2013 (5) TMI 441 - AT - Income Tax

Deduction u/s 80IB(4)- whether an allowable expenditure added under Section 40(a)(ia) - reopening of assessment - Held that - The AO has observed in his order that as per items in the report of auditor in form 3CD under Section 44AB, the business income is computed which has been claimed as deduction under Section 80IB and accordingly, the deduction was allowed. From this observation of the AO, who passed assessment originally, it is clear that the assessee claimed deduction u/s 80IB as per profit and loss account and disallowed by the assessee himself in terms of Section 40(a)(ia) the required. In this way, the total business income was computed at Rs.40,84,160/- and deduction on that amount was claimed, which the AO has allowed after satisfying that on business income deduction u/s 80IB is allowable in full. Thus this is a clear cut case of change of opinion as one AO has allowed deduction by considering the fact that disallowance of expenditure under Section 40(a)(ia) has been made by assessee himself and, therefore, business income was increased and on business income, the deduction is allowable. Therefore, the reopening of the assessment was bad in law. See M/s 1Up Clothing Co (2013 (5) TMI 88 - GUJARAT HIGH COURT) wherein held that deduction on the amount of expenditure disallowed in terms of Section 40(a)(ia) is allowable as the disallowance on expenditure is part of business activity and, therefore, the business profit increased and on increased business profit deduction is allowable. In favour of assessee.

Summary

Issues Involved:
Appeal against deletion of addition under Section 80IB(4) of the Act - Disallowance under Section 40(a)(ia) of the Act - Reopening of assessment - Change of opinion - Allowability of deduction under Section 80IB - Cross Objection challenging the reopening of assessment.

Analysis:

1. Deletion of Addition under Section 80IB(4) of the Act:
The department filed an appeal against the deletion of an addition made by the AO on account of disallowance of part of the deduction claimed by the assessee under Section 80IB(4) of the Act, due to non-deduction of TDS. The AO reopened the assessment, stating that deduction under Section 80IB is not allowable on the amount of disallowance under Section 40(a)(ia) of the Act. The CIT(A) allowed the deduction under Section 80IB, citing a decision by the Ahmedabad Bench, which was confirmed by the Gujarat High Court. The Tribunal found no merit in the department's appeal, as the deduction was allowable in respect of the disallowance under Section 40(a)(ia) of the Act.

2. Reopening of Assessment - Change of Opinion:
The AO allowed the deduction initially considering the disallowance made by the assessee under Section 40(a)(ia), leading to an increase in business income. The Tribunal held that the reopening of the assessment was a clear case of change of opinion, as the deduction was allowable on the increased business income. The reassessment was deemed bad in law, and thus, quashed by the Tribunal.

3. Allowability of Deduction under Section 80IB:
The Tribunal affirmed the CIT(A)'s decision on the merit, stating that the deduction on the amount of expenditure disallowed under Section 40(a)(ia) is allowable, as it is part of the business activity, leading to an increase in business profit. The Tribunal relied on the decision of the Ahmedabad Bench, which was upheld by the Gujarat High Court, confirming the allowance of deduction under Section 80IB.

4. Cross Objection challenging the Reopening of Assessment:
The assessee filed a Cross Objection challenging the reopening of the assessment. The Tribunal allowed the Cross Objection, stating that the reopening was bad in law due to a clear case of change of opinion by the AO. The reassessment was quashed, and the order of the CIT(A) on merit was confirmed.

In conclusion, the appeal of the department was dismissed, and the Cross Objection filed by the assessee was allowed. The Tribunal upheld the CIT(A)'s decision on the merit and deemed the reopening of the assessment as bad in law, leading to the quashing of the reassessment.