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Original Assessment proceedings for AY 2010-11.

5. For the AY 2010-2011, the return filed by the Petitioner company had disclosed dividend income of Rs. 20,48,37,585/- which it claimed as exempt from tax under Section 10(34) of the Act. The Assessee had disallowed expenditure amounting to Rs. 9,75,26,937/- for earning the exempt income under Section 14A of the Act for AY 2010-11.

6. The return was taken up for scrutiny assessment after issue of notice under Section 143(2) of the Act. In terms of notice dated 16th May, 2012 under Section 142(1) of the Act, the Petitioner was required to furnish several details, including details of dividend income received, and details of expenses attributable for earning of this income. The aforesaid notice was followed by another notice dated 18th October, 2012 by which the Petitioner was asked to give a detailed calculation of the disallowance under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 ('the Rules' for short).

Reasons recorded for initiating proceedings u/s 147/148 AY 2010-2011 "In this case, the assessment proceedings u/s 143 (3) of the I.T. Act,1961 for the A.Y. 2010-11 was completed on 18.02.2013 at an income of Rs.88,56,759/-. On scrutiny of records it was found that an amount of Rs.2,68,94,092/- has escaped assessment on account of incorrect computation of disallowance u/s 14A of the I.T. Act, 1961. It was noticed that the assessee had claimed deduction of Rs. 20,48,37,585/- on account of Dividend income and disallowed expenditure amounting to Rs.9,75,26,937/- u/s 14A. Further scrutiny revealed that the assessee had major income from Dividend and had investments of Rs. 8,92,38,21,953/-(as on 31.03.2009) and Rs. 11,52,90,17,479/- (on 31.03.2010) respectively. The total disallowance u/s 14A r/w Rule 8D should be amounted to Rs.12,44,21,029/-, however assessee restricted it to Rs.9,75,26,937 /- in contravention to Section 14A of the I.T. Act, 1961. Hence it resulted in underassessment of income Rs.2,68,94,092/- (Rs.12,44,21,029- Rs.9,75,26,937).

Reasons recorded for initiating proceedings u/s 147/148 for AY 2011-2012.

"In this case, the assessment proceedings u/s 143 (3) of the I.T. Act, 1961 for the A.Y. 2011-12 was completed on 28.02.2014 at an income of Rs.3,59,35,409/-. On scrutiny of records it was found that an amount of Rs.5,00,95,760/- has escaped assessment on account of incorrect computation of disallowance u/s 14A of the I.T. Act, 1961. It was noticed that the assessee had claimed deduction of Rs. 28,55,09,111/- on account of Dividend income and disallowed expenditure amounting to Rs.12,44,11,096/- u/s 14A. Further scrutiny revealed that the assessee had major income from Dividend and had investments of Rs. 11,52,90,17,479 (as on 31.03.2010) and Rs. 11,35,93,10,551/- (as on 31.03.2011) respectively. The total disallowance u/s 14A r/w Rule 8D should be amounted to Rs.17,45,06,856/-, however assessee restricted it to Rs. 12,44,11,096/- in contravention to section 14A of the I.T. Act, 1961. Hence it resulted in underassessment of income of Rs. 5,00,95,760/- (Rs. 17,45,06,856 - Rs.12,44,11,096).

15. There could not be a more clear and obvious case of change of opinion. The AO doing the original assessment had focused himself and examined the question of appropriateness of the expenditure which was disallowed by the Assessee under Section 14A of the Act. The AO was aware of the difference between the disallowance of expenditure made by the Assessee in its computation under Section 14A of the Act, and disallowance if made by applying Rule 8D of the Rules. The AO not only raised a specific query but did so twice in respect of the disallowances for the AY 2010-11. The details called for in the two notices/questionnaires for AY 2010-11 read as under: