2018 (2) TMI 2129 - AT - Income Tax

Reopening of assessment u/s 147 - deduction u/s 80IA - deduction on interest income (including penal interest income and other income - HELD THAT - We note that it is not the case of earning the interest income from the surplus fund deposited in the bank or other incomes are not connected with the business activity of the assessee developing and maintaining industrial parks but the interest and penal interest received by the assessee in respect of the late payment made by the allottees. The other incomes though it is very small amount is also in respect of the maintenance and fee for sanction of plans etc and therefore, it is apparent that on this issue there is a possibility of two views. When the AO has allowed the claim of the assessee u/s 80IA in the original assessment claim u/s 143(3) and also not disturbing the said claim in the first reassessment order passed u/s 143(3) r.w.s. 147 of the Act then the reopening for the purpose of the disallowing the said deduction on the issue on which two views are possible is not permissible in the absence of any fresh material came to the knowledge of the AO which could lead to the formation of belief that the income chargeable to tax has escaped assessment due to excess deduction u/s 80IA of the Act allowed in the original assessment. It is not the case of claim of deduction u/s 80IA of the Act allowed by the AO which is absolutely not permissible under the Act but the opinion of the AO in allowing the claim in the original assessment u/s 143(3) is a possible view. Accordingly, in view of the facts that the interest and penal interest was received as part of the other Revenue earned by the assessee from the allottees and from the activity of developing, maintaining and operating the industrial parks then the case of the assessee does not fall in the category of absolute impermissible claim. Hence, the reopening based on change of opinion is not permissible under the law and the same is held as invalid. Accordingly, we set aside the reopening u/s 148 as invalid and consequently quash the reassessment framed by the AO. Decided against revenue.

Summary

html

1. ISSUES PRESENTED and CONSIDERED

The judgment from the Appellate Tribunal ITAT Jaipur revolves around the following core legal questions:

• Whether the Commissioner of Income Tax (Appeals) erred in allowing the deduction of Rs. 11,52,52,892/- on interest income, including penal interest, under Section 80IA of the Income Tax Act, 1961.
• Whether the reopening of the assessment under Section 147 of the Income Tax Act was valid.
• Whether the assessee was entitled to a deduction under Section 80IA on other miscellaneous income of Rs. 26,02,007/-.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deduction on Interest Income under Section 80IA

• Relevant Legal Framework and Precedents: Section 80IA of the Income Tax Act provides deductions for profits and gains from industrial undertakings or enterprises engaged in infrastructure development. The precedents cited include the Supreme Court's decision in Liberty India vs. CIT.
• Court's Interpretation and Reasoning: The court examined whether the interest income, including penal interest, was eligible for deduction under Section 80IA. The court noted that the interest income was derived from the late payment by allottees and was part of the business activity of developing and maintaining industrial parks.
• Key Evidence and Findings: The court found that the interest income was disclosed in the income and expenditure account and was considered during the original assessment. The assessee had provided all necessary documents, including audit reports, during the initial proceedings.
• Application of Law to Facts: The court applied the principle that if income is directly related to the business activity eligible for deduction, it should be considered under Section 80IA. The interest income was deemed connected to the business of operating industrial parks.
• Treatment of Competing Arguments: The Revenue argued that the interest income was not eligible for deduction as it was not directly related to the business activity. However, the court found that the interest was part of the business transactions with allottees.
• Conclusions: The court held that the interest income, including penal interest, was eligible for deduction under Section 80IA as it was part of the business activity of developing and maintaining industrial parks.

Issue 2: Validity of Reopening under Section 147

• Relevant Legal Framework and Precedents: Section 147 allows for reassessment if income has escaped assessment. The court referenced the Supreme Court's decision in CIT vs. Kelvinator of India Ltd., which emphasizes that reopening based on a mere change of opinion is not permissible.
• Court's Interpretation and Reasoning: The court scrutinized whether the reopening was based on new material or merely a change of opinion. It was found that the reopening was based on re-evaluation of existing records without any new evidence.
• Key Evidence and Findings: The court noted that all relevant facts were disclosed during the original assessment, and the reopening was initiated without any new information.
• Application of Law to Facts: The court applied the principle that reopening requires fresh evidence or material. Since the reopening was based on the same material as the original assessment, it was deemed a change of opinion.
• Treatment of Competing Arguments: The Revenue contended that the reopening was justified due to excessive allowance. However, the court found no new material to support this claim.
• Conclusions: The court concluded that the reopening under Section 147 was invalid as it was based on a change of opinion without new material evidence.

Issue 3: Deduction on Miscellaneous Income under Section 80IA

• Relevant Legal Framework and Precedents: Section 80IA covers profits and gains from eligible business activities. The court considered whether miscellaneous income was connected to such activities.
• Court's Interpretation and Reasoning: The court examined whether the miscellaneous income was derived from the business of developing and maintaining industrial parks.
• Key Evidence and Findings: The court found that the miscellaneous income was related to activities such as maintenance and sanction fees, which were part of the business operations.
• Application of Law to Facts: The court applied the principle that income directly related to eligible business activities should be considered under Section 80IA.
• Treatment of Competing Arguments: The Revenue argued that the miscellaneous income was not eligible for deduction. The court found that it was part of the business operations.
• Conclusions: The court held that the miscellaneous income was eligible for deduction under Section 80IA as it was connected to the business of operating industrial parks.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The opinion formed by the AO on the basis of the re-appreciation of material already available on record is nothing but mere change of opinion."
• Core Principles Established: Reopening of assessment requires new material, and deductions under Section 80IA should include income directly related to eligible business activities.
• Final Determinations on Each Issue: The court invalidated the reopening under Section 147 and allowed deductions under Section 80IA for interest and miscellaneous income.