2017 (2) TMI 447 - AT - Income Tax

Reopening of assessment - Mismatch of TDS certificates - Held that - We find from the record that while filing the return of income, the assessee has not claimed deduction under section 35(1)(ii) in the return of income, in which the columns were left blank. Only in the memo of computation (refer page 42), the assessee mentioned that it has claimed deduction under section 35 at 100 per cent. on weighted deduction. Only during the assessment proceedings, the assessee made submission before the Assessing Officer to treat the above contribution as deduction under section 37. Considering the above, the submission of the assessee is inconsistent. Mismatch of TDS certificates prompted the Assessing Officer to consider the reopening of the assessment. This is indeed a proper reason to believe at that point of time that income escaped from tax. In our considered view, the Assessing Officer has proper material at that point of time to consider reopening of the assessment. We do not find any mistake in reopening the assessment. - Decided against revenue Disallowance of deduction under section 37 - contribution to M/s. Institute of Life Sciences - Held that - In the present case, the assessee has made the contribution but there is nothing on the record to show that the benefit has passed on to the assessee or to its employees by making such contribution. Since the assessee is not running any business and not brought on record to show that it has benefitted by making such contribution. Merely making contribution to other institute which has similar object does not mean any benefit to the assessee. In our considered view, to claim of deduction under section 37(1), there has to be an expenditure, which is incurred for the benefit of business in the same year or for the future benefit. In the given case, nothing was brought on record to highlight, how the assessee has got the benefit either in this year or in the future or any benefit to the overall benefit to the organisation as a whole. There has to be some benefit directly or indirectly to the organisation. In our considered view, the assessee has made the contribution to M/s. Institute of Life Sciences without any reciprocal benefit to its business or to its employees even though the objectives are similar, it cannot claim any deduction under section 37(1) of the Act. Hence, the grounds raised by the assessee are dismissed.

Summary

Issues Involved:
1. Reopening of assessment under section 147.
2. Addition of ?18,81,031 for income not offered to tax.
3. Disallowance of ?6,00,00,000 contributed to M/s. Institute of Life Sciences under section 37 of the Act.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee contended that the reopening of the assessment was based on a mere change of opinion without any fresh material. The Commissioner of Income-tax (Appeals) upheld the reopening, noting that the assessment was reopened to tax incomes reflected in TDS certificates but not offered for tax. The Tribunal found that the mismatch of TDS certificates was a valid reason for reopening the assessment, stating, "Mismatch of TDS certificates prompted the Assessing Officer to consider the reopening of the assessment." The Tribunal referenced the Supreme Court decision in CIT v. Kelvinator of India Ltd., concluding that there was proper material for the Assessing Officer to reopen the assessment.

2. Addition of ?18,81,031 for Income Not Offered to Tax:
The Commissioner of Income-tax (Appeals) deleted the addition of ?18,81,031 made by the Assessing Officer for income not offered to tax. The Tribunal did not provide further analysis on this issue, as it was resolved in favor of the assessee by the Commissioner of Income-tax (Appeals).

3. Disallowance of ?6,00,00,000 Contributed to M/s. Institute of Life Sciences under Section 37:
The Assessing Officer disallowed the deduction under section 37, arguing that the contribution was not incurred wholly and exclusively for the purpose of the assessee's business. The Commissioner of Income-tax (Appeals) upheld this disallowance, stating that neither the assessee nor the Institute of Life Sciences had the necessary approval under section 35(1)(ii) and that no business activities were carried on by the assessee during the year.

The Tribunal examined the case in detail, considering the objectives of both the assessee and the Institute of Life Sciences. The Tribunal noted that the assessee was not engaged in any business activities during the year, except earning interest income and gains on the sale of assets. The Tribunal referenced the case of Dr. Reddy's Laboratories Ltd., where a similar deduction was allowed, but distinguished it on the grounds that Dr. Reddy's Laboratories was actively engaged in business, unlike the assessee in this case.

The Tribunal also referred to the decision in Ranbaxy Laboratories Ltd. v. Addl. CIT, emphasizing that for a deduction under section 37(1), the expenditure must benefit the assessee's business. The Tribunal concluded, "In our considered view, the assessee has made the contribution to M/s. Institute of Life Sciences without any reciprocal benefit to its business or to its employees even though the objectives are similar, it cannot claim any deduction under section 37(1) of the Act."

Conclusion:
The Tribunal upheld the reopening of the assessment under section 147, dismissed the addition of ?18,81,031 for income not offered to tax, and confirmed the disallowance of the ?6,00,00,000 contribution to M/s. Institute of Life Sciences under section 37. The appeal of the assessee was dismissed in its entirety.