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Facts
The assessee's original assessment for A.Y. 2014-15 under Section 143(3) was completed without a Section 14A disallowance, despite a Form 3CD report indicating such an amount. The case was subsequently reopened under Section 147/148, with the Assessing Officer (AO) claiming that income had escaped assessment because the Section 14A disallowance of Rs. 3,32,528/- was not considered. The Ld.CIT(A) upheld the disallowance.
Held
The Tribunal found that during the original assessment proceedings, the AO had specifically raised a query regarding the Section 14A disallowance, and the assessee's explanation was submitted and accepted. Since the issue was already examined and no new material came to the AO's notice, the reopening amounted to a change of opinion and was invalid. Therefore, the Section 148 notice was declared bad in law and void ab initio, consequently quashing the reassessment order.
Key Issues
Whether reassessment proceedings initiated under Section 147/148 are valid when the basis for reopening, i.e., Section 14A disallowance, was already queried and accepted during the original assessment proceedings without any new information.
Sections Cited
147, 148, 143(3), 14A, 263, 142(1), 271(1)(b)
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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SMT. BEENA PILLAI & SHRI GIRISH AGRAWAL
Per: Smt. Beena Pillai, J.M.: The present appeal filed by the assessee arises out of order dated 27/09/2024 passed by Ld.CIT(A)-1, Jaipur, for assessment year 2014-15 on following grounds of appeal :
“1 The learned Addl. CIT(A) ('ACIT(A)') erred in not quashing the reassessment proceedings initiated by the Assessing Officer under section 147 of the Income-tax Act, 1961 ('the Act').
A.Y. 2014-15 Chaitanya Sureshchandra Joshi 2 The ACIT(A) erred in not quashing the reassessment proceedings initiated by issuance of notice u/s. 148 without appreciating that the basis for reopening was itself bad in law as a) The reasons for reopening the assessment is based on mere change of opinion. b) In the scrutiny assessment proceeding completed u/s. 143(3), the learned ITO had accepted the explanation of the assessee that no disallowance under section 14A should be made and reopening on the same basis clearly amounted to review of the earlier decision. c) The reasons for reopening is based on the tax audit report already submitted during the scrutiny assessment proceeding. d) No new information regarding escaped income has come to the notice of the revenue. 3 Without prejudice to above, the learned Addl. CIT(A) erred in confirming the addition of Rs. 3,32,528 made u/s. 14A though no expenses were incurred for earning the exempt income. 4 The Appellant craves, leave to add to, amend, alter or withdraw any of the above grounds of appeal before or at the time of hearing of the appeal, if necessary.” Brief facts of the case are as under:
2. The assessee is an individual and filed its return of income on 30/09/2014, declaring total income at Rs.10,23,90,940/-. The case was selected for scrutiny and assessment u/s. 143(3) was completed on 10/12/2016 computing total income at Rs.10,23,90,940/-. 2.1 Subsequently, the case was reopened u/s.147 of the Act for the reason that in Form 3CD of audit report at clause no. 21(h), the amount disallowable under of section 14A in respect of expenditure incurred in relation to income that did not form part of total income was made at Rs.3,32,528/-. The Ld.AO observed that assessing officer never examined the issue under A.Y. 2014-15 Chaitanya Sureshchandra Joshi consideration during the regular assessment that the same was not offered to tax in the ROI. Therefore there is an income that has escaped assessment. This lead to the reason to believe to invoke the provisions of section 147 of the Act. The Ld.AO thus issued notice u/s. 148 of the Act in response to which, the assessee did not file return of income. It was submitted that, the assessee furnished all financials of the income offered to tax and paid during the year and that investments were made out of own funds. It is submitted that no expenditure was incurred by the assessee, to earn the exempt income and therefore the same was not disallowed while computing the total income in ROI. It was submitted that the disallowance of Rs. 3,32,528/- in Form 3CD was an error on behalf of the auditor. The Ld.AO after considering the submissions of the assessee rejected the same and computed the disallowance in the hands of the assessee as per Form 3CD. Aggrieved by the order of the Ld.AO assessee preferred appeal before the Ld.CIT(A).
The Ld.CIT(A) after considering the submissions of the assessee upheld the disallowance made by the Ld.AO. Aggrieved by the order of the Ld. CIT(A) assessee is in appeal before this Tribunal.
At the outset the Ld.AR submitted that during the original assessment proceedings the assessing officer has specifically called for the details in respect of the disallowance mentioned in form 3CD vide notice dated 03/11/2016 placed at page 12 of paper book for the sake of convenience the same is scanned and reproduced as under:
4.1 The Ld.AR submitted that in response to the above notice assessee furnished its reply on 17/11/2016 wherein following explanation was provided:
A.Y. 2014-15 Chaitanya Sureshchandra Joshi 4.2 It is submitted that based on the submissions of the assessee the Ld.AO did not make any disallowance in the assessment order. It is submitted that, once the issue is considered in the original assessment proceedings the same cannot be a reason to believe for the reopening proceedings to the initiated against the assessee. It is submitted that, the notice u/s. 148 issued on 31/03/2019 is thus bad in law and based on change of opinion because the only information in connection to the reasons for reopening was already available on record. The Ld.AR placed reliance on following decision expert of this contention : 1) In Kamalchand v. ITO (1981) 128 ITR 290/(1980) 4 Taxman 216 (MP), Madhya Pradesh High Court. 2) In Fluorescent Fixtures Pvt. Ltd. V, ITO (2009) 34 SOT 48 (Mum) 3) In CIT v. Ranjit Kaur (2003) 81 TTJ (Chd.)269 4) In CIT v. Smithkline Beecham Consumer Brands Ltd. (2003) 126 Taxman 104(Chd.)(Mag.) 4.3 On the contrary the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advance by both sides in the light of record placed before us.
Admittedly the Ld.AO raised specific query in respect of disallowance u/s. 14A as per Form 3CD, was not taken into consideration for computing total income in the hands of the assessee. In response to the query raised, the assessee furnished reply which was accepted by the assessing officer. Under such circumstances issuance to notice u/s. 148 on the same issue is not permissible. The revenue could have invoked the provisions u/s. 263 of the Act, as it is apparent that, the order passed by A.Y. 2014-15 Chaitanya Sureshchandra Joshi the Ld.AO by not further verifying the issue in respect of disallowance u/s.14A is erroneous in so far as prejudicial to the interest of revenue. 5.1 We do not find any merit in the reopening of the assessment on the same issue that was subject matter of consideration during the original assessment proceedings. As there was no new material that came to the notice of the assessing officer subsequently, the reopening based on the materials that was already available on record cannot be held to be valid procedure as laid down under the Act. 5.2 Accordingly, the notice dated 31/03/2019 is held to be bad in law and void ab initio. Consequent to the notice being quashed the reassessment order passed also stands quashed and nullified. Accordingly Ground no.1 and 2 raised by the assessee stands allowed.
Ground no. 3 raised by the assessee is on merit of the addition made. As we have already quashed the assessment order the addition made pursuant to an invalid notice becomes bad in law.
The Ld.AR submitted that, assessee has raised an additional ground challenging the authority who recorded satisfaction and approved the reopening of assessment. At the outset the Ld.DR filed notice u/s. 148, wherein, it is specifically written that the satisfaction has been recorded by range 21(1), Mumbai pursuant to this document furnished by the Ld.DR, the Ld.AR sought to withdrawn this ground.
In the result the appeal filed by the assessee stands allowed as indicated here in above.