2024 (7) TMI 1434 - HC - Income Tax

Reopening of assessment u/s 147 - Addition u/s 14A r.w.r. 8D - HELD THAT - The expression reason to believe in Section 147 of the Act would mean some cause or justification of the competent authority. If the competent authority has a ground or some justification that the income had escaped assessment or that there was a mistake in making assessment the competent authority would be empowered to re-open the assessment after four years with prior approval of the jurisdictional Commissioner as provided under Section 151. Rule 8D of the Income Tax Rules 1962 prescribing the methodology for determining the amount of the expenditure in addition to income not includible in total income was inserted with effect from 24.3.2008 to implement sub-Sections (2) and (3) of Section 14A. It is a clear indicator that a new method for computing the expenditure was brought in by the Rules which was to be utilised for computing the expenditure for the assessment years 2007-08 and onwards as held in CIT v. Essar Teleholdings Ltd. 2018 (2) TMI 115 - SUPREME COURT An assessee has the obligation to provide full material disclosures at the time of filing of the return. The nexus between expenditure disallowed and earning of exempt income is required to be established. In the present cases the petitioner had obtained loans and invested in his new Company and earned income and claimed the interest paid by him on the said loans obtained as expenditure. Such expenditure is not exempt under the provisions of Section 14A read with Rule 8D. If the assessments concluded are not in accordance with the law it is not change of opinion but it is a valid reason for reopening the assessments. The assessing officer has ignored the mandatory provision of Section 14A and Circular No.5/14 while completing the assessments which got re-opened. We do not find that the assessing officer has committed any error of law or jurisdiction which requires this Court to interfere with the present writ petitions. Therefore these writ petitions are hereby dismissed. If the re-assessment proceedings are already complete and if the petitioner has any grievance he may resort to the statutory remedy of appeal if so advised. If the petitioner files appeal the time expended in prosecuting these writ petitions before this Court would be condoned and the appellate authority should proceed with the appeal on merits.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Applicability of Section 14A of the Income Tax Act.
3. Alleged non-disclosure of material facts by the petitioner.
4. Validity of the reassessment orders and penalty notices.
5. Jurisdiction of the High Court to interfere with reassessment orders.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act:
The petitioner challenged the reopening of assessments for the years 2013-14 and 2014-15, arguing that the reasons supplied by the assessing officer constituted a mere change of opinion. The petitioner contended that the original assessments had already considered the applicability of Section 14A, and reopening the assessments on the same grounds was unjustified. The Court held that under Section 147, a mere change of opinion does not justify reassessment. However, if the assessment was not completed in accordance with the Act, it provides a valid reason for reopening.

2. Applicability of Section 14A of the Income Tax Act:
The assessing officer reopened the assessments on the grounds that the petitioner had claimed deductions for interest paid on loans, which should have been disallowed under Section 14A. The Court noted that Section 14A, amended by the Finance Act, 2022, clarifies that no deduction is allowed for expenditure incurred in relation to income that does not form part of the total income. The Court upheld that the assessing officer was correct in reopening the assessments based on the non-compliance with Section 14A.

3. Alleged Non-Disclosure of Material Facts by the Petitioner:
The petitioner argued that he had made full and true disclosure of all material facts during the original assessment. However, the assessing officer found that the petitioner had not disclosed the interest paid on loans used for investments in another business concern. The Court agreed with the assessing officer, stating that the petitioner did not fully disclose material facts necessary for the assessment, justifying the reopening of assessments.

4. Validity of the Reassessment Orders and Penalty Notices:
The petitioner contested the reassessment orders and penalty notices issued under Sections 148 and 142(1) of the Act. The Court held that since the original assessments ignored mandatory provisions of Section 14A and Circular No.5/2014, the reassessment orders were valid. The Court dismissed the writ petitions, indicating that the reassessment was not a mere change of opinion but a correction of an error in the original assessments.

5. Jurisdiction of the High Court to Interfere with Reassessment Orders:
The petitioner sought the High Court's intervention, arguing that the reassessment orders were bad in law. The Court ruled that the petitioner should resort to the statutory remedy of appeal rather than seeking the High Court's interference. The Court advised that if the petitioner files an appeal, the time spent in prosecuting the writ petitions would be condoned, and the appellate authority should proceed on merits.

Conclusion:
The High Court dismissed the writ petitions, upholding the reassessment orders and penalty notices. The Court found that the reopening of assessments was justified due to non-compliance with Section 14A and non-disclosure of material facts by the petitioner. The petitioner was advised to pursue the statutory remedy of appeal if aggrieved by the reassessment orders.