2012 (12) TMI 498 - AT - Income Tax

Income from operation of aircrafts - interest on fixed deposit - exemption under Article 8 of Indo-US DTAA. - reassessment u/s 147 - held that - Since there was no such tangible material before the AO from which he could entertain the belief that income of the assessee chargeable to tax had escaped assessment, the Third Member held that reassessment proceedings initiated by the Assessing Officer were liable to be quashed on the ground that there was no tangible material before the Assessing Officer even though the assessment was completed originally u/s 143(1). - the initiation of reassessment proceedings by the Assessing Officer itself was bad in law and the reassessment completed in pursuance thereof is liable to be quashed being invalid. - Decided in favor of assessee.

Issues Involved:
1. Validity of reopening the assessment under Section 147.
2. Taxability of interest income under Article 8 versus Article 11 of Indo-US DTAA.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:

The assessee challenged the reopening of the assessment on the grounds that there was no new material that had come into the possession of the Assessing Officer (AO) to justify the reopening. The AO had initially processed the return under Section 143(1) and later reopened the assessment under Section 147, citing that the interest income of Rs. 17,09,023/- was not connected with the operation of aircrafts and should be taxed under Article 11 of Indo-US DTAA at 15%.

The AO relied on the decision of the Full Bench of the Hon'ble Delhi High Court in the case of Kelvinator of India Ltd., which held that "reason to believe" after completion of assessment was a sound foundation for exercising power under Section 147. The CIT(A) upheld the AO's decision, relying on the Supreme Court's decision in Rajesh Jhaveri Stock Brokers (P) Ltd., which stated that as long as the ingredients of Section 147 are fulfilled, the AO is free to initiate proceedings under Section 147 even when intimation under Section 143(1) had been issued.

The Tribunal, however, found that there was no new material that had come to the AO's possession to justify the reopening. The Tribunal referred to the Third Member decision in the case of Telco Dadaji Dhackjee Ltd., which held that in the absence of any fresh tangible material, reopening of assessment is not permissible. The Tribunal also noted that the view expressed by the Hon'ble Gujarat High Court in Praful Chunilal Patel, which did not require fresh facts to justify reopening, was not agreed upon by the Full Bench of the Hon'ble Delhi High Court in Kelvinator of India Ltd., a decision affirmed by the Supreme Court.

The Tribunal concluded that the initiation of reassessment proceedings by the AO was bad in law and quashed the reassessment completed under Section 143(3) read with Section 147.

2. Taxability of Interest Income under Article 8 versus Article 11 of Indo-US DTAA:

Since the Tribunal quashed the reassessment proceedings on the preliminary issue, the other issues raised in the appeal concerning the addition made on account of interest income became infructuous. Therefore, the Tribunal did not find it necessary to decide on the taxability of the interest income under Article 8 versus Article 11 of the Indo-US DTAA.

Conclusion:

The Tribunal allowed the appeal of the assessee, quashing the reassessment proceedings initiated by the AO under Section 147 due to the absence of new material justifying the reopening. As a result, the other issues concerning the addition made on account of interest income were rendered moot and were not adjudicated.

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