MANSI FINANCE (CHENNAI) LTD.,CHENNAI vs. DCIT CORPORATE CIRCLE 4(1), CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -8, Chennai, dated 23.08.2017 and pertains to assessment year 2008-09.

Ms. S. Sriniranjani, the Ld.counsel for the assessee, submitted that the original assessment was completed by the Assessing Officer under Section 143(3) of the Income-tax Act, 1961 (in short 'the Act') on 31.12.2010 at a total income of ₹40,72,180/-.

Referring to proviso to Section 147 of the Act, the Ld.counsel for the assessee submitted that the Assessing Officer cannot reopen the assessment after expiry of four years from the end of the relevant assessment year when the original assessment was passed under Section 143(3) of the Act, unless the income escaped from assessment due to negligence of the assessee in furnishing full material facts before the Assessing Officer. In this case, according to the Ld. counsel, the dispute is with regard to computation of expenditure for earning the exempted income. The Assessing Officer found that the disallowance under Section 14A of the Act was computed under clause (iii) of Rule 8D(2) of the Income-tax Rules, 1962 instead of clause (ii). According to the Ld. counsel, the assessee has furnished all the exempted income and also the details of expenditure. It is for the Assessing Officer to apply either clause (ii) or clause (iii) of Rule 8D(2) or both.

On the contrary, Shri B. Sagadevan, the Ld. Departmental Representative, submitted that the assessee while filing the return, computed the disallowance under clause (iii) of Rule 8D(2) of Income-tax Rules, 1962 and clause (ii) was not taken into consideration. Therefore, according to the Ld. D.R., there was negligence on the part of the assessee, hence, the Assessing Officer has rightly reopened the assessment.

We have considered the rival submissions on either side and perused the relevant material available on record. The issue arose before the Assessing Officer was disallowance under 14A of the Act in respect of exempted income earned by the assessee. The Assessing Officer admittedly computed the disallowance under clause (iii) of Rule 8D(2) of Income-tax Rules, 1962. Now the Assessing Officer claims that the disallowance ought to have been made under clause (ii) of Rule 8D(2). The fact remains that the assessee has filed details of investment and earning of exempted income. Therefore, it is for the Assessing Officer to apply the provisions of law and compute the disallowance under Section 14A of the Act as per the procedure prescribed under Rule 8D(2) of Income-tax Rules, 1962. The very fact that the Assessing Officer made disallowance only under clause (iii) of Rule 8D(2) and now intends to make disallowance under clause (ii) of Rule 8D(2), shows that there is a change of opinion. Moreover, there was no negligence on the part of the assessee in furnishing necessary material in completing the assessment. Hence, the Assessing Officer is not justified in reopening the assessment. Therefore, we are unable to uphold the orders of the authorities below. Accordingly, the orders of both the authorities below are set aside and the disallowance made by the Assessing Officer is deleted.

In the result, the appeal filed by the assessee is allowed.