2006 (7) TMI 246 - AT - Income Tax

Summary

Issues Involved:
1. Legality of disallowance under section 14A of the Income-tax Act, 1961, against dividend income exempted under section 10(33) during assessment proceedings under section 147.
2. Validity of reopening assessments under section 147 after the period for issuing notice under section 143(2) has expired.
3. Interpretation of intimation under section 143(1) as an assessment order.

Detailed Analysis:

1. Legality of Disallowance under Section 14A:
The primary issue in these appeals is whether disallowance under section 14A of the Income-tax Act, 1961, can be made against dividend income exempted under section 10(33) during assessment proceedings under section 147. The Assessing Officer had made disallowances under section 14A in reassessment proceedings for both assessment years 1998-99 and 1999-2000. The CIT(A) confirmed these disallowances, leading to the appeals before the Tribunal.

2. Validity of Reopening Assessments under Section 147:
The assessee contended that the Assessing Officer could not reopen the concluded assessments by issuing notice under section 148 due to the proviso to section 14A, which prohibits reopening assessments for any assessment year beginning on or before April 1, 2001. The Tribunal examined the reasons recorded for reopening under section 148 and found that the assessments were not reopened for making disallowances under section 14A but for other reasons related to speculative loss under Explanation to section 73. Thus, the Tribunal concluded that the reopening was valid and not specifically for disallowance under section 14A.

3. Interpretation of Intimation under Section 143(1):
The assessee argued that intimation under section 143(1) should be considered as an order of assessment, relying on the judgment of the Hon'ble Bombay High Court in CIT v. Anderson Marine & Sons (P.) Ltd., which held that intimation under section 143(1) amounts to an assessment order. The Tribunal noted the divergence of opinion among various High Courts on this issue but held that the Bombay High Court's judgment was binding. Consequently, the Tribunal concluded that the intimation under section 143(1) was an order of assessment, and the Assessing Officer was prohibited from reassessing under section 147 by invoking section 14A.

Additional Considerations:
The Tribunal also considered the Board Circular No. 11, dated July 23, 2001, which directed that assessments where proceedings had become final before April 1, 2001, should not be reopened under section 147 to disallow expenditure incurred to earn exempt income by applying section 14A. The Tribunal referred to the judgment of the Hon'ble Punjab & Haryana High Court in Vipin Khanna v. CIT, which held that assessment proceedings become final after the expiry of the period for issuing notice under section 143(2). Thus, the Tribunal concluded that even if intimation under section 143(1) does not amount to an assessment order, the assessment proceedings had become final, and the Assessing Officer was prohibited from taking action under section 147.

Conclusion:
The Tribunal set aside the orders of the lower authorities and deleted the disallowances made under section 14A in the reassessment proceedings. The appeals were allowed, emphasizing that the Assessing Officer could not reassess the income by invoking section 14A once the period for issuing notice under section 143(2) had expired, as it would defeat the purpose of the proviso to section 14A and the Board Circular.