7 Sections 80-IA(4), 147 and 148 – Reassessment – Where AO rejected claim of assessee of deduction u/s. 80-IA(4) and, Commissioner (Appeals) allowed said claim of deduction in its entirety, thereafter AO could not reopen this very claim of deduction for disallowance u/s. 148

For the A. Y. 2010-11, the assessee filed return of income after claiming deduction u/s. 80-IA(4). The return of the assessee was taken in scrutiny by the Assessing Officer. During such scrutiny assessment, the Assessing Officer examined the assessee’s claim of deduction u/s. 80-IA and disallowed the claim of deduction. On appeal, the Commissioner (Appeals) allowed the assessee’s claim.

Thereafter, the Assessing Officer issued reassessment notice u/s. 148 on grounds that on perusal of records, it was seen that the amount on which the assessee had claimed exemption u/s. 80-IA included the interest income assessable under the head ‘Income from other sources’. On verification of bifurcation of interest income, it was clear that this interest income was not derived from the infrastructure development activity of the undertaking. Hence, it was not to be considered for the purpose of deduction under section 80-IA. Thus, deduction so allowed on the interest income was not allowable. The objection filed by the assessee were rejected.

The assessee filed writ petition challenging the reopening. The Gujarat High Court allowed the writ petition and held as under:

“i)    The assessee’s reply to the Assessing Officer would show that out of the total interest income, the assessee had attributed a sum of certain amount as business income. It is this claim of the assessee of the interest income of certain amount, as being part of its business income which is a focal point of the reasons recorded by the Assessing Officer for reopening the assessment. He contends that the interest income cannot be treated as arising out of the assessee’s business, and therefore, deduction u/s. 80-IA(4) would not be allowable. However, this is for later. For the present, one may record that the Assessing Officer passed an order of assessment in which he rejected the assessee’s claim of deduction under section 80-IA. He therefore had no occasion to separately comment on the assessee’s claim of interest income being eligible for such deduction. Be that as it may, the assessee carried entire issue in appeal before the Commissioner. The Commissioner (Appeals) by his order, allowed the assessee’s claim of deduction u/s. 80-IA in toto. Record is not clear whether the revenue has carried the order of Commissioner (Appeals) before the Tribunal or not. However, this by itself may not be a determinative factor.

ii)    At that stage, after the Commissioner allowed the assessee’s appeal, the Assessing Officer issued the instant reassessment notice. Since the notice was issued beyond the period of four years from the end of relevant assessment year, the requirement of the assessee to make true and full disclosure, and the failure to make such disclosures leading to income chargeable to take escaping the assessment becomes crucial. In this context, the record would show that the crucial requirement arising out of the proviso to section 147 is not satisfied. The Assessing Officer has, in fact, in the reasons recorded itself proceeded on the basis of ‘on verification of record’. Thus, clearly the Assessing Officer proceeded on the basis of disclosures forming part of the original assessment. Even otherwise, as noted, during the original assessment, the Assessing Officer had called upon the assessee to clarify on the interest income which include the assessee’s claim of certain amount as business income and, therefore, eligible for deduction u/s. 80-IA(4). There was no failure on the part of the assessee to disclose fully and truly all relevant facts.

iii)    There is yet another and equally strong reason to quash the impugned notice. Before elaborating on this, it is recorded that the assessee’s contention of possible change of opinion cannot be accepted. The Assessing Officer had rejected entire claim of deduction u/s. 80-IA(4). He, therefore, had no occasion to thereafter comment on a part of such claim relatable to the assessee’s interest income. Had the Assessing Officer accepted in principle the assessee’s claim of deduction under section 80-IA(4) and thereafter, after scrutiny not made any disallowance for interest income forming part of such larger claim, the principle of change of opinion would apply. In the present case, once the Assessing Officer rejected the claim of deduction u/s. 80-IA(4) in its entirety, there was thereafter no occasion and any need for him to dissect such claim for rejection on some additional ground.

iv)    The second reason which it is referred to is of merger. The Assessing Officer having rejected the claim of deduction u/s. 80-IA(4), the issue may be recalled was carried in appeal by the assessee and the Commissioner (Appeals) allowed the claim in its entirety. It would thereafter be not open for the Assessing Officer to reopen this very claim for possible disallowance of part thereof. When the Commissioner (Appeals) was examining the assessee’s grievance against the order of Assessing Officer disallowing the claim, it was open for the revenue to point out to the Commissioner (Appeals) that even if in principle the claim is allowed, a part thereof would not stand the scrutiny of law. It was open for the Commissioner to examine such an issue, even suo motu. If one allow the claim in its entirety, the Assessing Officer thereafter cannot re-visit such a claim and seek to disallow part thereof. This would be contrary to the principle of merger statutorily provided and judicially recognised. Even after the Commissioner (Appeals) allow such a claim and the revenue was of the opinion that he has not processed it and committed an error, it was always open for the revenue to carry the matter in appeal. At any rate, reopening of the assessment would simply not be permissible. Reassessment carried an entirely different connotation. Once an assessment is reopened, the same gives wider jurisdiction to the Assessing Officer to examine the claims which had been formed part of the reasons recorded, but which were not originally concluded.

v)    In the result, impugned notice is quashed. Petition is allowed and disposed of accordingly.”