2010 (11) TMI 64 - HC - Income Tax

Assessee claimed dividend income as exempt - AO reopened the assessment under Section 147/148 of the Act - AO stated that income for which exemption was claimed by the assessee proportionate expenses should have been disallowed under Section 14A of the Act - Proviso to section 14A - Provided that nothing contained in this Section shall empower the A.O. either to reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154 for any assessment year beginning on or before the 1st April 2001 - Held that - not permissible for the AO to issue such a notice - appeal is accordingly dismissed

Summary

Issues:
Reopening of assessment under Section 147 for claiming disallowance of expenses under Section 14A for an assessment year beginning on or before 01.04.2001.

Analysis:
The assessee filed the return for the assessment year 2001-02, claiming dividend income as exempt. The Assessing Officer (AO) reopened the assessment under Section 147/148 after a few years to disallow expenses related to the claimed dividend income under Section 14A. The CIT (A) invalidated the reassessment, citing the proviso to Section 14A, which prohibits reassessment for years before 2002-03. This decision was upheld by the Income Tax Appellate Tribunal.

The proviso to Section 14A clearly restricts reassessment under Section 147 for assessment years before 01.04.2001. The Revenue argued that since the original assessment was under Section 143(1), it did not constitute a proper assessment, relying on legal precedents. However, the Court disagreed, emphasizing that the proviso to Section 14A explicitly prohibits reassessment for years before 2001. The Court found that the conditions of the proviso were met in this case: the reassessment was initiated under Section 147, based on Section 14A, and related to an assessment year before 01.04.2001. Therefore, the AO's notice was impermissible, and the Tribunal's decision was upheld, leading to the dismissal of the appeal.