2020 (12) TMI 577 - HC - Income Tax

Re-opening of assessment u/s 148 - computation of deduction under section 35(1)(iv) - ITAT held that the order of re-assessment was bad in law. However, the Tribunal examined the issue on merits and gave the findings on merits - HELD THAT - Once the order of re-assessment was set aside, the Tribunal ought not have adjudicated the issues involved in the appeal on merits. There was no need for remanding the matter to the Assessing Authority. - Decided in favour of assessee.

Summary

Issues:
1. Validity of Tribunal's decision to adjudicate on the merits and remand the matter to the Assessing Officer for computation of deduction under section 35(1)(iv) of the Income Tax Act.
2. Classification of expenses incurred towards research and development as capital in nature.
3. Adjudication on the disallowance made under Section 14A of the Income Tax Act while computing income under the normal provisions of the Act.
4. Add back of the disallowance made under Section 14A of the Act in computing book profits under Section 115JB of the Act.

Analysis:
1. The appeal under Section 260-A of the Income Tax Act, 1961, pertained to the Assessment Year 2005-06. The Tribunal set aside the reassessment order as being without jurisdiction but proceeded to adjudicate on the merits and remanded the matter to the Assessing Officer for computation of deduction under section 35(1)(iv) of the Act. The appellant contended that once the reassessment order was set aside, there was no need for further adjudication. The revenue argued that subsequent findings had become academic due to the initial findings. The Court ruled in favor of the appellant, holding that the Tribunal's order of remand could not be acted upon, thereby answering the first substantial question of law in favor of the assessee.

2. The original assessment for the Assessment Year 2005-06 was passed under Section 143(3) of the Act, followed by a re-assessment under Section 148 reducing an amount from the deductible expenditure on the grounds of being capital in nature. The Tribunal upheld the disallowance of expenses incurred towards research and development as capital in nature. However, due to the decision on the first issue, further adjudication on this matter was deemed unnecessary.

3. The Tribunal did not adjudicate on the correctness of the disallowance made under Section 14A of the Act while computing income under the normal provisions. The appellant's appeal raised concerns regarding this issue, but due to the decision on the first substantial question of law, a detailed analysis or ruling on this matter was not required.

4. The Tribunal upheld the add back of the disallowance made under Section 14A of the Act in computing the book profits under Section 115JB of the Act. However, since the first substantial question of law was answered in favor of the assessee, further discussion or ruling on this issue was unnecessary. Consequently, the appeal was disposed of based on the resolution of the first substantial question of law.

In conclusion, the High Court of Karnataka addressed the issues raised by the appellant regarding the Tribunal's decision on the reassessment order and subsequent adjudication, ultimately ruling in favor of the assessee and disposing of the appeal based on the resolution of the first substantial question of law.