2013 (4) TMI 142 - HC - Income Tax

Review petition - Reassessment u/s 147 - Scope of the proviso to the Section 14A - expenditure in relation to exempted income - reopening of concluded assessments - CBDT Circular No.11 of 2001 - Held that - when assessment stands set aside and remanded for reconsideration by the assessing authority, such assessment cannot be treated as a concluded assessment and so much so, the Circular referred to therein does not bar revision of assessment by the Commissioner under Section 263 of the Act for the purpose of making disallowance under Section 14A. In fact, the scope of the proviso to Section 14A was not considered in the said decision at all. Obviously, the facts arising in these cases are not similar to the facts based on which we rendered our judgment in Catholic Syrian Bank Ltd. v. CIT 2009 (8) TMI 750 - KERALA HIGH COURT because in all these cases, assessment involved remained concluded and the powers of the Commissioner to suo motu order revision of assessment under Section 263 was considered with specific reference to the proviso to Section 14A, which is part of the statute. The proviso is not procedural but guarantees vested rights of parties against reopening concluded assessments. So far as concluded assessments are concerned, the proviso makes it clear that the assessee should not be subjected to disallowance either by reopening assessment under Section 147 or under Section 154 for raising demand of tax after disallowance or for withdrawing refund granted. If the right of the assessee cannot be taken away by the Assessing Officer, we see no reason why it can be permitted to be done by the Commissioner under Section 263 to achieve the same purpose, which is prohibited under the proviso to Section 14A. - Review petition dismissed.

Summary

Issues:
1. Interpretation of Section 14A of the Income Tax Act regarding disallowance of expenditure incurred in relation to income not includible in total income.
2. Scope of the proviso in Section 14A preventing revising concluded assessments under Section 147 or Section 154 for making disallowances.

Analysis:

Issue 1: Interpretation of Section 14A
The case involved a Banking Institution that incurred expenditure for earning income exempt from tax, leading to a dispute over the applicability of Section 14A of the Income Tax Act. Section 14A disallows deductions for expenditure related to income not forming part of the total income. The Assessing Officer completed assessments without disallowances under Section 14A, despite the assessee incurring expenses on interest for investments in tax-exempt securities. The Commissioner, utilizing revisional powers under Section 263, set aside the assessments for reassessment to make disallowances. The Tribunal ruled that disallowances cannot be made by revising concluded assessments under Section 263. The High Court upheld this decision, emphasizing that the proviso in Section 14A prohibits revising concluded assessments for disallowances.

Issue 2: Scope of Proviso in Section 14A
The Court referred to a previous judgment in Catholic Syrian Bank Ltd. v. CIT, where the scope of CBDT Circular No.11 of 2001 and the Commissioner's revisional powers under Section 263 were discussed. In that case, assessments remanded for reconsideration were deemed not concluded, allowing revision under Section 263. However, the current cases involved concluded assessments, and the Court held that the proviso in Section 14A safeguards against reopening assessments for disallowances. The Court maintained that the proviso's bar against Assessing Officers extends to Commissioners invoking Section 263 for the same purpose. Upholding the Division Bench's prior judgment, the Court reiterated that the proviso safeguards vested rights of parties against reopening concluded assessments, preventing disallowances under Section 14A through revisional powers.

In conclusion, the Court dismissed the review petitions, finding no error in the judgment. The Court's decision reaffirmed the interpretation of Section 14A and the proviso's significance in preventing revising concluded assessments for disallowances, thereby upholding the rights of the assessee against unwarranted tax demands.