Haryana Financial Corporation, Chandigarh V. DCIT, Panchkula

ITA 693/CHANDI/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6740 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 07-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 03-06-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G K DHAL
• Assessee Lawyers: B K NOHRIA
• Keywords: Reopening of assessment; Charitable institution; Audit objection; Earning of tax free income; Question of law; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 14A; 147; 148; 154; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH A, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 693/CHD/2016 ASSESSMENT YEAR: 2009-10 HARYANA FINANCIAL CORPORATION, VS. THE DCIT, PAN CHKULA CIRCLE CHANDIGARH PANCHKULA PAN NO. AAACH4685B (APPELLANT) (RESPONDENT) APPELLANT BY : SH. B.K. NOHRIA RESPONDENT BY : SH. G.K. DHAL DATE OF HEARING : 27.09.2017 DATE OF PRONOUNCEMENT : 25.10.2017 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX-2 [HEREINAF TER REFERRED TO AS CIT(A)], GURGAON 30.03.2016. 2. THE SOLE ISSUE RAISED BY THE ASSESSEE IS REGARDI NG THE VALIDITY OF THE REOPENING OF THE ASSESSMENT U/S 147 OF THE I NCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 3. THE BRIEF FACTS OF THE CASE ARE THAT RETURN DECL ARING NIL INCOME WAS FILED BY THE ASSESSEE ON 24.9.2009. ASSESSMENT WAS COMPLETED IN THIS CASE U/S 143(3) VIDE ORDER DATED 30.11.2011. T HEREAFTER, THE ASSESSING OFFICER NOTED THAT THE DISALLOWANCE MADE U/S 14A WAS NOT IN ACCORDANCE WITH RULE 8D OF THE INCOME TAX RULES, 1962 (IN SHORT I.T. RULES). THE ASSESSING OFFICER RECORDED REASO NS AND ISSUED 2 NOTICE U/S 148 OF THE ACT. THE ASSESSEE FILED OBJEC TIONS TO THE REOPENING OF THE ASSESSMENT. THE SAID OBJECTIONS WE RE DISMISSED BY THE ASSESSING OFFICER (AO) VIDE ORDER DATED 30.6.20 14. IN THE REOPENED ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER OBSERVED THAT THE ASSESSEE HAD MADE INVESTMENT IN SHARES AMOUNTIN G TO RS.1,50,51,39,635/-. HE SHOW CAUSED THE ASSESSEE TO EXPLAIN WHY DISALLOWANCE U/S 14A READ WITH RULE 8D OF I.T. RULE S MAY NOT BE MADE. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS ON THIS ISSUE, THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE U/S 14A READ WITH RULE 8D AT RS. 5,35,20.045/-. 4. BEING AGGRIEVED BY THE ABOVE ORDER OF THE ASSESS ING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). IT WAS CONTENDED BEFORE LD. CIT(A) THAT REOPENING IN THIS CASE WAS D ONE ON THE BASIS OF AUDIT OBJECTIONS OF THE AUDIT PARTY WHICH AMOUNT S TO CHANGE OF OPINION. THE LD. CIT(A), HOWEVER, DID NOT AGREE WIT H THE ABOVE CONTENTION OF THE ASSESSEE. THE LD. CIT(A) HELD T HAT REOPENING WAS VALID IN THIS CASE. HE OBSERVED THAT ASSESSING OFFI CER HAD INFORMATION ON THE BASIS OF WHICH HE FORMED THE BELIEF THAT THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT AND, THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY REOPENED THE ASSESSMENT. THE LD. CIT(A) , IN THIS RESPECT, HAS RELIED ON VARIOUS CASE LAWS. THE RELEVANT PART OF THE ORDER OF THE CIT(A) IS REPRODUCED AS UNDER:- 4.3 I HAVE CAREFULLY CONSIDERED THE APPELLANT'S SUBMISSIONS. IT IS EVIDENT FROM THE FACTS RECORDED IN THE ASSESSMENT ORDER THAT THE APPELLANT DURING THE COUR SE OF .ASSESSMENT PROCEEDINGS U/S 143(3) HAD AGREED THAT 3 DISALLOWANCE U/S I4A MAY BE MADE IN THE APPELLANT'S CASE. IN THESE CIRCUMSTANCES, IN VIEW OF THE PROVISIONS OF S ECTION 14A READ WITH RULE 8D, THE AO WAS REQUIRED TO DISALLOW THE EXPENDITURE IN RELATION TO EXEMPT INCOME IN ACCORDA