2017 (6) TMI 733 - HC - Income Tax

Validity of reopening of assessment - deduction under section 10B - change of opinion - Held that - Assessing Officer was acutely conscious of the assessee s claim of deduction under section 10B of the Act during the original assessment. Assessing Officer by his order of assessment dated 28.02.2014, made a minor disallowance of a sum of ₹ 10,40,714/- out of the claim of deduction made by the assessee under section 10B of the Act. It can thus be seen that the assessee s claim of deduction under section 10B of the Act was part of the original assessment proceedings. Only after being satisfied about the validity of the claim that the same was substantial, accepted by the Assessing Officer. Any attempt on his part to reopen this claim would be based on mere change of opinion. - Decided in favour of assessee Disallowance u/s 14A r.w.r. 8D - Held that - During the original assessment, this very question came up for consideration. Having taken note of the evidence on record, the Assessing Officer enlarged the disallowance voluntarily made by the assesseee from ₹ 3,66,749/- to ₹ 1,72,648/- and, in the process, made a further disallowance of ₹ 1,35,899/-. This ground for the reopening of the assessment, therefore, is not available to the Revenue. - Decided in favour of assessee

Summary

Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Deduction under section 10B of the Income Tax Act.
3. Disallowance under section 40(a)(ia) for non-deduction of TDS on directors' remuneration.
4. Disallowance under section 14A read with Rule 8D for expenses related to exempt income.

Issue-Wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The petitioner challenged a notice dated 28.03.2016 issued by the Assessing Officer to reopen the assessment for the assessment year 2011-12. The original assessment was completed after scrutiny. The notice was issued within four years from the end of the relevant year. The Assessing Officer recorded reasons for reopening, which included issues related to deductions under sections 10B, 40(a)(ia), and 14A read with Rule 8D.

2. Deduction under Section 10B:
The petitioner claimed a deduction under section 10B for its software development unit in Pune. The Assessing Officer contended that the unit was not registered with the Board appointed by the Central Government under section 14 of the Industries Development and Regulation Act, 1951, making the deduction ineligible. During the original assessment, the Assessing Officer scrutinized the claim, raised queries, and received detailed responses from the petitioner, including audit reports and other documents. The Assessing Officer made a minor disallowance but largely accepted the claim. The court held that reopening the assessment on this ground would be based on a mere change of opinion, which is impermissible as per the Supreme Court's decision in *Commissioner of Income Tax vs. Kelvinator of India Ltd.* and the Division Bench's observation in *Sarla Rajkumar Varma vs. Assistant Commissioner of Income Tax*.

3. Disallowance under Section 40(a)(ia):
The Assessing Officer observed that the petitioner had paid ?63,00,000 as Managing Director's remuneration without deducting TDS, which required disallowance under section 40(a)(ia). However, it was undisputed that the petitioner had deducted TDS on this remuneration. Consequently, the Revenue dropped this ground during the disposal of the petitioner's objections.

4. Disallowance under Section 14A read with Rule 8D:
The Assessing Officer noted that the petitioner had earned exempt income under section 10 but did not disallow expenses related to earning this income as required under section 14A read with Rule 8D. During the original assessment, this issue was considered, and the Assessing Officer increased the disallowance from ?3,66,749 to ?1,72,648, making an additional disallowance of ?1,35,899. Therefore, reopening the assessment on this ground was also deemed impermissible.

Conclusion:
The court set aside the impugned notice dated 28.03.2016, allowing the petition and disposing of it. The reopening of the assessment was found to be based on a mere change of opinion, which is not permissible under the law.