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TMI Blog2012 (11) TMI 422X X X X Extracts X X X X X X X X Extracts X X X X ..... ed." 3. Brief facts of the case till assessment stage are noted by ld. CIT(A) in para No.3 of his order which is reproduced below:- "3. In response to this notice, the assessee has filed reply dated 09.06.2011 and requested to supply the reason recorded. The reason recorded was supplied vide this office letter dated 09.06.2011. The assessee was also given another opportunity of being heard in the matter vide this office letter dated 28.09.2011. 3.1 In this connection, the assessee has filed reply dated 10.10.2011, contending as under:- "Tax free income of Rs.13824412/- received during the year on UTI Tax Free Bond Rs.2200129, mutual fund dividend Rs.554104/- & on sale of Mutual Fund Rs.11070179. Company had purchased 6.5% Tax free UTI bond of Rs.30865300 in many lost during the period July 2003 to March 2006 as a long term investment. During the year company sold mutual fund units which purchased in last year for Rs.7.25 Crore out of reserve and surplus available for Rs.48.89 Crore as on 1.4.2006. Company is making profit since 1990 and also making investments on time to time in view of policy of management to keep earned profit separately in long term investment and to run da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id thereon. In this regard, the CBDT has issued Notification No.45/2008 dated 24th March, 2008 prescribing the rules for calculation of disallowance under Section 14A. As per Para-2(2)(ii) and 2(2)(iii) of the said notification, in case where assessee has incurred expenditure by way of interest and other expenses, which are not directly attributable to a particular income or receipt of amount, should be computed as per the following formula, viz:- A=The amount of expenditure by way of interest Rs. 2,44,05,797 B=Average value of investment of which income does not form part of the income Rs.10,19,51,944 C=Average value of total assets as per the Balance sheet Rs.80,92,20,250 as on the first day and last day of the previous year. A X B + 0.5% of average investment. = Rs.2,44,05,797 X Rs.10,19,51,944 + 0.5% of 10,19,51,944 Rs.80,92,20,250 = Rs.30,74,835 + Rs.5,09,760 =Rs.35,84,595/- On the basis of above facts and calculation an amount of Rs.35,84,595/- is disallowed u/s 14A of the Act and added to the total income of the assessee company. Penalty proceedings u/s 271(1)(c) of the Act are initiated separately on this issue for concealing the particulars of income by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002-2003 708.61 3703.21 4411.82 1020.00 457.05 0.00 2003-2004 708.61 3951.18 4659.79 710.67 1853.56 0.00 2004-2005 708.61 4016.92 4725.53 897.25 1513.53 30.84 2005-2006 708.61 4181.42 4890.03 1203.54 3194.31 18.90 2006-2007 708.61 4270.71 4979.32 835.49 1077.08 297.72 It is seen that the appellant had started making investments in securities and mutual funds from F.Y. 1998-99 onwards. It is evident from above table that the appellant was having much more interest free funds than the investments in securities and mutual funds in the earlier year. Accordingly, the pre-assumption that investments are made out of interest free funds available with the appellant will go in favour of the appellant. Reliance in this regard is placed on Reliance Utilities and Power Ltd., 319 ITR 340 (Mumbai). In view of above facts, I am of the considered view that no disallowance of interest is required to be made in this case. It is also noticed that the A.O. had disallowed a sum of Rs. 5,09,760/- against administrative expenses. The A.O. had applied provisions of Rule 8D on this issue also without bringing any facts on record to prove the fact of proximity of these e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper book as per which a query was raised and assessee was asked to submit working of disallowance u/s.14A r.w. Rule 8D. He also submitted that as per question No.25 the assessee was asked to submit details of inventory with basis of valuation and hence, question No.1 and 2 raised by the A.O. in the reasons recorded were duly enquired by the A.O. as per this letter. He further drawn our attention to page No.35 and 36 of the paper book containing the reply submitted by assessee in response to method of valuation of inventory. He further submitted that on page No.37 of the paper book is another query issued by the A.O. dated 2.3.10 in which the A.O. asked the assessee to explain the method of violation of closing stock. He further submitted that reply of this query was also submitted to the A.O. as per letter dated 16.03.2010 copy of which is available on page No.40 and 41 of the paper book. Regarding the query of A.O. in respect of disallowance u/s 14A, it was submitted that reply was submitted to the A.O. as per letter dated 16.12.2009, copy of which is available on page No.44 of the paper book. Recording the third objection of the A.O. in the reasons recorded on page -11, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 