2014 (5) TMI 356 - AT - Income Tax

Validity of reopening of assessment Income escapement - Held that - The reasons recorded by the AO clearly manifest that the income chargeable to tax has escaped assessment by the reason on failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment - the assessment has been reopened after expiry of four years however the benefit of the proviso to section 147 is not available to the assessee in view of the fact that there is a complete failure on the part of the assessee to disclose the primary fact of receipt of this amount in the return of income and further no explanation in the return of income as to why this amount has not been offered to tax. When the assessee has failed to disclose the interest amount received u/s 244A in the return of income and even during the assessment proceedings then this conduct of the assessee clearly falls under the category of the cases where the income chargeable to tax has escaped assessment by the reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment in terms of section 147 of the income Tax Act - The mere fact that the amount was received from income tax department does not obliterate the requirement and duty cast on the assessee to disclose all facts relevant to the assessment - the benefit of the proviso to section 147 is not available to the assessee in the case there was no error or illegality in the orders for the issue of validity of reopening of assessment. Assessment of the interest received u/s 244A of the Act Held that -Section 244A(1) clearly reveals that as soon as any refund becomes due under any provisions of the Act, the assessee becomes entitled to receive the interest in respect of such refund calculated in the manner provided in clauses (a) and (b) of such provisions - the moment the refund is granted, as enforceable debt is created in favour of assessee in respect of interest due on such refund - income can be said to accrue on the date of refund itself - when interest is actually granted along with the refund, the requirement of sections 4 and 5 of the Act are fully satisfied and the same can be taxed in the year of receipt Decided against Assessee. Netting of interest received u/s 244A of the Act - Amount of interest paid by the assessee Held that - Interest paid under Income Tax Act falls under the category of income tax and it is not an allowable deduction - the interest received on refund of tax is an income assessable under the head income from other sources Following DCIT Vs. Sandvik Asia Ltd. 2011 (6) TMI 563 - ITAT, Pune - the assessee s real income would not have diminished to the extent of the interest paid to the bank from which he took a loan Decided against Revenue.

Issues Involved:
1. Reopening of assessment
2. No escapement of income
3. Interest on Income-tax refund
4. Income under the head "Income from other sources"
5. Additional ground regarding avoidance of double taxation

Detailed Analysis:

Reopening of Assessment:
The appellant challenged the reopening of the assessment under section 147 of the Income Tax Act, arguing that no income chargeable to tax had escaped assessment. The Commissioner (Appeals) upheld the reopening, asserting that the assessee failed to disclose fully and truly all material facts necessary for the assessment. The Tribunal noted that the assessee received Rs. 11,77,49,053 as interest on a refund for A.Y. 1994-95, which was not disclosed in the return for A.Y. 2001-02. The Tribunal held that the reopening was justified as the assessee did not disclose this interest income, thus the benefit of the proviso to section 147 was not available.

No Escapement of Income:
The appellant contended that there was no escapement of income since the interest income was assessed under section 115JB. The Tribunal disagreed, stating that the interest income of Rs. 11,77,49,053 was not offered for taxation, leading to an underassessment. The Tribunal upheld the Commissioner (Appeals)'s decision that there was indeed an escapement of income.

Interest on Income-tax Refund:
The appellant argued against the addition of Rs. 11,77,49,053 as interest on the Income-tax refund to the total income. The Tribunal referred to the special bench decision in Avada Trading Co. (P) Ltd. Vs. ACIT, which held that interest on refunds is taxable in the year of receipt. Consequently, the Tribunal found no merit in the appellant's claim and upheld the addition.

Income under the Head "Income from Other Sources":
The appellant disputed the assessment of the interest on the refund under "Income from other sources." The Tribunal, referencing the decision in DCIT Vs. Sandvik Asia Ltd., held that interest received on tax refunds is assessable under "Income from other sources" and cannot be netted against interest paid by the assessee. Thus, this ground was dismissed.

Additional Ground Regarding Avoidance of Double Taxation:
The appellant raised an additional ground to avoid double taxation, arguing that if the interest for A.Y. 1994-95 is taxable in A.Y. 2001-02, it should not be taxed again in A.Y. 2009-10. The Tribunal agreed, directing the Assessing Officer to ensure the interest is not taxed twice, thus addressing the appellant's concern.

Conclusion:
The appeal was dismissed, with the Tribunal upholding the reopening of the assessment and the addition of interest income under "Income from other sources." The additional ground regarding double taxation was accepted, ensuring the interest income would not be taxed again in A.Y. 2009-10. The order was pronounced on 30-04-2014.

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