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TMI Blog2017 (8) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure in case of amalgamation or demerger, which is otherwise allowable over a period of 5 years from the date of incurring of such expenditure. The AO has allowed the exdpenditure contrary to the specific provisions provided u/s 35DD which resulted in under assessment of income to the tune of Rs. 42,24,138 and accordingly issued notice u/s 148 calling for return of income from the assessee. Subsequently, the case has been selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued. In response to notices, the authorized representative of the assessee appeared and filed objections for reopening of the assessment on the ground that the AO proposed reopening merely on change of opinion without any fresh material came to his knowledge subsequent to completion of original assessment u/s 143(3) of the Act. The assessee further submitted that the expenditure incurred towards demerger of its existing units is in the nature of duties and cess which are allowable on payment basis as per the provisions of section 43B of the Act. Since the said expenditure has been paid during the previous year relevant assessment year, the assessee has rightly claimed deduction fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of excessive deduction allowed towards expenditure incurred for amalgamation or demerger in contravention of the specific provisions of section 35DD of the Act. The CIT(A) further observed that as per the provisions of section 35DD(2), no deduction shall be allowed in respect of the expenditure mentioned in sub section (1), under any other provisions of Income-tax Act and hence, there is no merits in the contention of the assessee that such expenditure is allowable u/s 43B only on payment basis. Since the AO has not examined the issue in right perspective and also not applied his mind to the provisions provided in section 35DD while completing the assessment, which resulted in escapement of income, therefore, the same cannot be considered as mere change of opinion. With these observations, he dismissed the legal ground raised by the assessee challenging validity of reopening of assessment. 4. Insofar as deduction claimed towards stamp duty paid on demerger of units, the CIT(A) observed that as per the provisions of section 35DD(1), if an assessee incurs any expenditure wholly and exclusively for the purpose of amalgamation of an undertaking, the assessee shall be allowed deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd 6. On the other hand, the Ld.DR strongly supported the order of the CIT(A). He further submitted that the AO has reopened the assessment with a valid reason of belief to suggest escapement of income within the meaning of section 147 of the Act. The Ld.DR, referring to the provisions of section 147 submitted that what is required for reopening of the assessment is objective satisfaction of the AO with regard to materials which existed at the time of formation of belief but not subjective satisfaction of escapement of income. Once there is a reason to believe that income chargeable to tax had been escaped assessment, then the AO can reopen the assessment even though no fresh material came to his knowledge subsequent to completion of original assessment. In fact, the assessment could be reopened based on existing materials when the issue was not examined totally by the AO, in the original assessment proceedings. 7. We have heard both the parties, perused material available on record and gone through the orders of authorities below. The AO reopened the assessment on the ground that income chargeable to tax had escaped assessment because of excessive deduction allowed towards exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceedings or the assessee has fully disclosed all material facts necessary for completing the assessment. In this case, on perusal of the facts, we find that the assessment order is silent on the application of mind by the AO to the correct facts in the light of the specific provisions of section 35DD of the Act. Therefore, we are of the view that it is not a case of mere change of opinion and hence, we reject the legal ground raised by the assessee. 9. Having said so, let us examine the issue on merit. The facts relating to the impugned addition are that the assessee has demerged its investment division in the financial year 1997-98 relevant to AY 1998-99 and vegetable division in the financial year 2000-01 relevant to AY 2001-02. The assessee has incurred stamp duty on demerger of its units which has been paid in the financial year relevant to AY 2005-06. The assessee has claimed stamp duty paid on demerger of its units in the financial year relevant to AY 2005-06 u/s 43B of the Act on payment basis. The AO disallowed expenditure incurred towards stamp duty paid on demerger of its units over and above 1/5th of such expenditure on the ground that expenditure incurred f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be allowed only on payment basis. In this case, there is no doubt with regard to the nature of expenditure. The assessee has incurred expenditure for payment of stamp duty which is in the nature of duty, cess or fees by whatever name called under this Act. Since the assessee has incurred expenditure which is in the nature of duty, cess or fees and such expenditure has been paid during the financial year relevant to AY 2005-06, the assessee is eligible for deduction towards such expenditure u/s 43B. We further observe that the AO himself has accepted that the said expenditure has been paid during the financial year relevant to AY 2005-06 but relatable to earlier year and disallowed in that year. It is not a case of AO that the expenditure has been allowed in the earlier year and further deduction during the current year would amount to double deduction. Since the expenditure incurred by the assessee is in the nature of expenditure referred to in section 43B which is allowable only on payment basis, the assessee has rightly claimed expenditure towards stamp duty paid on demerger. The CIT(A), without appreciating the facts, simply upheld additions made by the AO. Hence, we reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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