2013 (1) TMI 292 - HC - Income Tax

Reopening of assessment - deduction u/s. 80P without first deducting its interest expenses in contravention to section 80AB - Held that - In the return filed by the petitioner in addition to claiming deduction of gross income of interest and dividend u/s 80P(2)(d) the petitioner further provided various details like in the Annexure-VII to the return, such deduction u/s 80P(2)(d) was bifurcated into dividend income of Rs. 53,71,450 and interest income of Rs. 1,27,56,156. Further, the petitioner had also supplied the full details of the statement showing dividend and interest income received from cooperative societies along with dividend counters in the original. Additionally, along with Tax Audit Report u/s 44AB the petitioner had given details of the dividend income, interest income as well as interest expenses for the said year, which included interest expenditure on fixed deposit, interest expenditure on the Society Savings, Employee Savings, etc. Thus, it can be seen that full details with respect to claim for deduction u/s 80P(2)(d) was very much before AO in the original return accompanied by the audited accounts of the petitioner society. There was, thus, no failure to disclose fully and truly all the material facts necessary for assessment, thus no reason to reopen the assessment - in favour of assessee.

Summary

Issues involved:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for Assessment Year 2004-05 based on alleged income escapement due to failure to net interest expenses with income eligible for deduction under Section 80P(2)(d) of the Act.

Detailed Analysis:

1. Reopening of Assessment: The petitioner, a Cooperative Milk Producers' Union, challenged a notice issued by the Income Tax Officer under Section 148 of the Income Tax Act, 1961, proposing to reopen the assessment for the Assessment Year 2004-05. The notice was challenged on the grounds that the petitioner regularly filed returns and was assessed to tax. The original assessment had resulted in a net taxable income of nil, with a deduction claimed under Section 80P 2(d) of the Act.

2. Reasons for Reopening: The Assessing Officer sought to reopen the assessment based on the belief that the petitioner's income had escaped assessment due to not netting interest expenses with the income eligible for deduction under Section 80P(2)(d) of the Act. The reasons for reopening highlighted discrepancies in the treatment of interest expenses and income for various assessment years, leading to the conclusion that income had escaped assessment for the year in question.

3. Objections and Rejection: The petitioner objected to the reopening, arguing that all material facts were disclosed in the original return, including details of interest and dividend income, along with related expenses. The petitioner contended that the interest expenses were not directly linked to the income for which the deduction was claimed under Section 80P(2)(d) of the Act. Despite detailed objections, the Assessing Officer rejected the contentions and proceeded with the reopening.

4. Court's Analysis and Decision: The High Court analyzed the details provided by the petitioner in the original return, including the breakdown of dividend and interest income, along with related expenses. The Court found that the petitioner had fully disclosed all material facts necessary for assessment, including audited accounts and relevant details. As there was no failure on the part of the petitioner to disclose crucial information, the Court held that the reopening of the assessment was unwarranted. The Court quashed the impugned notice dated 30th March 2011, ruling in favor of the petitioner.

Overall, the judgment focused on the sufficiency of disclosure by the petitioner in the original return and concluded that there was no justification for reopening the assessment based on alleged income escapement. The decision emphasized the importance of full and accurate disclosure of material facts to prevent unwarranted reassessment actions.