NCE WITH THE PROVISIONS OF RULE 8D. IT IS ALSO A FACT ON RECORD THAT IN THE ORIGINAL ASSESSMENT THE AO HAD DISALLOWED THE EXPEN SES U/S 14A ON AN ADHOC BASIS @ 10% OF EXEMPT INCOME. IT WAS TH EREFORE A CASE OF UNDER ASSESSMENT AND THE AO WAS FULLY JUSTI FIED IN ISSUING NOTICE U/S 148 IN THIS CASE. IT IS ALSO EVI DENT FROM THE FACTS ON RECORD THAT THE OBJECTIONS RAISED BY THE A PPELLANT WERE DULY DISPOSED OFF BY THE AO VIDE WRITTEN ORDER DATE D 30/06/2014. IN THESE CIRCUMSTANCES, THE APPELLANT'S CONTENTION THAT THE AO HAD NOT COMPLIED WITH THE DECISION OF T HE HON'BLE SUPREME COURT IN THE CASE OF GKN DRIVESHAFTS (NDIA) LTD. (SUPRA) IS NOT TENABLE. IT MAY ALSO BE RELEVANT TO REFER HEREWITH TO THE DECISION OF THE HON'BLE JURISDICTION PUNJAB & HARYANA HIGH COURT IN THE CASE OF SUNIL BASIN V/S CIT (2009) 179 TAXMAN 148 WHERE IN THE HON'BLE HIGH COURT HELD THAT WHEN ADEQUATE MATERIAL JUSTIFYING THE REASSESSMENT IS AV AILABLE AND THERE IS NO PREJUDICE CAUSED TO THE ASSESSEE, REOPE NING SHOULD NOT BE SET ASIDE ON MERE TECHNICALITY. THE HON'BLE HIGH COURT HELD THAT THE CONTENTION THAT THE DEPARTMENT WAS UN DER OBLIGATION TO DISPOSE OFF OBJECTION OF ASSESSEE TO INITIATE THE PROCEEDINGS, BY WAY OF THE SEPARATE ORDER, IS NOT T ENABLE. THE APPELLANT HAS CONTENDED THAT AS THE REOPENING WAS B ASED ON AUDIT OBJECTION THE SAME IS BAD IN LAW. I DO NOT AG REE WITH THE APPELLANT'S CONTENTION ON THIS ISSUE. THERE IS NOTH ING IN THE ASSESSMENT ORDER TO SHOW THAT THE REOPENING WAS BAS ED ON AUDIT OBJECTION. EVEN OTHERWISE INFORMATION RECEIVED FROM AUDIT PART IS VALID INFORMATION FOR THE PURPOSE OF REOPENING OF A SSESSMENT U/S 147 OF THE IT ACT. THE CASES LAWS RELIED UPON BY TH E APPELLANT PERTAIN TO THE PROVISIONS OF IT ACT PRIOR TO ITS AM ENDMENT IN 1989. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE 4 OF JAWAND SONS V/S CIT(A) 326 ITR 39 HELD THAT U/S 147 OF THE IT ACT AFTER ITS AMENDMENT W.E.F 01/04/19-89, WIDE POWERS HAVE BEEN GIVEN TO THE AO EVEN TO COVER CASES WHERE THE ASSESSEE HAD FULLY DISCLOSED THE MATERIAL FACTS. THE APPELLANT H AS ALSO CONTENDED THAT THIS IS A CASE OF CHANGE OF OPINION AND AS SUCH THE REOPENING OF ASSESSMENT IS BAD IN LAW. I DO NOT AGR EE WITH THIS CONTENTION OF THE APPELLANT. AS POINTED OUT ABOVE, THE APPELLANT HAD AGREED DURING THE COURSE OF ORIGINAL ASSESSMENT THAT THE PROVISIONS OF SECTION 14A MAY BE APPLIED IN THIS CA SE. IN THESE CIRCUMSTANCES, THE AO WAS BOUND TO COMPUTE THE DISA LLOWANCE BY APPLYING RULE 8D. THE DISALLOWANCE MADE BY THE A O WAS A CASE OF UNDER ASSESSMENT AND THEREFORE, INCOME HAD ESCAPED ASSESSMENT IN THIS CASE. AT THE STAGE OF ISSUE OF N OTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUISITE BEL IEF. 'WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEME NT IS NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE THE FORMA TION OF BELIEF BY THE ASSESSING OFFICER IS WITHIN THE REALM OF SUBJEC TIVE SATISFACTION. THE HON'BLE SUPREME COURT IN THE CASE OF ITO V. SELECTED DALURBAND COAL CO. (P.) LTD., [ 1996] 217 ITR 597 (SC); RAYMOND WOOLLEN MILLS LTD. V. ITO [1999] 236 ITR 34 (SC) HAS HELD BY THAT IF THE ASSESSING OFFICER, FOR WHAT EVER REASON, HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSES SMENT, IT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT, SO L ONG AS THE CONDITIONS OF SECTION 147 ARE FULFILLED, THE ASSESS ING OFFICER IS FREE TO INITIATE PROCEEDINGS UNDER SECTION 147. IT IS OB SERVED THAT THE ASSESSING OFFICER HAD THE REASON TO BELIEVE THAT IN COME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT