Issue examined under original assessment proceeding: Whether re-opening in such case is justified
- The Assessee was an individual deriving income from salary, house property, capital gain and income from other sources. For the assessment year under dispute, the Assessee had filed his return of income on 29.07.2008, declaring total income of Rs. 8.47 lakhs. The assessment in case of the Assessee was completed under section 143(3) of the Act vide order dated 30.11.2012, accepting the income declared. Subsequently, the assessment was re-opened under section 147 of the Act on the reasoning that though the Assessee had earned exempt income by way of dividend from companies and mutual fund amounting to Rs. 16.89 lakhs, the Assessee had not disallowed any expenditure under section 14A read with rule 8D.
- Accordingly, the Assessing Officer issued notice under section 148 of the Act on 11.12.2014, requiring the Assessee to file the return of income. In response to the said notice, the Assessee vide letter dated 20.03.2014, requested the Assessing Officer to treat the original return of income filed earlier as return of income for the purpose of section 148 of the Act. Further, the Assessee also requested for supply of the reason recorded for re opening of assessment and thereafter raised objections against the re-opening. Ultimately, the Assessing Officer completed the assessment under section 143(3) read with section 147 of the Act disallowing the amount of Rs. 1.20 lakhs under section 14A read with rule 8D comprising of disallowance of interest expenditure under section 8D(2)(ii).
- The proviso to section 147 of the Act would apply only in a case where there was failure on the part of the Assessee to disclose fully and truly all material facts, the Assessing Officer retained the power to re-open the assessment under section 147 of the Act, in case, the original assessment was completed under section 143(3) of the Act. In the present case, the reasons recorded for re-opening the assessment appearing in the assessment order clearly revealed that the Assessing Officer had not alleged any failure on the part of the Assessee to truly and correctly disclose all material facts relating to his assessment.
- Rather, the reasons recorded clearly revealed that the Assessing Officer simply on perusal of materials already available on record i.e., the Balance Sheet and other material had formed a belief that due to non disallowance of expenditure under section 14A read with rule 8D, there was escapement of income. The aforesaid facts clearly established that basic conditions of the proviso to section 147 of the Act was not fulfilled. That being the case, the re-opening of assessment under section 147 of the Act in the present case was invalid. Therefore, the assessment order passed under section 143(3) read with section 147 of the Act deserved to be quashed.