2021 (12) TMI 870 - AT - Income Tax

Validity of reassessment proceedings - Proof of Change of opinion - initiation of reassessment proceedings on the ground that there is interest income and interest expenses which was shown Nil in the column of loan funds - HELD THAT - The reopening in the present case has been done on the claim of interest expenses. The assessee in the original return of income has not mentioned the amount regarding loan funds. As per Section 147, Explanation-3 for the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issues which are escaped assessment and such issue comes to the notice subsequently in the course of proceedings under this section, notwithstanding that the reason for said issue has not been included in the reasons recorded under sub Section-2 of Section 148. The contention of the assessee that there is change of opinion is not a valid contention as in the present case the assessee has not decided the issue related to notice whether issue within the period of four years from the end of relevant Assessment Year. In the present case, the assessee admittedly stated that Tax Consultant committed error by not mentioning loan fund in the original return of income. The Assessing Officer in the original assessment dated 12.02.2016 has never doubted the claim of interest and there is no mention of actual disclosure of claim of interest at any stage of its Assessment Order. Thus, the Assessing Officer in assessment under Section 143(3) of the Act has not noticed that there is escapement of certain issues in the Assessment Order/assessment proceedings. Thus, explanation of section 147, to be specific Explanation-3, will come into picture and it will not amount to change of opinion. Thus, ground no. 1 of assessee's appeal is dismissed. Merits of the case Assessee has explained before the Assessing Officer that the loan fund was mentioned in the return of income filed in response to notice under Section 148 of the Act and thus the assessee has made valid claim of interest expenses on borrowed fund. The same should have been allowed by the Assessing Officer. Hence, the appeal of the assessee is partly allowed.

Summary

Issues:
1. Validity of reassessment proceedings based on change of opinion.
2. Disallowance of interest expense incurred on loan funds.
3. Disallowance of genuine interest expenses due to lack of loan funds or current liabilities.
4. Justification of interest levy under sections 234A, 234B, and 234C of the Act.
5. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Issue 1: Validity of reassessment proceedings based on change of opinion:
The assessee challenged the validity of reassessment proceedings, arguing that the basis of reopening was a change of opinion, which is not permissible under law. The Assessing Officer noticed discrepancies in the interest income and expenses, leading to the reopening of the assessment. The tribunal held that the failure to disclose loan funds and the subsequent claim of interest expenses without proper documentation constituted an escapement of income. The tribunal cited relevant legal precedents to establish that the reassessment was not a mere change of opinion but a valid exercise under Section 147 of the Income Tax Act.

Issue 2: Disallowance of interest expense incurred on loan funds:
The Assessing Officer disallowed the interest expense claimed by the assessee due to the absence of loan funds or current liabilities mentioned in the original return of income. The tribunal noted that the assessee later clarified the presence of loan funds in the revised return filed in response to the reassessment notice. Considering this clarification and supporting documentation, the tribunal partly allowed the appeal, stating that the interest expenses on borrowed funds should have been allowed.

Issue 3: Disallowance of genuine interest expenses due to lack of loan funds or current liabilities:
The tribunal observed that the original return of income did not mention loan funds, leading to the disallowance of interest expenses by the Assessing Officer. The tribunal emphasized the importance of proper disclosure and documentation in claiming deductions. While the tribunal acknowledged the inadvertent error in the initial return, it upheld the disallowance due to the lack of loan fund disclosure. However, upon considering the revised return and additional evidence provided, the tribunal partially allowed the appeal, recognizing the genuineness of the interest expenses.

Issue 4: Justification of interest levy under sections 234A, 234B, and 234C of the Act:
The tribunal did not provide specific details or analysis related to the justification of interest levy under the mentioned sections of the Income Tax Act. Hence, no further information is available regarding this issue in the judgment.

Issue 5: Initiation of penalty proceedings under section 271(1)(c) of the Act:
The judgment did not elaborate on the outcome or analysis of the initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act. Therefore, no detailed information is available regarding this issue in the judgment.

In conclusion, the tribunal addressed the challenges raised by the assessee regarding the validity of reassessment proceedings and the disallowance of interest expenses. While upholding the reassessment as valid due to the non-disclosure of loan funds, the tribunal acknowledged the subsequent clarification provided by the assessee and allowed the appeal partially in favor of the assessee. The judgment emphasized the importance of accurate disclosure and documentation in income tax assessments and highlighted the significance of supporting evidence in claiming deductions.