TaxTMI 
TaxTMI 
2013 (8) TMI 523
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....y assessment which the respondent intended to reopen for which impugned notice has been issued. 2.2 At the request of the petitioner, the respondent supplied the reasons recorded for issuing the notice. Such reasons read as under : "On verification of the details filed during the assessment proceedings, it is noticed from the grouping of expenses that the assessee had debited to P&L A/c an amount of Rs. 86,17,002/-under the head of administrative expenses being SAP implementation charges in A/c No.3AS05. ft is an expense of capital nature and should not have been allowed as Revenue expenditure. This requires to be disallowed. The software implementation charges are capital in nature and it will be capitalized along with SAP software shown for Rs.25,01,462/-. It will be entitled to depreciation as per prescribed rate. Thus, the amount of Rs.86,17,002/- requires to be disallowed. The disallowance has been made u/s 14A of the Act to the extent of Rs.2,11,316/-, as per para 6 of the assessment order. The disallowance u/s 14A cannot be made on adhoc basis but accordingly to the provisions of section 14A r....
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....nbsp; Less: Already disallowed by AO Rs. 2,11,316/- Requires to be disallowed Rs.29,20,815/- Thus, there is total under assessment of income of Rs.34,46,800/- [being capital expenditure towards SAP after allowing depreciation @ 60% thereon (86,17,002 less 60% Rs.51,7 0,202)] + Rs.29,20,815/- = Rs.63,67,615/-, which has resulted in short levy of tax. Accordingly, I am satisfied that the income chargeable to tax has escaped assessment and hence it is a fit case for re-opening the assessment within the meaning of Section 147 of the Act." 2.3 Armed with the reasons, the petitioner raised detailed objections under a communication dated October 11, 2012. Such objections were, however, rejected by the respondent by an order dated March 08, 2013. Hence, this petition. 3. At the outset we may record that the impugned notice has been issued within a period of four years from the end of relevant assessment yea....
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....objections to re-opening assessment vide its letter dated 11-10-2012. The assessee has essentially contested the re-opening of assessment proceedings objecting to the reasons recorded. With regards to the first reason, the assessee has stated that it had capitalized the amount of Rs.86,17,002/- in its books and had not claimed it as revenue expenditure. However, the assessee has itself accepted in its reply that initially it had claimed the entire expense of Rs. 8,6,17,002/-as Administrative expense which was debited to P & L Account and only later capitalized the same as CWIP during finalization of accounts. The assessee has not given any proof that while computing its returned income it had correctly treated the said expenditure. This issue was not examined during assessment during assessment proceedings and hence, there is every reason to believe that income has escaped assessment as per u/s 147." 5. In the petition also, the clear stand of the petitioner has been that such expenditure of Rs.86.17 lac was never treated as revenue expenditure. Such stand comes out from the following portion of paragraph 3.2 : "3.2 .. .. .. It is submitted that one o....
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....as a part of 'Capital Work in Progress'. In face of such material on record, we have no hesitation in coming to the conclusion that the first ground is factually incorrect. When the expenditure itself was never claimed by way of revenue expenditure, the question of disallowing such an expenditure on such basis requiring of reopening of assessment would not arise. 9. This brings us to second ground recorded by the Assessing Officer, which pertains to disallowance of proportionate expenditure for earning the tax free income. We may recall that in the opinion of the Assessing Officer, the petitioner who had earned tax free dividend income should have been subjected to disallowance of proportionate expenditure for earning such income on the basis of the formula provided in Rule 8D of the Income-tax Rules, 1962. The petitioner opposes such reason mainly on two grounds. Firstly that during the original assessment, this claim was examined at length and in the assessment order through a speaking order, part disallowance was made. Such issue cannot be a part of reopening proceedings. Secondly that Rule 8D would not be applicable with retrospective effect and, therefore, cannot be applied....
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....he basis of fresh investments and inflation. Whereas in the case of the assessee company, it may also be noted that in the earlier years, the company has not claimed any expenses against the dividend income u/s.57. The copy of statement of Income for A.Y. 2003-2004, during which dividend income was taxable, is enclosed to show that no expenditure was claimed u/s.57 from the dividend income. There was no dividend income during A.Y. 1997-98 or earlier years. Therefore, the decision of the Southern Petrochemicals is not applicable on the facts of the assessee company. Therefore, there is no question of disallowance of any expenditure." 11. Such issue cropped up once again when the assessee under its communication dated January 27, 2009 wrote to the Assessing Officer as under : "2. In the course of hearing, you have inquired about the application of Sec.14A in respect of investments made in shares and mutual fund having regard to the judgment of Ahmedabad bench of ITAT in the case of Harish Krishkant Bhatt 85 TTJ 872.% In this connection, it may please be noted that the above referred decision the assessee paid interest for the....
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....nditure incurred to earn the income which does not form part of the total income is not available, than only the Rule 8D can be applied. In the present case the assessee company has submitted the bank statements showing the nexus of the investment made from the owned funds by letter dated 23 & 27-01-2009. From the same it may please be seen that all investments in shares of Needwise Advertising Pvt. Ltd. and Mutual Funds are made out of owned funds and therefore there is no question of disallowance of any interest expenses. Further there is a sufficient cash flow from the operations available with the company as can be seen from the cash flow statement. Since the assessee company has furnished the bank statement showing the nexus of the investment for the availability of the funds, the question of applicability of Rule 8D also does not arise. As regards indirect general expenses, it may please be noted that all investments are made in debt mutual funds which are normally risk free investments and therefore, there is no involvement of the top management in such investment activity. Accordingly, the following general expenses....