2020 (8) TMI 595 - AT - Income Tax

Reopening of assessment u/s 147 - deduction u/s 57 disallowed - HELD THAT - AO had passed the original assessment order under section 143(3) of the Act in which he allowed the deduction under section 57 - all the facts pertaining to the transaction of Idea Shares were available before the AO when he passed the original assessment Order u/s 143(3). After the original assessment, the AO did not find any fresh information/material in respect of the transaction of purchase/ sale of the Idea Shares. This is evident from the reasons recorded by the AO. Yet, the AO re-opened the assessment under section 147 and disallowed the said interest expense claimed under section 57. In the original assessment proceedings AO has considered the aspect interest expenses and considered in the body of assessment order as well as in the computation of income specifically and after considering the same, the AO allowed the interest expenses. AO has applied his mind and formed an opinion for allowance of this interest expenses while framing original assessment. Now, reopening on the very same issue tantamount to change of opinion which is not permissible in law. Asian Paints Ltd. vs. DCIT 2008 (7) TMI 237 - BOMBAY HIGH COURT has been held that the initiation of reassessment proceedings would amount to change of opinion of the AO as it was merely a fresh application of mind by the AO to the same set of facts and that since the AO had failed to apply his mind to the relevant material while framing the assessment order under section 143(3), he could not take advantage of his own wrong and reopen the assessment under section 147 - This was the case where the AO had reopened the assessment within four years from the end of the Assessment Year under appeal. Even in the case of in the case of Legato Systems (India) Pvt. Ltd. 2009 (9) TMI 943 - DELHI HIGH COURT has held that proceedings under section 147/148 of the Act vis- -vis completed assessments cannot be reopened, on a mere change of opinion i.e. on the basis of the same set of facts and material which were in the knowledge of the AO, and that the proceedings for reopening of assessment on the ground of income escaping assessment is an exception to the finality of the proceedings arrived at under Section 143(3) of the Act during the regular assessment proceedings of the assessment years. Notice u/s. 148 of the Act was issued on the ground that there was reason to believe that income had escaped assessment, there was neither any change of law nor had any new material been brought on record between the date of the assessment order and the date of formation of opinion by the AO. It was merely a fresh application of mind by the officer to the same set of facts and the reassessment proceedings initiated based on the change of the opinion of the officer is bad in law. This was the case where the AO had reopened the assessment within four years from the end of the Assessment year. Hence, the reasons recorded for reopening reflect a mere change in the opinion by the AO. Accordingly, we quash the reopening and allow the jurisdictional issue in favour of the assessee.

Issues Involved:
1. Reopening of assessment under section 147 of the Income-tax Act, 1961.
2. Validity of reasons for reopening the assessment.
3. Allegation of change of opinion in reopening the assessment.
4. Deduction of interest expenses under section 57(iii) of the Act.

Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Act:
The primary issue in this appeal concerns the reopening of the assessment under section 147 of the Income-tax Act, 1961. The assessee argued that the reopening was merely based on a change of opinion. The original assessment was completed under section 143(3) on 21.12.2009, and the notice under section 148 was issued on 03.09.2010, within four years from the end of the relevant assessment year. The Assessing Officer (AO) recorded reasons for the issuance of the notice under section 148, citing that the interest paid on loans used for purchasing shares, a capital asset, should not have been claimed as revenue expenditure.

2. Validity of Reasons for Reopening the Assessment:
The AO justified the reopening by stating that the interest paid on loans for purchasing shares of Idea Cellular Limited, a capital asset, should not have been deducted from the interest income received. The CIT(A) upheld the AO's action, stating that the AO had material facts to believe that income had escaped assessment. The CIT(A) relied on several Supreme Court decisions, emphasizing that the AO has wide powers to reopen assessments if there is reason to believe that income chargeable to tax has escaped assessment.

3. Allegation of Change of Opinion:
The assessee contended that the reopening of the assessment was based on a change of opinion, as all necessary facts were disclosed during the original assessment proceedings. The Tribunal noted that the AO had considered the interest expenses during the original assessment and allowed the deduction under section 57 of the Act. The Tribunal referred to the Supreme Court decision in CIT vs. Kelvinator of India Ltd., which held that reassessment based on a mere change of opinion is not permissible. The Tribunal also cited other High Court decisions supporting the view that reassessment cannot be initiated on the same set of facts without new material or information.

4. Deduction of Interest Expenses under Section 57(iii) of the Act:
The assessee provided detailed disclosures regarding the interest expenses and the corresponding interest income in its financial statements and during the original assessment proceedings. The Tribunal noted that the AO had considered these details and allowed the deduction in the original assessment. The Tribunal concluded that the AO's action to reopen the assessment on the same issue amounted to a change of opinion, which is not permissible under the law.

Conclusion:
The Tribunal quashed the reopening of the assessment, holding that it was based on a change of opinion. The Tribunal allowed the appeal of the assessee, emphasizing that reassessment proceedings cannot be initiated on the same set of facts without new material or information.

Order:
The appeal of the assessee is allowed. The reopening of the assessment under section 147 is quashed. The other grounds raised by the assessee on merits were not addressed as the jurisdictional issue was decided in favor of the assessee. The order was pronounced in the open court on 11.08.2020.

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