2019 (6) TMI 1564 - AT - Income Tax

Reopening of assessment u/s 147 - admission of additional ground - formation of belief about escapement of income - HELD THAT - In view of the decision of Hon ble Supreme Court in the case of National Thermal Power Corporation 1996 (12) TMI 7 - SUPREME COURT and in the interest of substantial justice, we admit the Additional Grounds of appeal and the parties were allowed to argue the appeal on merits of the case. The facts of the case are that the assessee belongs to Harshad Mehta Group and was notified under the Special Court (Trial of offences relating to transactions in Securities) Act, 1962. AO observed that the assessee did not file the return of income in time for the year under consideration as provided u/s.139(1). The incorrect fact being the return not having been filed by the assessee. As pointed out that even if it is accepted that incorrect noting about the absence of return filed was not the only basis for formation of belief, the AR relied upon the judgment of the Hon'ble Gujarat High Court in the case of Sagar Enterprises 2001 (12) TMI 18 - GUJARAT HIGH COURT to contend that in such a situation also, the recording of reasons is untenable. The Hon'ble Gujarat High Court noted that once there was a factually incorrect basis about the formation of belief about escapement of income, such reasons could not be taken to be valid even if the alternate reasons relied upon may be correct. As per the Hon'ble High Court, in such a situation it could not be said with certainty as to which factor weighed with the Assessing Officer to form a belief about escapement of income. Thus,recording of reasons is based on an incorrect assumption of fact, the same invalidates the formation of belief envisaged under Section 147/148 of the Act. As a consequence thereof, the assumption of jurisdiction under Section 147/148 of the Act is untenable and is liable to be set-aside - assumption of jurisdiction under Section 147/148 of the Act is untenable and is liable to be set-aside. Appeal of the assessee is allowed.

Summary

Issues:
1. Validity of reopening assessment under section 147 of the Income Tax Act.
2. Disallowance of interest expenditure.
3. Estimated addition on account of personal household expenses.
4. Levy of interest under sections 234A, 234B, and 234C of the Act.

Issue 1: Validity of Reopening Assessment under Section 147 of the Income Tax Act:
The appeal challenged the order passed by the CIT(A) confirming the assessment under section 143(3) r.w.s 147 of the Income Tax Act. The Assessing Officer had issued a notice under section 148 based on reasons that the assessee did not file the return of income in time and to tax escaped income. However, the assessee had filed the return before the reasons were recorded. The Hon'ble Tribunal found that the reasons for reopening the assessment were based on incorrect facts, invalidating the formation of belief under Section 147/148 of the Act. Citing legal precedents, the Tribunal held that incorrect assumptions about the non-filing of the return render the jurisdiction under Section 147/148 untenable, leading to the decision to set aside the reassessment.

Issue 2: Disallowance of Interest Expenditure:
The Assessing Officer disallowed interest expenditure of &8377; 11,75,62,498, and estimated an addition of &8377; 3,00,000 for personal household expenses. Additionally, interest on loans payable to group concerns was disallowed as a contingent liability. The CIT(A) upheld these disallowances. However, the Tribunal did not delve into the merits of these additions as the reassessment was quashed due to the invalidity of the reopening. Therefore, the Tribunal did not adjudicate on the disallowance of interest expenditure and personal household expenses.

Issue 3: Levy of Interest under Sections 234A, 234B, and 234C of the Act:
The Assessing Officer levied interest under sections 234A, 234B, and 234C of the Act, which was confirmed by the CIT(A). The Tribunal did not address this issue in detail as the reassessment was set aside based on the invalidity of the reopening. Consequently, the Tribunal did not provide a specific ruling on the levy of interest under these sections.

The Tribunal admitted additional grounds of appeal raised by the assessee, which went to the root of the matter. The decision to quash the reassessment was primarily based on the incorrect assumption that the assessee had not filed the return of income, leading to the invalidity of the reopening under Section 147/148 of the Income Tax Act. The Tribunal did not delve into the specific merits of the disallowances made by the Assessing Officer, as the reassessment was set aside on procedural grounds.