- As decided in own case [2016 (4) TMI 1406 - ITAT BANGALORE] allowed the alternative claim for allowance u/s.35(1)(iv) of the Act and remitted it back to the AO for verification and quantification. Computation of MAT computation u/s 115JB - HELD THAT:- For the purpose of profits u/s.115JB of the Act, what can be added and what can be deleted are clearly set out in Explanation to Section 115JB(2) of the Act. Only if an amount falls in any of the Explanation can there be an adjustment to the book profit. There is no case for the Revenue that expenditure disallowed by the AO for the purpose of computing total income under the normal provisions of the Act fell within any of these clauses. CIT (A), in our opinion, had correctly appreciated the dictum laid down by the Hon’ble Apex Court in the case of Indo Rama Synthetics (I) Ltd 2011 (1) TMI 1 - SUPREME COURT] - AO had added back the expenditure relating to the research as capital in nature, but did not exclude the capital grants from the income, while computing MAT. We therefore do not find any reason to interfere with the order of CIT (A). Cross appeals of the Revenue for both the years stand dismissed. Disallowance u/s 14A - HELD THAT:- As we have already mentioned investment of the assessee had substantially gone up and the dividend income of the assessee came to ₹ 123.5 lakhs. In such circumstances, we are of the opinion that the above decision relied on by the Ld AR would not further its case. In our opinion AO was justified in applying Rule 8D(2)(iii) . We do not find any reason to interfere with the same. Ground 2 stands dismissed. Credit u/s.115JAA - HELD THAT:- Though the CIT (A) has mentioned this ground at para 6 of its order, we find that he had not adjudicated on the said issued. Since credit if available to the assessee u/s.115JAA of the Act, has to be given, we are remitting this issue back to the file of the AO for consideration. Ordered accordingly. In the result, ground 5 of the assessee stands allowed for statistical purpose. Issues Involved:1. Validity of reassessment proceedings under Section 147 of the Income-tax Act.2. Disallowance under Section 14A of the Act while computing book profit under Section 115JB.3. Disallowance of expenditure under Section 37 of the Act and alternative claim under Section 35(1)(iv).4. Credit under Section 115JAA of the Act.Issue-wise 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 original assessments were completed under Section 143(3) and all details were duly considered. The notices under Section 148 were issued after four years, invoking the proviso to Section 147, which requires a failure to disclose fully and truly all material facts. The assessee contended there was no such failure, and the reopening was based on a change of opinion. The Tribunal found that the assessee had disclosed all material facts and the AO had considered the relevant Tribunal orders from earlier years. Therefore, the conditions for invoking Section 147 after four years were not met, and the reassessment proceedings were invalid. Grounds 2 and 3 of the assessee were allowed.2. Disallowance under Section 14A while Computing Book Profit under Section 115JB:The assessee argued that disallowance under Section 14A could not be made while computing book profit under Section 115JB. The Tribunal noted that various benches had held that such disallowances should not be added back to book profit. However, the Delhi High Court in CIT v. Goetze (India) Ltd held that expenditure relatable to any income to which Section 10 applies should be added back for MAT computation. Based on this, the Tribunal overruled the decisions of coordinate benches and dismissed Ground 4 of the assessee.3. Disallowance of Expenditure under Section 37 and Alternative Claim under Section 35(1)(iv):The Tribunal referred to its earlier decision for A.Y. 2009-10, where it affirmed the disallowance under Section 37 but allowed the alternative claim under Section 35(1)(iv) for scientific research. The Tribunal remitted the matter back to the AO for verification and quantification of the eligible expenditure under Section 35(1)(iv). Accordingly, Ground 5 of the assessee was dismissed, and Ground 6 was allowed for statistical purposes.4. Credit under Section 115JAA:The assessee's ground regarding the credit available under Section 115JAA was not adjudicated by the CIT(A). The Tribunal remitted this issue back to the AO for consideration, allowing Ground 5 of the assessee for statistical purposes.Summary of Result:1. Appeals of the assessee for A.Y. 2005-06 and 2006-07 are partly allowed.2. Cross appeals by the Revenue for A.Y. 2005-06 and 2006-07 are dismissed.3. Appeal of the assessee for A.Y. 2009-10 is allowed pro-tanto.Order Pronounced:The order was pronounced in the open court on 31st May 2016.