145A of the Act, which mandate inclusive method of accounting, total income was to be enhanced to the extent of unutilized CENVAT credit. (iii) Assessee declared Fringe Benefit Value (FBV) of Rs.8000848/- in the FBT return filed on 18.09.2008. The assessment u/s 143(3) was completed on 26.03.2010, however, assessment of Fringe Benefit Tax was not made. As per Annexure II of Form 3CD giving the detailed break-up of the assessee's liability of FBT under different heads, that Rs.5,68,857 was shown as the expenditure incurred for Staff Welfare and accordingly FBV of Rs.1,13,771 was determined on such expense. However, on perusal of profit and loss account, under the head 'Payment and provisions to exployees' expenditure of Rs.7,22,243 was debited as 'Service Award' As discussed above, the disallowable expenses u/s 14A of Rs.43,50,012/-, unutilized CENVAT credit of Rs.98,27,939 which is not included in closing stock and non-charging of FBV on expenditure of Rs.7,22,243/- resulted in under assessment and tax has escaped assessment for A.Y. 2008-09 and accordingly it is the fit case for reopening the assessment u/s 147 for the A.Y. 2008-09. Hence notice u/s 148 is issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erification sales record also become more significant. In the instant case, advances / receivables were recorded in a diary which was found during the course of survey. The amount was disclosed as receivable. It is not specified as to which transaction these receivables pertained to it. It may be the case that advances were made by the assessee and subsequently recovered, in such case the transactions having not been recorded in the regular books. In this context the nature of transaction partakes the character of undisclosed income. Granting deduction on such income defeats the very purpose of legislative intention. 5.2 The case of the assessee is such that the assessee has been allowed excess allowance of deduction u/s.80HHC of the Act on the disclosure made during the course of survey proceedings. Of course while filing the return of income, the assessee has accounted for such disclosure in the books of accounts, but it was not accounted for in the books of accounts in the regular course of accounting. In the P&L A/c., such disclosure has been reflected in the income side, over and above the income earned by the assessee during the regular course of business. Thus it is very c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aped assessment which belief can be reached in any manner and is not qualified by the proceedings of failure by the assessee to make full and true disclosure of material facts, as contemplated under the un-amended section 147(a). The Hon'ble Court stated the AO can now legitimately reopen the assessment in respect of an income which has escaped assessment. It was observed by the Hon'ble Court that undoubtedly under the amended section, power to reopen assessment is much wider and can be exercised even if an assessee had disclosed fully and truly all material facts. In the case of CIT Vs. Abad Fisheries 258 ITR 641, the Hon'ble Kerala High Court stated that so long as the ingredients of section 147 are fulfilled, the AO is free to initiate proceedings U/s.147 and failure to take steps U/s. 143(3) will not render the AO powerless to initiate assessment proceedings. 5.5 In view of the above two decisions, all the arguments of the assessee have become invalid and there is no change of opinion, and respectfully following the directions given in the case of GKN Driveshaft Ltd. (2003) 259 ITR 19, the objections raised by the assessee for reopening of the assessment has been rejected. 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding valuation of closing stock as well as regarding disallowance to be made u/s 14A and on both the counts, reply were submitted by the assessee before the A.O. in course of original assessment proceedings and thereafter, the assessment was completed by the A.O. u/s 143(3) and therefore, it is abundantly clear that opinion was made by the A.O. in course of original assessment proceedings on the basis of queries and its reply and no new material has been indicated which has come to the notice of the A.O. for reopening. Hence, In our considered opinion, in the facts of the present case, the reopening is on the basis of mere change of opinion which is not permissible as per law. It has been so held by Hon'ble Apex Court in the case of CIT Vs. Kelvinator of India Ltd. (supra). It is held by Hon'ble Apex Court in that case that if the concept of change of opinion is removed as contended on behalf of Department, then, in the garb of reopening the assessment, the review would take place but the A.O. has no power to review and therefore, by respectfully following this judgment of Hon'ble Apex Court and also the Tribunal decision cited by ld. A.R., we decline to interfere in the order of l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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