The High Court of New Delhi including Justice Mr.Sanjiv Khanna and Ms.Prathiba M.Singh quashed the reassessment order of the revenue by holding that the Assessing Officer cannot disallow any claim made by the assessee by invoking section 14A read with Rule 8D merely on ground of ‘change of opinion’.
The assessee-petitioner had filed the writ petitions impugning two orders issued by ACIT relating to AY 2010-11 and 2011-2012.
The undisputed fact about the case was that petitioner was engaged in a business of establishing subsidiaries, making majority and minority investment and to act as a holding company. The petitioner in his petition has stated that it makes strategic investment.
The return filed by the company had disclosed dividend income of Rs. 20, 48, 37,585/-which had claimed to be exempted from tax under section 10(34).the assessee had disallowed expenditure amount for earning exempt income by invoking section 14A of the act. The return was taken up for scrutiny and the AO passed all the required notice to give details regarding the assessment and also submit the detailed calculations of the disallowance under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962.The petitioner had produced all the details before the revenue.
After examining the aforesaid information and details, the assessment order for AY 2010-11 dated 18th February, 2013 was passed under Section 143(3) of the Act, accepting the returned income of the Assessee of Rs.88,56,759/-.
For another year, petitioner had filed a return which disclosed a dividend income of Rs.28, 55, 09,111/-, which it claimed as exempt from tax under Section 10(34) of the Act. The Assessee had disallowed expenditure amounting to Rs. 12, 44, 11,096/- for earning the exempt income under Section 14A of the Act. During the scrutiny AO issued a questionnaire on which the petitioner had required to file detailed computation of disallowance made under Section 14A of the Act. Council of both the parties relied on the return filed by petitioner.
The AO assessed the income of the Assessee for the assessment year 2011-12 at Rs.3, 59, 35,409. The disallowance made by the Assessee of Rs.12, 44, 11,096/- under Section 14A of the Act was accepted.
The petitioner had approached Delhi High Court against reopening of assessments under Section 147/148 of the Act on the ground of `change of opinion’.
The reasons quoted by the AO for initiating the reassessment proceedings was that an amount of Rs.2, 68, 94,092/- has escaped assessment on account of incorrect computation of disallowance u/s 14A of the I.T. Act, 1961.Like that assesse restricted the amount of income into a lower digits, Rule 8D does not permit any restriction in this regard and therefore the whole amount should have been disallowed.
While hearing both the parties’ contentions, the court observed that this was not a matter of change of opinion instead petitioner had submitted the calculation and also the queries which express the reliability of the company.
HC observed it as the revenue needs assessment proceedings have been validly initiated under the provisions of Section 147 read with Section 148 of the Act and also the tribunal pointed that in the case of Commissioner of Income Tax v. Usha International, (2012) 348 ITR 485 (Del) (hereafter ‘Usha International’) would support the case of Revenue and not the case of the Petitioner.
The HC opinioned that AO, during his proceeding were doubted about the exemption and disallowance claimed by the petitioner and questioned the same and the AO was certainly conscious and aware of the nature of business activities undertaken by the Petitioner as a strategic investor in shares, making majority or minority investments.
Finally court declared that the chronological events occurred during the assessment proceedings clearly shows that the AO was `satisfied with the claim of the assessee‘ while passing the original orders. Rule 8D is triggered only in a case where the AO is not satisfied with the deduction made by the Assessee. The reasons to believe assume and are predicated on the belief that the AO should not have accepted the Petitioner’s deduction as explained and justified, albeit should have applied Rule 8D. “Thus, the view and opinion formed by the AO, while passing the original assessment orders is doubted as erroneous. This is obviously a case of change of opinion,” the bench said.
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