2016 (6) TMI 942 - HC - Income Tax

Reopening of assessment - Held that - ITAT has committed an error travelling beyond the scope of its jurisdiction.Commissioner of Income-Tax Versus Bokaro Steel Limited 1998 (12) TMI 4 - SUPREME Court

Summary

Issues Involved:
1. Challenge to the order passed by the Income Tax Appellate Tribunal for the assessment year 1989-90.
2. Validity of reopening proceedings under Section 147 of the Income Tax Act, 1961.

Analysis:

Issue 1: Challenge to the Tribunal's Order
The appellant challenged the order passed by the Income Tax Appellate Tribunal where the Department's appeal was allowed, and the appeal filed by the assessee was dismissed. The Tribunal upheld the findings of the Assessing Officer regarding the disallowance of loss on the sale of shares and interest paid on borrowed funds for acquisition of shares. The High Court referred to a case involving the acquisition of shares and payment of interest on borrowed money, where it was held that interest paid on borrowed capital is to be allowed as capital expenditure. The Court emphasized that the interest in question cannot be part of the cost of production but is allowable against income from the investment and can be set off against income from other sources.

Issue 2: Validity of Reopening Proceedings
The appellant failed to file the return of income for the assessment year 1989-90, leading to the issuance of a notice under Section 148 of the Income Tax Act in 1997. The appellant contended that the Officer exceeded the scope of the notice, contrary to a previous decision by the High Court. The Court referred to a case where it was established that if an assessment is reopened, the Assessing Officer can assess any income that had escaped assessment during the proceedings. However, it was noted that the Assessing Officer cannot assess income that does not relate to the reasons for reopening the assessment. The Court emphasized the importance of establishing the failure to disclose material facts for reopening assessments beyond four years.

In conclusion, the High Court allowed the appeal, holding that the ITAT had erred in going beyond its jurisdiction. The Court referenced previous decisions and legal principles to support its conclusion, ultimately ruling in favor of the assessee-appellant and against the Department.