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2020 (1) TMI 860 - AT - Income TaxReopening of assessment u/s 147 - Non-accounting of interest income on loan even though the management of the company considered it good and recoverable - HELD THAT - Re-assessment has to be based on fulfillment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the AO. Hence, after 1.4.1989, the AO has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. In reassessment proceedings, the AO took the stand that the assessee company has not accrued interest on the loan of ₹ 228.38 lakhs , therefore income has escaped assessment. We note that the issue relating to accrued interest on the loan of ₹ 228.38 lakhs has already been examined by AO during the original assessment proceedings u/s 143(3) of the Act, hence it is not a new tangible material therefore reassessment proceedings is bad in law and not valid in the eye of law. We note that in the case of Indian and Eastern Newspaper Society Vs. CIT 1979 (8) TMI 1 - SUPREME COURT wherein it was held that an error discovered on a reconsideration of the same material (and no more) does not give AO power to assume jurisdiction to make reassessment. The aforesaid view on the above proportion has been reiterated by the Apex Court in A.L.A. Firm vs. CIT 1991 (2) TMI 1 - SUPREME COURT CIT(A) failed to appreciate that the A.O. has already made the scrutiny assessment u/s.143(3) in the assessee s case and looked into all details and documents including audited balance sheet and Tax Audit Report submitted to him and has made several additions on the basis of said Balance sheet and Tax Audit Report. From the reasons recorded (Page-3 of Paper Book) it is clear that the assessment has been reopened on the basis of Clause-18 of Schedule-22(B) of Notes on Accounts given in the Balance sheet. The said balance sheet and clause-18 alleged by the A.O. was already before the A.O. during the original assessment proceedings and has been examined by him. There was no new material so as to believe that the income chargeable to tax has escaped assessment. Therefore, it is abundantly clear that in the assessee s case under consideration there is no any tangible material to reopen the concluded proceedings, as the issue relating to accrued interest on the loan of ₹ 228.38 lakhs had already been examined by AO during the original assessment u/s 143(3) of the Act, which was completed on 31.03.2006, hence we quash the reassessment proceedings. - Decided in favour of assessee. Accrual of income - Addition as notional interest on loan - Whether no interest was accrued or receivable by the assessee on the said loans - HELD THAT - We note that Hon ble Supreme Court in the case of UCO Bank 1999 (5) TMI 3 - SUPREME COURT has held that tax should be imposed on the real income. We note that ld Counsel placed before the Bench the resolution of Board of Directors of the assessee company which clearly states that recovery of the interest is doubtful therefore interest had not been accrued by the assessee company. We note that there is no real accrual of interest to the assessee-company in respect of the loan advanced by it. Considering the bad financial position of the debtor companies, the management of the Company decided not to charge interest on the loans w.e.f. 01.04.2000 as mutually agreed with the loan debtor ( vide Board Resolution noted above). Therefore, we find force in the argument of the ld. Counsel and addition made by the A.O. for notional interest on loan given is hereby directed to be deleted. - Decided in favour of assessee.
Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act. 2. Addition of notional interest on loans as income. Issue-wise Detailed Analysis: 1. Validity of Reassessment Proceedings under Section 147: The primary issue was whether the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act were valid. The assessee argued that the conditions precedent for reopening the assessment did not exist and were not satisfied. There was no fresh material, and the reopening of assessment was on mere change of opinion. The Tribunal noted that during the original assessment proceedings under Section 143(3), the assessee had submitted audited balance sheets, which included information about interest accrued on loans. The AO had already examined this information during the original assessment. The Tribunal held that since this material was already examined, it did not constitute "tangible material" for reassessment. Reopening the assessment on the same issue amounted to a review of the original assessment, which is not permitted under the Act. The Tribunal referred to the case of CIT vs. Kelvinator of India Ltd. (320 ITR 561(SC)), where it was held that the AO has no power to review; he has the power to reassess, provided there is "tangible material" to conclude that income has escaped assessment. The Tribunal concluded that the reassessment proceedings were invalid as they were based on a mere change of opinion without any new tangible material. 2. Addition of Notional Interest on Loans as Income: The second issue was the addition of notional interest on loans as income. The AO had added notional interest on the principal loan amounts, considering the loans as good and recoverable. The assessee argued that no interest was accrued or receivable on these loans as it was a business decision by the management, considering the bad financial position of the debtor companies. The Tribunal examined the Board resolution passed by the company, which stated that no interest would be charged on the loans from 01.04.2000 due to the financial difficulties of the debtor companies. The Tribunal cited the case of UCO Bank vs. CIT (237 ITR 889 (SC)), where it was held that interest on doubtful loans transferred to a suspense account and not brought to the profit and loss account should not be treated as income until actually received. The Tribunal also referred to the case of CIT vs. Goyal M. G. Gases Pvt. Ltd. (303 ITR 159 (Delhi)), where it was held that there must be real accrual of income, and if the realization of even the principal amount is in jeopardy, there cannot be any real accrual of income by way of interest. The Tribunal concluded that there was no real accrual of interest to the assessee-company in respect of the loans advanced. The decision not to charge interest was a business decision supported by the Board resolution. Therefore, the addition of notional interest by the AO was not justified and was directed to be deleted. Judgment: The Tribunal allowed the appeals filed by the assessee for the Assessment Years 2003-04, 2004-05, and 2006-07, quashing the reassessment proceedings and deleting the additions of notional interest on loans. The order was pronounced in the open court on 20/01/2020.
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