2014 (9) TMI 206 - HC - Income Tax

Reopening of assessment u/s 147 - Expenditure u/s 14A Proper disclosure made by assessee in front of AO - Held that - The Tribunal rightly was of the view that the full and true details of exempt income were clearly stated and mentioned in the return of income and this fact was in the knowledge of the AO - It was, thereafter, for the AO to disallow expenditure u/s 14A of the Act the AO may have erred, but this was not the fault of the assessee or attributable to his failure to disclose full and true material facts - Explanation to Section 147 of the Act would not be applicable - Neither the explanation invoked as the details were per se available and apparent the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
Reassessment proceedings under Section 147/148 of the Income Tax Act, 1961 for the assessment year 2005-2006 based on disallowance of expenditure under Section 14A.

Analysis:
The case involved a reassessment proceeding initiated by the Revenue due to the respondent/assessee declaring exempt income without a corresponding disallowance under Section 14A of the Act. The original assessment order was passed under Section 143(3) in 2007, and reassessment proceedings were initiated four years later. The Commissioner of Income Tax (Appeals) found the initiation of reassessment invalid as the assessing officer was aware of all details during the original assessment. The Tribunal affirmed this finding, stating that the assessee had disclosed full and true particulars in the return of income, which the assessing officer could have considered initially. The Tribunal held that the mandatory condition for reassessment, failure to disclose material particulars, was not satisfied as the full facts were known to the assessing officer.

The assessing officer observed that Rule 8D, which allows for the disallowance of expenditure, was not retrospective or mandatory, leading to a disallowance of &8377; 51,08,274 after proportionately attributing expenses. The respondent/assessee offered to apply Rule 8D and disallow &8377; 1,05,474, but the assessing officer did not find it applicable. The Tribunal found no error in its decision, as the assessing officer had full knowledge of the exempt income and could have made the disallowance initially based on the disclosed information.

The judgment highlighted that the initiation of reassessment proceedings requires a failure to disclose full and true material particulars, which was not the case here. The Tribunal's decision was upheld, emphasizing that the assessing officer's error in not making the disallowance initially did not stem from the assessee's failure to provide complete information. As the necessary conditions for reassessment were not met, the appeal by the Revenue was dismissed, affirming the Tribunal's findings.