2023 (7) TMI 800 - AT - Income Tax

Reopening of assessment u/s 147 - Admissibility of interest expenses claimed by assessee u/s 57(iii) - change of opinion - As assessee argued in original assessment deduction was allowed on the same set of fact and even in the excess deduction was allowed will be changed of opinion - HELD THAT - The use of the words reason to believe in section 147 has to be interpreted schematically as the liberal interpretation of the word would have the consequence of conferring arbitrary powers on the AO who may even initiate such reassessment proceedings merely on his change of opinion on the basis of same facts and circumstances which have already been considered by him during the original assessment proceedings. Such could not be the intention of the legislature. The said provision was incorporated in the scheme of the IT Act so as to empower the Assessing Authorities to re-assess any income on the ground which was not brought on record during the original proceedings and escaped his knowledge; and the said fact would have material bearing on the outcome of the relevant assessment order. Section 147 does not allow the re-assessment of an income merely because of the fact that the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect of giving the AO the power of review and section 147 confers the power to re-assess and not the power to review. Thus reopening under section 147 is nothing but based on changed of opinion on same set of facts which is not valid. Thus the action of reopening of assessment is set aside. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reassessment proceeding initiated by the Assessing Officer (AO).
2. Confirmation of disallowance of interest expenses by the CIT(A).

Issue-wise Comprehensive Details:

1. Validity of Reassessment Proceeding:
The assessee challenged the reassessment proceeding initiated by the AO under section 147 of the Income Tax Act, 1961, arguing it was a "change of opinion." The original assessment was completed under section 143(3), and the AO had already examined the interest expenses claimed under section 57(iii). The assessee argued that the reassessment was based on the same set of facts and no new tangible material had come to light. The Tribunal referred to the Supreme Court's judgment in ITO Vs Tech Span India (P) Limited, emphasizing that reassessment should not be based on a mere change of opinion. The Tribunal concluded that the reassessment was invalid as it was based on a change of opinion rather than new material facts, thereby setting aside the reopening of the assessment.

2. Confirmation of Disallowance of Interest Expenses:
The assessee claimed a deduction of Rs. 6,49,951/- under section 57(iii) for interest paid on borrowed funds, arguing it was for commercial expediency and not for personal purposes. The AO disallowed this deduction, stating that the interest expenses were not incurred wholly and exclusively for earning income under the head "income from other sources." The CIT(A) upheld the AO's decision, noting that the assessee failed to prove the expenses were for business purposes and did not file a revised return. However, since the Tribunal found the reassessment itself invalid, the issue of disallowance of interest expenses became academic and was not adjudicated on merits.

Conclusion:
The Tribunal allowed the appeal, setting aside the reassessment proceeding initiated under section 147 as it was based on a change of opinion, making the issue of disallowance of interest expenses academic. The appeal was pronounced in open court on 18/07/2023.