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2014 (7) TMI 429 - AT - Income TaxValidity of reopening of assessment u/s 147 of the Act Change of opinion - Held that - Notice u/s 148 of the Act was issued on 31/03/2011, which is beyond 4 years from the end of the AY - as can be seen, section 147 of the Act empowers AO to assess income chargeable to tax which has escaped assessment for any AY - the first proviso to section 147 of the Act makes it clear that in a case where an assessment u/s 143(3) or section 147 has been made no action can be taken after expiry of 4 years from then end of the AY unless the escapement of income is attributable to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment - it needs to be examined whether in the present case there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment - the AO has reopened assessment only on the basis of the Director s report for the previous year 2003-04 and the computation of income as well as P&L A/c of the assessee, which were furnished along with the return of income and formed part of the record when the assessment order u/s 143(3) read with section 153A was passed by the AO on 31/12/2007. There are no fresh/tangible material available before the AO for reopening of assessment - AO on re-appreciation of the same material, which is already available on record at the time of original assessment has formed his belief for reopening assessment is not permissible as it does not amount to non-disclosure of any material facts truly and fully by the assessee Relying upon Parashuram Pottery Works Co. Ltd., Vs. ITO 1976 (11) TMI 1 - SUPREME Court - the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary fact. It is for the AO to draw correct inference from the primary facts - It is not the responsibility of the assessee to advise the AO with regard to inference which he should draw from the primary fact. Entire reassessment is on the basis of the materials disclosed by assessee, which formed part of the record at the time of completion of the original assessment u/s 143(3) read with section 153A of the Act - the AO having completed original assessment on verifying all these facts and materials, reopening of assessment on self-same facts and material on a mere change of opinion, that too after expiry of four years from the assessment year is not permissible in law - the action of the AO u/s 147 of the Act is clearly without jurisdiction there is no infirmity in the order of CIT(A) in holding that the reopening of assessment u/s 147 of the Act in the present case is unsustainable in law - the disallowance made by the AO will also not be sustainable in view of the reasoning given by the CIT(A), which is not only reasonable, but, in accordance with the statutory provisions - the conclusion drawn by the CIT(A) on the issue of disallowance of interest is also just and proper and deserves to be upheld - the decision of the CIT(A) both on the issue of validity of proceeding u/s 147 of the Act as well as on the merits of disallowance made by the AO Decided against Revenue.
Issues Involved:
1. Validity of assessment under Section 147 of the Income Tax Act. 2. Deletion of addition on account of excess interest claim. Detailed Analysis: 1. Validity of Assessment under Section 147 of the Income Tax Act: The Department challenged the order of the CIT(A), arguing that the CIT(A) ignored the provisions of Sections 147, 149, and 151 concerning the reassessment's tenability. The CIT(A) held that the AO cannot reopen the assessment under Section 147 relying on the same books subjected to specific disallowances. The CIT(A) also noted that the notice was issued after obtaining prior approval and duly served on the assessee. The assessee contended that reopening the assessment after four years from the end of the assessment year is invalid unless there is a failure to disclose fully and truly all material facts necessary for the assessment. The assessee argued that all relevant information regarding the interest payment was provided during the original assessment proceedings under Section 153A and that reopening the assessment on the same facts amounts to a mere change of opinion, which is not permissible. The CIT(A) agreed with the assessee, noting that there was no failure on the part of the assessee to disclose material facts and that the reopening was based on the same material already on record. The CIT(A) cited various judicial precedents, including the Hon'ble Supreme Court's rulings in CIT v. Foramer France and CIT v. Kelvinator of India Ltd., to support the conclusion that the reassessment proceedings were not justified. The Tribunal upheld the CIT(A)'s decision, stating that the AO's action under Section 147 was without jurisdiction since it was based on a mere change of opinion and not on any new material. The Tribunal emphasized that the AO must have tangible material to justify reopening an assessment, which was not present in this case. 2. Deletion of Addition on Account of Excess Interest Claim: The Department argued that the CIT(A) was incorrect in deleting the addition of Rs. 6,21,52,070 on account of excess interest claim. The AO had disallowed the interest expenditure based on the note in the financial statements that interest cost had been capitalized. The AO applied the provisions of Section 36(1)(iii) and disallowed the interest claimed by the assessee. The assessee contended that the interest paid to M/s India Value Fund Trustee Company Pvt. Ltd. was entirely for business purposes, partly for working capital and partly for expanding the existing business. The assessee argued that the interest cost should be treated as revenue expenditure, citing various judicial precedents, including the Hon'ble Supreme Court's rulings in Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT and DCIT v. Core Healthcare Ltd. The CIT(A) accepted the assessee's arguments, noting that the interest cost incurred was in accordance with the agreement with the investor and should be treated as an interest cost incurred by the appellant. The CIT(A) also noted that the interest cost was capitalized based on accepted accounting principles and that the assessee was eligible to claim the interest as a business expenditure under Section 36(1)(iii). The Tribunal upheld the CIT(A)'s decision, agreeing that the interest paid on borrowed funds after the assets were put to use should be treated as revenue expenditure. The Tribunal found the CIT(A)'s reasoning to be reasonable and in accordance with statutory provisions, and therefore, upheld the deletion of the addition made by the AO. Conclusion: The Tribunal dismissed the Department's appeals for the assessment years 2004-05, 2005-06, and 2006-07, upholding the CIT(A)'s decisions on both the validity of the reassessment under Section 147 and the deletion of the addition on account of excess interest claim. The Tribunal concluded that the reassessment proceedings were not justified and that the interest expenditure claimed by the assessee was allowable as a revenue expenditure.
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