TaxTMI 
TaxTMI 
2021 (3) TMI 56
X X X X Extracts X X X X
X X X X Extracts X X X X
....elopment. 2. The writ applicant filed its return of income for the A.Y. 201213 on 30.09.2012 declaring total income NIL and claimed loss of Rs. 3,66,93,809/-. The case was selected for scrutiny and the same was finalized under Section 143 of the Act on 05.03.2015 determining the total loss at Rs. 3,32,86,950/- and subsequently, notice under Section 148 of the Act dated 26.07.2018 was issued and assessment was re-opened by recording the following reasons : 1. In this case, the assessee filed return of income for A.Y. 201213 on 30.09.2012 declaring a loss of Rs. 3,66,93,809/-. During the period, the assessee has shown loss from business and profession and income from capital gains & other sources. The assessee is engaged in the business of real estate development. 2. From the records, it is noticed that the assessee has debited interest expenses of Rs. 9,77,80,572/- and had shown exempt income of Rs. 34,06,856/-. 3. The assessee was required to make a disallowance under Section 14 A of the Act r.w.r 8 D of the IT Rules in such case as per the following calculation: Average of investment: Rs. 103,34,98,799/- [ 1/- 2 of Rs. 206,23,83,210/- + Rs. 46,14,388/- ] Average of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....refer para 6 above). I have carefully considered the assessment records containing submissions made by the assessee In response to various notices Issued during the assessment proceedings and have noted that the assessee has not fully and truly disclosed the material facts related to the disallowance to be made u/s 14A of Income Tax Act r.w.r. Rule 8D of IT Rules necessary for his assessment for the year under consideration. It is evident from the above facts that the assessee had not truly: and fully disclosed Material facts necessary for his assessment for the year under consideration thereby Necessitating reopening u/s 147 of the act. It is true that the assessee has filed a copy of annual report and audited P&L account and balancesheet alongwith return of income where various information /- material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made as noted above. It is pertinent to mention here that even though the assessee has produced books of accounts, annual report, audited par a/- c and balance sheet or other evidences as mentioned above, the requisite material facts as noted above in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed that the dividend from mutual funds get directly accumulated in the fund and on redemption entire invested amount along with the dividend accrued till date is credited to the bank account and thus no administrative or other expenses have been incurred in earning the same. The extract of the letter dated 19.02.2015 are produced in the regular assessment order dated 05.03.2015 u/s. 143 (3) which is enclosed as Annexure 1 for year reference. In spite of the above referred submission, the Assessing Officer disallowed Rs. 34,06,859/- u/s. 14A of the Income Tax Act, 1961 (the Act) i.e. to the extent of exempt income earned by us. Further, as mentioned in the reason for re-assessment, the disallowance u/s. 14A have been recomputed by you at Rs. 5,13,06,096/-, which is much higher than the actual exempt income earned by us. Further, it is well settled law that the disallowance u/s. 14A r.w.r. 8D cannot exceed the exempt income. The said contention is supported by judicial decision in below mentioned cases: a. PCIT Vs. State Bank of Patiala [99 taxmann.com 286 (SC)] b. PCIT Vs. Caraf Builders & Constructions (P) Ltd. [101 taxmann.com 167 (Del HC)] The copies of the judgments ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....opened only after following the due procedures prescribed in the IT Act and was based on the tangible material leading to the conclusion that there was escapement of income from assessment. It may also be pointed out that mere furnishing of details about income does not mean that all material facts have been fully and truly disclosed. In the case of Indo Aden Salt Manufacturing and Trading Co. (P) Ltd. Vs. Commissioner of Income-tax 159 ITR 624 (SC) the Hon'ble Supreme Court has held that even if the assessee had supplied details but if it had not disclosed true facts which the ITO could have found by further probing, the reopening of the assessment was valid. In the case of Olwin Tiles (India) Pvt. Ltd. Vs. DCI in ITA No.17303, 18388 & 18389 of 2014, Hon'ble Gujarat High Court vide its order dated 5th January 2016 has held that once the reasons are recorded properly, the proceedings initiated u/s.147 of the Act are valid. In the case of Shree Krishna (P) Ltd. Vs. Income-tax Officer 221 ITR 538 (SC), the Hon'ble Supreme Court reiterated that it was the duty of the assessee to disclose material facts fully and truly. The disclosure of a loan, which was subsequently disco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....provisions of Section 148 to 153 of the Act, however, this power is conditional upon effect that, the Assessing Officer has some reason to believe that, the income has escaped assessment. Referring to the original assessment order made under Section 143(3) of the Act and the reasons for reopening, it was submitted that, the reopening of the assessment is bad on the ground that, the issue of disallowance under Section 14(8A) of the Act was thoroughly gone into by the Assessing Officer and ultimately, the disallowance limited to Rs. 34,06,859/-, which was the amount of exempt income earned. Therefore, on the same material, the Assessing Officer has formed his belief with regard to the escapement of income, which is nothing, but a change of opinion on the part of the Assessing Officer and therefore, he could not reopen the assessment in the absence of any tangible material. 