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2021 (10) TMI 826 - AT - Income TaxValidity of assessment initiated u/s.147/148 - interest on income tax refund received by the assessee cannot be taxed in the current year as the assessee follows mercantile system of accounting - HELD THAT - On a perusal of the reasons for reopening, it emerges that the Assessing Officer has gathered the information from the financial statement of the assessee and undisputedly the financial statement of the assessee was very much before the AO at the time of original assessment and more so he had also inquired on this issue and assessee had replied to the same. Thus, no tangible material has come in position of the AO which can lead to the inference that there is escapement of income due to the fault of the assessee. The action of the AO, thus, clearly amounts to forming of new opinion on the very same set of facts which was already available on records, which is not permissible in law. The change of opinion is not allowed. It is well settled law that the Assessing Officer cannot review his own order under the garb of reassessment. As date of grant of interest and non-receipt of interest is relevant to determine the year of taxability of the same. Undisputedly, the interest has been granted in Assessment Year 2007-08 and, therefore, the interest was not chargeable to tax in the current year, and thus, the Assessing Officer cannot have a reason to believe that in the current year, any income has escaped assessment. Qua the issue in assessee s appeal following the ratio laid down by the Special Bench of this Tribunal in case of Avada Trading Co. (P) Ltd v ACIT 2006 (1) TMI 465 - ITAT MUMBAI and followed in the case of Hindustan Unilever Ltd . 2012 (12) TMI 458 - ITAT MUMBAI , we find that interest on income tax cannot be said to be chargeable to tax in current year as the same was granted in Assessment Year 2007-08 and thus, the reopening initiated by the Assessing Officer was bad in law. Claim of demerger expenditure u/s 35DD - Demerger of the assessee company s investment business to M/s. CHI Investments Ltd. does not fall under the definition of demerger specified in Section 2(19AA) - As assessee had claimed demerger expenditure u/s 35DD of the Act and the said fact was mentioned in the Tax Audit report that was available with the AO It was further submitted that during the course of original assessment proceedings, the assessee vide letter dated 15.12.2010 furnished details to the Assessing Officer regarding allowability of claim of expenses relating to demerger. Hence, the Assessing Officer was aware about the fact that demerger had taken place during the year at the time of original assessment proceedings. The decision of the Hon'ble Bombay High Court approving the scheme of demerger of investment undertaking of the assessee was available with the Assessing Officer. Thus, no new material came to the knowledge of the Assessing Officer subsequent to the order passed u/s 143(3) of the Act dated 28.12.2010. In the absence of any new tangible material, reopening on the same set of facts is not permissible. Assessing Officer cannot have reason to believe that income has escaped assessment, which in fact is amounting to challenge the finding of the Hon ble Bombay High Court. The transaction of demerger cannot be said to be for the purpose of evasion of tax. The objection, if any, could have been raised by the Assessing Officer at the time when the Scheme was pending with the Hon ble Bombay High Court. No such objection was raised by the Department, and nor the decision of Hon ble Bombay High Court approving the Scheme of Demerger was challenged before the Hon ble Supreme Court. The Assessing Officer cannot now form an opinion to the contrary and object to the scheme of demerger. Assessing Officer cannot have a reason to believe that the investment undertaking was not a separate undertaking of assessee, especially when no objection has been taken by the Assessing Officer before the Hon'ble High Court. Hence, reopening is invalid on this account also. Upon careful consideration we are of the opinion that we have already held that reopening in this case is not justified on several counts. Hence, this aspect of departmental claim of capital gain and the counter claim made by assessee that in fact assessee has suffered a loss are only of academic interest. Moreover, the claim of the assessee regarding loss would also need reference to various factual details which are not available on record. Adjudication of this aspect would call for a remand also from the Assessing Officer. When we have already held that reopening is invalid for a plethora of reasons, we are of the opinion that there is no need to initiate multiplicity of proceedings.
Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act. 2. Addition of interest on income tax refund to the assessee's total income. 3. Allowability of education cess and higher and secondary education cess as a deduction. 4. Deletion of addition on account of capital gains by CIT(A). 5. Whether the demerger of the investment undertaking falls within the ambit of Section 47(vib) read with Section 2(19AA) of the Income Tax Act. Detailed Analysis: 1. Validity of Reopening the Assessment under Section 147 of the Income Tax Act: The assessee contended that the reopening of the assessment by the Assessing Officer (AO) was invalid as it was based on the same set of facts that were already considered during the original assessment. The Tribunal observed that the AO had formed a new opinion on the same facts available during the original assessment, which is not permissible. The Tribunal cited the Bombay High Court's rulings in Asian Paints v. Dy. CIT and CIT Vs. Jet Speed Audio Pvt. Ltd., stating that reopening based on a change of opinion is not allowed. Consequently, the Tribunal held that the reopening of the assessment was bad in law and void ab initio. 2. Addition of Interest on Income Tax Refund to the Assessee's Total Income: On the merits, the assessee argued that the interest on the income tax refund received should be taxed in the year it was granted, which was the assessment year 2007-08, not the current year 2008-09. The Tribunal agreed, referencing the Special Bench decision in Avada Trading Co. (P) Ltd v. ACIT and the case of Hindustan Unilever Ltd v. Addl. CIT, which held that interest on income tax refund is taxable in the year it is granted. Thus, the Tribunal concluded that the interest could not be taxed in the current year and upheld the assessee's appeal on this ground. 3. Allowability of Education Cess and Higher and Secondary Education Cess as a Deduction: The assessee raised an additional ground seeking the deduction of education cess and higher and secondary education cess while computing income under the head "Profits and Gains of Business or Profession." The Tribunal found this issue to be covered in favor of the assessee by the Bombay High Court's decision in Sesa Goa Ltd Vs. CIT. Consequently, the Tribunal allowed this ground of appeal. 4. Deletion of Addition on Account of Capital Gains by CIT(A): The Department challenged the CIT(A)'s decision to delete the addition of ?332,65,62,293 on account of capital gains. The Tribunal noted that the CIT(A) had made detailed observations and concluded that the demerger met all the conditions stipulated under Section 2(19AA) of the Act. The Tribunal upheld the CIT(A)'s decision, finding no merit in the Department's appeal. 5. Whether the Demerger of the Investment Undertaking Falls within the Ambit of Section 47(vib) read with Section 2(19AA) of the Income Tax Act: The Tribunal examined whether the demerger of the investment undertaking qualified under Section 47(vib) read with Section 2(19AA). The AO had contended that the demerger did not meet the criteria, but the Tribunal found that the demerger was approved by the Bombay High Court and met all the conditions of Section 2(19AA). The Tribunal also noted that the Department had not raised any objections during the High Court proceedings. Consequently, the Tribunal held that the demerger was valid under the Income Tax Act, and the addition of capital gains was not justified. Conclusion: The Tribunal allowed the assessee's appeal, declaring the reopening of the assessment invalid and void ab initio. It also upheld the CIT(A)'s decision to delete the addition on account of capital gains and allowed the deduction of education cess. The Department's appeal was treated as infructuous.
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