2012 (6) TMI 410 - HC - Income Tax

Review petitions by the Revenue reopening concluded assessments dis allowance under Section14A Held that - If the Revenue s claim is allowed, then the prohibition under the proviso against the AO to revise concluded assessments for making disallowance under Section 14A can be neutralized and defeated by referring concluded assessments to the Commissioner for initiating suo moto revision power under Section 263 - as in the case of concluded assessments the proviso makes it clear that the assessee should not be subjected to disallowance either by reopening assessment under Section 147 or under Section 154 for raising demand of tax after disallowance or for withdrawing refund granted review petition dismissed against revenue.

Summary

Issues:
Review of assessments under Section 14A disallowances; Scope of proviso to Section 14A; Revisional powers under Section 263; Interpretation of concluded assessments.

Analysis:
The review petitions were filed by the Revenue based on observations made by the Supreme Court regarding the judgments of the High Court in Income Tax Appeals concerning a Banking Institution. The issue revolved around the applicability of Section 14A of the Income Tax Act, 1961, which disallows deductions for expenditure related to income exempt from tax. The proviso to Section 14A restricts the Assessing Officer from revising concluded assessments for making disallowances or raising tax demands. However, it does not expressly prohibit the Commissioner from invoking revisional powers under Section 263. The Commissioner utilized this power to set aside assessments and direct reassessments for disallowances, leading to a legal dispute.

The High Court had previously decided similar issues following a judgment in a specific case. The Revenue did not challenge the main judgment due to the small disallowance amount. However, upon filing Special Leave Petitions in the Supreme Court, it was noted that the High Court's view was not fully considered. Consequently, the Supreme Court allowed the SLPs to be closed, enabling the Revenue to approach the High Court with Review Petitions. The High Court was tasked with reevaluating its previous judgments in light of the Supreme Court's observations.

In a specific case involving the Catholic Syrian Bank Ltd., the High Court had to interpret the scope of a CBDT Circular and the Commissioner's revisional powers under Section 263. It was established that when an assessment is set aside and remanded for reconsideration, it is not considered concluded, allowing for revision under Section 263. However, the proviso to Section 14A was not extensively considered in that case. The High Court emphasized that the proviso safeguards parties' rights against reopening concluded assessments, preventing disallowances under Section 14A.

Regarding the merits of the cases under review, the High Court reiterated the stance taken in a previous judgment. It was emphasized that allowing the Revenue's claim could circumvent the proviso's prohibition against revising concluded assessments for disallowances under Section 14A. The High Court maintained that the proviso protects the assessee from reopening assessments for disallowances, and such protection should also extend to the Commissioner's revisional powers under Section 263. Consequently, the High Court dismissed the review petitions, upholding its previous judgments.

In conclusion, the High Court's analysis centered on the interpretation of Section 14A, the scope of the proviso, the Commissioner's revisional powers under Section 263, and the protection of concluded assessments against disallowances. The judgments highlighted the importance of upholding the statutory provisions and safeguarding parties' rights in income tax assessments.