2011 (2) TMI 1184 - HC - Income Tax

Reassessment - a sum of Rs.107.70 lakhs was shown as taxable income u/s 41 but only Rs. 9.23 lakhs has been shown under the head Other income in the profit and loss account, resulting in Rs. 98.46 lakhs escaping assessment & petitioner had earned free dividend income of Rs. 188.73 lakhs on the long-term non-trade investment exempt u/s 10(33) but various administrative expenses for earning the dividend income were claimed and allowed as an expenditure. Expenses relating to earning of tax-free dividend income were not allowable as expenditure and accordingly income has escaped assessment Held that - As in the tax audit report, Rs.1,07,69,936 has been mentioned as the amount written back and chargeable to tax under section 41. A note to the tax audit report further states that the above amounts have been credited to the profit and loss account. The contention of the petitioner that Rs. 9,23,471 was specifically added back in the profit and loss account under the heading Other income and the balance amount of Rs. 98.46 lakhs was added back under different heads but was not separately indicated. It is not necessary for an assessee to add back the amounts mentioned in section 41 under a separate heading. Thus the contention of the petitioner that ground for reassessment is factually incorrect. Though there has been a serious lapse and failure on the part of the petitioner to raise a specific and clear cut objection with details before the Assessing Officer and even in the writ petition. However, we are not dwelling further into this aspect as we feel that the notice of reassessment can be sustained on ground No. 2. Rectification proceeding objected - Held that - Rectification of a mistake apparent from the record cannot be equated with the power of reopening under sections 147 and 148 of the Act, which is conferred on the Assessing Officer to reopen cases underassessment when conditions mentioned in the said section are satisfied - Assessing Officer could not have resorted to section 154 proceedings to disallow expenditure under section 14A of the Act - Appeal is dismissed

Issues Involved:
1. Lack of jurisdiction for reassessment under section 147/148 of the Income-tax Act, 1961.
2. Non-disclosure of income under section 41 of the Income-tax Act.
3. Disallowance of administrative expenses related to earning tax-free dividend income under section 14A of the Income-tax Act.
4. Applicability of section 154 versus section 147/148 for reassessment.

Issue-wise Detailed Analysis:

1. Lack of Jurisdiction for Reassessment:
The petitioner challenged the reassessment notice under section 147/148 on the grounds of lack of jurisdiction, arguing that the conditions prerequisite for reopening the assessment were not satisfied. The court examined whether the conditions for reassessment were met, specifically focusing on the failure to disclose fully and truly all material facts necessary for the assessment year 2000-01.

2. Non-disclosure of Income under Section 41:
The reassessment notice was issued based on two grounds. The first ground was that a sum of Rs. 107.70 lakhs was shown as taxable income under section 41, but only Rs. 9.23 lakhs was shown under "Other income" in the profit and loss account, resulting in Rs. 98.46 lakhs escaping assessment. The petitioner contended that the amount was added back under different heads and not separately indicated. However, the petitioner failed to provide specific details in the objections or the writ petition, which weakened their argument. The court noted that the petitioner did not raise a clear objection with details before the Assessing Officer or in the writ petition, leading to the conclusion that the notice of reassessment could be sustained on the second ground.

3. Disallowance of Administrative Expenses under Section 14A:
The second ground for reassessment was the disallowance of administrative expenses related to earning tax-free dividend income. The petitioner argued that section 14A, introduced with retrospective effect from April 1, 1962, was not applicable as it was not on the statute when the return was filed. The court, however, held that the proviso to section 14A did not apply to the present case and that the Assessing Officer was required to disallow expenses incurred for earning exempt income. The court emphasized that the petitioner had not disclosed details of proportionate expenses related to tax-free income during the assessment proceedings, constituting a failure to fully and truly disclose material facts.

4. Applicability of Section 154 versus Section 147/148 for Reassessment:
The petitioner argued that once a notice under section 154 was issued, proceedings under section 147/148 on the same grounds could not be taken. The court clarified that the scope and ambit of sections 154 and 147/148 are different. Section 154 deals with rectification of mistakes, while section 147/148 pertains to reopening assessments when conditions are satisfied. The court noted that the Assessing Officer could not have resorted to section 154 proceedings to disallow expenditure under section 14A as it was not an error apparent from the record. The court also referred to various judgments to highlight the distinction between the two provisions and concluded that the reassessment notice was justified.

Conclusion:
The court dismissed the writ petition, upholding the reassessment notice under section 147/148. The petitioner failed to fully and truly disclose material facts necessary for the assessment, justifying the reopening of the assessment. The court emphasized the difference between sections 154 and 147/148, stating that the latter could be invoked when the preconditions were met, regardless of the issuance of a notice under section 154.

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