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TMI Blog2021 (3) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... its, it is settled that, disallowance under Section 14A of the Act cannot exceed the exempt income of the assessee. Thus, the twin conditions as provided under Section 147 of the Act, which are condition precedent for reopening of the assessment made after 4 years are not satisfied. As proposed amount is exceed the exempt income of the assessee. In that view of the matter on merits, invoking the provisions for reopening of the assessment under Section 147 of the Act is bad in law. There was no basis or jurisdiction for assessing officer to form a belief that, any income of the assessee chargeable to tax for the year under consideration had escaped assessment within the meaning of Section 147 of the Act and the reasons recorded could not have led to formation of any belief that income had escaped assessment within the meaning of the aforesaid provision. - Decided in favour of assessee. - R/Special Civil Application No. 19990 of 2019 - - - Dated:- 5-2-2021 - Honourable Mr. Justice J.B. Pardiwala And Honourable Mr. Justice Ilesh J. Vora For the Petitioner(s) : Mr B S Soparkar For the Respondent : Mrs Mauna M Bhatt ORAL JUDGMENT (PER : HONOURABLE MR. JUST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee during the course of assessment was perused. 5, The assessee was required to disallow an amount of ₹ 5,13,06,096/- u/s 14A of IT Act r.w.r 8D of IT Rules which the assessee failed to do. 6. The assessee was required to disallow an amount of ₹ 5,13,06,096/- u/s 14A of IT Act r.w.r 8D of IT Rules which the assessee failed to do. During the course of original assessment, disallowance was made only for ₹ 34,06,859/- restricting to the extent of exempted income. Therefore, the income of ₹ 4,78,99,237/- has escaped assessment. Considering the above facts, I have reason to believe that by omission on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, the income chargeable to tax for AY 201213 has escaped assessment within the meaning of Section 147 of the IT Act. 7. Not applicable. 8. The assessee was required to disallow an amount of ₹ 5,13,06,096/- u/s 14A of IT Act r.w.r 8D of IT Rules which the assessee failed to do. During the course of original assessment, disallowance was made only for ₹ 34,06,859/- restricting to the extent of exempted income. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration were never examined by the AO during the course of regular assessment. This fact is corroborated from the contents of notices issued by the AO u/s 143(2)/- 142(1) and order sheet entries recorded during the assessment proceedings. It is important to highlight here that material facts relevant for the assessment on the issue(s) under consideration were not filed during the course of assessment proceeding and the same may be embedded in annual report, audited P L A/c, Balance sheet and books of accounts in such a manner that it would require due diligence by the AO to extract these Information. For a forestated reasons, it is not a case of change of opinion by the AO. In this case more than four years have been lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s 148 has been obtained separately from Pr Commissioner of Income Tax as per the provisions of Section 151 of the act. 3. Pursuant to the issuance of notice dated 26.07.2018 for reopening of the assessment, the writ applicant submitted its objections dated 27.06.2019, which reads thus: 42. We are in receipt of the above referred reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... request Your Honour to kindly drop the reassessment proceedings and oblige. 4. On 04.10.2019, the order came to be passed overruling the objections raised by the assessee against the issuance of notice under Section 148 of the Act. The relevant portion of the order reads thus: 3. The objection filed by the assessee has duly. been considered. However, the same is not found acceptable for the following reasons. 1. The contention of the assessee that the disallowed should be restricted to the extent exempt income. In this connection, it is stated that as per Rule 8D u/s. 14 the Act. The expenditure in relation to income which does not form part of the total income shall be aggregate of following amounts, namely2. The amount of expenditure directly relating to income which does not form part of total income. 3. In a case where the assessee has incurred expenditure by way of interest during the previous year Which is not directly attributable to any particular Income or receipt, an amount computed in accordance with the following formula namely A* B/- C A means = amount of expenditure by way of interest of other than the amount of interest included in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment could be resorted to. Attention is also drawn to the case of Phool Chand Vs Bajrang Lal Vs. Income Tax Officer 203 ITR 456 (SC), wherein the Hon'ble Supreme Court had laid down the preposition that discovery of new and important facts constitute information on the basis of which reassessment proceedings could be initiated. In the case of ITO Vs. Pashottamdas Bangar 224 ITR 362 (SC), the Hon'ble Supreme Court had held that letter from DDIT (inv) constituted good information for reopening of assessment. 5 In view of the above discussion and the judicial pronouncements in Revenue's favor, the objections raised b the assessee against reopening of assessment cannot be entertained.as the same are without any basis. It may be seen that while reopening the assessment, proper procedure as per Income-tax law has been followed by the Assessing Officer. The case has been reopened well within the time limit prescribed as per the Provisions of the Income-tax Act, 1961 and also on account of the fact that there was reason {o believe that the income chargeable to tax has escaped assessment. 6. In view of the above discussion, I reject the objections of assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment proceedings, held under Section 143(3) of the Act and the issue of disallowance under Section 14A of the Act was discussed and after considering the records available with him as well as produced by the writ applicant, the assessment was finally determined. Therefore, no failure on part of the writ applicant to disclose the facts fully and truly. 