2021 (10) TMI 411 - AT - Income Tax

Reopening of assessment u/s 147 - Reopening based on rectification notice - Whether A.O had wrongly assumed jurisdiction u/s 147 of the Act, for the reason, that he had reopened his concluded assessment on the very same reason on which notice u/s 154 of the Act was issued to him? - HELD THAT - In the present case, it is a matter of fact borne from the record that the notice issued u/s 154 by the A.O had neither been dropped nor culminated in an order till date. Accordingly, the support drawn by the ld. A.R from the aforesaid proposition that having issued a notice u/s 154 which thereafter had been dropped/vacated by the A.O, the case of the assessee on the very same basis cannot be reopened u/s 147 of the Act would be of no avail in the backdrop of the facts involved in the case before us. Unlike the case of the assessee before us in the case of Berger Paints India Ltd. 2009 (8) TMI 557 - CALCUTTA HIGH COURT the rectification proceedings that were initiated by the A.O had thereafter been dropped. On a similar footing, in the case of M/s Nawany Corp (I) Ltd. 2012 (5) TMI 202 - ITAT MUMBAI the proceedings u/s 154 are stated to have been concluded after the assessee had submitted its reply. Backed by the aforesaid facts, not being able to persuade ourselves to subscribe to the contention of the ld. A.R that the A.O having issued a notice u/s 154 of the Act could not have on the same basis validly reopened its case u/s 147 of the Act, we, thus, dismiss the same. The Grounds of appeal Nos. 2 3 are dismissed. Disallowance u/s 14A r.w.r. 8D - non recording his satisfaction that as to why the claim of the assessee that no part of the expenses could be attributed to earning of the exempt income - HELD THAT - A.O in the case before us had dislodged the aforesaid claim of the assessee that no part of the expenditure was attributable to earning of its exempt income without recording his satisfaction as to why the same was not to be accepted having regard to the accounts of the assessee which were placed before him - we are of a strong conviction that the A.O had wrongly assumed jurisdiction and worked out the disallowance in the hands of the assessee u/s 14A - We, thus, in terms of our aforesaid observations respectfully follow the judgments of Godrej Boyce Manufacturing Company Ltd. 2017 (5) TMI 403 - SUPREME COURT and Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT and vacate the disallowance made by the A.O under Sec.14A of the Act. -Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961.
2. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961.
3. Issuance of notice under Section 154 without concluding rectification proceedings.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act, 1961:
The assessee challenged the disallowance of ?1,26,048/- made by the Assessing Officer (A.O) under Section 14A read with Rule 8D. The A.O disallowed the amount as the assessee had earned an exempt income of ?42,81,534/- but did not offer any disallowance under Section 14A. The assessee contended that it had sufficient self-owned funds to justify the investment and no disallowance was necessary. However, the A.O rejected this claim without recording satisfaction regarding the correctness of the assessee’s claim, which is a statutory requirement as per the Supreme Court judgments in Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT and Maxopp Investment Ltd. Vs. CIT. The Tribunal found that the A.O failed to record satisfaction as required, leading to the vacation of the disallowance of ?1,26,048/-.

2. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961:
The assessee argued that the A.O had wrongly assumed jurisdiction to reopen the assessment under Section 147 on the same grounds for which a notice under Section 154 had already been issued. The Tribunal noted that the powers under Sections 147 and 154 operate in different fields. While Section 154 pertains to rectifying mistakes apparent from the record, Section 147 is invoked when income has escaped assessment. The Tribunal held that if rectification proceedings under Section 154 are dropped, the A.O cannot reopen the case under Section 147 on the same basis. However, in this case, since the notice under Section 154 had neither been dropped nor culminated in an order, the A.O’s action to reopen the case under Section 147 was upheld. Thus, the grounds of appeal related to this issue were dismissed.

3. Issuance of notice under Section 154 without concluding rectification proceedings:
The assessee contended that the A.O issued a notice under Section 148 without concluding the rectification proceedings under Section 154. The Tribunal observed that the notice under Section 154 had not been dropped or concluded, and thus, the A.O was within his rights to reopen the assessment under Section 147. The Tribunal dismissed this ground of appeal, reiterating that the powers under Sections 147 and 154 are distinct and can be exercised independently.

Conclusion:
The Tribunal allowed the appeal of the assessee in part. The disallowance under Section 14A was vacated due to the A.O’s failure to record satisfaction. However, the reopening of assessment under Section 147 was upheld as the notice under Section 154 had not been concluded. The appeal was partly allowed in favor of the assessee.