APPLEWOOD ESTATE PVT. LTD. vs. DY. COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1)

Petitioner   has   challenged   a   notice   dated 29.03.2017 issued by the respondent­Assessing Officer to   reopen   the   petitioner's   assessment   for   the assessment year 2012­13. In order to do so, he had recorded following reasons: “On perusal of the P&L A/c (Note 18) it was found that the assessee company had claimed interest on FCCD of Rs.32,32,37,106/­ under the Head Cost of Construction & Development. Further the Note 21 of P&L A/c reveals that the assessee had further claimed interest of Rs.3,85,92,917/­ under the head of Finance Cost.   Thus the total interest claimed by the assessee amounting to Rs.36,18,30,023/­ but while computing the disallowance u/s 14A r.w.Rule   8D   the   interest   expenses   only   to the tune of Rs.3,85,92,917/­ was considered and   interest   expenses   of   Rs.32,32,37,106/­ was   not   considered   which   led   to underassessment   of   income   the   tune   of Rs.2,28,91,515/­. C/SCA/22511/2017 ORDER On the basis of above mentioned fact, I have   reason   to   believe   that   there   is   an escapement   of   income   of   more   than   Rs.1.00 lac in the case of the above assessee and the   case   is   therefore,   required   to   be reopened u/s. 147 of the IT Act by way of issuing notice u/s. 148 of the IT Act.”

The petitioner raised objections with the notice for reopening under a letter dated 17.06.2017. Such objections   were   however   rejected   by   the   Assessing Officer by an order dated 20.11.2017. 3. Learned counsel for the petitioner mainly raised two contentions. I. That, in the original scrutiny assessment, the ground on which the reopening of the assessment is resorted to, barely examined. II. Secondly, that the notice of reopening has been issued   under   insistence   of   the   audit   party.     The Assessing Officer has acted under the dictates of the audit authorities and therefore also, the notice is required to be quashed.

In background of the assessee's contention with respect   to   audit   objection,   we   had   called   for   the original files of the Revenue, perusal of which would C/SCA/22511/2017 ORDER show that the audit authorities had raised certain objections with the assessment which are conveyed to the   assessing   authority   under   a   letter   dated 21.01.2016. This pertained to the disallowance of interest expenditure under section 14A of the Income Tax Act, 1961 ('the Act' for short) read with rule 8D of the Income Tax Rules.  In response to such audit objections,   the   Assessing   Officer,   on   14.12.2016 (wrongly   typed   as   14.12.2015)   had   made   following observations: “ Assessing Officer's view:­ In this case, the audit party has made the   observation   that   assessee   has   claimed interest on FCCD Rs.32,32,37,106/­ under the Head   Cost   of   Construction   &   Development which should be included for the purpose of calculation   of   disallowance   under   section 14A r. w. rule 8D.  It is important to note that   the   assessee   has   made   investment   in land and FCCD interest paid for entire land is taken proportionately to the FSI sold in relation to such land area.  Such investment in land is not relatable to earning of any exempt income and hence, the same cannot be taken   for   the   purpose   of   computing disallowance u/s 14A r. w. rule 8 D of the Act.     Hence,   the   objection   raised   is   not acceptable.”

In view of such stand of the Assessing Officer, it appears that suggestion was that the only measure available   to   the   Revenue   would   be   exercise   of revisional powers under section 263 of the Act.  On C/SCA/22511/2017 ORDER 22.02.2017,   once   again,   the   Assessing   Officer reiterated that he is not agreeable to the said audit objection,   nevertheless,   agreed   to   the   remedial action of the reopening of the assessment.

Very   clearly   thus,   the   Assessing   Officer   was under compulsion from the audit party to reopen the assessment.     He   had   recorded   his   opinion   that   the audit objection was not valid.  He did not agree to the disallowance suggested.   In other words, he was of the opinion that original assessment order do not suffer from any defect.

It   is   well   settled   through   several   judgments notwithstanding the judgment of this Court in case of Adani Exports v. Deputy Commissioner of Income Tax reported in [1999] 240 ITR 224 (Guj).

Under   such   circumstances,   reopening   of   the assessment would not be permissible.  Impugned notice is quashed.  Petition is disposed of accordingly. (AKIL KURESHI, J) (B.N. KARIA, J) ANKIT SHAH