APPLEWOOD ESTATE PVT. LTD. V. DY. COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1)

SCA/22511/2017

AI Insights

Applewood Estate Pvt. Ltd. challenged a notice issued by the Deputy Commissioner of Income Tax, which sought to reopen their assessment for the year 2012-13 based on an alleged underassessment of income due to non-inclusion of certain interest expenses in the disallowance calculation under section 14A read with rule 8D of the Income Tax Act. The petitioner argued that the issue was already examined during the original assessment and that the reopening was influenced by the audit party's insistence. The court reviewed the original files and found that the Assessing Officer had initially rejected the audit objection and maintained that the original assessment was correct. Consequently, the court held that the reopening of the assessment was not justified and quashed the notice.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 753648 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-03-2018
• Assessment Year: misc
• Other Referred Cases: Adani Exports v. Deputy Commissioner of Income Tax [1999] 240 ITR 224 (Guj)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: B S SOPARKAR
• Keywords: Audit objection; Interest disallowance; Reopening of assessment; Rule 8D; Section 14A
• Section: 147; 148; 263; 14A

Judgement Text

"C/SCA/22511/2017 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 22511 of 2017 ========================================================== APPLEWOOD ESTATE PVT. LTD. Versus DY. COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1) ========================================================== Appearance: MR B S SOPARKAR(6851) for the PETITIONER(s) No. 1 MRS MAUNA M BHATT(174) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 19/03/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Petitioner has challenged a notice dated 29.03.2017 issued by the respondent­Assessing Officer to reopen the petitioner's assessment for the assessment year 2012­13. In order to do so, he had recorded following reasons: “On perusal of the P&L A/c (Note 18) it was found that the assessee company had claimed interest on FCCD of Rs.32,32,37,106/­ under the Head Cost of Construction & Development. Further the Note 21 of P&L A/c reveals that the assessee had further claimed interest of Rs.3,85,92,917/­ under the head of Finance Cost. Thus the total interest claimed by the assessee amounting to Rs.36,18,30,023/­ but while computing the disallowance u/s 14A r.w.Rule 8D the interest expenses only to the tune of Rs.3,85,92,917/­ was considered and interest expenses of Rs.32,32,37,106/­ was not considered which led to underassessment of income the tune of Rs.2,28,91,515/­. Page 1 of 4 C/SCA/22511/2017 ORDER On the basis of above mentioned fact, I have reason to believe that there is an escapement of income of more than Rs.1.00 lac in the case of the above assessee and the case is therefore, required to be reopened u/s. 147 of the IT Act by way of issuing notice u/s. 148 of the IT Act.” 2. The petitioner raised objections with the notice for reopening under a letter dated 17.06.2017. Such objections were however rejected by the Assessing Officer by an order dated 20.11.2017. 3. Learned counsel for the petitioner mainly raised two contentions. I. That, in the original scrutiny assessment, the ground on which the reopening of the assessment is resorted to, barely examined. II. Secondly, that the notice of reopening has been issued under insistence of the audit party. The Assessing Officer has acted under the dictates of the audit authorities and therefore also, the notice is required to be quashed. 4. In background of the assessee's contention with respect to audit objection, we had called for the original files of the Revenue, perusal of which would Page 2 of 4 C/SCA/22511/2017 ORDER show that the audit authorities had raised certain objections with the assessment which are conveyed to the assessing authority under a letter dated 21.01.2016. This pertained to the disallowance of interest expenditure under section 14A of the Income Tax Act, 1961 ('the Act' for short) read with rule 8D of the Income Tax Rules. In response to such audit objections, the Assessing Officer, on 14.12.2016 (wrongly typed as 14.12.2015) had made following observations: “ Assessing Officer's view:­ In this case, the audit party has made the observation that assessee has claimed interest on FCCD Rs.32,32,37,106/­ under the Head Cost of Construction & Development which should be included for the purpose of calculation of disallowance under section 14A r. w. rule 8D. It is important to note that the assessee has made investment in land and FCCD interest paid for entire land is taken proportionately to the FSI sold in relation to such land area. Such investment in land is not relatable to earning of any exempt income and hence, the same cannot be taken for the purpose of computing disallowance u/s 14A r. w. rule 8 D of the Act. Hence, the objection raised is not acceptable.” 5. In view of such stand of the Assessing Officer, it appears that suggestion was that the only measure available to the Revenue would be exercise of revisional powers under section 263 of the Act. On Page 3 of 4 C/SCA/22511/2017 ORDER 22.02.2017, once again, the Assessing Officer reiterated that he is not agreeable to the said audit objection, nevertheless, agreed to the remedial action of the reopening of the assessment. 6. Very clearly thus, the Assessing Officer was under compulsion from the audit party to reopen the assessment. He had recorded his opinion that the audit objection was not valid. He did not agree to the disallowance suggested. In other words, he was of the opinion that original assessment order do not suffer from any defect. 7. It is well settled through several judgments notwithstanding the judgment of this Court in case of Adani Exports v. Deputy Commissioner of Income Tax reported in [1999] 240 ITR 224 (Guj). 8. Under such circumstances, reopening of the assessment would not be permissible. Impugned notice is quashed. Petition is disposed of accordingly. (AKIL KURESHI, J) (B.N. KARIA, J) ANKIT SHAH Page 4 of 4 "