2017 (10) TMI 1343 - HC - Income Tax

Period of limitation available with the Assessing Officer for completing the assessment - Whether the Appellate Tribunal is correct in holding that the assessment u/s. 143(3) r.w.s. 254 should be completed within 9 months from the end of the financial year of Tribunal s Remand Order i.e. upto 31/12/2010 disregarding the specific provision u/s. 153(3) of the Act? - Held that - The quoted portion of the Tribunal s earlier order would make it clear that the Assessing Officer was required to pass a fresh order of assessment. Such assessment of course had to be done bearing in mind the observations made by the Tribunal. Nevertheless, it was an order of assessment which would be passed afresh. The Commissioner and the Tribunal, therefore, committed no error. In somewhat similar situation, this Court in case of Instruments And Control Co. vs. Chief Commissioner of Income-Tax and Others reported in 2012 (7) TMI 694 - GUJARAT HIGH COURT expressed the same opinion. Disallowance of interest - bank interest is 14% whereas the assessee claimed the interest @22% - Held that - In any case, the issue is predominantly factual in nature. The assessee had borrowed funds from its sister concerns and paid interest at the rate of 22% which was found to be excessive as compared to the prevailing bank rates. The Commissioner as well as the Tribunal on an analysis of facts on record come to the conclusion that disallowance of interest expenditure was not justified.

Summary

Issues:
1. Interpretation of the period of limitation for completing assessment under Section 153 of the Income Tax Act.
2. Whether the Appellate Tribunal's decision on the assessment completion timeline was correct.
3. Consideration of interest rate disparity in disallowance of interest expenditure.

Analysis:

1. The first issue revolves around the interpretation of the period of limitation for completing assessment under Section 153 of the Income Tax Act. The Tribunal had directed the Assessing Officer to reframe the assessment, and the fresh order was passed after the prescribed deadline. The contention was whether the Assessing Officer had the full 12-month period or was bound by the initial deadline. The Commissioner and the Tribunal upheld the initial deadline, emphasizing the need for timely completion of assessments within the statutory limit.

2. The second issue questions the correctness of the Appellate Tribunal's decision on the assessment completion timeline. The Tribunal's order directed the Assessing Officer to reframe the assessment, emphasizing the need for a fresh assessment based on relevant materials. The High Court concurred with the Tribunal's decision, highlighting that the Assessing Officer was required to pass a fresh order within the prescribed timeline, as per the statutory provisions under Section 153 of the Act.

3. The final issue concerns the consideration of interest rate disparity in the disallowance of interest expenditure. The Appellate Tribunal and the Commissioner analyzed the facts on record regarding the interest expenditure claimed by the assessee at 22%, higher than prevailing bank rates. After a thorough review, it was concluded that the disallowance of interest expenditure was not justified, as the disparity in interest rates did not warrant such action. The High Court affirmed this decision, emphasizing the factual nature of the issue and dismissing the tax appeals based on the conclusions reached.

In conclusion, the High Court upheld the Tribunal's decision on the assessment completion timeline, emphasizing the importance of adhering to statutory limitations. Additionally, the disparity in interest rates did not warrant the disallowance of interest expenditure, as concluded by the Appellate Tribunal and the Commissioner based on a factual analysis.