2020 (7) TMI 497 - AT - Income Tax

Reopening of assessment u/s 147 - Claim of deduction u/s 80P(2) against enhanced income - HELD THAT - As established beyond doubt that the re opening of assessment is not on the basis of any tangible material but on a mere change of information. AO has re opened the assessment after expiry of four years there is no allegation either in the assessment order or anywhere else stating that the escapement of income was due to failure on the part of the assessee to disclose all material facts relating to his income truly and correctly. Accordingly the condition enshrined in section 147 is not fulfilled. For the aforesaid reasons we agree with Commissioner (Appeals) that the re opening of assessment under section 147 of the Act in the present case is invalid. Deduction u/s 80P(2) against enhanced income due to disallowance of capital expenditure - HELD That - in view of the decision of the Hon ble Supreme Court the issue stands settled in favour of the assessee. As regards the other deductions claimed by the assessee and disallowed by the Assessing Officer we fully agree with learned Commissioner (Appeals) that since such disallowances were in course of assessee s regular business activities they will only enhance the business profit of the assessee. Therefore the assessee will be entitled to claim deduction under section 80P(2)(a)(i) of the Act in respect of such enhanced income. Accordingly we dismiss the grounds raised by the Revenue. Disallowance under section 14A - HELD THAT - On a perusal of the details filed we are satisfied that the assessee has sufficient own fund to make the investment. Therefore no disallowance on account of interest expenditure can be made. Further in case of Maxopp Investment Ltd 2018 (3) TMI 805 - SUPREME COURT has held that in case of Bank investments are held as stock in trade. Hence it becomes a business activity of the assessee. That being the case no disallowance under section 14A of the Act can otherwise also be made. In view of the aforesaid we uphold the decision of learned Commissioner (Appeals) on the issue by dismissing the ground raised by the Revenue. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues Involved:
1. Validity of re-opening of assessment under section 147 of the Income Tax Act, 1961.
2. Allowance of deduction under section 80P(2) of the Income Tax Act, 1961.
3. Deletion of disallowance under section 14A of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Re-opening of Assessment under Section 147:

The Revenue challenged the decision of the learned Commissioner (Appeals) declaring the re-opening of assessment under section 147 as invalid. The assessee, a Co-operative Society engaged in banking, had filed its return of income for the assessment year 2005-06 on 31st October 2005, claiming deduction under section 80P(2). The original assessment was completed under section 143(3) on 22nd June 2007. The Assessing Officer re-opened the assessment under section 147, alleging escapement of income, and issued a notice under section 148 on 29th March 2012.

The learned Commissioner (Appeals) held that the re-opening was invalid as the issues were already considered during the original assessment, and no new tangible information was provided. The Tribunal agreed, noting that the re-opening was made almost at the end of the six-year period, and the reasons for re-opening were not based on any new material but rather on a change of opinion. The Tribunal upheld the decision of the Commissioner (Appeals), declaring the re-opening under section 147 invalid.

2. Allowance of Deduction under Section 80P(2):

The Revenue also challenged the allowance of the assessee’s claim of deduction under section 80P(2). The Assessing Officer had restricted the deduction, disallowing various provisions made for expenses, including bad and doubtful debts. The Commissioner (Appeals) held that the amortization of premium paid on HTM securities and depreciation on shifting of AFS securities to HTM category were allowable. Additionally, the disallowances made were part of normal business activities, and thus, the assessee was entitled to deduction under section 80P(2)(a)(i) on the enhanced income.

The Tribunal concurred with the Commissioner (Appeals), noting that similar issues in previous years were decided in favor of the assessee by the Tribunal and upheld by the High Court and Supreme Court. Therefore, the assessee was entitled to the claimed deductions, and the Tribunal dismissed the Revenue’s grounds.

3. Deletion of Disallowance under Section 14A:

For the assessment year 2010-11, the Revenue challenged the deletion of disallowance under section 14A. The Assessing Officer had noticed exempt income earned by the assessee and computed disallowance on a proportionate basis. The Commissioner (Appeals) deleted the addition, and the Tribunal upheld this decision.

The Tribunal observed that the disallowance made by the Assessing Officer was ad-hoc and not based on Rule 8D. The assessee demonstrated that investments were made out of own funds, and no interest expenditure was incurred. Citing the Supreme Court decision in Maxopp Investment Ltd v/s CIT, the Tribunal noted that investments held as stock-in-trade by banks are part of business activities, and thus no disallowance under section 14A could be made. The Tribunal dismissed the Revenue’s ground.

Procedural Issue:

The Tribunal addressed the delay in pronouncement of the order due to the COVID-19 pandemic and nationwide lockdown. Citing the decision in DCIT V/s JSW Limited, the Tribunal excluded the lockdown period from the 90-day time limit for pronouncement of the order, adhering to the principles of pragmatism and the extraordinary circumstances.

Conclusion:

Both appeals by the Revenue were dismissed, upholding the decisions of the learned Commissioner (Appeals) on all contested issues. The Tribunal pronounced the order on 30th June 2020, considering the exceptional circumstances due to the pandemic.