2022 (3) TMI 1422 - AT - Income Tax

Disallowance u/s 36(1)(iii) interest expenditure alleging diversion of interest bearing funds for non business purposes - HELD THAT - No reason to accept either parties stand in entirety. This is for the clinching reason that both the learned lower authorities appear to have placed reliance on alleged concession made by the group concern M/s. Indur Developers and Agencies Pvt. Ltd wherein there is no clarity as to whether the same specifically covered all other group activities or the said assessee only which are specifically assessed; or not. Assessee s stand all along is that the impugned advances by way of non-current investments nowhere carried out any interest-bearing funds at all. Revenue s contentions on the other hand is that the assessee had itself sought to claim finance costs pertaining to its borrowing regarding development of plots. Be that as it may, this is apart from the fact that the clinching issue as to whether the assessee s borrowings or advances in plotting activity contain interest stipulation or not has nowhere been examined in light of all relevant facts. We therefore deem it appropriate to restore this entire instant issue back to the Assessing Officer for his afresh factual verification. It is made clear that the assessee shall be very much at liberty to raise all factual as well as legal arguments in consequential proceedings as per law. Validity of reopening of assessment u/s 147 or u/s 153A r.w.s. 153C - HELD THAT - We find no merit in assessee s instant legal ground since there is no material found in the Assessing Officer s reopening reasons suggesting the impugned proceedings as based on any seized material belonging, pertaining or relating to this taxpayer. We thus hold that the Assessing Officer had rightly initiated section 147 / 148 reopening herein. This first and foremost issue is decided in Revenue s favour therefore. Addition of notional interest on debentures income - HELD THAT - There is no material on record in either the Assessing Officer or the CIT(A) s detailed discussion throwing light in the corresponding details of the debentures scheme in issue which could be taken as benchmark for making the impugned addition. It further transpires that the assessee s stand from day one was that it had neither credited the corresponding interest income nor actually received the same in the relevant previous year. We rather note that it had sought to file its additional evidence under rule 46A of the Income Tax Rules which stands declined in the CIT(A) s order. We thus are of the opinion that larger interest of justice would be met in case the instant issue is also restored back to the Assessing Officer to first examine the corresponding debentures scheme if any; followed by the actual credit or payment of interest in assessee s favour. Validity of reopening of assessment u/s 147 - Notice beyond a period of four years - HELD THAT - DR would hardly rebut the clinching fact that the Assessing Officer had initiated the impugned proceedings after a lapse of more than 4 years from the end of the relevant assessment year without recording any reason that the assessee had not disclosed all the relevant particulars fully and truly in light of section 147 1st proviso. We make it clear that there is hardly any scope for addition or deletion or substitution in such reopening reasons in light of hon ble Bombay high court s landmark decision in Hindustan Lever Ltd Vs. R.B. Wadkar 2004 (2) TMI 41 - BOMBAY HIGH COURT holding that re-opening reasons recorded by the Assessing Officer have to be read on standalone basis only. We thus quash the impugned reopening for this sole reason.

Summary

Issues Involved:
1. Validity of Section 147/148 Reopening Proceedings
2. Disallowance of Section 36(1)(iii) Interest Expenditure
3. Addition of Notional Interest on Debentures Income
4. Disallowance of Finance Costs

Detailed Analysis:

1. Validity of Section 147/148 Reopening Proceedings:
The judgment addresses multiple appeals challenging the validity of reopening assessments under Sections 147 and 148. In several cases, the reopening was initiated beyond four years from the end of the relevant assessment year without recording reasons that the assessee had not disclosed all relevant particulars "fully" and "truly." The Tribunal quashed such reopenings, citing the first proviso to Section 147 and relying on the Bombay High Court's decision in Hindustan Lever Ltd Vs. R.B. Wadkar, which mandates that reopening reasons must be read on a standalone basis. For instance, in ITA 653/Hyd/2020, the reopening was quashed due to the absence of recorded reasons for non-disclosure of particulars. Similarly, ITA Nos.668 and 669/Hyd/2020 were quashed for the same reason.

2. Disallowance of Section 36(1)(iii) Interest Expenditure:
Several appeals involved the disallowance of interest expenditure under Section 36(1)(iii) on the grounds of diversion of interest-bearing funds for non-business purposes. The Tribunal found that the lower authorities had relied on alleged concessions made by group concerns without clarity on whether these covered all group activities. The Tribunal restored these issues back to the Assessing Officer for fresh factual verification. For example, in ITA 651/Hyd/2020, the issue was restored to the Assessing Officer for fresh verification of whether the borrowings or advances in plotting activity contained interest stipulation.

3. Addition of Notional Interest on Debentures Income:
Several appeals challenged the addition of notional interest on debentures income. The Tribunal noted the absence of material evidence in the Assessing Officer's and CIT(A)'s discussions regarding the details of the debentures scheme. The Tribunal restored these issues back to the Assessing Officer for examination of the debentures scheme and actual credit or payment of interest. For instance, in ITA 652/Hyd/2020, the issue of notional interest on debentures was restored to the Assessing Officer for fresh examination.

4. Disallowance of Finance Costs:
Multiple appeals involved the disallowance of finance costs. The Tribunal restored these issues back to the Assessing Officer for fresh factual verification and adjudication. The Tribunal emphasized that the Assessing Officer must examine the assessee's fund position and whether the borrowings carried no interest involving plotted land buyers. For instance, in ITA 654/Hyd/2020, the issue of disallowance of finance costs was restored to the Assessing Officer for fresh verification.

Conclusion:
The Tribunal allowed some appeals and partly allowed others for statistical purposes, restoring several issues back to the Assessing Officer for fresh verification and adjudication. The decision underscores the importance of proper factual verification and adherence to procedural requirements in reopening assessments and disallowing expenditures.