2. It was further pointed out that, there is no income chargeable to tax has escaped assessment so far the disallowance under Section 148 A of the Act is concerned. On this ground, it was submitted that, the interest to the extent of entire exempt income already having disallowed at the time of original assessmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... true and full disclosure and therefore, the Assessing Officer rightly come to the conclusion that the income has escaped assessment and such escapement occurred on account of failure on the part of the assessee to disclose fully and truly, all material facts necessary for the assessment for the year under consideration. 8. In the aforesaid circumstances, Mrs. Bhatt prays that there being no merits, present writ application may not be entertained. 9. We have carefully considered the contentions raised by both the parties and perused the materials placed on record. 10. It is the case of the Revenue that, the assessee was required to disallow an amount of Rs. 5,13,06,096/- under Section 14A of the Act and during the original assessment, disallowance was made only upto Rs. 34,08,859/- restricting the extent of exempted income. Therefore, as per the case of the revenue, the income Rs. 4,78,99,237/- has escaped assessment for which the assessee failed to disclose fully and truly all material facts necessary for the assessment for the year under consideration. It is also undisputed fact that, the case of the assessee selected for further scrutiny and notice under Section 143(2) of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant expenditure, as per the provisions of Section 14A of Income. tax Act, read with Rule 8 of the IT Rules. 2. In the above regard we wish to inform you that Sandesh Procon LLP is in the business of development of Real Estate. Apple woods Estate Private Limited is developing one of the largest township Project in Ahmedabad. To expand our presence. in Real Estate Market, we have strategically and in the ordinary course of business, acquired 70.79% stake in the said company. The business of Sandesh Procon LLP and Apple woods Estate Private Limited are very similar and therefore, our strategic investment in the same is business investment. 3. In the above regard, we wish to rely on the direct ratio of the decision of the Hon'ble Delhi High Court in the case of CIT vs, Ho/ cim (india) (P.) Ltd. (copy attached herewith), wherein it was held as under: It is an undisputed position that respondent assessee is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not an improbability. Dividend mayor may not be declared. Div....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the Chapter, no deduction shall be allowed In respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income Is not an allowable deduction. For the year in question, the finding of fact Is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. 5. As regard the dividend income of Rs. 34,06,859/- received from mutual funds, it virtually does not require any administrative expenditure. Dividend is accumulated in the fund and on redemption entire invested amount along with dividend accrued till date is credited to our bank account. It is only for the accounting purposes that the portion of dividend accrued is credited to investment account." 3.3. The submission of the assessee has been perused and considered carefully. However, same is not acceptable. On perusal of the Balance Sheet, it is verified that assessee has invested ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut it would require due diligence by the AO to extract these information. For aforesaid reasons, it is not a case of change of opinion. 12. A bare perusal of the reasons and original the assessment order made under Section 143(3) of the Act, the facts emerge that, the respondent authority had determined the issue of disallowance after considering the material available and now again without any tangible material available with the Assessing Officer based on the same materials, which were relied at the time of original assessment proceedings, has reason to believe that there is escapement of income. Therefore, in this circumstances, we are of the view that, the material available with the Assessing Officer, at the relevant point of time, while making original assessment under Section 143 (3) of the Act and at the time of reopening of the assessment, the materials available with the Assessing Officer were the same and there was no any new material surfaced during the reassessment proceedings. 13. After close scrutiny of the reasons for reopening of assessment, we are of the view that, all the material facts relating to Section 14(A) of the Act were before the Assessing Officer duri....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... authority that "reason to believe" for initiating reassessment is an error discovered in the earlier view taken by it during original assessment proceedings. (See DCM v. State of Rajasthan : [1980] 4 SCC 71). 29. The standard of reason exercised by the assessing authority is laid down as that of an honest and prudent person who would act on reasonable grounds and come to a cogent conclusion. The necessary sequitur is that a mere change of opinion while perusing the same material cannot be a "reason to believe" that a case of escaped assessment exists requiring assessment proceedings to be reopened. (See: Binani Industries Limited, Kerala v. Assistant Commissioner of Commercial Taxes, VI Circle, Bangalore : [2007] 15 SCC 435 : [2007] 6 VST 783 (SC) and A.L.A. Firm v. Commissioner of Income-tax : [1991] 2 SCC 558 : [1991] 189 ITR 285 (SC). If a conscious application of mind is made to the relevant facts and material available or existing at the relevant point of time while making the assessment and again a different or divergent view is reached, it would tantamount to "change of opinion". If an assessing authority forms an opinion during the original assessment proceedings on the ....