2015 (7) TMI 942 - AT - Income Tax

Validity of Reopeing of assessment - Income assessed under wrong head - Held that - Though it is the contention of the assessee that in the past the interest income on inter corporate deposits has been assessed as business income on the ground that the assessee has been engaged in the business of financing, bill discounting and inter corporate deposits, however, we find that the assessee in its written submissions dated 07.10.11 made to the Income Tax Officer has fairly admitted that the interest on fixed deposit with bank of ₹ 1,150/- and interest on IT refund of ₹ 4,580/- had inadvertently remained to be offered as income from other sources. The Ld. AO, while reopening the assessment, has also considered the said interest on bank deposits and interest with IT refund and has formed the opinion that the said income was assessable under the head Income from other sources . Since this fact of assessment of above income under the wrong head has also been admitted by the assessee, hence the order of the AO forming his opinion for reopening the assessment particularly in relation to the above said interest income on bank deposits and IT refund can be held to be justified. - Matter remanded back - Decided partly in favour of assessee.

Summary

Issues:
1. Reopening of assessment under section 147 of the Income Tax Act.
2. Treatment of interest income on inter corporate deposits as "Income from other sources" instead of "Income from Business or Profession."

Issue 1: Reopening of assessment under section 147 of the Income Tax Act:
The appeal was against the Commissioner of Income Tax (Appeals) order confirming the Assessing Officer's decision to reopen the assessment under section 147 for the assessment year 2006-07. The AO found that certain income of the assessee was assessable under "Income from other sources" and not as declared by the assessee. The assessee contended that the reopening was based on audited objections and a mere change of opinion. The AO held that the income was under-assessed, resulting in a short levy of tax. The ITAT considered both parties' contentions and found that the AO's opinion for reopening the assessment was justified based on admitted errors in the assessment of certain income under the wrong head. The appeal on this issue was decided against the assessee.

Issue 2: Treatment of interest income on inter corporate deposits:
The assessee challenged the treatment of interest income on inter corporate deposits as "Income from other sources" instead of "Business income." The assessee argued that being engaged in the business of financing and investments, such income should be assessed under "Profit and Gains from Business or Profession." The ITAT noted that historically, the income had been assessed as business income. The assessee also claimed that the sale proceeds were invested in section 54EC Bonds, not inter corporate deposits. The matter was remanded back to the AO to verify the assessee's claims and, if found correct, to assess the income from inter corporate deposits as business income. The appeal was partly allowed for statistical purposes.

In summary, the ITAT Mumbai addressed the issues of reopening the assessment under section 147 and the treatment of interest income on inter corporate deposits. The judgment upheld the reopening of assessment based on errors in income assessment under the wrong head. Additionally, the ITAT remanded the issue of interest income on inter corporate deposits back to the AO for further verification, allowing the appeal partly for statistical purposes.