2019 (9) TMI 382 - AT - Income Tax

Tribunal Upheld Assessment Reopening & Disallowance, CIT(A) Enhancement; Share Premium Not 'Capital Employed'

Aries Agro Ltd Versus DCIT-14 (1) (1), Mumbai

The tribunal upheld the reopening of the assessment, the disallowance of excessive claims under Section 35D, and the enhancement by the CIT(A). It ... Reopening of assessment u/s 147 - disallowance of expenditure claimed u/s 35D - HELD THAT:- AO has recorded reasons for reopening of the assessment on the basis of tangible material, as per which, income chargeable to tax had been escaped assessment within the meaning of section 147 on account of excessive claim of deduction u/s 35D in respect of share issue expenses. We, further noted that it is not a statutory requirement that the reasons to belief should be proved to the hilt before reopening of assessment. The requisite condition is that the AO should have reason to believe that income chargeable to tax has escaped assessment. In this case, the AO had reasons to believe that deduction claimed u/s 35D was excessive and formation of belief by the AO is within realm of subjective satisfaction as held by the Hon’ble Supreme Court in the case of ACIT vs Rajesh Jaweri Stock Brokers Pvt Ltd. [2007 (5) TMI 197 - SUPREME COURT] On perusal of facts available on record, we find that the AO has formed reasonable belief of escapement of income, on the basis of tangible materials in his possession, which suggest escapement of income within the meaning of section 147. Therefore, we are of the considered view that there is no merit in the argument taken by the assessee. Reopening after expiry of four years from the end of the relevant assessment year - HELD THAT:- We find that the assessee, neither provided any note in its financial statements explaining, the computation of deduction, nor the AO has examined the issue, at the time of original assessment proceedings u/s 143(3). Therefore, we are of the considered view that there is no merit in arguments taken by the assessee, in light of proviso to section 147 of the I.T.Act, 1961. Insofar as various case laws relied upon by the assessee, we find that although assessee has relied upon various case laws, but none of case laws are directly applicable to facts of assessee case and hence, all case laws relied upon by the assessee have been rejected. CIT(A) was right in upholding reopening of the assessment in the given facts and circumstances of this case. Hence, we are inclined to uphold order of the Ld.CIT(A) and reject ground taken by the assessee challenging reopening of assessment. Disallowances of excess claim of deduction u/s 35D - consequent enhancement u/s 251 - HELD THAT:- The issue on merit because, the Hon’ble Supreme Court in the case of Berger Paints India Ltd.vs CIT [2017 (3) TMI 1531 - SUPREME COURT] held that premium collected by assessee company on its subscribed share capital is not ‘capital employed’ in business of company within the meaning of section 35D of the Act, so as to enable assessee to claim deduction of said amount. We find that the Hon’ble Supreme Court has settled the issue and held that for the purpose of capital employed, share premium collected on issue of share capital is not part of capital employed. Therefore, we are of the considered view that the AO, as well as the CIT(A) were right in re-computation of eligible deduction u/s 35D by excluding share premium from capital employed and accordingly, we are inclined to uphold order of the Ld. CIT(A) and reject ground taken by the assessee. Issues Involved:1. Reopening of assessment under Section 147 of the Income Tax Act, 1961.2. Validity of reassessment notice under Section 148.3. Disallowance of deduction under Section 35D.4. Computation of 'Capital Employed' for Section 35D.5. Inclusion of share premium in 'Capital Employed'.6. Enhancement of disallowance by the Commissioner of Income Tax (Appeals) [CIT(A)].7. Jurisdiction of CIT(A) to enhance assessment under Section 251(1).8. Initiation of penalty proceedings under Section 271(1)(c).Detailed Analysis:1. Reopening of Assessment under Section 147:The assessee challenged the reopening of the assessment on the grounds that the Assessing Officer (AO) did not have a valid 'reason to believe' that income had escaped assessment. The tribunal found that the AO had recorded reasons based on tangible material suggesting escapement of income due to an excessive claim of deduction under Section 35D. The tribunal upheld the reopening, citing that the formation of belief by the AO is within the realm of subjective satisfaction, supported by the Supreme Court's decision in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500.2. Validity of Reassessment Notice under Section 148:The assessee argued that the reassessment notice was invalid as it was issued after four years from the end of the relevant assessment year without alleging that there was a failure on the part of the assessee to disclose fully and truly all material facts. The tribunal upheld the reassessment notice, noting that the assessee had failed to disclose fully and truly all material facts necessary for the assessment, particularly the correct computation of 'capital employed' for the deduction under Section 35D.3. Disallowance of Deduction under Section 35D:The AO disallowed the excessive claim of deduction under Section 35D, and the CIT(A) further enhanced the disallowance. The tribunal upheld the disallowance and the enhancement, referencing the Supreme Court's decision in Berger Paints India Ltd. vs. CIT (2017) 393 ITR 113 (SC), which held that share premium is not part of 'capital employed' for the purposes of Section 35D.4. Computation of 'Capital Employed' for Section 35D:The CIT(A) recomputed the 'capital employed' by excluding the share premium and including long-term borrowings from banks. The tribunal found this computation to be in accordance with the provisions of Section 35D and upheld the CIT(A)'s findings.5. Inclusion of Share Premium in 'Capital Employed':The assessee included share premium in the computation of 'capital employed,' which was disallowed by the AO and CIT(A). The tribunal upheld this disallowance, citing the Supreme Court's decision in Berger Paints India Ltd. vs. CIT, which clarified that share premium is not part of 'capital employed.'6. Enhancement of Disallowance by CIT(A):The CIT(A) enhanced the disallowance under Section 35D, and the assessee challenged the jurisdiction of the CIT(A) to make such an enhancement. The tribunal upheld the CIT(A)'s power to enhance the assessment under Section 251(1), noting that the term 'assessment' includes reassessment.7. Jurisdiction of CIT(A) to Enhance Assessment under Section 251(1):The tribunal affirmed that the CIT(A) has the power to enhance an assessment, including reassessment, under Section 251(1). The tribunal rejected the assessee's argument that the enhancement power is limited to the initial assessment.8. Initiation of Penalty Proceedings under Section 271(1)(c):The tribunal did not specifically address the initiation of penalty proceedings under Section 271(1)(c) in detail, as the primary focus was on the validity of the reassessment and the disallowance under Section 35D.Conclusion:The tribunal dismissed the appeals filed by the assessee, upholding the reopening of the assessment, the disallowance of the excessive claim under Section 35D, and the enhancement by the CIT(A). The tribunal confirmed that share premium is not part of 'capital employed' for the purposes of Section 35D and that the CIT(A) has the jurisdiction to enhance the assessment, including reassessment.