The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) in The Nainital Bank Ltd. vs. ACIT, held that Assessment can’t be reopened for mere non-disclosure of a method used for calculation of disallowance under Section 14A of the Income Tax Act, 1961.
After completing the assessment, the Assessing Officer (A.O.) noticed that the assessee did not disclose the method of arriving at the disallowance made under section 14A of the Income Tax Act, 1961 during the course of assessment proceedings, the assessment was framed with the same figure of disallowance as furnished by the assessee and since the assessee did not disclose the method of arriving at the disallowance under section 14A of the Act either in the return of income or during the course of assessment proceedings, it resulted into the failure on the part of the assessee to disclose fully and truly all the material facts necessary for its assessment. Therefore, the A.O opined that he disallowance warranted under Rule 8D(2)(ii) of the Income-tax Rules, 1962 (for short “the Rules”) could not be considered and thereby it escaped assessment. the A.O reopened the concluded assessment and passed orders u/s 143(3) read with 147 of the Act making additions on that account. The Commissioner of Income Tax (Appeals) (CIT(A)) granted relief to the assessee by holding that the interest-free funds of the assessee are far exceeding the investment during the relevant years, the question of invoking the provisions under Rule 8D directly and mechanically does not arise. Revenue appealed before the ITAT.
The Counsel for the assessee argued that the AO was aware of the earning of the tax-free amount by the assessee and also incurring the administrative expenses which were disallowed for both the years at 0.5% of the average investment. He contended that the A.O had considered the issue while framing the assessment u/s 143(3) of the Act and that it was not open for the AO to propose reopening in respect of very same issue without coming into possession of any fresh tangible material.
The Departmental Representative (D.R) argued that assessee didn’t point out during assessment proceedings about expenses incurred relatable to tax-free income u/s 14A, there were an omission and failure on its part to disclose fully and truly material facts and hence, reopening of assessment was justified.
The bench comprising of Judicial Member K. Narasimha Chary & Accountant Member N.K. Saini observed that entire material was available before the AO when he had framed the assessment u/s 143(3) of the Act and being aware of the assessee earning tax-free income and incurring some expenditure, the AO had accepted the expenditure offered by the assessee under Rule 8D of the Rules. It further observed that in the absence of any fresh tangible evidence to suggest that the assessee is guilty of not disclosing fully and truly all the material facts necessary for the assessment, it is not open for the AO to reopen the proceedings.
“In view of the facts and circumstances adverted to above and the case laws referred to, we are of the considered opinion that reopening of the proceedings in the matter are not in accordance with law and we find it difficult to sustain the same.” the bench observed.To Read the full text of the Order CLICK HERE