2006 (4) TMI 229 - AT - Income Tax

Expenditure Incurred not to be included in total income - Reopening of assessment under section 147 of the Income-tax Act 1961 - violation of section 14A of the Act or not - Restriction on deduction under section 80P(2)(e) to the net receipts by reducing the expenditure from the gross receipts for the assessment year 1996-97 - HELD THAT - The provisions of section 14A of the Act is introduced retrospectively with effect from 1st April 1962 by the Finance Act 2001 for the purposes of computing the total income under Chapter IV and no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such exempted income. But the provisions of section 14A of the Act do not speak about the deductions to be made in computing the total income as per the provisions of Chapter VI-A (sections 80A to 80U) even though as a result of such deductions the taxable income is reduced wholly or partially. In the present case in hand the reopening was done as the income escaped due to excess claim of deduction under section 80P(2)(e) of the Act by allowing full by the Assessing Officer in the original assessment order passed under section 143(3) of the Act. In the given facts and circumstances of the case we fairly feel that the reopening by the Assessing Officer is perfectly within the provisions of the law. Accordingly we feel that the proviso to section 14A of the Act and circulars cited above will not apply to the claim of deductions as provided in Chapter VI-A from sections 80A to 80U of the Act. The CIT(A) has erred in quashing the reassessment proceedings under section 147/148 of the Act by holding that the proviso to section 14A of the Act and circulars issued by the Board will apply. Accordingly the CIT(A) s order on jurisdiction is set aside but it is seen that the CIT(A) has not passed any order on merits. The revenue s appeals are allowed for statistical purposes.

Summary

Issues Involved:
Reopening of assessment under section 147 in violation of section 14A of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Reopening of Assessment under Section 147 in Violation of Section 14A
The appeals of the revenue were directed against the orders of the CIT(Appeals)-IX, Chennai, concerning the assessment years 1996-97, 1997-98, and 1999-2000. The common issue in all appeals was whether the reopening of assessment under section 147 of the Income-tax Act, 1961, violated section 14A. The Assessing Officer initially allowed the deduction under section 80P(2)(e) but later restricted it in reassessment. The assessee argued that no reassessment could be done for years before April 1, 2001, as per the proviso to section 14A. The CIT(A) deleted the additions based on this argument. However, the Tribunal held that the reopening was valid as the excess claim of deduction led to income escaping assessment. The Tribunal found that the proviso to section 14A and circulars cited did not apply to deductions under Chapter VI-A of the Act. The CIT(A) was directed to decide on merits after providing a hearing to the assessee.

In conclusion, the Tribunal allowed the revenue's appeals for statistical purposes, emphasizing that the reopening was within the provisions of the law and the proviso to section 14A did not apply to deductions under Chapter VI-A. The case was remanded to the CIT(A) for a fresh decision on merits.

This detailed analysis of the judgment highlights the key issues, arguments presented, legal provisions cited, and the Tribunal's decision, providing a comprehensive understanding of the legal reasoning and outcome of the case.