AND IT HAD A RATIONAL NEXUS WITH THE MATERIAL BEFORE HIM. HE HAD REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND DULY R ECORDED THE REASONS FOR THE SAME. REFERENCE IN THIS REGARD MAY BE MADE TO THE FOLLOWING CASE LAWS: 5 ACIT VS RAJESH JHAVERI STOCK BROKERS P. LIMITED.291 ITR 500 SC AT THE TIME OF INITIATION OF RE-ASSESSMENT PROCEEDI NGS ONLY REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPE D ASSESSMENT IS SUFFICIENT TO INVOKE JURISDICTION OF AO TO INITIATE RE-ASSESSMENT PROCEEDINGS. CONSOLIDATED PHOTO & FINVEST LTD. VS. ACIT 281 ITR 394 DEL ACTION U/S 147 PERMISSIBLE EVEN IF AO GATHERED REAS ONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT FROM THE VERY SA ME RECORD WHICH HAS BEEN SUBJECT MATTER OF COMPLETED ASSTT. A.L.A. FIRM V. CIT 119911 189 ITR 285 (SC) THE JURISDICTION OF THE INCOME-TAX OFFICER TO REASS ESS INCOME ARISES IF HE HAS, IN CONSEQUENCE OF SPECIFIC AND RE LEVANT INFORMATION COMING INTO HIS POSSESSION SUBSEQUENT T O THE PREVIOUS CONCLUDED ASSESSMENT, REASON TO BELIEVE TH AT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. IT WAS HE LD THAT EVEN IF THE INFORMATION BE SUCH THAT IT COULD HAVE BEEN OBTAINED BY THE INCOME-TAX OFFICER DURING THE PREVIOUS ASSESSME NT PROCEEDINGS BY CONDUCTING AN INVESTIGATION OR AN EN QUIRY BUT WAS NOT IN FACT SO OBTAINED, IT WOULD NOT AFFECT TH E JURISDICTION OF THE INCOME-TAX OFFICER TO INITIATE REASSESSMENT PROCEEDINGS, IF THE TWIN CONDITIONS PRESCRIBED UNDER SECTION 147 OF THE ACT ARE SATISFIED. GURERA GAS CYLINDERS PVT. LTD, VS CIT 258 ITR 170 P &H A PERUSAL OF THE REASONS RECORDED BY RESPONDENT NO. 2 SHOWS THAT HE HAD APPLIED HIS MIND TO THE RELEVANT MATERI AL AND FORMED A BELIEF THAT THE PETITIONER HAD NOT DISCLOSED COMP LETE FACTS WHICH COULD ENABLE IT TO CLAIM DEDUCTION UNDER SECT ION 80-1 AND, THEREFORE, ITS INCOME HAD NOT BEEN PROPERLY AS SESSED. AT THIS STAGE, THE COURT CAN NEITHER GO INTO THE SUFFI CIENCY OR 6 ADEQUACY OF THE REASONS RECORDED BY RESPONDENT NO. 2 NOR CAN IT INTERFERE WITH THE NOTICE SIMPLY BECAUSE ON AN OVER ALL REAPPRAISAL OF MATERIAL, A DIFFERENT OPINION MAY BE FORMED. SWARAJ ENGINE LTD.VS ACIT 260 ITR 202 P&H THE ASSESSMENT IN THIS CASE WAS COMPLETED UNDER SEC TION 143(3) ON DECEMBER 31, 1999. DEDUCTION, UNDER SECTION 80-1 AMOUNTING TO RS. 2,59,42,908 WAS ALLOWED TO THE ASS ESSEE. SUBSEQUENTLY, IT HAS BEEN NOTICED FROM THE DOCUMENT S FURNISHED BY THE ASSESSEE THAT IT WAS NOT ELIGIBLE FOR DEDUCT ION UNDER SECTION 80-1 OF THE INCOME-TAX ACT. THEREFORE, DEDUCTION OF RS. 2,59,42,908 WAS WRONGLY ALLOWED AT THE TIME OF ASSE SSMENT UNDER SECTION 143(3). RAYMOND WOOLLEN MILLS LIMITED. VS ITO 236 ITR 34 SC IN THIS CASE, WE DO NOT HAVE TO GIVE A FINAL DECISI ON AS TO WHETHER THERE IS SUPPRESSION OF MATERIAL FACTS BY T HE ASSESSEE OR NOT. WE HAVE ONLY TO SEE WHETHER THERE WAS PRIMA FA CIE SOME MATERIAL ON THE BASIS OF WHICH THE DEPARTMENT COULD REOPEN THE CASE. THE SUFFICIENCY OR CORRECTNESS OF THE MATERIA L IS NOT A THING TO BE CONSIDERED AT THIS STAGE. WE ARE OF THE VIEW THAT THE COURT CANNOT STRIKE DOWN THE REOPENING OF THE CASE IN THE FACTS OF THIS CASE. IT WILL BE OPEN TO THE ASSESSEE TO PR OVE THAT THE ASSUMPTION OF FACTS MADE IN THE NOTICE WAS ERRONEOU S. THE ASSESSEE MAY ALSO PROVE THAT NO NEW FACTS CAME TO T HE KNOWLEDGE OF THE INCOME-TAX OFFICER AFTER COMPLETION OF THE A SSESSMENT PROCEEDING. WE ARE NOT EXPRESSING ANY OPINION ON TH E MERITS OF THE CASE. THE QUESTIONS OF FACT AND LAW ARE LEFT OP EN TO BE INVESTIGATED AND DECIDED BY THE