2008 (4) TMI 542 - AT - Income Tax

Assessment - Additions to income Income escaping assessment - Non-disclosure of primary facts

Summary

Issues:
1. Validity of reopening of assessment under section 147 of the Income-tax Act.
2. Taxation of interest received on gross basis instead of net basis.
3. Comparison of income assessed under section 143(3) of the Act with income declared under VDIS scheme.

Issue 1: Validity of reopening of assessment under section 147 of the Income-tax Act:
The appeal challenged the reopening of assessment for the assessment year 1996-97 under section 147. The original assessment determined the total income of the assessee company at Rs. 6,36,60,711. The Assessing Officer reopened the case based on the disclosure made under VDIS, where the income was shown at Rs. 6,44,06,030, indicating an additional disclosure of Rs. 7,45,319. The assessee argued that the disclosure was made for all three years and the consolidated income assessed under section 143(3) for three years was higher than the income disclosed under VDIS. The CIT(A) upheld the validity of reopening, stating it was not a change of opinion but based on facts and evidence submitted by the assessee. The Tribunal dismissed the ground of the assessee, noting that the reopening was not based on a different view on the treatment of interest and was not a case of change of opinion.

Issue 2: Taxation of interest received on gross basis instead of net basis:
The assessee contended that interest received was taxed on a gross basis, whereas it should have been taxed on a net basis after deducting related expenditures. The assessee argued that considering the income assessed under section 143(3) for all three years on a consolidated basis, the income declared under VDIS was lower in two years and higher in one year. The Tribunal agreed with the assessee, stating that the overall picture should be considered. The Tribunal found that the income assessed under section 143(3) was higher than the income declared under VDIS, leading to the conclusion that the addition was not sustainable on merits. Therefore, the Tribunal accepted this ground of the assessee.

Issue 3: Comparison of income assessed under section 143(3) of the Act with income declared under VDIS scheme:
The Tribunal analyzed the income declared under VDIS scheme and the income assessed under section 143(3) of the Act for all three years. It was observed that the income declared under VDIS was lower in two years and higher in one year compared to the income assessed under section 143(3). The Tribunal emphasized considering the overall picture and concluded that the addition made by the Assessing Officer was not sustainable on merits. The Tribunal allowed the appeal partly, stating that no decision was required on netting interest paid and interest received.

This detailed analysis of the judgment highlights the key issues involved, the arguments presented by both sides, and the Tribunal's decision on each issue, providing a comprehensive overview of the legal aspects discussed in the case.