1993 (8) TMI 141 - AT - Income Tax

Summary

Issues:
Reassessment under section 147(b) disallowing interest payment of Rs. 81,653, Jurisdiction of CIT (A) in upholding reassessment, Interpretation of law by Audit Party, Reopening of assessment based on audit objection, Admissibility of interest payment as deduction.

Analysis:

The appeal was against the reassessment under section 147(b) disallowing interest payment of Rs. 81,653. The CIT (A) upheld the reassessment, stating that the reopening was justified. The assessee argued that the reassessment was a change of opinion and lacked jurisdiction. The assessment year was 1981-82, and the interest payment was initially allowed as a deduction in the original assessment under section 143(3).

The assessment was reopened due to information that disallowances were not made in the original assessment. The audit objection raised questions about interest payments, leading to the reassessment disallowing the interest payment. The CIT (A) concluded that the Audit did not interpret the law but merely pointed out facts. The assessee contended that the audit's inference of law was unwarranted.

The Tribunal analyzed whether the audit objection was a mere factual observation or an interpretation of law. It found that the audit implied that the interest payments were not admissible as deductions, leading to underassessment. The Tribunal held that the reassessment based on the audit's legal interpretation was not justified, as the audit party could not declare or interpret law.

The Tribunal referred to the Supreme Court's judgment in A.L.A. Firm v. CIT, emphasizing that an error discovered from the same material does not justify reassessment. It rejected the revenue's argument that the Assessing Officer's realization of a mistake constituted 'information' under section 147(b). The Tribunal concluded that the reassessment was not warranted and canceled it.

In summary, the Tribunal allowed the appeal, setting aside the reassessment made under section 147(b) as it was not justified in law and on facts. The reassessment disallowing the interest payment of Rs. 81,653 was canceled.