Despite bar in Proviso to s. 14A, s. 147 reopening for earlier years valid
For AY 2000-01, the assessee filed a return on 30.11.2000. As s. 14A was inserted subsequently by FA 2001 (w.r.e.f 1.4.62) and was tabled in Parliament on 28.2.2001, the assessee did not make any disallowance u/s 14A. The AO also did not make a disallowance in the s. 143 (3) order passed on 7.3.2003. After the expiry of 4 years, the AO sought to reopen the assessment to make a disallowance u/s 14A. The assessee challenged the reopening on the ground that (i) under the Proviso to s. 14A, a reopening u/s 147 for AY 2001-02 & earlier years was not permissible, (ii) as s. 14A was not on the statute when the ROI was filed, there was no failure to disclose & (iii) as the AO had also sought to rectify u/s 154, he could not reopen u/s 147. The High Court (click here) (197 TM 415) dismissed the Writ Petition inter alia on the ground that “the Proviso to s. 14A bars reassessment but not original assessment on the basis of the retrospective amendment. Though the ROI was filed before s. 14A was enacted, the assessment order was passed subsequently. The AO ought to have applied s. 14A and his failure has resulted in escapement of income. The object and purpose of the Proviso is to ensure that the retrospective amendment is not made as a tool to reopen past cases which have attained finality“. On appeal by the assessee to the Supreme Court, HELD dismissing the SLP:
In our view, the re-opening of assessment is fully justified on the facts and circumstances of the case. However, on the merits of the case, it would be open to the assessee to raise all contentions with regard to the amount of Rs.98.46 lakhs being offered for tax as well as it’s contention on Section 14A of the Income Tax Act, 1961.