By TIOL News Service

NEW DELHI, FEB 02, 2016: THE issue is - Whether when the AO has elaborately discussed Section 14A and disallowed certain amount, a challenge by the AO before the CIT(A) is to be considered as intention to reopen the assessment & review his earlier order. YES is the answer.

Facts of the case

It was not as if the relevant material was not disclosed by the Assessee in the first round of assessment. As far as AY 2005-06 was concerned, it was sought to be urged was that while framing the original assessment, AO had inadvertently failed to notice that accrued income of the Assessee from the disposal of stocks in the bonded warehouse had escaped assessment. As noticed by the ITAT, the original assessment was framed under Section 143(3) and a specific query was raised by the AO to the effect: "why income from bonded warehouse be not accounted for on accrual basis?" and had been clarified by the Assessee in writing. In objecting to the re-opening of the assessment the Assessee pointed out: "As a matter of fact, AO called (for) certain clarifications and the assessee had furnished the required clarifications, where-after this issue was dropped by him." The Court concurs with the ITAT that the re-opening of the assessment by the AO for AY 2005-06 was based on a change of opinion and, therefore, impermissible in law. As regards AY 2004-05, the reopening of assessment was sought to be made on the basis that the Assessee had claimed exemption in respect of its divided income to the extent of Rs.4,37,82,189. According to the AO, the audit scrutiny revealed that proportionate management and administrative expenses attributable to the above income were not deducted in computing admissible exemption.

Held that,

++ as pointed out by the counsel for the assessee, and as noted by CIT(A) in the order dated 15th October, 2012 for the AY 2004-05, in the original assessment order dated 29th December 2006 u/s 143 (3), the AO had "elaborately discussed Section 14A and disallowed a sum of Rs.1,59,03,771. A questionnaire was also issued by the AO vide questionnaire dated 19.9.2006 specifically asking a query why the proportionate administrative and management expenses incurred for earning the exempted income should not be disallowed under section 14A. The assessee Corporation had replied the questionnaire vide letter dated 3.10.2006 which was taken into account and the AO had proceeded to proportionately disallowed a sum of Rs.1,59,03,771/- u/s 14A." Further, the said addition was challenged before the CIT(A) who by order dated 28th December 2007 gave relief of Rs.l,54,03,771. In the circumstances, the conclusion reached by the CIT (A) that the AO was by seeking to reopen the assessment for AY 2004-05, reviewing his earlier order, cannot be faulted. No substantial question of law arises. The appeals are dismissed.

(See 2016-TIOL-185-HC-DEL-IT)