Karnataka High Court has in its recent ruling in the case of GMR Infrastructure Ltd. v. the Deputy Commissioner of Income Tax has held that assessment or re-assessment made in pursuance to Section 153A of the Act, is not a de novo assessment and therefore, it was not open to the assessee to claim and be allowed such deduction or allowance of expenditure which it had not claimed in the original assessment proceedings .
Facts of the Case:
- The appellant is a Company engaged in promotion of infrastructure developments. The appellant filed its return of income for the Assessment Year 2007-08 declaring returned loss of Rs.5,87,56,498/- under normal provisions and negative book profit of Rs.9,18,53,736/- as per the provisions of Section 115JB of the Act. An order of assessment was passed under Section 143(1) of the Act on 15.01.2009. Thereafter, an application was filed under Section 154 of the Act before the Assessing Officer pointing out the discrepancy in the short grant of TDS credit to the extent of Rs.8,79,156/-. An order of rectification was passed on 13.07.2010 by which refund of a sum of Rs.10,55,000/- was granted.
- Thereafter, a search and seizure operation under Section 132 of the Act was initiated on 11.10.2012 and a notice under Section 153A of the Act was issued on 17.02.2014. The appellant filed a letter requesting to treat the original return of income filed on 31.10.2017 under Section 139(1) of the Act as returned income in response to notice under Section 153A of the Act. Thereafter, notices under Sections 143(2) and 142(1) was issued to the assessee on 01.07.2014. Another notice under Section 142(1) of the Act was issued on 16.02.2015 by which the assessee was required to furnish various details. The assessee filed detailed reply to the notices on 25.02.2015 and 03.03.2015.
- The Assessing Officer thereafter passed an order on 19.03.2015 by which following disallowances were made by the Assessing Officer:
(i) Additional disallowance made under Section 14A of the Act of Rs.13,80,57,241/- (Rs. 18,74,89,400/- less Rs. 4,94,32,159/- and
(ii) Disallowance of claim made under Section 37(1) of Rs.1,08,333/- being expenditure on account of club membership fees.
- The Assessing Officer determined the total income at Rs.Nil as against the amount of returned loss of Rs.5,87,56,498/- under normal provisions of the Act. The Assessing Officer, in the order of assessment made the interest and administrative expenses under Section 14A of the Act to the extent of Rs.18,74,89,400/- by reference to the formula prescribed under Rule 80D of the Income Tax Rules. The Commissioner of Income Tax (Appeals) affirmed the order passed by the Assessing Officer. The assessee thereupon filed an appeal before the Tribunal. The Tribunal, by order dated 28.07.2017, has dismissed the appeal. In the aforesaid factual background, this appeal has been filed.
Arguments of the Appellant:
Learned counsel for the assessee submitted that the Tribunal erred in not appreciating the suo motu disallowance only made by the appellant out of abundant caution, considering similar disallowance made in the past Assessment Years as there were no precedents. It is further submitted that the Tribunal ought to have taken into account the well settled legal principle that the Assessing Officer should determine the taxable income of the assessee under the Act as per the prevalent law and judgments which are applicable to the fact situation of the case. Learned counsel for the assessee also placed reliance on the circular dated 11.04.1955 issued by the Central Board of Direct Taxes as well as the decisions of Delhi High Court in ‘CIT Vs. BHARAT ALUMINIUM CO. LTD.’ 163 TAXMAN 430 and ‘CIT Vs. JAI PARABOLIC SPRINGS LTD.’ 172 TAXMAN 258.
It is also submitted that the Tribunal ought to have held that disallowance under Section 14A of the Act in relation to the indirect taxes should be restricted to 1% – 2% of the dividend income only and the Tribunal erred in confirming the disallowance under Section 14A to an extent of Rs.4,94,32,158/-. It is also urged that the Tribunal erred in not appreciating that having regard to the second proviso to Section 153A, the completed assessment cannot be disturbed only in case where there is any undisclosed income found in the course of search or any incriminating documents disclosing any undisclosed income. It is also urged that the Tribunal erred in confirming the decision of the Commissioner of Income Tax (Appeals) and in upholding disallowance of Rs.4,94,32,158/- under Section 14A of the Act.
Arguments of the Revenue:
The revenue submitted that the Tribunal has rightly placed reliance on the decision of Rajasthan High Court in ‘JAI STEELS (INDIA) JODHPUR Vs. ACIT’ 36 TAXMANN.COM 523 and therefore, no substantial question of law arises for consideration.
Ruling of Karnataka HC:
The Tribunal, by placing reliance on the decision of JAI STEELS, supra, has held that the assessment or re-assessment made in pursuance to Section 153A of the Act, is not a de novo assessment and therefore, it was not open to the assessee to claim and be allowed such deduction or allowance of expenditure which it had not claimed in the original assessment proceedings which in the case of the assessee stood completed vide order dated 15.01.2009 passed under Section 143(1) of the Act. The Tribunal, in our opinion, has followed the decision of Rajasthan High Court and we confer the view taken by Rajasthan High Court in JAI STEELS, supra.
For the aforementioned reasons, the substantial questions of law are answered against the assessee and in favour of the revenue.
In the result, we do not find any merit in the appeal.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
