2023 (1) TMI 157 - AT - Income Tax

Reopening of assessment u/s 147 - reopening beyond a period of 4 years - addition on account of interest on advances - HELD THAT - What can be observed is that as with regard to addition there was no notice to the assessee that the Ld. AO had considered it to be one which escaped assessment and the assessee was only made to explain the expenditure shown on account of loss on sale of repossessed assets and excess deduction. Certainly with regard to additions made on account of interest on inter-corporate deposits, there was no actual show cause notice. It can be further observed from matter on record that in original assessment the question of claim of loss of Rs. 2,95,61,000 /- on sale of vehicles are repossessed by the assessee company from defaulter parties was considered as is manifested by letter dated 23.10.2008 of the assessee addressed to the Ld. AO and the same being on paper book at page no. 7. There is no doubt in the mind of the Bench that at one end the Reasons cited in notice u/s 148 of the Act was erroneous with regard to calling for reassessment in regard to a factor which was already examined in the original assessment. On the other hand, in the assessment order an addition was made in regard to a head for which actually there was no show cause issued. Thus, the bench is of considered opinion that Ld. AO had error in invoking jurisdiction u/s 147 of the Act, therefore, these grounds no. 1 and 1.1 of the assessee are allowed.

Issues:
1. Jurisdictional error in reopening the assessment after four years.
2. Disallowance of loss on repossessed assets.
3. Addition of interest on inter-corporate deposits.
4. Failure to pass a separate order on objections raised by the assessee.
5. Failure to recompute income within the specified time limit.

Jurisdictional Error in Reopening Assessment:
The appellant challenged the initiation of assessment proceedings under section 147 of the Income Tax Act, contending that the assessment was reopened after a period of four years without any failure on their part to disclose material facts. The CIT(A) disallowed this ground, but the ITAT found that the reasons cited in the notice for reassessment were erroneous and the AO had erred in invoking jurisdiction under section 147. The ITAT allowed the grounds raised by the assessee, declaring the reassessment illegal and setting it aside with consequential effects.

Disallowance of Loss on Repossessed Assets:
The appellant contested the disallowance of the claim towards loss on repossessed assets, and the appeal was allowed by the First Appellate Authority. However, the addition made by the AO on account of interest on inter-corporate deposits was confirmed. The ITAT observed that the AO had made errors in the assessment, as the income allegedly escaped did not match the additions made, and the AO failed to pass a separate order on objections raised by the assessee to the notice issued under section 148.

Addition of Interest on Inter-corporate Deposits:
The First Appellate Authority upheld the addition made by the AO on account of interest on advances not recognized in the Profit & Loss Account. The Revenue appealed this decision, arguing that the AO was correct in considering the expenditure as a capital loss and that the First Appellate Authority erred in deleting the addition. However, the ITAT found that there was no actual show cause notice regarding the additions made on account of interest on inter-corporate deposits.

Failure to Pass Separate Order on Objections:
The appellant raised concerns about the AO not passing a separate order on the objections raised to the notice issued under section 148, citing a violation of the judgment of the Supreme Court in G.K.N. Driveshafts case. The ITAT noted this failure by the AO, further strengthening the grounds raised by the assessee regarding the jurisdictional error in reopening the assessment.

Failure to Recompute Income within Time Limit:
The ITAT highlighted that the AO failed to recompute the income within the specified time limit, as directed by the First Appellate Authority. This failure, coupled with the errors in invoking jurisdiction under section 147, led the ITAT to allow the grounds raised by the assessee and dismiss the appeal of the revenue.

This comprehensive analysis of the legal judgment covers the issues involved, the arguments presented by both parties, and the final decision rendered by the ITAT, emphasizing the errors made by the AO and the consequential effects on the reassessment.

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