2012 (8) TMI 399 - HC - Income Tax

Validity of reopening of assessment of the order framed u/s 143(3) - alleged diversion of interest bearing fund for non-business purpose - assessee contending change of opinion - Held that - From the submissions made by the petitioner during the course of the assessment proceedings as well as the findings recorded by the AO, it is apparent that the petitioner had furnished necessary evidence in support of its case that in exchange of the loan at a lower rate to M/s. Nachmo Textiles, it had given trade discounts so as to meet with the deficiency caused by giving loan at a lower rate. Thus, AO on the basis of the material produced and having been satisfied that the utilisation of funds advanced was for the purpose of regular business of the petitioner, the reopening of assessment on the very same ground without there being any additional material, is clearly based upon a mere change of opinion. Assumption of jurisdiction u/s 147 is invalid - Decided in favor of assessee

Summary

Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Whether the reopening of the assessment was based on a mere change of opinion.
3. Examination of new or additional material for forming the belief that income chargeable to tax has escaped assessment.

Detailed Analysis:

1. Validity of the notice issued under section 148 of the Income Tax Act, 1961 for reopening the assessment:
The petitioner challenged the notice dated 7th January 2005, issued under section 148 of the Income Tax Act, 1961, which sought to reopen the assessment for the assessment year 2001-02. The petitioner contended that the reopening was not justified as the reasons provided by the Assessing Officer were merely a change of opinion and not based on any new material.

2. Whether the reopening of the assessment was based on a mere change of opinion:
The petitioner argued that the original assessment under section 143(3) had already scrutinized the issue of interest-bearing funds being diverted for non-business purposes. The Assessing Officer had allowed the claim after considering detailed submissions and was satisfied with the petitioner's explanation. The petitioner relied on the Supreme Court's decision in Commissioner of Income-Tax vs. Kelvinator of India Ltd., which held that reopening based on a mere change of opinion is not permissible.

The respondent countered that the petitioner had not disclosed that Nachmo Textiles was a sister concern during the original assessment, and therefore, the reopening was not merely a change of opinion. However, the court noted that the reasons recorded for reopening did not indicate any new information about Nachmo Textiles being a sister concern coming to light after the original assessment.

3. Examination of new or additional material for forming the belief that income chargeable to tax has escaped assessment:
The court examined the reasons recorded by the Assessing Officer for reopening the assessment, which stated that the petitioner had taken a loan of Rs.6 crores and diverted it to a group company, incurring interest expenses of Rs.1.30 crores while charging only Rs.25.77 lakhs as interest, resulting in an excess expenditure of Rs.76.34 lakhs. The court found that during the original assessment, the petitioner had provided sufficient evidence that the funds were used for business purposes and that the trade discounts received from Nachmo Textiles compensated for the interest costs.

The court concluded that the reopening was based on the same facts and evidence already considered during the original assessment and thus constituted a mere change of opinion. The court emphasized that there was no tangible material to justify the reopening, as required by the Supreme Court's decision in Kelvinator of India Ltd.

Conclusion:
The court held that the reopening of the assessment was invalid as it was based on a mere change of opinion without any new or additional material. The impugned notice dated 7th January 2005 was quashed and set aside. The petition was allowed, and the rule was made absolute with no order as to costs.