2017 (5) TMI 108 - AT - Income Tax

Reopening of assessment - disallowance u/s 43B as the said amount of interest was payable and had not been actually paid before the due date of filing of return of income - Held that - It is seen that there is a specific finding as well as observation in the impugned order that during the course of the original assessment proceedings the Assessing Officer in his detailed questionnaire had required the assessee to furnish all the details of interest payment as appearing in the balance sheet. In response thereof, the entire details were furnished by the assessee along with the details of liabilities and also the interest accrued but not due and interest payable as appearing in the balance sheet. Based on such scrutiny assessee s claim was allowed by the AO. Once all these facts relating to interest and claim of deduction, both in relation to interest paid and interest payable were there before the Assessing Officer during the time of the original assessment proceedings, then without there being tangible material coming on record, it cannot be held that, there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for the purposes of assessment. The impugned notice u/s 148 for reopening the assessment is purely based on material already on record which has been also considered by the Assessing Officer and once that is so, then ostensibly, reopening u/s 147 is not permissible in law as it amounts to change of opinion . Not only that, as submitted by the ld. counsel and also noted by the Learned CIT(Appeals), the amount of interest which is a subject matter of reassessment in the impugned proceedings was not payable to any Public Financial Institution or any Scheduled Bank, albeit out of total interest accrued but not due for sums amounting to ₹ 184.66 lakhs, interest aggregating to ₹ 44.33 lakhs was paid before filing of the return on which deduction was allowed u/s 43B and balance interest payable of ₹ 140.33 lakhs was unpaid liability on cumulative FDR (Rs. 137.90 lakhs) and other interest liability (Rs. 2.41 lakhs) and therefore, prima facie such interest amount was not hit by the provision of section 43B. On this count also, the Assessing Officer was not justified for reopening the assessment u/s 147 as there could not be any prima facie reason to believe based on any tangible material. Thus, the order of the Learned CIT(Appeals) holding that reassessment proceeding is bad in law is upheld - Decided in favour of assessee Addition u/s 36(1 )(iii) - interest free loan given to subsidiary - Held that - Once it is found that the assessee company had huge surplus funds then it can be safely presumed that any such advance or interest free loan given to subsidiary is out of such surplus funds only unless the department brings on recrd that the surplus funds have been utilized for some other purposes and borrowed funds have been diverted to subsidiary/sister concern. The sole reliance placed by the Assessing Officer on the judgment of CIT vs. Abhishek Industries Ltd. (2006 (8) TMI 123 - PUNJAB AND HARYANA High Court) for making the disallowance, now does not hold ground in view of the judgment in the case of Munjal Sales Corporation vs. CIT (2008 (2) TMI 19 - Supreme Court ), wherein the judgment of CIT vs. Abhishek Industries Ltd. (supra) has been reversed and it has been specifically held by the Hon ble Apex Court that so long as funds have been given to the sister concern out of interest free funds, no disallowance u/s 36(1)(iii) can be made. Thus, without their being material to controvert the finding of the Learned CIT (Appeals) that advance standing in the name of the subsidiary is out of assessee s own interest free funds, we do not find any reason to deviate from such a finding of fact. Accordingly, the order of the Learned CIT (Appeals) is upheld - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.
2. Disallowance of interest under Section 43B.
3. Deletion of addition under Section 36(1)(iii).

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The reassessment proceedings were initiated for the Assessment Year (A.Y.) 2004-05 based on the claim that the assessee had not disclosed fully and truly all material facts necessary for the assessment. The original assessment was completed under Section 143(3) on 27.12.2006, later revised under Section 263, and a fresh assessment order was passed on 30.12.2009. The case was reopened under Section 147 on the grounds that the assessee claimed a deduction of ?1,40,33,000/- for interest not actually paid before the due date of filing the return, contravening Section 43B.

The CIT (Appeals) quashed the reassessment order, stating that the reopening was beyond four years from the end of the relevant assessment year and without any failure on the part of the assessee to disclose material facts. The CIT (Appeals) held that the reassessment proceedings amounted to a change of opinion, relying on several judicial pronouncements, including the Supreme Court's decision in Kelvinator and Orient Craft. The Tribunal upheld the CIT (Appeals)’s decision, noting that the reopening was based on material already on record and amounted to a change of opinion, making the reassessment proceedings invalid.

2. Disallowance of Interest under Section 43B:
The reassessment proceedings aimed to disallow ?1,40,33,000/- under Section 43B, asserting that this amount was not actually paid before the due date for filing the return. The CIT (Appeals) found that the interest was not payable to any public financial institution or scheduled bank, and thus, Section 43B was not applicable. The Tribunal agreed, noting that the interest was related to cumulative FDRs and other liabilities, which were not covered under Section 43B. Consequently, the disallowance was deemed erroneous, and the reassessment proceedings were quashed.

3. Deletion of Addition under Section 36(1)(iii):
For A.Y. 2007-08, the Assessing Officer disallowed ?97,42,800/- under Section 36(1)(iii), arguing that the assessee had advanced interest-free loans to its subsidiary. The CIT (Appeals) deleted the addition, noting that the assessee had sufficient interest-free funds to cover the advances. The Tribunal upheld this decision, referencing the Supreme Court's ruling in Munjal Sales Corporation, which reversed the Punjab and Haryana High Court’s decision in Abhishek Industries. The Tribunal concluded that no disallowance under Section 36(1)(iii) could be made if the advances were from interest-free funds.

Conclusion:
The Tribunal dismissed the revenue's appeals, upholding the CIT (Appeals)’s decisions to quash the reassessment proceedings and delete the disallowance of interest. The reassessment was deemed invalid due to the absence of new tangible material and the fact that it amounted to a change of opinion. Additionally, the disallowance under Section 36(1)(iii) was not justified as the advances were made from interest-free funds. The judgments were pronounced in the open court on 20.04.2017.