ASSESSING AUTHORITY . THE APPELLANT WILL BE ENTITLED TO TAKE ALL THE POINTS B EFORE THE ASSESSING AUTHORITY. THE APPEALS ARE DISMISSED. JAWAND SONS VS. CIT 326 ITR 39 P&H 7 UNDER SECTION 147 OF THE ACT, AFTER ITS AMENDMENT W ITH EFFECT FROM APRIL 1, 1989, WIDE POWER HAS BEEN GIVEN TO THE ASS ESSING OFFICER EVEN TO COVER CASES WHERE THE ASSESSEE HAD FULLY DI SCLOSED THE MATERIAL FACTS. THE ONLY CONDITION FOR ACTION IS TH AT THE ASSESSING OFFICER SHOULD HAVE REASON TO BELIEVE THAT INCOME C HARGEABLE TO TAX HAD ESCAPED ASSESSMENT. SUCH BELIEF CAN BE REAC HED IN ANY MANNER, AND IS NOT QUALIFIED BY A PRE-CONDITION OF FULL AND TRUE DISCLOSURE OF MATERIAL FACTS BY THE ASSESSEE AS CON TEMPLATED IN THE PRE-AMENDED SECTION 147(A) OF THE ACT. IN THE I NSTANT CASE, AS FAR AS THE MERITS OF THE CASE IS CONCERNED, WITH REGARD TO THE PERMISSIBLE DEDUCTION UNDER SECTION 80-IB OF TH E ACT, IT IS CLEAR POSITION THAT THE ASSESSEE WAS NOT ENTITLED TO CLAI M DEDUCTION ON ACCOUNT OF DUTY DRAWBACK AND DEPB INCENTIVES, AS TH ESE INCENTIVE PROFITS DO NOT FALL WITHIN EXPRESSION 'PROFITS DERI VED FROM INDUSTRIAL UNDERTAKING' HI SECTION 80-IB OF THE ACT. THEREFORE , DUTY DRAWBACK AND DEPB DO NOT FORM PART OF NET PROFITS OF THE IND USTRIAL UNDERTAKING FOR THE PURPOSES OF SECTION 80-IB OF TH E ACT. SEWAK RAM VS ITO 236 CTR 462 (T&H) AFTER AMENDMENT OF S. 147 W.E.F. 1ST APRIL, 1989, R EASSESSMENT CAN BE INITIATED EVEN IF THERE IS DISCLOSURE IN THE RETURN IF WITHOUT CONSIDERING THE PARTICULARS OF THE RETURN, PROCESSI NG IS DONE UNDER S. 143(1) OR ASSESSMENT IS MADE UNDER S. 143(3). NO DOUBT, MERE CHANGE OF OPINION BY ITSELF IS NOT A GROUND FOR REA SSESSMENT AS HELD IN THE JUDGMENTS RELIED UPON ON BEHALF OF THE ASSES SEE BUT IF THERE ARE REASONS TO BELIEVE THAT TAX HAS ESCAPED, REASSE SSMENT IS PERMISSIBLE. REASONS CAN BE EVEN ON THE BASIS OF PA RTICULARS OF THE RETURN WITHOUT ANY NEW MATERIAL. EVEN IF PROCEEDING S UNDER S. 143(2) ARE NOT TAKEN, REASSESSMENT PROCEEDINGS CAN BE TAKEN. HONDA SEIL POWER PRODUCTS LTD. VS DCIT F2011] 197 TAXMAN 4L5.(DELHI) IN THIS CASE, THE HON'BLE HIGH COURT HAS HELD THAT THE TERM 'FAILURE' ON THE PART OF ASSESSEE IS NOT RESTRICTED ONLY TO I NCOME-TAX RETURN 8 ON COLUMNS OF THE INCOME-TAX RETURN OR TAX AUDIT RE PORT; EXPRESSION 'FAILURE TO FULLY AND TRULY DISCLOSE MAT ERIAL FACTS ALSO RELATES TO STAGE OF ASSESSMENT PROCEEDINGS AND THAT MERELY BECAUSE MATERIAL LIES EMBEDDED IN THE MATERIAL OR E VIDENCE, WHICH ASSESSING OFFICER COULD HAVE UNCOVERED BUT DID NOT UNCOVER, IS NOT A GOOD GROUND TO DENY OR STRIKE DOWN A NOTICE FOR R EASSESSMENT. AQUAGEL CHEMICALS P. LTD, V. ACIT (2013) 353 ITR 13 1 (GUJ) (HC) OMISSION OF THE ASSESSEE TO BRING TO THE ASSESSING AUTHORITY'S ATTENTION PARTICULAR ITEMS IN THE ACCOUNT BOOKS, OR TO PARTICULAR PORTIONS OF THE DOCUMENTS WHICH ARE RELEVANT, WILL AMOUNT TO OMISSION TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR HIS ASSESSMENT. NOR WILL HE BE ABLE TO CONTEND SUCCESSFULLY THAT BY DISCLOSING CERTAIN EVIDENCE, HE SHOULD BE D EEMED TO HAVE DISCLOSED OTHER EVIDENCE, WHICH MIGHT HAVE BEEN DIS COVERED BY THE ASSESSING AUTHORITY IF HE HAD PURSUED INVESTIGA TION ON THE BASIS OF WHAT HAS BEEN DISCLOSED. (A. Y. 2006-2007) ARUN KUMAR GOYAL V. CIT (2013) 81 DTK 123 (P&H) (HC ) ONCE THERE ARE REASONS FOR THE ASSESSING OFFICER TO BELIEVE, WHETHER SUCH REASONS ORIGINATE OUT OF THE RECORD AL READY SCRUTINIZED OR OTHERWISE, HE SHALL BE WITHIN HIS CO MPETENCE TO INITIATE THE RE-ASSESSMENT PROCEEDINGS. THE FORMATI ON OF BELIEF BY THE ASSESSING OFFICER MUST ALWAYS BE TENTATIVE A ND NOT A FIRM OR FINAL CONCLUSION AS THE LATTER WILL NEGATE THE V ERY OBJECT OF GIVING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. R EASSESSMENT BASED ON AGREEMENT TO SALE WHICH WAS SIGNED BY BOTH PARTIES IS HELD TO BE VALID. (A.Y. 2001 - 02) 4.4 THEREFORE, RELYING ON THE VARIOUS CASE LAWS AS DISCUSSED ABOVE AND FACTS AND CIRCUMSTANCES, THE ISSUANCE OF NOTICE U/S 148 IS HELD TO BE VALID. THESE GROUNDS OF APPEAL ARE DI SMISSED. 