2015 (10) TMI 313 - AT - Income Tax

Reopening of the assessment - Held that - Section 147 clearly says that if the Assessing Officer has reason to believe that the income chargeable to tax has escaped assessment for any assessment year, he may issue notice under Section 148 of the Act to assess or reassess such income. Explanation 2(b) to Section 147 of the Act clearly says that understating of income or claiming excess loss, deduction, allowance or relief in the return is also deemed to be escapement of income. What is necessary is that the Assessing Officer has reason to believe that the income chargeable to tax has escaped assessment. Therefore, it is obligatory on the part of the Assessing Officer to record his reason which made him to believe that the income chargeable to tax has escaped assessment for any assessment year. In this case, the Assessing Officer reopened the assessment by issuing notice under Section 148 of the Act to verify whether the borrowal was for business purpose and whether the assessee claimed excess deduction. The Assessing Officer has not formed any opinion that the assessee claimed excess deduction thereby the income otherwise chargeable to tax escaped assessment. This Tribunal is of the considered opinion that to verify or to consider whether the assessee claimed excess deduction or borrowed loan for business purpose, the concluded assessment cannot be reopened. In view of the language employed by the Parliament in Section 147 of the Act, the Assessing Officer has to necessarily record the reason which made him to believe that the assessee claimed excess deduction or loss. In the absence of any such observation by the Assessing Officer in the reason for reopening the assessment, this Tribunal is of the considered opinion that reopening of the assessment is not justified. Accordingly, the order of the CIT(Appeals) confirming the reopening of assessment, is set aside and cross-objections for both the assessment years are allowed. - Decided in favour of assessee.

Summary

Issues:
1. Classification of interest income under the head "business" or "income from other sources."
2. Delay in filing cross-objections and condonation of the same.
3. Justification of reopening the assessment under Section 147 of the Income-tax Act.

Analysis:

Issue 1:
The appellant claimed interest income under the head "business," arguing that it was from money lending activities. However, the Departmental Representative contended that as the interest was received from banks and related parties, and the money lending business was not regular, the income should be classified as "income from other sources." The Assessing Officer reopened the assessment to verify if borrowed funds were for business purposes. The Tribunal referred to relevant case law and concluded that the income should be classified as "income from other sources," setting aside the CIT(Appeals) decision.

Issue 2:
The delay in filing cross-objections was 1389 days, which the appellant sought to condone. The appellant's counsel explained the delay was due to the previous representative's inaction, leading to a change in representation. The Tribunal accepted the explanation, finding a reasonable cause for the delay and condoned it, admitting the cross-objections.

Issue 3:
The Assessing Officer reopened the assessment under Section 147 to investigate if the borrowings were for business purposes and if there was any excess deduction. The appellant argued that since no disallowance was made, and the Assessing Officer treated the interest income as "income from other sources," the reopening was unjustified. The Tribunal analyzed the provisions of Section 147, emphasizing the need for the Assessing Officer to have a reason to believe income has escaped assessment. As the Assessing Officer did not establish that excess deduction was claimed, the Tribunal held that reopening the assessment was not justified, allowing the cross-objections and dismissing the Revenue's appeals.

In conclusion, the Tribunal dismissed the Revenue's appeals, allowed the cross-objections, and set aside the CIT(Appeals) decision regarding the classification of interest income. The Tribunal emphasized the importance of recording reasons for reopening assessments under Section 147 and the need for a valid reason to believe income has escaped assessment.