Case Law Details
Carborundum Universal Limited Vs ACIT (ITAT Chennai)
Introduction: Carborundum Universal Limited vs ACIT (ITAT Chennai) is a landmark case that highlights a significant legal principle within the Indian Income Tax Act of 1961. This case revolves around the reopening of assessment and its viability when the issue is already the subject matter of appeal. The case gives insight into the application of the provisions of section 147 and section 14A of the Act, and it provides clarity on the limitations regarding the reopening of assessments.
Analysis:
1. Background and Appeal Grounds: The case emerges from the reassessment process undertaken by the Assessing Officer (AO) for the assessment year 2015-16. The assessee argued that the reopening was contrary to law, and the Income Tax Appellate Tribunal (ITAT) Chennai agreed with the assessee on several grounds.
2. Reopening of Assessment: The AO reopened the assessment to examine the disallowance under section 14A r.w.r. 8D of I.T. Rules, 1962. However, the issue had already been a subject matter on appeal, thus raising legal questions.
3. Arguments and Counterarguments: The assessee’s counsel contended that the reopening was bad in law, as the issue was already under appeal. The CIT-DR supported the order of the CIT(A), contending that the assessee’s arguments lacked merit.
4. ITAT Chennai’s Ruling: The ITAT Chennai concluded that the reassessment was contrary to the 3rd proviso to section 147, rendering it unlawful. The reopening was quashed, giving precedence to the principle that an issue under appeal cannot be reopened for reassessment.
Conclusion: The case of Carborundum Universal Limited vs ACIT (ITAT Chennai) reinforces the legal framework surrounding the reassessment under the Indian Income Tax Act. The ruling by ITAT Chennai emphasizes the sanctity of the appellate process and upholds the provision that an issue already under appeal cannot be reopened for reassessment. It not only provides clarity on the matter but also sets a precedent for future cases involving similar disputes.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 22.12.2022 and pertains to assessment year 2015-16.
2. The assessee has raised the following grounds of appeal:
“1. Order of the NFAC / Commissioner of lncometax (Appeals) is contrary· to law, facts and in the circumstances of the case.
2. The NFAC/ Commissioner of income tax (Appeals) erred in not cancelling the reopening and setting aside the reassessment order in toto.
3. The NFAC / Commissioner of Income tax (Appeals) ought to have appreciated that the assessment was reopened only for the purpose of determining the disallowance under section 14A.
4. In the order of the reassessment the Assessing officer has not made any addition to the original income determined. Hence the CIT(A) should have cancelled the reopening and set aside the order of reassessment.
5 The NFAC/ CIT(A) ought to have appreciated that the original order of assessment u/s 143(3) was subject matter of appeal before the ITAT and the ITAT had set aside certain issues to the Assessing Officer for reconsideration. The correct income will have to be decided after giving effect to the order of the IT AT.
6. Consequently, the income determined in the order of reassessment of Rs. 211,66, 73,558/-cannot stand and has to be set aside to await the correct determination of income after giving effect to the order of the ITAT.
7. The Appellant craves leave to adduce additional grounds at the time of hearing.”
3. The brief facts of the case are that, the assessment has been completed u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) on 30.12.2017 and determined total income of Rs. 211,66,73,558/-, by making various additions including addition towards disallowance u/s. 14A r.w.r. 8D of I.T. Rules, 1962 etc. The assessee challenged the assessment order passed by the Assessing Officer before the first appellate authority and the ld. CIT(A) vide their order dated 23.07.2018 partly allowed appeal filed by the assessee. The assessee carried the matter in appeal before the tribunal and challenged various additions made by the Assessing Officer including addition towards disallowance u/s. 14A r.w.r. 8D of I.T. Rules, 1962. The ITAT, Chennai Benches vide order dated 31.03.2021 in ITA No. 2803/Chny/2018, set aside the issue of disallowance u/s. 14A r.w.r. 8D of I.T. Rules, 1962 to the file of the Assessing Officer, in light of arguments of the assessee and to decide the issue in accordance with law.