9 5. THE LD. CIT(A), HOWEVER, ON MERITS, WHILE RELYIN G UPON VARIOUS CASE LAWS, RESTRICTED THE DISALLOWANCE TO THE TOTAL EXEMPT INCOME EARNED BY THE ASSESSEE, GIVING SUBSTANTIAL R ELIEF TO THE ASSESSEE. THE ASSESSEE, HOWEVER, HAS COME IN APPEAL BEFORE US AGITATING THE VERY REOPENING OF THE ASSESSMENT. 6. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED T HAT IT IS CASE OF CHANGE OF OPINION BY THE ASSESSING OFFICER. THE ORIGINAL ASSESSMENT WAS CARRIED OUT U/S 143(3) OF THE ACT AN D ALL THE MATERIAL FACTS WERE DISCLOSED TO THE ASSESSING OFFICER. THAT THE REOPENING HAS BEEN DONE ON THE BASIS OF AUDIT OBJECTIONS RAISED B Y THE AUDIT PARTY, WHICH IS WRONG AND ILLEGAL. THE LD. COUNSEL IN THIS RESPECT HAS RELIED UPON THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD 320 ITR 561 (SC); CIT VS. LUCAS TVS LTD (2001) 249 ITR 306 (SC) AND IN THE CASE OF IN DIAN AND EASTERN NEWSPAPER SOCIETY VS. CIT (1979) 119 ITR 996 (SC). 7. ON THE OTHER HAND, LD. DR HAS RELIED ON THE FIND INGS OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL CONTENTIONS. IN THIS CAS E, ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 3 0.11.2011. THE ASSESSING OFFICER, IN THE ORIGINAL ASSESSMENT ORDER , HAS NOTED THAT THE COUNSEL FOR THE ASSESSEE HAD STATED THAT THE ASSESS EE HAD NO OBJECTION IF SECTION 14A IS INVOKED IN MAKING THE DISALLOWANC E OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF TAX EXEMPT I NCOME. THE ASSESSING OFFICER, THEREAFTER, WITHOUT ANY FURTHER DISCUSSION ON THIS 10 ISSUE, MADE ADHOC DISALLOWANCE @ 10% OF THE DIVIDEN D INCOME EARNED BY THE ASSESSEE OF RS. 2,58,000/-. 9. THEREAFTER, AN OBJECTION WAS RAISED BY THE AUDIT PARTY, WHEREIN, IT WAS POINTED OUT THAT THE CAPITAL OF THE ASSESSEE AS ON 31.3.2009 WAS RS. 185,55,01,000/- AGAINST WHICH ASSETS STOOD AT RS. 189,15,14,422/- (CASH AND BANK BALANCES OF RS. 15,7 3,00,687/- LOSSES RS. 130,81,21,364/- DEFERRED TAX ASSETS RS. 30,80,0 0,000/- AND OTHER ASSETS LIKE LOAN TO EMPLOYEES ETC. RS. 11,80,92,371 /-). THAT THE ASSESSEE HAD NO SPARE CAPITAL FOR FURTHER INVESTMEN T. THE ASSESSEE MADE INVESTMENT OF RS. 150,51,39,635/- IN SHARES, B UT INCOME OF DIVIDEND RECEIVED AGAINST THIS INVESTMENT WOULD NOT FORM PART OF TOTAL INCOME. THE ASSESSEE HAD DEBITED INTEREST AMO UNTING TO RS. 23,14,32,170/- DEBITED IN P&L ACCOUNT BUT BIFURCATI ON OF THIS ACCOUNT WAS NOT POSSIBLE. HENCE, RULE 8D WAS REQUI RED TO BE APPLIED IN THIS CASE. THE ASSESSING OFFICER THEREAFTER RECORDED REASONS F OR REOPENING OF THE ASSESSMENT ON 10.1.2014, WHICH READS AS UNDE R:- REASONS RECORDED FOR ISSUE OF NOTICE U/S 148 OF TH E I.T. ACT, 1961 IN THE CASE OF M/S HARYANA FINANCIAL CORPORATION, SECTOR 17, CHANDIGARH, ASSESSMENT YEAR 2009-10 10.01.2014 I) ASSESSMENT IN THIS CASE WAS COMPLETED U/S 143(3) ON 30.11.2011 ASSED AT NIL. SUBSEQUENTLY, IT WAS NOTIC ED THAT THE CAPITAL OF THE ASSESSEE AS ON 31.3.2009 WA S RS. 185,55,01,000/- AGAINST WHICH ASSETS STANDS RS. 189,15,14, 422/- (CASH AND BANK BALANCES RS. 11 15,73,00,687/- LOSSES RS. 130,81,21,364/- DEFERRED TAX ASSETS RS. 