2022 (3) TMI 1034 - HC - Income Tax

Reopening of assessment u/s 147 - Addition u/s 14A - HELD THAT - Four years embargo has three exceptions and one of the exceptions is failure to disclose fully and truly all material facts necessary for assessment. That is the bone of contention in the writ petitioner's campaign against the impugned order and therefore it tantamounts to begging the question. Therefore, the limitation point is clearly a non-starter. Turning to the argument on Section 14-A read with Rule 8D which has been captured supra as well as the argument on non-consideration of objections besides audit objections not being a valid piece of information, all these three points can be answered in one go and that one answer is the annexure to Section 142(1) notice. As articulated in the annexure that disallowance under 14A of IT Act should be made as per the methodology prescribed in Rule 8D of the IT Rules and it is seen that Section 14-A read with Rule 8D was not adhered to by the assessee in computation of income Disallowance under 14A of IT Act should be made as per the methodology prescribed in Rule 8D of the IT Rules and it is seen that Section 14-A read with Rule 8D was not adhered to by the assessee in computation of income. Therefore, this matter turns on facts. To be noted, annexure also makes it clear that the writ petitioner assessee bank itself made disallowance to the tune of over 69.23 lakhs under Section 14A and it is in that context that there is a reference to Section 14A read with Rule 8D. The second paragraph of the annexure also deals with this aspect of the matter and makes it clear that disallowance of interest / expenditure ought to have been computed at a particular quantum where as the assessee bank has disallowed an amount of only 69.23 lakhs and odd. These need to be disallowed is the point raised. All this turns heavily on facts. These are all questions of fact. Therefore, it cannot be gainsaid that Section 14 A and Rule 8D have not been applied. The argument that the objections have not been considered may not hold water as the annexure does deal with the crux of the objections but it may be too early a stage in the proceedings to express any opinion on this aspect of the mater. As rightly pointed out by learned Revenue Counsel, reassessment notice under Section 148 of IT Act i.e, impugned notice if carried to its logical end, in the facts and circumstances of the case, will clearly neutralize all these arguments and the writ petitioner assessee bank will not be aggrieved in any manner. This Court has taken into account all the facts and circumstances of the case and has also noticed that the writ petitioner assessee itself is a bank and this Court is unable to persuade itself to believe that the impugned notice is either bad calling for interference in writ jurisdiction (much less demanding to be a situation of being dislodged under writ jurisdiction) or a notice which causes undue hardship having the writ petitioner aggrieved.

Issues Involved:
1. Limitation and issuance of notice under Section 148 of the Income Tax Act, 1961.
2. Absence of fresh/tangible material for reassessment.
3. Validity of audit objections as grounds for reassessment.
4. Non-consideration of objections raised by the petitioner.
5. Applicability of Rule 8D of the Income Tax Rules, 1962, concerning Section 14A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Limitation and Issuance of Notice under Section 148 of the Income Tax Act, 1961:
The petitioner argued that the impugned notice was issued after four years from the end of the assessment year (AY 2014-15), making it time-barred under the first proviso to Section 147 of the IT Act. The court noted that the four-year limitation period has exceptions, including the failure to disclose fully and truly all material facts necessary for assessment. Since the case involved a question of whether there was such a failure, the limitation argument was deemed a non-starter.

2. Absence of Fresh/Tangible Material for Reassessment:
The petitioner contended that the reassessment notice lacked fresh or tangible material. The court found this argument unconvincing at this stage, citing the annexure to the Section 142(1) notice dated 23.11.2021, which provided detailed reasons for the reassessment. The court emphasized that these reasons were sufficient to justify the issuance of the notice under Section 148.

3. Validity of Audit Objections as Grounds for Reassessment:
The petitioner claimed that the reassessment was based on audit objections, which cannot be considered valid information for assuming jurisdiction under Section 148. The court did not explicitly address this issue in isolation but implied that the detailed reasons provided in the annexure to the Section 142(1) notice were sufficient to support the reassessment, regardless of the source of the information.

4. Non-consideration of Objections Raised by the Petitioner:
The petitioner argued that their objections were not considered. The court found that the annexure to the Section 142(1) notice addressed the crux of the objections raised by the petitioner. The court also noted that it might be premature to express any opinion on this matter at this stage of the proceedings.

5. Applicability of Rule 8D of the Income Tax Rules, 1962, Concerning Section 14A of the Income Tax Act:
The petitioner argued that the second respondent did not examine the applicability of Rule 8D to disallowance under Section 14A during the original assessment. The court found that the annexure to the Section 142(1) notice clearly articulated the need to apply Section 14A read with Rule 8D, indicating that the petitioner had not adhered to this methodology in computing income. The court emphasized that these issues were factual and could not be resolved at this stage.

Conclusion:
The court concluded that the reassessment notice under Section 148 was justified based on the detailed reasons provided in the annexure to the Section 142(1) notice. The arguments concerning limitation, absence of fresh/tangible material, audit objections, non-consideration of objections, and applicability of Rule 8D were not sufficient to warrant interference in writ jurisdiction. Consequently, the writ petition was dismissed, and there was no order as to costs.

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