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TMI Blog2019 (9) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment by issuing the Notice u/s 148 of the Income Tax Act, 1961. a. On the facts & in the circumstances of the case & in law, the learned Assessing Officer erred in reopening the assessment by issuing the Notice u/s 148 of the Income Tax Act, 1961. b. On the facts & in the circumstances of the case & in law, the learned Assessing Officer erred in not appreciating the fact that the assessee has not concealed any income or has not furnished inaccurate particulars of any income. c. The Notice issued u/s 148 of the Income Tax Act, 1961 for reopening of assessment was in the nature of enquiry and hence the same is bad in law. 2. On the facts and in the circumstances of the case, The Honorable Commissioner of Income Tax [Appeals]-22, Mumbai erred in confirming the addition of proposed by the assessing officer by dismissing the objection of assessee for the claim under section 35D of the Income Tax Act, 1961 3. On the facts & in the circumstances of the case & in law, the honorable Commissioner of Income Tax (Appeals) erred in enhancing the disallowance under section 35D to the tune of Rs. 80,96,690/- and adding it to the total income of the assessee. 4. The Honorable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses, accordingly notice u/s 148 of the I.T.Act, 1961, dated 31/03/2015 was issued and duly served on the assesse. In response to notice, the assessee vide letter dated 11/04/2015, requested to treat, the original return filed on 12/10/2010 as return filed pursuant to the notice issued u/s 148 of the I.T.Act, 1961. Thereafter, the case was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act, 1961 were issued. During the course of assessment proceedings, the assessee requested for reasons for reopening of the assessment and the same was provided by AO vide letter dated 31/08/2015. 4. During the course of assessment proceedings, the AO called upon, the assessee to explain as to why, excessive deduction claimed u/s 35D of the I.T.Act, 1961, in respect of share issue expenses shall not be recomputed. In response, the assessee has filed detailed written submissions, vide letter dated 05/10/2015 and argued that the claim made by the assesee u/s 35D is in accordance with provisions of section 35D and accordingly, it has written off an amount equal to 1/5th of the expenditure in assessment year 2009- 10, which was under scrutiny and the same was allowed as deduction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly, as regards deduction claimed u/s 35D, the assessee has filed written submission and argued that its claim of expenditure related to share issue expenses is in accordance with provision of section 35D and accordingly, the AO was erred in re-computing, such deduction by restricting 5% of 'capital employed', excluding long term borrowings. 6. The Ld.CIT(A), after considering relevant submissions of the assessee and also by relied upon, the decision of Hon'ble Supreme Court, in the case of ACIT vs Rajesh Jaweri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500(SC), rejected legal arguments taken by the assesee challenging validity of reopening of assessment, on the ground that the AO has formed reasons to belief on the basis of materials in his possession, as per which there is a escapement of income on account of excessive claim of deduction u/s 35D. The Ld.CIT(A), further observed that formation of believe by the AO is within the realm of subjective satisfaction as held by the Hon'ble Supreme Court ,in the case of ACIT vs Rajesh Jaweri Stock Brokers Pvt.Ltd (supra). Insofar as second argument of the assessee regarding proviso to section 147 of the I.T.Act, the Ld.CIT(A) held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor before the Assessing Officer during the original assessment proceedings. I, therefore, hold that there was no true and full disclosure of material facts by the appellant. The appellant's objection to re-opening of assessment on this issue is also dismissed. 7. As regards, additions made by the AO towards disallowances of expenditure claimed u/s 35D, the Ld.CIT(A) observed that explanation (b) to sub section (3) of section 35D defines 'capital employed', as per which, the aggregate of issued share capital, debentures and long term borrowings as on the last day of the previous year, in which the business of the company commences. Long term borrowing has also been defined in Explanation (c) to sub-section 35D and includes borrowings from banks. Therefore, there is a merit in contention of the assessee that capital employed, includes long term borrowings. However, in respect of computation of 'capital employed', the assessee has included share premium collected from issue of capital, but such share premium cannot be part of capital employed has held by the Hon'ble Supreme Court, in the case of Berger Paints India Ltd. vs CIT (2017) 393 ITR 1993 (SC) and accordingly, issued enhan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry and dispose of the case on the basis of such enquiry." The above observation of the Hon'ble Supreme Court does not in any way imply that the Appellate Assistant Commissioner corresponding to the present Commissioner (Appeals) did not have the power of enhancement. In fact, a proper reading of the Hon'ble Supreme Court's observation indicates that the Appellate Assistant Commissioner did have the power of enhancement while possibly the Tribunal may not. The appellant has picked out the words "pass such orders as the Tribunal thinks fit" and likened it to the provision of section 251(1)(c) which states that "in any other case, he may pass such orders in the appeals as he thinks fit", and thereby inferred that this power does not include that power of enhancement. However, the powers of the Commissioner (Appeals) and that of the Tribunal are not same and cannot be equated with each other. In any case, it is reiterated here that the enhancement is being made under section 251(1)(a) of the Act which expressly confers the power of enhancement on the Commissioner (Appeals) and not under the residuary clause. 