2017 (6) TMI 1151 - AT - Income Tax

Reopening of assessment - interest income from FDR - Held that - We find that in the instant case the Assessing Officer completed the reassessment first time on 22/12/2006 and there is no change in the facts of the interest income from FDR, reopening of the reassessment dated 22/12/2006, amounts to change of opinion and which is not permitted by law. In the instant assessment year, the first reassessment was completed under section 147 of the Act and four years had expired from the end of the relevant assessment year on 31/03/2007, therefore, the reassessment completed on 22/12/2006 could not have been reopened after 31/03/2007 except in the event of failure by the assessee in disclosing fully and truly all material facts. The Assessing Officer in the reasons recorded has not pointed out any such failure on the part of the assessee in disclosing material facts. Thus invoking the provision of section 147 second time reassessment could not have been made in the case of the assessee. - Decided in favour of assessee.

Issues Involved:
1. Legality of initiation of reassessment proceedings under section 147 of the Income-tax Act.
2. Validity of reassessment completed under section 148/143(3) of the Income-tax Act.
3. Classification of interest income from fixed deposits as "business income" or "income from other sources."

Issue-wise Detailed Analysis:

1. Legality of Initiation of Reassessment Proceedings under Section 147 of the Income-tax Act:

The assessee challenged the initiation of reassessment proceedings under section 147 of the Act, arguing that the statutory preconditions for such initiation were not satisfied. The Tribunal noted that the first reassessment was completed on 22/12/2006, and the four-year period from the end of the relevant assessment year expired on 31/03/2007. According to the proviso to section 147, no action for subsequent reassessment can be taken after the expiry of four years unless there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal found that the Assessing Officer did not mention any such failure by the assessee in the reasons recorded for reopening the case. Consequently, the Tribunal held that the reassessment proceedings initiated for the second time were not valid and thus quashed them.

2. Validity of Reassessment Completed under Section 148/143(3) of the Income-tax Act:

The Tribunal admitted the additional grounds raised by the assessee, which challenged the validity of the reassessment completed under section 148/143(3). The Tribunal referred to the judgment of the Hon’ble Supreme Court in the case of National Thermal Power Corporation Limited vs. CIT, which allowed raising purely legal issues at any stage of the proceedings. The Tribunal also cited the decision of the Hon’ble Gujarat High Court in P.V. Doshi vs. CIT, which supported the view that the validity of reassessment proceedings could be challenged even in the second round of appeal. The Tribunal found that the reassessment proceedings lacked jurisdiction as the Assessing Officer did not point out any failure by the assessee to disclose material facts. Therefore, the reassessment proceedings were quashed.

3. Classification of Interest Income from Fixed Deposits as "Business Income" or "Income from Other Sources":

The primary issue was whether the interest income from fixed deposits should be treated as "business income" or "income from other sources." The assessee argued that the interest income should be considered as business income since the fixed deposits were used as margin money for obtaining credit facilities from the bank. However, the Assessing Officer treated the interest income as "income from other sources," leading to a reduction in the exemption claimed under section 10A of the Act. The Tribunal noted that the issue of treating interest from fixed deposits as business income was already decided in the assessment proceedings for AY 2006-07, where it was held as income from other sources. The Tribunal upheld the Assessing Officer's decision to treat the interest income as "income from other sources" and allowed the benefit of netting of interest.

Conclusion:

The Tribunal allowed the appeals of the assessee, quashing the reassessment proceedings for all the assessment years under consideration. The Tribunal held that the reassessment proceedings were not valid as they were initiated without satisfying the statutory preconditions and amounted to a change of opinion, which is not permissible by law. The decision was pronounced in the open court on 17th January 2017.

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