TaxTMI 
TaxTMI 
2021 (3) TMI 56
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.... (LLP) Firm carrying the business of real estate development. 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 inv....
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....sessment year under consideration. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been recorded above (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 h....
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....roposed to disallow interest expenses u/s. 14A r.w.r 8D on the assumption that the expenses have been incurred by us in earning exempt income. In response to the said contention of the Assessing Officer, we file our reply dated 19.02.2015 wherein we explained 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 exe....
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....ve formula at Rs. 5,13,06,096/- as per working given in the reasons recorded. Moreover, the Submission on merits if any will dealt with during the course of assessment proceeding after considering the evidence and submission made by the assessee during the course Of reassessment proceedings. 4. In view of the above facts, it becomes evident that this case has been reopened 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 ....
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....ssisted by Mrs. Mauna Bhatt, the learned Sr.Standing Counsel appearing for the Revenue. 5. Mr. Soparkar, the learned counsel for the writ applicant raised the following contentions : 1. Referring to the Sections 147 and 148 of the Act, it was submitted that, the Assessing Officer no doubt has the power to reassess any income which escaped assessment for the year under consideration subject to the 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 Off....
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....that, the income has escaped assessment. Mrs. Bhatt, the learned standing counsel for the revenue further submits that, as per the statutory provisions, while working out the disallowance under the provisions, the amount of Rs. 5,13,06,096/- was required to be stated by the assessee, however, the assessee had incorrectly made disallowance of Rs. 34,06,859/-. In this context, she would submit that, mere disclosure is not sufficient, but it has to be 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....
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.... free income and added back to the total income of the assessment year under consideration. 3.2. In response to the show cause notice assessee filed its reply dated 19.02.2015, For a ready reference the reply of the assessee is reproduced below : "1. Vide your letter dated 19" February 2015 you have invited our attention to the exempt income of Rs. 34,06,859 from Mutual Fund and our investment in shares of Apple woods Estate Private Limited. You have further sought our explanation in regard to disallowance of relevant 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. ....
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....Limited, [2009} 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner o Income TaxI Vs. Corrtech Energy P. Ltd, 20141 223 Taxmann 130 (Guj.). The third decision is of the Allahabad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax (li) Kanpu, Vs. M/- s. Shivam Motors (P) Ltd. decided on 05.05.2014. In the said decision it has been held: "As regards the second question, Section 144 of the Act provides that for the purposes of computing the total income under 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 disall....
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.... the course of original assessment, disallowance was made only Rs. 34,06,859/- restricting to the extent of exempted income, as a result, income of Rs. 4,78,99,237/- has escaped assessment on the ground that, there was an omission on the part of the assessee to disclose fully and truly all the material facts. It was further observed by the Assessing Officer that; "it is true that the assessee has filed copy of annual report and audited P&L account and balancesheet along with return of income where various information /material were disclosed. However, requisite full and true disclosure of all material facts necessary has not been made, but 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....
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....t at a higher figure. Therefore, applying the same principle to the facts of the present case, the proposed amount is exceed the exempt income of the assessee. In that view of the matter on merits, invoking the provisions for reopening of the assessment under Section 147 of the Act is bad in law. 15. We may also refer to and rely upon the case of State of U.P. Vs.Aryaverth Chaval Udhyog [2015 (17) 324]. Paras 28 and 29 thereof reads thus: "28. ............In case of the same material being present before the assessing authority during both, the assessment proceedings and the issuance of notice for reassessment proceedings, it cannot be said by the assessing 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 bel....