2019 (6) TMI 753 - HC - Income Tax

Re-assessment proceedings u/s 147 - unexplained borrowal of funds as well as deployment of such funds - interest free loans to its group companies - disallowance u/s 36(1)(iii) - ITAT confirmed reopening proceedings as agreeing with the CIT(A)'s findings - HELD THAT - With regard to the allegation that there was change of opinion, the CIT(A) rightly held that there is no original assessment under Section 143(3) of the Act and therefore, the restriction imposed by the proviso to Section 147 will not come to the rescue of the assessee. The factual findings recorded by the assessing officer and the CIT(A) could not be dislodged by the assessee before the Tribunal, which is the last forum, which can re-appreciate the factual matrix. The Tribunal, after considering the assessee's case and the materials placed before it, took out the apparent facts, the financial statements, the concept of same management and chain holding of shares and tax adjustments, agreed with the CIT(A)'s findings and held that there was no reason to interfere with the order of the CIT(A). The pattern of management of the three companies was also examined by the Tribunal as well as the contention advanced by the assessee that the assessment proceedings u/s 147 was a change of opinion. This point was also rejected by the Tribunal on a perusal of the facts. Further, the Tribunal held that the increase in unsecured loans and assessee's company income was not from business activity but only out of redemption of mutual funds. No question of law - Decided against assessee.

Summary

Issues:
1. Validity of re-assessment despite disclosure of complete facts.
2. Set off of unabsorbed depreciation beyond eight assessment years.

Issue 1: Validity of re-assessment despite disclosure of complete facts

The appeal challenged the order of the Income Tax Appellate Tribunal confirming the validity of re-assessment for the assessment year 2003-04. The primary contention was whether there was a lack of reasons to believe the escapement of income for assessment despite the disclosure of complete facts relating to the borrowal and deployment of funds within the business activities authorized in the Memorandum of Association. The assessing officer noted a substantial increase in investments during the relevant period, raising concerns about the source of funds. The assessing officer found that part of the investments were funded by unsecured loans diverted to group companies as interest-free loans, which was not adequately explained by the assessee. The Commissioner of Income Tax (Appeals) and the Tribunal upheld the re-assessment, emphasizing the factual findings and the lack of convincing reasons provided by the assessee for the interest-free loans to group companies. The Tribunal also rejected the assessee's argument of the assessment proceedings being a change of opinion, concluding that the increase in unsecured loans and company income was not from business activity but from the redemption of mutual funds. Ultimately, the High Court dismissed the appeal, stating that no substantial question of law arose for consideration based on the factual and legal analysis provided by the lower authorities.

Issue 2: Set off of unabsorbed depreciation beyond eight assessment years

The second issue raised in the appeal concerned the set off of unabsorbed depreciation pertaining to assessment years 1999-2000 to 2001-02 against the income of the assessment year 2010-11. The Tribunal allowed the set off beyond eight assessment years, which was challenged by the appellant. However, the High Court did not delve into this issue extensively as it focused on the primary issue of the validity of re-assessment. The Tribunal's decision on the set off of unabsorbed depreciation was not a significant point of contention in the High Court's analysis, as the appeal was primarily dismissed based on the first issue.

In conclusion, the High Court of Madras dismissed the appeal challenging the re-assessment for the assessment year 2003-04, emphasizing the lack of substantial questions of law based on the factual findings and legal reasoning provided by the lower authorities. The judgment highlighted the importance of disclosing complete facts and providing convincing reasons for financial transactions, ultimately upholding the validity of the re-assessment in this case.