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2017 (11) TMI 62 - HC - Income TaxReopening of assessment - addition u/s 14A - Held that - The chronology of events leading up to the passing of the orders under Section 143(3) of the Act, clearly shows that the AO was satisfied with the claim of the assessee while passing the original orders. Rule 8D is triggered only in a case where the AO is not satisfied with the deduction made by the Assessee. The reasons to believe assume and are predicated on the belief that the AO should not have accepted the Petitioner s deduction as explained and justified, albeit should have applied Rule 8D. Thus, the view and opinion formed by the AO, while passing the original assessment orders is doubted as erroneous. This is obviously a case of change of opinion. In view of the aforesaid position, we allow the present writ petition and quash the reassessment notices dated 30th March, 2015 in the case of the Petitioner for the AYs 2010-11 and 2011-12.
Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act, 1961. 2. Alleged underassessment of income due to incorrect computation of disallowance under Section 14A read with Rule 8D. Detailed Analysis: 1. Validity of Reassessment Proceedings under Section 147/148: The petitioner challenged the reassessment notices issued for AY 2010-11 and 2011-12 under Section 148 of the Income Tax Act, 1961. The petitioner argued that the reassessment was based on a mere "change of opinion" by the Assessing Officer (AO) and not on any new material facts. The original assessment proceedings for both years had already scrutinized and accepted the disallowance under Section 14A of the Act. For AY 2010-11: - The petitioner disclosed dividend income of ?20,48,37,585/- and disallowed expenditure of ?9,75,26,937/- under Section 14A. - The AO issued notices under Section 143(2) and 142(1), specifically asking for details of dividend income and related expenses. - The petitioner provided detailed calculations, which were accepted by the AO in the assessment order dated 18th February 2013. For AY 2011-12: - The petitioner disclosed dividend income of ?28,55,09,111/- and disallowed expenditure of ?12,44,11,096/- under Section 14A. - During scrutiny, the AO issued a questionnaire requiring detailed computation of disallowance under Section 14A. - The petitioner provided the necessary details, and the AO accepted the disallowance in the assessment order dated 28th February 2014. Reasons to Believe: - For AY 2010-11, the AO believed that an amount of ?2,68,94,092/- had escaped assessment due to incorrect computation under Section 14A. The AO noted that the total disallowance should have been ?12,44,21,029/-, but the petitioner restricted it to ?9,75,26,937/-. - For AY 2011-12, the AO believed that an amount of ?5,00,95,760/- had escaped assessment. The AO noted that the total disallowance should have been ?17,45,06,856/-, but the petitioner restricted it to ?12,44,11,096/-. Court's Analysis and Findings: - The court held that this was a clear case of "change of opinion." The AO had already examined the disallowance under Section 14A during the original assessments. - The court referred to the judgment in Commissioner of Income Tax v. Usha International, which states that reassessment is invalid if the issue was already examined and no addition was made in the original assessment. - The court also cited the Supreme Court's decision in Godrej and Boyce Manufacturing Company Limited v. Deputy Commissioner of Income Tax, emphasizing the need for the AO's satisfaction before applying Rule 8D. - The court concluded that the AO was satisfied with the petitioner's disallowance during the original assessments, and the reasons to believe were based on a change of opinion. 2. Alleged Underassessment of Income: The AO's reasons to believe were based on the assumption that the petitioner should not have restricted the disallowance under Section 14A and should have applied Rule 8D. The court found that the AO had already scrutinized and accepted the petitioner's calculations during the original assessments. Conclusion: The court allowed the writ petition and quashed the reassessment notices dated 30th March 2015 for AY 2010-11 and 2011-12. The court held that the reassessment proceedings were invalid due to a change of opinion and not based on any new material facts. There was no order as to costs.
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