Even prior to assessment year 2008-09, when rule 8D was not applicable, the AO had to enforce the provisions of sub-section (1) of section 14A

LIC Housing Finance Ltd Vs DCIT (ITAT Mumbai)-

Issue 1 – Whether where all the facts regarding the amount written off for non-convertible debentures are considered by the AO in the original assessment, reassessment proceedings cannot be initiated by issuing notice u/s 148 merely on change of opinion-?

Hon’ble jurisdictional High Court in the case of Asian Paints Ltd. Vs. DCIT and Others, 308 ITR 195 has held that issuance of notice u/s 148 of the Act for the reason that some material which was available on record while making assessment was inadvertently excluded from consideration amount to reopening of assessment u/s 147. Reopening of assessment merely on the basis of change of opinion is not permissible under the law. The CIT(A) has relied on the decision of the Tribunal in the case of CIBA India P. Ltd., Vs.  ITO(supra) wherein the assessment was made u/s 143(1) and subsequently it was reopened whereas, in the present case, the assessment was made u/s 143(3) of the Act and subsequently it was reopened on the same facts and material. The facts of the case under consideration are entirely different from the facts of the case relied upon by the CIT(A). Therefore, respectfully following the ratios laid down by the Hon’ble Supreme Court in the case of Kelvinator India ltd.(supra) and the Hon’ble Jurisdictional High Court in the case of Asian Paints Ltd. (supra), we hereby quash the reopening assessment made by the Assessing Officer u/s 147 of the Act. Accordingly, the ground of appeal raised by the assessee in this regard is allowed.

Issue 2 –  Whether dis allowance cannot be made u/s 14A by applying rule 8D for the period prior to A.Y. 2008-09?

The provisions of rule 8D of the Rules which have been notified with effect from March 24, 2008, would apply with effect from assessment year 2008-09. Even prior to assessment year 2008-09, when rule 8D was not applicable, the AO had to enforce the provisions of sub-section (1) of section 14A. For that purpose, the AO is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The AO must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record.

Please become a Premium member. If you are already a Premium member, login here to access the full content.