2017 (3) TMI 1513 - AT - Income Tax

Reopening of assessment - loans and advances - Held that - Assessee vide its reply dated 03.10.2005 submitted the details of loans and advances given above ₹ 1 lac vide Annexure-F and also furnished details of interest charged. Copies of interest accounts vide Annexure-G were also placed on record. Thereafter, on 20.02.2006, assessment under Section 143(3) of the Act was completed at the returned income and ld. Assessing Officer has mentioned that all details were furnished as called for. All these series of facts clearly show that ld. Assessing Officer has made full application of mind on the details of loans and advances given and interest paid before finalizing the assessment under Section 143(3) of the Act and the alleged action of reopening under Section 147 of the Act cannot be held to be correct in this case wherein reopening has taken place after expiry of four years and there is no new material available with the Revenue to show that income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. We, therefore in view of our discussion above and totality of facts, are of the considered view that reassessment proceedings under Section 147 are bad in law and liable to be quashed - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income-tax Act, 1961.
2. Merits of the addition for disallowance of interest amounting to ?52,22,886.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:

The primary issue raised by the assessee was the challenge to the reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961. The assessee contended that the notice under Section 147/148 dated 30/03/2010 was invalid as all material facts necessary for the assessment were fully and truly disclosed during the original assessment proceedings under Section 143(3) on 20/02/2006.

The facts of the case indicate that the assessee, a limited company, filed its return of income on 30.11.2003, declaring a total loss of ?1,37,56,622. The original assessment was completed under Section 143(3) on 20.02.2006. Subsequently, on 10.06.2009, the DCIT, Circle-5, Ahmedabad, sought clarifications regarding the interest paid on borrowed funds and loans given to a company under the same management without charging interest. The reassessment was initiated based on the belief that the assessee had diverted interest-bearing funds for non-business purposes.

The Tribunal observed that during the original assessment proceedings, specific details regarding loans and advances and interest paid were called for and duly furnished by the assessee. The Assessing Officer had completed the assessment after examining these details, indicating the application of mind on the issue.

The Tribunal referred to the decision of the Coordinate Bench in the assessee’s own case for AY 2001-02, where it was held that reopening of assessment after four years requires a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal noted that the reasons recorded for reopening did not reflect any such failure by the assessee.

The Tribunal emphasized that for reopening an assessment after four years, the Assessing Officer must demonstrate a failure on the part of the assessee to disclose material facts fully and truly. In the present case, the Tribunal found that the reopening was based on a mere change of opinion without any new material, making the reassessment proceedings invalid.

2. Merits of the Addition for Disallowance of Interest:

The second issue raised by the assessee pertained to the merits of the addition for disallowance of interest amounting to ?52,22,886. However, since the Tribunal quashed the reassessment proceedings under Section 147, this issue became infructuous and was not separately adjudicated.

Conclusion:

The Tribunal concluded that the reassessment proceedings under Section 147 were invalid as they were initiated after four years without any new material and merely based on a change of opinion. Consequently, the reassessment proceedings were quashed, and the appeal of the assessee was allowed. The issue concerning the disallowance of interest became infructuous due to the quashing of the reassessment proceedings.