TaxTMI 
TaxTMI 
2010 (5) TMI 836
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....ons of reopening of assessment u/s 148 of the Act. In response to this notice issued u/s 148, the assessee made his submissions vide letter dated 02-03- 2006 and had further requested the AO to treat the return filed by them on 28-10-2002, as that filed in response to the notice u/s 148 of the Act. Thereafter the AO considered the interest income received by the firm on bank FDRs, as income from other sources. Thus he reduced this amount of Rs. 1,19,91,812/- from the book profits declared by the assessee and thereafter recomputed the allowance of remuneration to partners u/s 40(b) and completed the assessment. Aggrieved, the assessee carried the matter in appeal, inter alia, challenging the reopening of the assessment, assessing the interest income on FDR under the head "Income from other sources" and not under the head" "Income from profession" as well as the computation of book profits by the AO and addition made on share income relating to an ex partner. On appeal, the first appellate authority held hat reopening was bad in law, as, as per him, he did not see any case for escapement of income. Aggrieved, the Revenue had filed this appeal on the following ground : "On the facts....
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....ing of reasons for reopening, the AO has not treated the income from interest on FDRs, as income from other sources, nor has he disallowed the claim of partners' remuneration. He submitted that there is no tangible material or a new fact that has lead the AO to come to a conclusion that he has reason to believe that income has escaped assessment. He submitted that the AO just relooked into the return of income and recorded the reasons for reopening and that such an exercise is bad in law. He submitted that even otherwise there is no escapement of tax as the deduction given in the hands of the firm u/s 40(b), is taxable in the hands of the partners and hence it is revenue neutral. He relied on the decision of the jurisdictional High Court in the case of Siemens Information System Ltd. Vs. ACIT 295 ITR 333 for the propositions made by him, specifically on pages 342 & 343. Further he relied on the definition of book profits and submitted that the interest in question has to be considered as book profits and the allowability of partners' remuneration u/s 40(b) is to be in relation to such book profit. 5. The learned DR, on the other hand, countered by submitting that, at that particul....
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....at the net profit has been arrived at, after taking into account the amounts of Rs. 1,19,91,812/-being interest from bank. Remuneration to partners is to be paid on the book profit as per ceiling prescribed under section 40b(v) of the Act. Book profit means the net profit as per profit and loss account computed under section 28 to 141 of the Act. Hence, the interest from bank being income from other sources, should not have been considered for arriving at book profit. Therefore, the book profit, after excluding the interest from bank, works out to as under: Net profit as per P&L A/c. Rs. 1,58,89,252/- Less: Interest from Bank Rs. 1,19,91,812/- Rs. 38,97,440/- Add: Disallowance (as per statement) Rs. 4,22,19,510/- Less: Depreciation etc. (as per statement) Rs. 2,15,61,181/- Rs. 2,06,58,329/- Book Profit Rs. 2,45,55,769/- Remuneration to partner s on the book profit of Rs. 2,45,55,769/- deductible from the income of the firm is also worked out as under: 90% of first 100000 Rs. 90,000/- 60% of next 100000 Rs. 60,000/- 40% of balance Rs. 2,43,55,....
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.... section 147 to bring under tax net interest arising out of FDRs, the same could have been the case for other years also. Therefore, there is inconsistency in the stand taken by the A.O. Thirdly, the way interest is calculated by the appellant and the way it is proposed by the A.O. it would be revenue-neutral in the end. I, therefore, do not see any case for escapement of income and hence in my opinion it was not a fit case for initiating proceeding u/s 147. " The reasons given by the first appellate authority, in our humble opinion, are not correct. Just because no action has been taken, on this issue either in the previous assessment years or in the immediately succeeding assessment year, it cannot be said that no action can be taken for reopening of the assessment. A plain reading of section 147 of the I.T. Act does not suggest such interpretation. It is very clear that, in none of these assessment years, this issue has been considered by the AO. The issue was never discussed, nor a considered view was taken thereon. Just because in a subsequent assessment year, the AO had not made a disallowance on this issue, despite reopening of the assessment of the earlier year, it does no....
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....the return of income. When he has not looked into the return of income, the question of relooking and coming to a new conclusion does not arise. In cases where, the returns are processed u/s 143(1), and where at a later date, the AO notices certain wrong claims etc. in the return of income, and forms a prima facie opinion that income has escaped assessment, he is authorised to record reasons and reopening of the assessment u/s 147. 11. Sub clause (b) to Explanation 2 to Section 147 reads as follows : (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; A plain reading of the above clearly indicates that the AO can consider the return of income and the accompanying documents to form an opinion that the income has escaped assessment. 12. Coming to the judgment of Siemens Information System (supra) relied upon by the learned counsel for the assessee, we find that the AO passed an order u/s 143(3), had considered the issue of deduction claimed by the assessee u/s 10A and 10B ....