2018 (9) TMI 340 - AT - Income Tax

Reopening of assessment - loss from mutilated currency notes claimed as business loss/business expenditure in computation of taxable total income - deduction u/s 37 - Held that - the income chargeable to tax was underassessed during the course of scrutiny assessment under section 143(3) of the Act and therefore, the Assessing Officer reopened the assessment. Explanation 2 to section 147 of the Act envisages that if the income chargeable to tax was underassessed, the Assessing Officer can reopen the assessment and brought the underassessed income to tax - the appellate order dated 19.11.2012 has not influenced the Assessing Officer to reopen the assessment, which was completed under section 143(3) of the Act, but for underassessment. Under the above facts and circumstances, we are of the considered opinion that the assessment was validly reopened under section 147 Loss from mutilated currency notes - Vide circular No.RBI/2012-13/562 DCM(FNVD) No. 5840/16.01.05/ 2012-13 dated 27.06.2013 addressed to the CMD/CEO of all Scheduled Commercial Banks, while deciding to compensate the banks 25% of the loss incurred in respect of counterfeit notes of ₹.100 and above detected by them and reported to RBI and Police Authorities, it was also emphasised in the Extract of Monetary Policy Statement 2012-13 to streamline their system in a manner which will make them bear the risk of counterfeit bank notes rather than the common man who unknowingly comes in possession of such notes. Admittedly, the assessee is engaged in trading in gold bullion and there is every possibility of getting mixed the mutilated notes during the course of his business. In the assessment year 2008-09, the Assessing Officer allowed the loss to the extent of 20% of total claim of the assessee. Similarly, we direct the Assessing Officer to allow the loss to the extent of 20% in the assessment year 2009-10. Disallowance of interest for want of TDS on the application of section 40(a)(ia) in the computation of taxable total income - assessee failed to furnish the details of interest paid and TDS thereon - Held that - On appeal, by following the decision in the case of Palam Gas Services v. CIY 2017 (5) TMI 242 - SUPREME COURT wherein it was held that Word payable occurring in section 40(a)(ia) of the Act not only covers cases where amount is yet to be paid, but also those cases, where amount has actually been paid , the ld. CIT(A) confirmed the disallowance - no infirmity in the order passed by the ld. CIT(A) and thus, the ground raised by the assessee stands dismissed for the assessment year 2008-09.

Summary

Issues:
1. Validity of reopening assessment under section 147 of the Income Tax Act for assessment years 2008-09 and 2009-10.
2. Disallowance of loss on account of mutilated notes claimed as expenditure under section 37(1) of the Act for both assessment years.
3. Disallowance of interest for want of TDS under section 40(a)(ia) of the Act for assessment year 2008-09.

Issue 1: Validity of Reopening Assessment under Section 147:
The appellant challenged the reopening of assessment under section 147 of the Income Tax Act for the assessment year 2008-09, citing lack of cogent material evidence and claiming it to be a mere change of opinion. The Appellate Tribunal noted that the original assessment was completed on 30.12.2010, and after the appellant's appeal, the Assessing Officer reopened the assessment under section 147 based on underassessment of income chargeable to tax. The Tribunal found the reopening valid under Explanation 2 to section 147, as the underassessed income was brought to tax, independent of the appellate order, leading to the dismissal of the appellant's challenge.

Issue 2: Disallowance of Loss on Mutilated Notes:
The appellant claimed deduction for loss on mutilated notes under section 37(1) of the Act for both assessment years. The Assessing Officer disallowed a portion of the claim, leading to an appeal. In the assessment year 2008-09, the appellant agreed to the disallowance of 80% of the claim, which prevented further appeal. For the assessment year 2009-10, the Assessing Officer disallowed the entire claim due to lack of proper explanation. The Tribunal directed the Assessing Officer to allow 20% of the claim for both years, considering the nature of the appellant's business and RBI guidelines on counterfeit notes.

Issue 3: Disallowance of Interest for Want of TDS:
The appellant's disallowance of interest for want of TDS under section 40(a)(ia) of the Act for the assessment year 2008-09 was confirmed by the ld. CIT(A) based on a Supreme Court decision. The Tribunal upheld this decision, citing the interpretation that the term "payable" in the section covers cases where the amount has been paid without TDS deduction. Consequently, the ground raised by the appellant was dismissed for the assessment year 2008-09.

In conclusion, the Appellate Tribunal dismissed the appeal for the assessment year 2008-09 and partly allowed it for statistical purposes for the assessment year 2009-10, based on the detailed analysis of the validity of reopening assessment, disallowance of loss on mutilated notes, and disallowance of interest for want of TDS.