30,80,00,000/- AND OTHER ASSETS LIKE LOA N TO EMPLOYEES ETC. RS. 11,80,92,371/-). HENCE, THE ASSE SSEE HAD NO SPARE CAPITAL FOR FURTHER INVESTMENT. THE ASSESSEE MADE INVESTMENT OF RS. 150,51,39,635/- IN THE SHARES BUT INCOME OF DIVIDEND RECEIVED AGAINST THIS INVESTMENT SHALL NOT FORM PART OF TOTAL INCOME. DUR ING THE YEAR THE ASSESSEE RECEIVED DIVIDEND INCOME OF R S. 2,58,000/- AGAINST WHICH DIRECT EXPENDITURE OF RS. 25,800/- WAS DISALLOWED AT THE TIME OF ASSESSMENT. BUT EXPENDITURE BY WAY OF INTEREST WAS ALSO TO BE DISAL LOWED BECAUSE INVESTMENT IN SHARES MADE AGAINST BORROWING FUNDS AS ASSESSEE HAD NO SPARE CAPITAL. AS PER SECTION 14A OF THE I.T. ACT, NO DEDUCTION SH ALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION OF INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THIS ACT. RULE 8D OF I.T. RUL ES ALSO PROVIDES THAT DIRECT EXPENDITURE, EXPENDITURE BY WA Y OF INTEREST AS PER FORMULA AND AMOUNT EQUAL TO THE ONE HALF PERCENT OF AVERAGE VALUE OF INVESTMENT SHALL BE DED UCTED IN AGGREGATE OF SUCH THREE AMOUNTS FORM INCOME. INTEREST AMOUNTING TO RS. 23,14,32,170/- DEBITED IN P&L ACCOUNT BUT BIFURCATION OF THIS ACCOUNT IS NOT POSS IBLE. HENCE, RULE 8D IS REQUIRED TO BE APPLIED IN THIS CA SE. AVERAGE OF INVESTMENT OF RS. 110,64,14,635/- (70,76,89,635/- + 150,51,39,635/-)/2 AND AVERAGE O F TOTAL ASSETS RS. 533,59,19,115/- (508,59,34,326 + 558,59,03,905)/2 INTEREST EXPENDITURE WAS ALLOWED EXCESS AMOUNTING TO RS. 4,79,87,972 (23,14,32,170*110.64, 14,635 / 533,59,19,115). BESIDES 0.5% OF THE AVERAGE VALUE OF INVESTMENT COM ES OUT OF RS. 55,32,073/- (0.5% OF RS. 110,64,14,635). HENCE, THE INTEREST EXPENDITURE AMOUNTING TO RS. 12 5,3,5,20,045/- (4,79,87,972 +55,32,073) WAS ALLOWED EXCESS TO THE ASSESSEE. FROM THE FACTS GIVEN ABOVE, I HAVE REASON TO BELIEV E THAT THE INCOME OF RS. 5,35,20,045/- HAS ESCAPED ASSESSM ENT IN THIS CASE. ISSUE NOTICE U/S 148 FOR THE ASSESSME NT YEAR 2009-10. 10. IT IS REVEALED FROM THE RECORD THAT IN RESPONSE TO THE NOTICE ISSUED FOR REOPENING OF THE ASSESSMENT, THE ASSESSE E HAD FILED OBJECTIONS DATED 18.6.2014 WHEREIN IT WAS POINTED O UT THAT NOTICE U/S 148 WAS ISSUED ON THE SAME GROUND FOR WHICH PROCEED INGS WERE PENDING U/S 154 OF THE ACT AND THAT THERE WAS NO AL LEGATION THAT THE ASSESSEE HAD FAILED TO MAKE FULL AND TRUE DISCLOSUR E OF THE MATERIAL FACTS IN THE ANNUAL ACCOUNTS. THAT THE NOTICE WAS I SSUED ON THE BASIS OF THE AUDIT OBJECTIONS AND IT WAS THE CASE OF CHAN GE OF OPINION AND FURTHER THAT NO TANGIBLE MATERIAL HAD COME TO THE K NOWLEDGE OF THE ASSESSING OFFICER POINTING OUT THAT ANY INCOME OF T HE ASSESSEE HAD ESCAPED ASSESSMENT. THE SAID OBJECTIONS WERE DISPOS ED OF BY THE ASSESSING OFFICER VIDE ORDER DATED 30.6.2014 WHEREI N IT HAS BEEN OBSERVED THAT ASSESSING OFFICER HAD FORMED AN INDEP ENDENT OPINION TO REOPEN THE ASSESSMENT. THAT, AFTER ISSUANCE OF N OTICE U/S 148 OF THE ACT, THE PROCEEDINGS U/S 154 OF THE ACT WERE ASSUME D TO HAVE BEEN DROPPED BY THE AO. THAT IT WAS NOT A CASE OF CHANGE OF OPINION. THE ASSESSING OFFICER DID CONSIDER THE PROVISIONS OF RU LE 8D OF THE I.T. RULES WHILE FRAMING THE ASSESSMENT ORDER. 11. FROM THE ABOVE FACTS, IT IS NOTED THAT IT IS NO T THE CASE OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED AT A LL FOR EARNING OF TAX EXEMPT INCOME. IN FACT, AS IS COMING OUT OF THE ORDER OF THE LOWER 13 AUTHORITIES, THE COUNSEL FOR THE ASSESSEE HIMSELF H AD AGREED FOR MAKING DISALLOWANCE U/S 14A OF THE ACT. FURTHER, TH E ASSESSEE HAD NOT GIVEN ANY WORKING OF DISALLOWANCE U/S 14A IN RE SPECT OF WHICH THE ASSESSING OFFICER COULD HAVE RECORDED HIS SATIS FACTION. THE LAW IN RELATION TO THE APPLICABILITY OF RULE 8D IN SUCH A SITUATION HAS BEEN SETTLED. IT HAS BEEN HELD BY THE HON'BLE BOMBAY HI GH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. 