2012 (11) TMI 838 - AT - Income Tax

Validity of reopening of the assessment - assessee contended that he disclosed all the relevant particulars fully and truly and the facts of the property in question were also disclosed by the assessee Held that - Mere production of the balance-sheet, profit and loss account or account books will not necessarily amount to disclosure within the meaning of the proviso - Assessing Officer over-looked the aforestated item. That, he noticed it subsequently. That, at the time of passing the original order of assessment, he could not be said to have opined on the above item - there was no change of opinion against assessee Natural justice alleged that no reason has been given by the assessee for its failure to file the same before the authorities below, it is observed that the documents sought to be filed by the assessee as additional evidence have already been filed by it before the A.O. during the course of re-assessment proceedings for A.Y. 2002-03 and 2003-04 and the same have also been filed by the assessee during the course of appellate proceedings before the ld. CIT(A) for A.Y. 2004-05 wherein a similar issue is involved matter remanded to AO Disallowance u/s 14A by applying Rule 8D of the I T Rules - alleged that assessee has no business during the year and it had invested in the shares including in the Group Companies for earning dividend income which has been claimed as exempt u/s 10(34) as well as long term capital gains claimed u/s 10(38) of the IT Act - expenditure is for earning the exempt income i.e. dividend and long term capital gain Held that - Assessee has closed its business; therefore, even if there is no business during the year under consideration the entire expenditure cannot be assigned to exempt income i.e. dividend and capital gain. As it is clear from the details of the expenses that these expenses are for general administration and for maintaining the status of the assessee as a company; therefore, these expenses are not directly related to the exempt income. Further, Rule 8D is not applicable for the Assessment Year under consideration matter remanded to AO

Issues Involved:
1. Validity of reopening assessment under Section 147.
2. Determination of annual rental value of properties.
3. Disallowance of expenditure under Section 14A by applying Rule 8D.

Detailed Analysis:

1. Validity of Reopening Assessment under Section 147:
The primary issue was whether the reopening of the assessment for the Assessment Year 2001-02 was valid. The assessee argued that the original assessment was completed under Section 143(3) and that all relevant facts were fully disclosed during the scrutiny assessment. The notice under Section 148 was issued after the expiry of four years, which the assessee claimed was time-barred due to the proviso to Section 147.

The Tribunal noted that the original assessment was indeed completed under Section 143(3) and that the reopening was initiated after four years. The Assessing Officer (AO) had found that the assessee did not show any income under the head "income from house property" despite having significant investments in immovable properties. The AO argued that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

The Tribunal referred to the decision of the Hon'ble Delhi High Court in *Commissioner of Income-tax v. Honda Siel Power Products Ltd.*, which emphasized that mere production of books of account does not amount to full and true disclosure. The Tribunal concluded that the reopening was justified as there was an omission on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, thus confirming the CIT(A)'s order.

2. Determination of Annual Rental Value of Properties:
This issue was related to the estimation of the annual value of properties owned by the assessee. The AO had estimated the annual value at 1% per month of the total cost of the properties, which the assessee contended was incorrect as the properties were not fully developed or rented out.

The Tribunal referred to its earlier decision in the assessee's own case for the Assessment Year 2003-04, where it had restored the issue to the AO for fresh consideration. The Tribunal directed the AO to decide the issue afresh in light of the additional evidence provided by the assessee, confirming that the determination of the annual rental value should be reconsidered.

3. Disallowance of Expenditure under Section 14A by Applying Rule 8D:
For the Assessment Years 2006-07 and 2007-08, the issue was whether the CIT(A) was justified in confirming the disallowance of expenditure under Section 14A by applying Rule 8D. The AO had disallowed the entire expenditure claimed by the assessee on the grounds that it was incurred for earning exempt income.

The Tribunal noted that the assessee had not paid any interest on loans used for earning tax-free income and had not incurred any expenditure specifically for earning exempt income. It referred to the decision of the Hon'ble jurisdictional High Court in *Godrej and Boyce Mfg. Co. Ltd. v. DCIT*, which held that Rule 8D was not applicable for the assessment years under consideration.

The Tribunal concluded that the entire expenditure could not be disallowed by applying Section 14A and Rule 8D. It set aside the issue to the AO for fresh consideration in light of the decision of the Hon'ble jurisdictional High Court, directing the AO to re-evaluate the disallowance of expenditure.

Conclusion:
In summary, the Tribunal upheld the validity of the reopening of the assessment under Section 147, directed the AO to reconsider the determination of the annual rental value of properties, and remanded the issue of disallowance of expenditure under Section 14A to the AO for fresh consideration in accordance with the relevant judicial precedents. All appeals filed by the assessee were partly allowed for statistical purposes.

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