2017 (8) TMI 1185 - AT - Income Tax

Reopening of assessment - change of opinion - excessive deduction allowed towards expenditure incurred for demerger of certain units - specific provisions of section 35DD applicability - Held that - Though the assessee claims to have furnished necessary details before the AO at the time of original assessment the records clearly indicate that the AO has not examined the issue of deduction claimed towards stamp duty paid on demerger of units which shows non application of mind by the AO to the facts in the right perspective of specific provisions of section 35DD of the Act. Therefore we are of the considered view that there is no merit in the contention of the assessee that reopening is made on the basis of mere change of opinion. In this case on perusal of the facts we find that the assessment order is silent on the application of mind by the AO to the correct facts in the light of the specific provisions of section 35DD of the Act. Therefore we are of the view that it is not a case of mere change of opinion and hence we reject the legal ground raised by the assessee. Allowance of expenditure towards stamp duty paid on demerger - Held that - No doubt section 35DD provides for deduction towards expenditure incurred wholly and exclusively for the purposes of amalgamation or demerger of an undertaking - But the fact remains that the expenditure incurred for payment of stamp duty is in the nature of expenditure referred to in section 43B - Since the provisions of section 43B has an overriding effect on all other provisions of the Act any expenditure referred to in that section shall be allowed only on payment basis. - No additions - Decided in favor of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under section 147 of the Income-tax Act, 1961.
2. Deduction claimed towards stamp duty paid on demerger under section 43B versus section 35DD of the Income-tax Act, 1961.

Detailed Analysis:

1. Validity of Reopening the Assessment:
The assessee challenged the reopening of the assessment on the basis that it was initiated merely due to a change of opinion without any new material suggesting escapement of income. The assessee argued that the original assessment had already considered and allowed the deduction for stamp duty paid on demerger under section 43B, and thus, reopening was not justified. The CIT(A) upheld the reopening, stating that the AO had valid reasons to believe that income had escaped assessment due to excessive deduction allowed in contravention of section 35DD. The Tribunal found that the AO had not properly examined the issue during the original assessment, indicating non-application of mind to the specific provisions of section 35DD. Therefore, the Tribunal concluded that reopening was not merely based on a change of opinion and upheld the validity of the reassessment.

2. Deduction Claimed Towards Stamp Duty Paid on Demerger:
The assessee claimed deduction for stamp duty paid on demerger under section 43B, arguing that it was a statutory levy allowable on a payment basis. The AO disallowed the expenditure, stating that section 35DD specifically governs deductions for amalgamation or demerger expenses, allowing only 1/5th of such expenditure for five successive years. The CIT(A) supported the AO's view, emphasizing that section 35DD overrides other provisions, including section 43B, for such expenses. However, the Tribunal found that the expenditure on stamp duty, being in the nature of duty, cess, or fees, falls under section 43B, which has an overriding effect on other provisions. Since the expenditure was paid during the relevant financial year, the assessee was entitled to the deduction under section 43B. The Tribunal directed the AO to allow the deduction for stamp duty paid on demerger, reversing the CIT(A)'s findings.

Conclusion:
The Tribunal upheld the reopening of the assessment under section 147 but allowed the deduction for stamp duty paid on demerger under section 43B, concluding that such expenditure is allowable on a payment basis despite the specific provisions of section 35DD. The appeal filed by the assessee was partly allowed.