6.10 On merits, the appellant has simply stated that "share premium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 35D (3) of the Act, the total expenses eligible for deduction u/s 35D @5% of capital employed, ie, Rs. 19,16,27,690/-, therefore, comes to Rs. 95,81,384/-. The amount eligible for deduction u/s 35D during the year at 1/5th of Rs. 95,81,384/- is Rs. 19,16,276/- as against Rs. 1,00,12,966/- claimed by the appellant. There is a difference of Rs. 80,96,690/- between the eligible amount and as claimed by the appellant. The Assessing Officer has already disallowed Rs. 41,62,966/- on this account. The disallowance u/s 35D made by the Assessing Officer is, therefore, enhanced by Rs. 39,33,724/-. 8. Aggrieved by the Ld.CIT(A) order, the assessee is in appeal before us. 9. The Ld. AR for the assessee submitted that the Ld.CIT(A) was erred in dismissing grounds taken by the assessee challenging reopening of the assessment on two told arguments. The Ld. AR, further submitted that in order to reopen assessment, the AO must have reason to believe that income of assessee has escaped assessment. Further, whether the belief exist or not must be tested from the reasons recorded for issue of notice and nothing else. If, the belief is not evident from a reading of the reasons, the reassessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in the case of Raymond Wollen Mills vs ITO (1999) 236 ITR 34 (SC). 11. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The assesee has challenged reopening of assessment on two grounds. The first objection taken by the assessee for reopening of the assessment is that the AO has reopened assessment without formation of reason to believe that income chargeable to tax had been escaped assessment, which is evident from the reasons recorded for reopening of the assessment. We find that the AO has recorded reasons for reopening of the assessment , on the basis of tangible material, as per which, income chargeable to tax had been escaped assessment within the meaning of section 147 of the I.T.Act, 1961, on account of excessive claim of deduction u/s 35D of the I.T.Act, 1961, in respect of share issue expenses. We, further noted that it is not a statutory requirement that the reasons to belief should be proved to the hilt before reopening of assessment. The requisite condition is that the AO should have reason to believe that income chargeable to tax has escaped assessment. In this case, the AO had re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed excessive deduction u/s 35D, which itself goes to prove the fact that the facts disclosed in the return of income or at the time of assessment are not true and correct and also full disclosure of material facts necessary for assessment. We, further noted that mere furnished a return of income with a claim of deduction u/s 35D is not sufficient enough. When, the assessee is claiming a deduction, it has to disclose necessary facts in form of a notes to accounts explaining , the manner in which, such deduction has been claimed and also whether, such deduction is in accordance with provisions of Act. In this case, on perusal of facts, we find that the assesee, neither provided any note in its financial statements explaining, the computation of deduction, nor the AO has examined the issue, at the time of original assessment proceedings u/s 143(3) of the I.T.Act, 1961. Therefore, we are of the considered view that there is no merit in arguments taken by the assessee, in light of proviso to section 147 of the I.T.Act, 1961. Insofar as various case laws relied upon by the assessee, we find that although assessee has relied upon various case laws, but none of case laws are directly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in preceding paragraph. The reasons given by us in preceding paragraph shall mutatis mutandis apply for this year also. Accordingly, the objection of the assessee that there was a absence of reason to belief of escapement of income has been rejected. Coming to second objection of the assessee for reopening of the assessment. The assessee has taken an argument and submitted that the assessment has been reopened for fishing and revolving enquiry, which is not permissible u/s 147 of the I.T.Act, 196. We find that Ld.CIT(A) had negated arguments of the assessee, in light of reasons recorded for reopening of assessment and came to the conclusion that whether, the extension of undertaking was completed or its new unit had started production would not mean that the assessment was reopened only making fishing enquiries. Facts remain unchanged. The assessee failed to file, further evidences or any judgments to controvert findings of facts recorded by Ld.CIT(A) and hence, we reject second argument taken by the assessee. The third objection of the assessee for reopening of the assessment is that reopening was on the basis of change of opinion without there being any fresh tangible materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result, appeal filed by the assessee is dismissed. ITA NO. 559/Mum/2018 19. The facts and issues involved in this appeal are exactly identical to the facts and issues, which we have already considered in ITA NO. 557/Mum/2018, except to the extent of limited changes in facts, in as much as, the assessment for the impugned assessment order has been completed u/s 143(1) and reopening of assessment was within four years from the end of relevant assessment year. Therefore, the reasons given by us in preceding paragraph in ITA No. 557 and 558/Mum/2018, we reject legal ground taken by the assessee challenging reopening of assessment. 20. The next issue that came up for our consideration is additions made by the AO towards disallowances of excess claim of deduction u/s 35D of the I.T.Act, 1961 and consequent enhancement u/s 251 of the I.T.Act, 1961 by the Ld.CIT(A). We find that Ld. AR for the assessee was not seriously contesting, the issue on merit because, the Hon'ble Supreme Court in the case of Berger Paints India Ltd.vs CIT (2017) 393 ITR (113) (SC) held that premium collected by assessee company on its subscribed share capital is not 'capital employed' in business of company wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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