2018 (12) TMI 1347 - HC - Income Tax

Reopening of assessment - assessee had adjusted the interest income against the interest expenditure which according to AO was not permissible - eligibility of reason to believe - Held that - Whatever may be the validity or assessee's stand in this respect, it cannot be denied that the Assessing Officer had asked the assessee to explain why the interest income of certain amount was not offered to tax and the assessee did offer the explanation in this respect. Further, as noted the assessee had also produced the full details of the interest earned and the interest paid on borrowed capital. The total of interest paid come to ₹ 47,11,82,441/ . The interest amount received was ₹ 11,08,36,618/ . In Exhibit 7, the assessee also clarified that the company has netted off the interest received of ₹ 11,08,36,618/against the interest paid of ₹ 47,11,82,441/ and the remaining amount was transferred to work in progress account. Indisputably, therefore, the entire question of taxing the assessee's interest of ₹ 11,08,36,618/ was minutely scrutinized by the Assessing Officer during the original assessment proceedings. In the absence of any new material, the reopening of the assessment would be based on mere change of opinion. It is true that in the final order of assessment, the Assessing Officer had not elaborated this aspect but had not made any dis allowance or addition in the hands of the assessee. Merely because the order of assessment was silent on a particular claim of the assessee, would not by itself mean that the same was not scrutinized or that the Assessing Officer had not formed an opinion with respect to the same. If after detailed scrutiny during the assessment, the Assessing Officer examines a claim but does not reject the claim of the assessee which had come up for scrutiny, would not enable the Revenue to argue that the Assessing Officer had not formed any opinion on such issue and, therefore, reopening of the assessment would be permissible without there being any new or additional material available to the Assessing Office - Thus the impugned notice is set aside - Decided in favour of assessee

Issues Involved:
1. Validity of the notice for reopening the assessment.
2. Examination of the interest income and expenditure during the original assessment.
3. Allegation of income escaping assessment.
4. Whether the reopening is based on a mere change of opinion.

Detailed Analysis:

1. Validity of the notice for reopening the assessment:
The petitioner challenged the notice of reopening of assessment dated 29.03.2018. The petitioner argued that the reopening was invalid as it was based on a mere change of opinion without any new material. The court examined the reasons recorded by the Assessing Officer (AO) for issuing the notice and found that the AO wished to tax the interest income of ?11,08,36,618/- under the head "income from other sources" instead of allowing it to be netted off against interest expenditure.

2. Examination of the interest income and expenditure during the original assessment:
During the original scrutiny assessment, the AO had asked the petitioner to clarify the issue of interest income of ?11,08,36,618/- and the rate of interest on loans taken and given. The petitioner explained that the interest income was netted off against interest paid, and the remaining amount was transferred to the work-in-progress (WIP) account. The court noted that the AO had minutely scrutinized the interest income and expenditure during the original assessment.

3. Allegation of income escaping assessment:
The AO alleged that the interest income of ?11,08,36,618/- should have been taxed as "income from other sources" and not netted off against interest expenditure. The AO cited various judicial rulings to support this contention. However, the court found that the entire question of taxing the interest income was already scrutinized during the original assessment, and there was no new material to justify the reopening.

4. Whether the reopening is based on a mere change of opinion:
The court held that reopening the assessment based on a mere change of opinion is not permissible. The Supreme Court in CIT Vs. Kelvinator India Ltd. (320 ITR 561) and the Gujarat High Court in Gujarat Power Corporation Ltd. Vs. Asst. CIT (2013) 350 ITR 266 emphasized that reopening cannot be equated with a review and must be based on new material. The court observed that the AO had formed an opinion during the original assessment, and the reopening was merely a change of opinion without any new material.

Conclusion:
The court set aside the impugned notice for reopening the assessment, allowing the petition and disposing of it accordingly. The reopening was deemed invalid as it was based on a mere change of opinion without any new material.

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