2017 (2) TMI 344 - AT - Income Tax

Reopening of assessment - advancing loans to son and nephew by assessee - Held that - Considering the copy of the reasons recorded, it is seen that the AO does not refer to any new material noticed by him for re-opening the assessment as the AO records that on a perusal of the balance sheets the opinion is formed. The consistent claim of the assessee that the re-opening is based on a mere change of opinion has not been rebutted by the Revenue by referring to any fact, argument or evidence which came up for consideration. In the absence of any new material in the peculiar facts of the present case justifying change of opinion income cannot be said to have escaped assessment. Re-appreciating the very same material on facts ad-infintum lays the Revenue open to the charge of arbitrariness and abuse of a power vested in the A.O. Consistent claim of the assessee before the tax authorities on facts has wrongly been ignored. It is seen that the assessee in each of these three years though has pleaded commercial expediency for advancing loans to his son and nephew where being a senior citizen i.e. 60 years the presence of his relatives was considered necessary on site to ensure quality and time related compliances in order to avoid penalties and being black listed from Government contract work the son and the nephew are stated to have helped by being present on site and over-seeing the quality and the work. However, if even otherwise the availability of sufficient funds in his own capital account and interest free loans and sundry creditors have not been disputed by the Revenue the occasion to make addition in the peculiar facts of the present case does not arise. The advances have been returned and have not been advanced out of borrowed funds for business purposes. - Decided in favour of assessee

Issues:
Challenging correctness of separate orders dated 31.03.2016 of CIT(A), Faridabad for 2008-09 to 2010-11 AYs; Reopening u/s 148 without tangible material; Change of opinion for reassessment; Disallowance of interest under section 36(1)(iii); Jurisdiction under section 154; Commercial expediency for interest-free advances; Reassessment based on same facts; Legal and factual justifications for advances; Assessment proceedings for each year.

Detailed Analysis:

Reopening u/s 148 without tangible material:
The assessee challenged the correctness of reopening u/s 148, contending that it lacked tangible material and requisite satisfaction from the Commissioner of Income Tax. The AO's reasons for reopening were based on the same facts considered during the original assessment under section 143(3). The assessee argued that the reassessment was merely a change of opinion without any new material, contrary to settled legal principles. The Tribunal noted that the AO did not refer to any new material for reopening, leading to a lack of justification for the reassessment.

Change of opinion for reassessment:
The Tribunal found that the AO's decision to reassess the income based on the same facts as considered in rectification proceedings, which were subsequently dropped, amounted to a change of opinion. The Tribunal emphasized that without new material, the reassessment could not stand legally. Citing relevant case laws, the Tribunal concluded that reappreciating the same material repeatedly could lead to arbitrariness and abuse of power by the AO.

Disallowance of interest under section 36(1)(iii):
On the merits, the Tribunal analyzed the interest-free advances given by the assessee to relatives, justifying them based on commercial expediency. The assessee argued that the advances were made out of own capital and available funds, emphasizing the assistance provided by the relatives in the business. The Tribunal considered the factual aspects and legal position, ultimately ruling in favor of the assessee due to the lack of rebuttal from the Revenue on the salient facts presented.

Jurisdiction under section 154:
The Tribunal highlighted that in all three years under consideration, show-cause notices under section 154 were issued by the AO, but proceedings were later dropped after considering the assessee's replies. This indicated a lack of justification for reassessment and raised questions regarding the AO's exercise of jurisdiction under section 154.

Commercial expediency for interest-free advances:
The Tribunal acknowledged the commercial expediency claimed by the assessee for advancing interest-free loans to relatives, citing the necessity of their presence at work sites for quality and compliance purposes. The Tribunal considered the availability of sufficient funds and the absence of borrowed funds for business purposes, supporting the assessee's position based on the factual circumstances presented.

Conclusion:
In light of the legal and factual arguments presented, the Tribunal allowed the assessee's appeals, setting aside the impugned orders and quashing the assessment orders for the respective years. The Tribunal's decision was based on the lack of new material justifying reassessment, the presence of commercial expediency for interest-free advances, and the overall factual and legal considerations favoring the assessee.

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