4. The case has been subsequently re-opened u/s. 147 of the Act for the reasons recorded, as per which income chargeable to tax had been escaped assessment on account of computation of disallowance u/s. 14A r.w.r. 8D of I.T. Rules, 1962. Therefore, notice u/s. 148, dated 24.03.2020 was issued and served on the assessee. In response, the assessee neither filed any return of income nor submitted details in respect of computation of disallowance u/s. 14A of the Act. Therefore, the Assessing Officer passed exparte assessment order u/s. 144 r.w.s. 147 of the Act on 21.09.2021 and assessed total income at Rs. 211,66,73,558/-, without there being any addition towards disallowance u/s. 14A r.w.r. 8D of I.T. Rules, 1962. The assessee carried the matter in appeal before the first appellate authority and the ld. CIT(A), NFAC, Delhi, vide order dated 22.12.2022, partly allowed appeal filed by the assessee. Aggrieved by the CIT(A) order, the assessee is in appeal before us.
5. The Ld. Counsel for the assessee, submits that re- opening of assessment u/s. 147 of the Act is bad in law and liable to be quashed, because the Assessing Officer has reopened the assessment on the ground that income chargeable to tax had been escaped on account of short-assessment of disallowance u/s. 14A r.w.r. 8D of I.T. Rules, 1962, but fact remains that the issue of disallowance u/s. 14A r.w.r. 8D of I.T. Rules, 1962 was subject matter of appeal before the first appellate authority and thus, when the assessment has been re-opened, the issue of disallowance u/s. 14A was subject matter on appeal before the CIT(A) and thus, as per proviso to section 147 of the Act, there is no scope for reassessment of the income involving matters, which are the subject matter of any appeal, reference or revision before the appellate authority. Since, the issue of disallowance u/s. 14A r.w.r. 8D of I.T. Rules, 1962 was subject matter on appeal and finally the Tribunal has set aside the issue to the file of the Assessing Officer for reconsidering, the re-opening of assessment on very same issue is bad in law and liable to be quashed.
6. The ld. CIT-DR, Shri. R. Mohan Reddy, supporting the order of the CIT(A) submits that, the assessee neither appeared before the Assessing Officer nor filed any details to explain the case and further the assessee has not argued this issue before the CIT(A). Therefore, there is no merit in arguments of the assessee that re-opening of assessment is bad in law and hence, the grounds of appeal filed by the assessee should be rejected.
7. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. As per provisions of 3rd proviso to section 147 of the Act, the Assessing Officer may assessee or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. In other words, there is no scope for re-opening of assessment on any issue which is subject matter of any appeal before the appellate authority. In the present case, if you go by reasons recorded for re-opening of assessment, the assessment has been reopened to assess income chargeable to tax had been escaped assessment on account of computation of disallowance u/s. 14A r.w.r. 8D of I.T. Rules, 1962 and said issue was subject matter of appeal before the CIT(A). Further, the issue of disallowance u/s. 14A r.w.r. 8D of I.T. Rules, 1962 was travelled up to Tribunal and Tribunal vide order dated 31.03.2021 in ITA No. 2803/Chny/2018 has remanded the issue back to the file of the Assessing Officer for denovo consideration of disallowance u/s. 14A r.w.r. 8D of I.T. Rules, 1962. Therefore, from the above, it is very clear that the issue on which the assessment has been re-opened was subject matter of appeal and thus, in our considered view as per 3rd proviso to section 147 of the Act, re-opening of assessment and consequent assessment order passed by the Assessing Officer is bad in law and liable to be quashed. Thus, we quash reassessment order passed by the Assessing Officer u/s. 144 r.w.s. 147 of the Act dated 21.09.2021.
8. In the result, appeal filed by the assessee is allowed.
Order pronounced in the court on 19th July, 2023 at Chennai.
