2018 (2) TMI 1531 - HC - Income Tax

Reopening of assessment - Claim of the deduction u/s 80IA 4 - eligibility of reasons to believe - doctrine of merger - Held that - AO passed assessment order on 12th March 2015 and in such order, he disallowed the entire claim under Section 80IA 4 of the Act. That being the position, he had no occasion to separately comment on the assessee s claim of expenditure. The assessee carried such matter in appeal and CIT A , by an Order dated 26th July 2016, allowed the assessee s claim of deduction under Section 80IA 4 of the Act. It was thereafter that AO issued the impugned notice of reopening of the assessment. By the time petition was filed and this Court passed its first order on 4th September 2017 issuing notice and preventing the Assessing Officer from passing final order of assessment, he had already framed the assessment on 31st August 2017. Such facts and order of assessment were brought on record through amendment in which the order of assessment is also challenged. Principally on the ground of merger, the notice must be quashed. Without recording separate reasons, therefore, this petition is also required to be allowed.

Summary

Issues:
Challenging a Notice for Reopening Assessment; Disallowance of Expenses under Section 37 [1] of the Act; Merger Principle in Reassessment; Revenue Neutrality Contention.

Challenging a Notice for Reopening Assessment:
The petitioner challenged a Notice dated 31st March 2017 issued by the Assessing Officer to reopen the assessment for Assessment Year 2012-2013. The reasons for reopening included disallowance of certain expenses claimed by the petitioner under Schedule 10 "Other Expenses" in its P&L Account. The petitioner raised objections to the notice, but they were rejected by the Assessing Officer in an order dated 31st July 2017.

Disallowance of Expenses under Section 37 [1] of the Act:
The Assessing Officer disallowed three specific expenses claimed by the petitioner in the assessment order for AY 2012-13. These expenses included post monitoring expenses, cell utilization expenses, and land utilization expenses. The Assessing Officer found that these expenses were not actual expenditures but provisions, and therefore not allowable under Section 37 [1] of the Act. The disallowance of these expenses led to an under-assessment of income, which prompted the reopening of the assessment.

Merger Principle in Reassessment:
The petitioner contended that the Assessing Officer's attempt to disallow the expenses through the reassessment process was impermissible. The petitioner argued that the Assessing Officer was disturbing a claim that had already been allowed by the CIT [A], citing the principle of merger. The court noted that once an issue had been decided and allowed in appeal, it could not be revisited in a reassessment, as this would be contrary to the principle of merger.

Revenue Neutrality Contention:
The petitioner also argued that even if the expenses were disallowed, it would not impact the ultimate tax liability due to the deduction granted under Section 80IA [4] of the Act. The court did not rule on this contention but focused on the impermissibility of the reassessment due to the principle of merger. The court set aside the impugned notice and annulled the order of assessment accordingly.

In conclusion, the court allowed the petition challenging the notice for reopening the assessment, emphasizing the principle of merger and the impermissibility of revisiting issues already decided and allowed in appeal. The court set aside the notice and annulled the assessment order, highlighting the importance of adhering to legal principles in reassessment proceedings.