2016 (8) TMI 1090 - HC - Income Tax

Reopening of assessment - Deduction under section 80P(2)(d) - Held that - Assessee s claim of deduction under section 80P(2)(d) of the Act that the Assessing Officer passed the order of assessment in which, as noted, he allowed the entire claim of deduction under section 80P of ₹ 1.51 crores which naturally included the said figure of ₹ 69.98 lacs under section 80P(2)(d) of the Act. During the assessment thus Assessing Officer had full materials at his command to consider the relevant question namely, whether the interest income of ₹ 69.98 lacs could be allowed deduction without adjustment against the interest expenditure or not? The fact that interest was paid by the assessee on borrowed funds was very much on record as can be seen from the answer given by the petitioner to the queries raised by the Assessing Officer. In fact, in the reasons recorded also, Assessing Officer does not refer to any external material which could be the source of such income that the assessee had expended ₹ 11.22 croes by way of interest. Thus the Assessing Officer having examined the specific claim of deduction under section 80P(2)(d) of the Act, it would now not be open for him to reexamine the claim which would be based on mere change of opinion

Issues:
1. Validity of notice for reopening assessment for the assessment year 2009-2010.
2. Claim of deduction under section 80P(2)(d) of the Income Tax Act.
3. Justifiability of the reasons for reopening the assessment.

Issue 1: Validity of notice for reopening assessment for the assessment year 2009-2010

The petitioner challenged a notice issued by the Assessing Officer for reopening the assessment for the assessment year 2009-2010, which was originally framed after scrutiny. The notice was issued within the prescribed period of four years from the end of the relevant assessment year. The petitioner, a Cooperative Milk Producers' Union, had declared nil income for the year but claimed a deduction under section 80P of the Act, which included interest received from cooperative banks and societies. The Assessing Officer had disallowed certain expenses but granted the deduction under section 80P. The petitioner contended that the reasons for reopening lacked validity as the original assessment had scrutinized the claim thoroughly and granted the deduction after due verification. The petitioner also relied on a previous court decision supporting their claim.

Issue 2: Claim of deduction under section 80P(2)(d) of the Income Tax Act

The Assessing Officer sought to disallow the deduction claimed by the petitioner under section 80P(2)(d) amounting to a specific sum, stating that the petitioner's net interest income was negative due to interest expenditure incurred. The notice for reopening was based on the premise that the interest income had to be adjusted against the interest expenditure before any deduction could be claimed. The petitioner had provided detailed responses during the original assessment, justifying the claim of deduction under section 80P(2)(d) based on the nature of interest income earned. The Assessing Officer had allowed the deduction in the original assessment after considering all relevant details and materials. The court held that the Assessing Officer could not reexamine the claim based on a mere change of opinion, especially when there was no external material to support the disallowance of the deduction. The court referred to settled principles of law and previous judgments to support its decision to set aside the impugned notice.

Issue 3: Justifiability of the reasons for reopening the assessment

The notice for reopening the assessment was primarily based on the discrepancy between the interest income claimed and the interest expenditure incurred by the petitioner. The Assessing Officer contended that the interest income had to be adjusted against the interest expenditure before allowing any deduction under section 80P(2)(d). However, the court found that the Assessing Officer had already examined the petitioner's claim of deduction during the original assessment and had all the necessary information to make a decision. The court emphasized that without any new material or valid reasons, reopening the assessment would not be permissible. The court ultimately set aside the impugned notice, allowing the petitioner's petition and disposing of the case in their favor.

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