2016 (7) TMI 755 - HC - Income Tax

Reopening of assessment - quantum of expenses to be deducted from the gross dividend for allowing the benefit of Section 80M - Held that - From the reading of the reasons as a whole, it is very clear that the Assessing Officer has not alleged any failure on the part of the petitioners to disclose truly and fully all material facts necessary for assessment. In the above view and bearing in mind that the assessments were finalized for each of the five years under Section 143(3) of the Act, the proviso to Section 147 of the Act would be applicable. Therefore, in the absence of any allegations of failure on the part of the petitioner-assessee to disclose truly and fully all material facts necessary for the assessment, the impugned Notices are without jurisdiction. Further, our attention was invited to the assessment orders passed in regular assessment proceedings in each of the five assessment years. We find that each of them discusses the issue raised in the reasons in support of the impugned notices namely, the quantum of expenses to be deducted from the gross dividend for allowing the benefit of Section 80M of the Act. It was on consideration of this very issue that the Assessing Officer in all the five assessment years held that 1% of the gross dividend received would be deductible for the purposes of claiming benefit under Section 80M of the Act. Therefore, in view of the aforesaid fact, it is very clear that the impugned Notices seeking to reopen the assessment is only on account of change of opinion. Thus, the impugned notices are without jurisdiction on the above count also. The issue of quantum of expenses to be reduced from gross dividend for allowing deduction under Section 80M of the Act was also a subject matter of consideration in appeal for all five assessment years by the CIT(A), who partly allowed the petitioners appeal. Thus, issuing of the impugned notices cannot also be sustained as it would amount to the Assessing Officer seeking to review the order of the Appellate Authority on the very issue which was considered by the Appellate Authority. Thus, on the above ground also the five impugned notices are without jurisdiction - Decided in favour of assessee.

Summary

Issues involved:
Challenge to five Notices issued by Assessing Officer under Section 148 of the Income Tax Act, 1961 seeking to reopen assessments for multiple assessment years.

Analysis:

1. The petitioner challenged the Notices dated 11th January, 2000, seeking to reopen assessments for five assessment years under Section 148 of the Income Tax Act, 1961. The petitioner had claimed deduction under Section 80M of the Act for gross dividend received, with expenses claimed at ?20,000 per year. The Assessing Officer, in regular assessment proceedings, reduced the deduction by increasing expenses to 1% of gross dividend income. The CIT(A) later reduced the expenses further to an average salary of one employee, resulting in higher deduction under Section 80M than allowed by the Assessing Officer. The petitioner accepted the CIT(A) orders for all assessment years, and the Revenue filed appeals to the ITAT.

2. The reasons for the Notices were identical for all assessment years, focusing on the proportionate expenses to be deducted from gross dividend for Section 80M benefit. The Assessing Officer's calculation was based on the proportion of interest expenditure to total funds, resulting in a net loss under the head "Income from Other Sources." The High Court referred to various judgments to support the proportionate allocation of expenses for deduction purposes under Section 80M. The Court noted that the Assessing Officer did not allege any failure to disclose material facts by the petitioner, rendering the Notices without jurisdiction under Section 147.

3. The Court highlighted that the Assessing Officer's decision to reopen assessments was merely a change of opinion, as the issue of expenses deduction was already considered in the regular assessment proceedings and CIT(A) appeals. Issuing the Notices to review the CIT(A) orders would amount to seeking a review of the Appellate Authority's decision on the same issue. Therefore, the Court found the impugned Notices to be without jurisdiction. The Rule was made absolute in favor of the petitioner.