TMI Blog2013 (5) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income on 26.12.2006 declaring total income of Rs.61.98 crores (rounded off). Such return was taken in scrutiny. The Assessing Officer passed an order under section 143(3) of the Act on 26.12.2008. It is this scrutiny assessment that the respondent seeks to reopen for which impugned notice has been issued. 4. At the request of the petitioner, the Assessing Officer supplied the reasons recorded by him for issuing such a notice. Such reasons read as under:- 3. Reasons for re-opening assessment under section 147 of the I.T. Act, 1961 in your case for A.Y.2006-07 as recorded:- (i) On verification of the details available on record it is noticed that the assessee has borrowed funds from IDBI amounting to Rs.8.crores and paid interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional depreciation of Rs.33,15,561/- @ 7.5% on Rs.4,42,07,480/- cost of plant and machinery) which has been installed in FY 2004-05 relevant to AY 2005-06. The assessee has not explained further on this issue. The deprecation in AY 2006-07 is allowable on WDV of the machinery installed in FY 2004-05, even though depreciation in that year had not been claimed. Therefore, Rs.33,14,561/- requires to be disallowed and added back into total income of the assessee. (iv) On verification of the details, it is noticed that the assessee has incurred huge expenditure which has subject to TDS under Chapter-XXIII B of the Act, including Provisions of Sec.195 applicable to the payment made to nonresidents. Though the TDS return acknowledgment are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15,561/- at the rate of 7.5% on a sum of Rs.4,42,07,480/- expended towards cost of plant and machinery, which was installed in the Financial Year 2004-05. The Assessing Officer believed that the claim of depreciation of the assessee on such machinery for the Assessment Year 2006-07 had to be worked out on the written down value of such machinery though the depreciation may not have been claimed in the earlier year. (4) It was further noticed that the assessee had made provision to which section 195 of the Act was applicable. The assessee though 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. 7. The impugned notice has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, 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. However, in this case also the crucial question is, did the assessee withhold true and full facts during the course of assessment leading to escapement of income chargeable to tax? Answer has to be in the negative. 11. With respect to the question of TDS, the Assessing Officer himself has recorded that the tax was deducted and return was duly filed. He only required to reconcile the expenditure and the tax deducted at source which may lead to a possible disallowance under section 40(a)(ia) of the Act. Surely, for such a fishing inquiry reopening of assessment could not be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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