328 ITR 81 (BOM.) THAT RULE 8-D IS PROSPECTIVE AND IS APPLICABLE FROM THE ASSESSMENT YEAR 2008-09 ONWARDS. THE ASSESSING OFFICER, HOWEVER, MA DE AN AD-HOC DISALLOWANCE OF 10% OF DIVIDEND INCOME. THE FACT TH AT THE ASSESSEE HAD INCURRED HUGE INTEREST EXPENDITURE OUT OF BORRO WED CAPITAL HAD ESCAPED THE ATTENTION OF THE ASSESSING OFFICER WHIL E FRAMING THE ASSESSMENT. THE AUDIT PARTY IN ITS OBJECTIONS POINT ED OUT THAT THERE WAS NO SPARE CAPITAL IN THE HANDS OF THE ASSESSEE T O MAKE INVESTMENT. THE ASSESSEE HAD MADE HUGE INVESTMENTS TO THE TUNE OF RS. 1,50,51,39,635/- FOR WHICH BORROWED FUNDS HAVE BEEN USED. THIS FACTUAL ASPECT WHEN CAME TO THE KNOWLEDGE OF THE AS SESSING OFFICER, HE APPLIED HIS OWN MIND AND RECORDED REASONS THEREO F FOR REOPENING OF THE ASSESSMENT. FROM THE PERUSAL OF THE REASONS RECORDED, AS REPRODUCED ABOVE, IT IS REVEALED THAT IT IS NOT TH E CASE THAT THE ASSESSING OFFICER HAS SIMPLY REOPENED THE ASSESSMEN T ON THE BASIS OF AUDIT OBJECTIONS, RATHER, IN THE REASONS RECORDED T HERE IS NO REFERENCE TO ANY AUDIT OBJECTIONS. THE ASSESSING OFFICER APPL YING HIS OWN MIND ON THE FACTUAL INFORMATION, WHICH HAS COME TO HIS K NOWLEDGE FROM THE AUDIT REPORT, FORMED AN INDEPENDENT BELIEF THAT THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. 14 12. WHEN AN INFORMATION REGARDING THE FACTS OF THE CASE, WHICH HAD ESCAPED THE ATTENTION OF THE ASSESSING OFFICER WHILE FRAMING THE ORIGINAL ASSESSMENT, COMES TO THE KNOWLEDGE OF THE ASSESSING OFFICER, MAY BE IN THE SHAPE OF INFORMATION FROM OF AUDIT OBJECTIONS, AND WHEN THE ASSESSING OFFICER FROM THE APPRAISAL O F THOSE FACTS FORMS AN INDEPENDENT BELIEF THAT INCOME OF THE ASSE SSEE HAS ESCAPED ASSESSMENT, REOPENING OF THE ASSESSMENT UNDER SUCH CIRCUMSTANCES, IN OUR VIEW, CANNOT BE HELD AS BAD IN LAW OR WITHOU T JURISDICTION. SO FAR AS THE RELIANCE OF THE ASSESSEE ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD (SUPRA) IS CONCERNED, IT MAY BE NOTED THAT THE HON BLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT TANGIBLE INFORMA TION MUST COME TO THE AO FOR FORMING THE BELIEF THAT THE INCOME OF TH E ASSESSEE HAS ESCAPED ASSESSMENT. WE FIND THAT IN THIS CASE TANGI BLE INFORMATION REGARDING THE FACTUAL ASPECT OF THE CASE HAS COME T O THE AO FROM THE AUDIT PARTY ON THE BASIS OF WHICH THE AO FORMED THE BELIEF THAT THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. SO F AR AS THE RELIANCE OF THE LD. AR ON THE DECISIONS IN THE CASE OF CIT VS. LUCAS TVS LTD (2001) 249 ITR 306 (SC) AND IN THE CASE OF IN DIAN AND EASTERN NEWSPAPER SOCIETY VS. CIT (1979) 119 ITR 996 (SC) IS CONCERNED, WE FIND THAT THE PROPOSITION LAID DOWN IN THE ABOVE STATED CASE LAWS IS THAT THE VIEW EXPRESSED BY AN INTERNAL AUDIT PAR TY OF THE INCOME- TAX DEPARTMENT ON A POINT OF LAW OR APPLICATION OF LAW CANNOT BE REGARDED AS INFORMATION FOR THE PURPOSE OF INITIATI NG PROCEEDINGS U/S 147(B) OF THE ACT. IN THE CASE OF INDIAN AND EASTE RN NEWSPAPER SOCIETY (SUPRA), THE HON'BLE SUPREME COURT OBSERVE D THAT THE PART 15 WHICH EMBODIED INFORMATION OF THE AUDIT PARTY IN RE GARD TO THE APPLICATION OR INTERPRETATION OF THE LAW CANNOT BE TAKEN INTO ACCOUNT BY THE ITO, HOWEVER, THE PART OF THE NOTE (THAT PAR T ALONE) OF AN AUDIT PARTY WHICH MENTIONS THE LAW WHICH ESCAPED THE NOTI CE OF THE ITO CONSTITUTES INFORMATION WITHIN THE MEANING OF SECTI ON 147(B). SIMILAR VIEW HAS BEEN EXPRESSED BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. LUCAS TVS LTD REPORTED IN 234 ITR 296 (MAD.), WHICH HAS BEEN FURTHER AFFIRMED BY THE HON'BLE SUPR EME COURT OF INDIA. 