Tribunal Quashes 2007-08 Reassessment; Upholds 2009-10 Reopening & Refund Adjustment, Limits Exempt Income Disallowance.

The Tribunal upheld the CIT(A)'s decision on refund adjustment under Section 244A, dismissing the Revenue's appeal. For A.Y. 2007-08, Rule 8D was deemed inapplicable, and disallowance was limited to 2% of exempt income. Reassessment for A.Y. 2007-08 was quashed as beyond jurisdiction, while for A.Y. 2009-10, reopening was upheld, and the deduction issue under Section 36(1)(viia) was remanded to the AO. The Tribunal allowed the assessee's appeal for A.Y. 2007-08, directing adherence to statutory provisions for deductions. Appeals were variably dismissed, allowed, or partly allowed, with the order pronounced on July 12, 2019.

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Issues Involved:
1. Adjustment of refund against interest payable under Section 244A of the Income Tax Act.
2. Disallowance under Section 14A read with Rule 8D.
3. Reopening and validity of reassessment under Section 147 of the Income Tax Act.
4. Deduction under Section 36(1)(viia) of the Income Tax Act.

Summary:

1. Adjustment of Refund Against Interest Payable Under Section 244A:

The Revenue challenged the order of the CIT(A) which held that refund should first be adjusted against interest payable and the balance, if any, towards tax payable while computing interest under Section 244A. The Tribunal noted that this issue was previously decided in favor of the assessee for earlier years, following the Delhi High Court's decision in India Trade Promotion Organisation vs. CIT. The Tribunal observed that the principle applied should be the same for both collection and refund of taxes. The Tribunal upheld the CIT(A)’s decision, dismissing the Revenue’s appeal.

2. Disallowance Under Section 14A Read with Rule 8D:

For the Assessment Year (A.Y.) 2007-08, the assessee and Revenue both appealed regarding the disallowance under Section 14A. The Tribunal noted that Rule 8D was not applicable for A.Y. 2007-08 as per the Bombay High Court’s decision in Godrej & Boyce Manufacturing Co. Ltd. The Tribunal directed the Assessing Officer (AO) to compute the disallowance on a reasonable basis, restricting it to 2% of the exempt income, following precedents from the Bombay High Court and ITAT. Consequently, both the assessee's and Revenue’s appeals were partly allowed.

3. Reopening and Validity of Reassessment Under Section 147:

For A.Y. 2007-08, the assessee challenged the reopening of assessment on the grounds that it was beyond four years without any failure on the part of the assessee to disclose fully and truly all material facts. The Tribunal found that the AO reopened the assessment based on information already on record and not on any new tangible material. Hence, the reopening was held to be beyond jurisdiction and bad in law. The reassessment order was quashed, and the Revenue’s appeal was dismissed.

For A.Y. 2009-10, the assessee contended that the issue of deduction under Section 36(1)(viia) had already been decided by the ITAT. However, the Tribunal noted that the specific issue of inclusion of provision for standard assets and restructuring of accounts was not previously addressed. Since the reopening was within four years, the Tribunal upheld the reopening but restored the issue of deduction under Section 36(1)(viia) to the AO for fresh adjudication. Both the assessee’s and Revenue’s appeals were partly allowed for statistical purposes.

4. Deduction Under Section 36(1)(viia):

For A.Y. 2007-08, the Tribunal noted that the issue of deduction under Section 36(1)(viia) was already decided by the ITAT in favor of the assessee, holding that the deduction should be based on the eligible amount as per the statute, not merely on the provision made in the books. The Tribunal directed the AO to follow this principle. The assessee’s appeal was allowed, and the Revenue’s appeal was dismissed.

For A.Y. 2009-10, the Tribunal restored the issue to the AO for fresh adjudication, considering the earlier Tribunal’s direction to decide the issue based on the provision made in the books or as per the statute.

Disposition of Appeals:
- ITA. No. 2231/MUM/2018 (A.Y. 1991-92) - Dismissed
- ITA. No. 1801/MUM/2018 (A.Y. 2007-08) - Partly allowed
- ITA. No. 2233/MUM/2018 (A.Y. 2007-08) - Partly allowed
- ITA. No. 1802/MUM/2018 (A.Y. 2007-08) - Allowed
- ITA. No. 2232/MUM/2018 (A.Y. 2007-08) - Dismissed
- ITA. No. 1803/MUM/2018 (A.Y. 2009-10) - Partly allowed for statistical purposes
- ITA. No. 2234/MUM/2018 (A.Y. 2009-10) - Partly allowed for statistical purposes

Order Pronounced:
The order was pronounced in the open court on the 12th of July, 2019.

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