4. Referring to the decision of the Supreme Court rendered in the case of Patiyala Vs. State Bank of Patiyala [(2018) 99 Taxmann.com 286 (SC)] , it was submitted that, the amount of disallowance under Section 14A of the Act could be restricted the amount of exempt income only and not at a higher figure. Therefore, even on merits, the interest to the extent of entire exempt income already having disallowed at the time of original assessment, no further disallowance is permissible. As a result, no income has escaped assessment and the action for reopening of assessment initiated may kindly be quashed. 6. Making the above submissions, Mr. Soparkar, the learned counsel appearing for the writ applicant prayed that, the impugned notice and the proceedings may be quashed and set aside. 7. Mrs. Mauna Bhatt, the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished required details along with copy of return, audited accounts, balance sheet, profit and loss account etc. The issue of disallowance was considered by the respondent authority at length and disallowance of interest was restricted upto ₹ 34,06,859/-. The observations with regard to disallowance made in the original assessment order reads thus: 3. Disallowance u/s. 14A of the IT Act On perusal of Balance sheet, it is observed that the assessee has invested a sum of ₹ 2,04,22,70,664/- in shares/- securities of different companies and he has earned dividend income of ₹ 34,06,859/-. It is also seen that the assessee has debited interest expenses of ₹ 9,77,80,572/- in Profit and Loss account. As per provisions of the section 14A of the 1.T. Act deduction of the expenditure cannot be allowed, if the same is incurred on account of exempt income which does not form a part of total income, in the instant case with a view to above facts, it is seen that the assessee has incurred expenses in respect to earned the Income which does not form a part of the total Income. Hence, provisions of section 14A would be applicable. 3.1. In view of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on payment of dividend. When declared, it is subjected to dividend distributor tax... Further whether income earned in a subsequent year would or would not be taxable, made depend upon the nature of transaction entered into in the subsequent assessment year. For example, long term capital gain on sale of shares is presently not taxable where security transaction tax has been paid, but a private sale of shares in an off market attracts capital gains tax. 4. We also wish to invite your kind attention to the fact that we have not received any dividend income from the investment made by us in the shares of Applewoods Estate Pvt. Ltd, In this regard, we wish to rely on the direct ratio of a number of judicial pronouncements of various High Courts, including the Jurisdictional Gujarat High Court, wherein, it has been clearly hald that. No disallowarice can be mate u/s, 144A, where the relevant Investment has not given rise to any exempt income. In this connection, we wish to reproduce the relevant observations of the latest decision of the Hon'ble Delhi High Court in the case of Haicim (Supra). On the issue whether the respondent assessee could have earned divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee firm has claimed interest expenses of ₹ 9,77,80,572/-. It is also ascertained that assessee has incurred expenses relatable partly to the taxable income and partly to be exempt income which does not form a part of the total income. The contention of the assessee that firm has earned exempt income of ₹ 34,06,859/- which is dividend income received from. the Mutual fund, for the same the assesses firm has not made any expenses, is not acceptable because the assessee firm has invested ₹ 2,04,22.70,664/- in shares/- securities of different companies and the assessee firm has claiming interest expenses of ₹ 9,77,80,572/- which are relatable to the investment made by the assessee firm which generates the income which does not form part of the total income. Hence, same ate required to disallowed as per the Provision of section 14 A of the I.T. Act. Therefore, disallowance of ₹ 34,06,859/- has been made to the extent of dividend income eared which is claimed as an exempt income and added to the total income. 5. Subject to the above remarks and data made available, the total income of the assessee is computed as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the reassessment proceedings. 13. After close scrutiny of the reasons for reopening of assessment, we are of the view that, all the material facts relating to Section 14(A) of the Act were before the Assessing Officer during the course of the original assessment and now, he could not reopen the assessment after 4 years where there is no failure on the part of the assessee to disclose fully and truly all the facts necessary for assessment. It is settled by the Apex Court in the case of CIT Delhi Vs. Kelvinator of India Limited. [(2010) 320 ITR 577] that the existence of tangible material is essential to safeguard against the arbitrarily exercised of power. Therefore, as discussed above, at the time of recording the reasons, there were no fresh materials on which the Assessing Officer could have formed a requisite belief with regard to the escapement of the assessment. The record further indicates that, the assessee had disclosed all materials fully and truly before the respondent at the time of original assessment. Even on merits, it is settled that, disallowance under Section 14A of the Act cannot exceed the exempt income of the assessee. Thus, the twin conditions as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g at the relevant point of time while making the assessment and again a different or divergent view is reached, it would tantamount to change of opinion . If an assessing authority forms an opinion during the original assessment proceedings on the basis of material facts and subsequently finds it to be erroneous; it is not a valid reason under the law for reassessment. Thus, reason to believe cannot be said to be the subjective satisfaction of the assessing authority but means an objective view on the disclosed information in the particular case and must be based on firm and concrete facts that some income has escaped assessment. 16. Considering the facts and circumstances of the present case as well as legal principles on the subject change of opinion as propounded by the Apex Court, we have no hesitation to hold that, there was no basis or jurisdiction for assessing officer to form a belief that, any income of the assessee chargeable to tax for the year under consideration had escaped assessment within the meaning of Section 147 of the Act and the reasons recorded could not have led to formation of any belief that income had escaped assessment within the meaning of the af ..... X X X X Extracts X X X X X X X X Extracts X X X X
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