13. HOWEVER, IN THE CASE IN HAND, WE FIND THAT AUDI T PARTY HAS NOT GIVEN ANY OPINION AS TO THE APPLICATION OF LAW RATH ER THE FACTUAL ASPECT HAS BEEN POINTED OUT BY THE AUDIT PARTY THA T ASSESSEE HAD NO SPARE FUNDS OF ITS OWN. THAT THE ASSESSEE HAD BORRO WED HUGE FUNDS AND THAT THE BORROWED FUNDS WERE USED FOR MAKING HI GH VALUE INVESTMENTS WHICH YIELDED TAX EXEMPT DIVIDEND INCOM E. EVEN IN RESPECT OF THE LEGAL ASPECT, THE INFORMATION AS TO THE EXISTENCE OF PROVISIONS OF RULE 8D, CONSTITUTES INFORMATION AS H ELD BY THE HON'BLE SUPREME COURT IN THE CASE OF INDIAN AND EASTERS NE WSPAPERS SOCIETY (SUPRA). THE HON'BLE SUPREME COURT IN THE CASE OF PVS BEEDIES PRIVATE LTD REPORTED IN (2002) TIOL-895-SC- IT: (1999) 237 ITR 13 (SC) HAS HELD THAT THE REOPENING OF THE CASE ON THE BASIS OF FACTUAL ERROR POINTED OUT BY THE AUDIT PARTY IS PER MISSIBLE UNDER THE LAW. THE RELEVANT PART OF THE ORDER OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS PVS BEEDIES PRIVATE LTD. (SUPRA) IS REPRODUCED AS UNDER:- 16 3. WE ARE OF THE VIEW THAT BOTH THE TRIBUNAL AND THE HIGH COURT WERE IN ERROR IN HOLDING THAT THE INFORMATION GIVEN BY THE INTERNAL AUDIT PARTY COULD NOT BE TREATED AS INFORMATION WITHIN THE MEANING OF SECTION 147(B) OF THE INCOME-TAX ACT. THE AUDIT PARTY HAS MERELY POINTED OUT A FACT WHICH HAS BEEN OVERLOOKED BY THE INCOME-TAX OFFICER IN THE ASSESSMENT. THE FACT THAT THE RECOGNITION GRANTED TO THIS CHARITABLE TRUST HAD EXPIRED ON SEPTEMBER 22, 1972, WAS NOT NOTICED BY THE INCOME-TAX OFFICER. THIS IS NOT A CASE OF INFORMATION ON A QUESTION OF LAW. THE DISPUTE AS TO WHETHER REOPENING IS PERMISSIBLE AFTER THE AUDIT PARTY EXPRESSES AN OPINION ON A QUESTION OF LAW IS NOW BEING CONSIDERED BY A LARGER BENCH OF THIS COURT. THERE CAN BE NO DISPUTE THAT THE AUDIT PARTY IS ENTITLED TO POINT OUT A FACTUAL ERROR OR OMISSIO N IN THE ASSESSMENT. REOPENING OF THE CASE ON THE BASIS OF A FACTUAL ERROR POINTED OUT BY THE AUDIT PARTY IS PERMISSIBLE UNDER LAW. IN VIEW OF THAT WE HOLD THAT REOPENING OF THE CASE UNDER SECTION 147(B) IN THE FACTS OF THIS CASE WAS ON THE BASIS O F FACTUAL INFORMATION GIVEN BY THE INTERNAL AUDIT PARTY AND WAS VALID IN LAW. THE JUDGMENT UNDER APPEAL IS SET ASIDE TO THIS EXTENT. 14. THIS VIEW HAS BEEN FURTHER REITERATED IN THE DE CISION OF THE HON'BLE SUPREME COURT IN THE CASE OF LARSEN & TOUB RO LTD VS. STATE OF JHARKHAND & OTHERS (2017) TIOL-129-SC-MISC. THE PROPOSITION OF LAW AS LAID DOWN IN THE AFORESAID CASE LAWS, WHE N APPLIED TO THE CASE IN HAND, IN OUR VIEW, THE REOPENING HAS RIGHTL Y BEEN DONE BY THE BY THE ASSESSING OFFICER ON THE BASIS OF A FACTUAL ERROR COMING TO HIS KNOWLEDGE WHICH CONSTITUTES INFORMATION AS PER THE PROVISIONS OF 17 SECTION 147(B) OF THE ACT. THE ASSESSING OFFICER T HEREAFTER APPLIED HIS MIND AND INDEPENDENTLY FORMED THE BELIEF THAT I NCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. IN VIEW OF THE ABO VE, THE REOPENING IS HELD TO BE JUSTIFIED. THERE IS NO MERIT IN THE A PPEAL OF THE ASSESSEE AND THE SAME IS ACCORDINGLY DISMISSED 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25.10.2017 SD/- SD/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 25 TH OCT, 2017 RKK COPY TO: THE APPELLANT THE RESPONDENT THE CIT THE CIT(A) THE DR