2017 (11) TMI 270 - AT - Income Tax

Initiation of reassessment proceedings - disallowance of interest on customer deposit accounts - Held that - When the AO passed original order for the current year allowing deduction of interest on customers deposit accounts, he was fully aware of the similar expenditure having been disallowed for the preceding year. Still allowing deduction in the instant year was a conscious and considered decision on the point. Thus it is manifest that there is absence of any tangible material coming into the possession of the Assessing Officer after the passing of the original assessment order u/s 143(3) for the year under consideration indicating escapement of income. As evident that the Assessing Officer initiated reassessment proceedings on a mere change of opinion without there being any tangible material. Respectfully following the judgment in the case of Kelvinator (2010 (1) TMI 11 - SUPREME COURT OF INDIA ) and other numerous judgments on the point, we set aside the initiation of reassessment proceedings and the consequential order passed by the Assessing Officer. In view of our decision on the invalid initiation of reassessment proceedings, there is no need to dispose of the grounds raised by both the sides on merits. - Decided in favour of assessee.

Summary

Issues:
Initiation of reassessment proceedings based on disallowance of interest on customer deposit accounts for A.Y. 2007-08.

Analysis:
The judgment dealt with two cross-appeals arising from the order passed by the CIT(A) for the assessment year 2007-08. The Assessing Officer initiated reassessment proceedings based on disallowance of interest on customer deposit accounts. The assessee objected to the initiation of reassessment, which was dismissed, leading to an addition of ?1,97,40,000. The CIT(A) upheld the initiation of reassessment and allowed partial relief on merits, leading to both sides being aggrieved. The primary contention of the assessee was against the initiation of reassessment proceedings.

The reasons for initiating reassessment proceedings included the disallowance of interest on customer deposit accounts under section 37 of the Income Tax Act. The Assessing Officer relied on the judgment of the Supreme Court regarding deductibility of expenditure for income tax purposes. The reassessment was based on the disallowance of similar interest in the previous assessment year 2006-07. However, the Tribunal observed that the reassessment was initiated without any tangible material indicating income escapement, solely based on a change of opinion, which is impermissible as per legal precedents. The Tribunal noted that the Assessing Officer was aware of the previous disallowance when passing the original order for the current year, indicating a conscious decision. Therefore, the reassessment proceedings were set aside as invalid.

In conclusion, the Tribunal allowed the appeal of the assessee and dismissed that of the Revenue, emphasizing the impermissibility of reassessment based solely on a change of opinion without any tangible material post original assessment. The judgment was pronounced on 25.10.2017 by the ITAT Delhi.