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2013 (5) TMI 361 - HC - Income TaxReopening of assessment – Reasons as per revenue on verification of records (i) assessment advances are made from the borrowed funds and there is no instance to prove that the advances were made for the business purpose therefore same would be disallowable u/s 36(1)(iii) of the Act (ii) Disallowance of interest related to the funds utilized towards non-taxable income u/s 14A of the Act (iii)Disallowance of additional depreciation as the same was not explained by the assessee (iv) Assesse filed TDS acknowledgments, reconciliation of the expenditure and amount subjected to TDS, would give rise to a possible disallowance under Section 40(a)(ia) of the Act. Held that:- During the assessment proceedings, the assessee had brought to the pointed notice of the AO that the assessee had paid interest to IDBI. Along with such answer in the correspondence, copy of the ledger account of the interest paid was already enclosed. Disallowance of expenditure relatable to tax free income in terms of section 14A of the Act, it is undoubtedly true that rule 8D of the Income Tax Rules, 1962 was not in operation at that time. The determination, therefore, could not have been based on such formula. This is, however, not to suggest that there could be no disallowance at all under section 14A of the Act if it was found that expenditure was incurred for earning tax free income. With respect to the question of TDS, the AO himself has recorded that the tax was deducted and return was duly filed. Surely, for such a fishing inquiry reopening of assessment could not be permissible that too assessment beyond the period of four years from the end of the relevant assessment year when it is not even the case of the Department that the assessee had not disclosed truly and fully all material facts. As the AO based his reasons on verification of the material already on record during the original assessment. In the reasons recorded, or the notice issued for reopening it is not even alleged that there was failure on the part of the assessee to disclose truly and fully all material facts. On this ground, petition cannot be allowed.
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