2020 (3) TMI 783 - AT - Income Tax

Reopening of assessment us 147 - waiver of principal component under O.T.S scheme which was already considered by the appeal order passed by the learned CIT(A) against the original assessment order and allowed in assessee s favour - HELD THAT - It is clear from the assessment order that the assessment was reopened by issue of notice u/s 148 on 19.03.2012 to disallow the expenditure as the assessee had not carried on any business activity during the year. The claim of expenditure, therefore, was not in relation to the income offered - In the re-assessment made under Section 143(3) r.w.s.147 dated 18.03.2013, the A.O., inter alia made disallowance of ₹ .2,23,92,916/- towards interest and finance charges and waiver of principal component under O.T.S Scheme. Reason for reopening the assessment was for assessing the expenditure claimed at ₹ 3,83,62,305/- and not to consider the waiver of principal component under O.T.S Scheme. Since notice under Section 147 was issued within four years from the end of the relevant assessment year, in the absence of any material/evidence from the assessee s side that the issues on which reopening was made was already examined and considered by the A.O., it is not possible to hold that re-opening of the assessment was invalid. Therefore, corresponding grounds of assessee fail. There is merit in the assessee s plea that in the re-assessment made the A.O. should not have made addition towards waiver of principal component under O.T.S Scheme, which was originally proposed by the A.O for an enhancement before the learned CIT(A) against the original assessment order, which was duly considered by the learned CIT(A) and rejected it in his order, which was ultimately sustained by the ITAT. Therefore, the A.O. should not have once again added such sum in this re-assessment order. Hence, the A.O. is directed to delete that addition. With regard to assessee s plea that the expenditure disallowed in respect of interest and finance charges paid is allowable under Section.43B of the Act etc., it is clear from the Appellate Authorities order that the assessee pleaded that it has carried on various activities, which required to upkeep the business infrastructure and to maintain business sustainability etc. The assessee has also pleaded that it had paid the interest and finance charges, thereafter only it got the one time settlement, part of which was already assessed. Interest and finance charges actually paid by the assessee should be allowed under Section 43B. On this issue, it appears that the facts and associated circumstances have not been properly examined by the lower authorities. Therefore, we deem it fit to remit this issue back to the file of A.O. for a fresh examination, to verify as to whether the assessee continued its business or not during the period relevant to assessment year, why and how the assessee has incurred the impugned interest and finance charges whether such expenditure was connected to its business or other sources of income, whether if the interest and finance charges were paid during the year, whether it is allowable under Sections 28 to 43 of the Act or under the head other sources etc., and then decide the issues in accordance with law. The assessee shall place relevant materials in support of its contentions before the A.O. and comply with the requirements of the A.O. in accordance with law. The A.O. is also free to conduct appropriate enquiry as deemed fit. The A.O. after affording effective opportunity to the assessee shall decide the matter on merits. - Appeal of assessee is partly allowed for statistical purposes.

Issues:
1. Validity of reopening assessment based on waiver of principal component under O.T.S Scheme.
2. Disallowance of interest and finance charges incurred by the assessee.
3. Proper examination of facts and circumstances related to expenditure disallowed by the assessing officer.

Issue 1: Validity of Reopening Assessment
The assessee challenged the reopening of assessment, arguing that it was done to consider the waiver of the principal component under the O.T.S Scheme, which had already been addressed in the appeal order passed by the CIT(A) against the original assessment. However, the assessment was reopened to disallow expenditure claimed by the assessee due to lack of business activity during the relevant year. The assessing officer made disallowances towards interest and finance charges and waiver of principal component under the O.T.S Scheme. The Tribunal found that the reopening was valid as it was done within four years from the end of the relevant assessment year. The Tribunal directed the AO to delete the addition made towards the waiver of principal component under the O.T.S Scheme, as it had already been considered and rejected by the CIT(A) and ITAT.

Issue 2: Disallowance of Interest and Finance Charges
The assessee contended that the interest and finance charges disallowed by the AO were incorrect as they had already been paid, and only a one-time settlement was granted by the bank. The Tribunal noted that the AO should not have added the sum towards the waiver of principal component under the O.T.S Scheme in the reassessment order, as it had been previously rejected by the CIT(A) and ITAT. Regarding the disallowed interest and finance charges, the Tribunal found that the lower authorities had not properly examined the facts. Therefore, the issue was remitted back to the AO for fresh examination to determine if the expenditure was connected to the business, whether it was allowable under relevant sections of the Act, and to decide the matter in accordance with the law.

Issue 3: Examination of Disallowed Expenditure
The Tribunal emphasized the need for a thorough examination of the interest and finance charges incurred by the assessee. It directed the AO to verify whether the expenditure was related to the business activities, if it was paid during the relevant year, and if it was allowable under the relevant sections of the Act. The Tribunal instructed the assessee to provide necessary materials to support its contentions and comply with the AO's requirements. The AO was given the freedom to conduct an appropriate inquiry and decide the matter on merits after affording the assessee an effective opportunity.

In conclusion, the Tribunal partly allowed the appeal of the assessee for statistical purposes, directing the AO to delete the addition made towards the waiver of principal component under the O.T.S Scheme and to re-examine the disallowed interest and finance charges in accordance with the law.

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