2018 (3) TMI 1652 - AT - Income Tax

Reopening of assessment u/s 147/148 - income escaped assessment - non-business expenditure - disallowance of interest expense - reducing such interest from the value of Inventories - Held that - there was failure on the part of assessee to disclose fully and truly all material facts for completion of assessment during the assessment proceedings. The case laws relied upon by the assessee are not applicable to the facts of the case as the necessary agreements qua joint venture, relinquishing the interest in the said land were not furnished before the AO in the course of assessment proceedings and there is a failure on the part of the assessee to disclose the material facts during the course of assessment and hence in our opinion the re-opening is validly done - Decided against the assessee Non-business expenditure - Held that - When the transaction has already been treated as genuine then there is no ground to treat the same as sham transaction in further reassessment order. Moreover, the case of the assessee based on factual position which has duly been explained by the Hon ble ITAT while passing the order in the assessee s own case 2017 (11) TMI 719 - ITAT MUMBAI - Decided in favor of assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 147/148 of the Income Tax Act.
2. Treatment of amounts payable to Om Metals Ltd. and Wellwisher Construction & Finance Pvt. Ltd. as non-business expenditure.
3. Disallowance of interest expense attributable to the payments made to Om Metals Ltd. and Wellwisher Construction & Finance Pvt. Ltd.

Issue-wise Detailed Analysis:

ISSUE NO 1: Validity of Reopening of Assessment under Section 147/148 of the Income Tax Act

The assessee challenged the reopening of the assessment under Section 148 of the Act. The representative argued that this issue had already been decided in favor of the assessee in previous assessment years (2006-07, 2007-08, and 2008-09). However, the Tribunal referred to its earlier decision, which stated that the reopening was valid as the assessee failed to disclose fully and truly all material facts necessary for the assessment. Specifically, the assessee did not provide copies of agreements with Om Metals Ltd. and Wellwisher Construction & Finance Pvt. Ltd. during the original assessment proceedings, which led to the conclusion that there was a failure to disclose material facts. Consequently, the Tribunal upheld the reopening of the assessment under Section 147.

ISSUE NO 2: Treatment of Amounts Payable to Om Metals Ltd. and Wellwisher Construction & Finance Pvt. Ltd. as Non-Business Expenditure

The assessee contested the CIT(A)'s confirmation of the AO's decision to treat the amounts payable to Om Metals Ltd. and Wellwisher Construction & Finance Pvt. Ltd. as non-business expenditure. The Tribunal referred to its previous ruling, where it was established that the transaction between the assessee and the two JV partners was genuine. The land was initially allotted to the assessee and the JV partners by MIDC, and the JV partners later relinquished their interest in favor of the assessee upon payment. This transaction was accounted for in the assessee's books, and the AO initially accepted it during scrutiny proceedings. The Tribunal noted that the revenue treated the transaction as genuine in the hands of the JV partners, and therefore, it could not be considered non-genuine in the hands of the assessee. Thus, the Tribunal decided this issue in favor of the assessee.

ISSUE NO 3: Disallowance of Interest Expense Attributable to Payments Made to Om Metals Ltd. and Wellwisher Construction & Finance Pvt. Ltd.

The assessee also challenged the disallowance of interest expense related to the payments made to Om Metals Ltd. and Wellwisher Construction & Finance Pvt. Ltd. The Tribunal, referring to its earlier decision, held that since the transaction was genuine, any interest incurred on the borrowed money for these payments should be allowed. Therefore, the Tribunal directed the AO to delete the disallowance of interest expense, deciding this issue in favor of the assessee.

Conclusion:

The Tribunal upheld the reopening of the assessment under Section 147/148 but ruled in favor of the assessee on the issues of treating the amounts payable as non-business expenditure and disallowance of interest expense. Consequently, the appeals filed by the assessee were partly allowed.