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2022 (4) TMI 626 - HC - Income TaxReopening of assessment u/s 147 - broken period interest should be treated as capital expenditure and not revenue expenditure - HELD THAT - Having read the reasons, we are satisfied that reasons do not disclose any such non-disclosure. The reasons relied purely on the Judgment of Vijaya Bank Ltd. 1990 (9) TMI 5 - SUPREME COURT and CBDT Circular and disallowance made in the assessment year 2010-11 for reopening. As regards, Judgment of Apex Court in Vjaya Bank 1990 (9) TMI 5 - SUPREME COURT this Court has, in the case of American Express International Banking Corporation. 2002 (9) TMI 96 - BOMBAY HIGH COURT distinguished Vijay Bank (supra) and held that broken period interest should be treated as revenue expenditure and not capital expenditure. An SLP against this Judgment in American Express International Banking Corporation (supra) was also dismissed by the Supreme Court. We note that during the assessment proceedings, Petitioner was called upon to, by a letter dated 16th September, 2010 from DCIT, to file complete details of broken period interest as on 31 st March, 2008 and also explain as to why the same should not be taken into income and taxed accordingly. Petitioner filed its response by a letter dated 11th October, 2010 and informed DCIT that Petitioner has been consistently treating the broken period interest as revenue item - Thus where a query is raised and answer is given, even if there is no discussion in the assessment order, it should be treated as having been considered by the Assessing Officer during assessment proceedings. Even reliance on the disallowance made for assessment year 2010-2011 is of no assistance to revenue because ITAT has, in its order pronounced on 12th January, 2018, relying upon American Express International Banking Corporation (supra) and other Judgments, has held that broken period interest has to be treated as revenue expenditure and not capital expenditure. Therefore, the basis for forming reasons to believe has to fail. - Decided in favour of assessee.
Issues:
1. Reopening of assessment under Section 148 of the Income Tax Act, 1961 for the assessment year 2008-09 based on the belief that income has escaped assessment. 2. Application of proviso to Section 147 of the Act regarding failure to disclose material facts. 3. Treatment of broken period interest as capital expenditure or revenue expenditure. 4. Consideration of previous assessment proceedings and judicial decisions regarding broken period interest. 5. Pending Appeals by Revenue on the treatment of broken period interest. Issue 1: Reopening of Assessment: The Petitioner received a notice under Section 148 for the assessment year 2008-09, alleging income escapement based on the treatment of broken period interest as capital expenditure. The Respondent argued that since no disallowance was made for broken period interest in 2008-09, there was an escapement of income. However, the Court found that the reasons for reopening did not establish non-disclosure of material facts by the Petitioner, as it primarily relied on the Vijaya Bank Ltd. judgment and CBDT Circular. The Court noted that the Petitioner had addressed queries on broken period interest during assessment proceedings, even though not explicitly discussed in the assessment order. Issue 2: Proviso to Section 147: Since the notice was issued after four years from the relevant assessment year, the proviso to Section 147 applied. The Respondent needed to demonstrate a failure to fully and truly disclose material facts by the Petitioner to justify the reopening. However, the Court found that the reasons provided did not indicate such non-disclosure, leading to the allowance of the Petitioner's claim. Issue 3: Treatment of Broken Period Interest: The Respondent argued for treating broken period interest as capital expenditure based on the Vijaya Bank Ltd. judgment and CBDT Circular. However, the Court referred to the American Express International Banking Corporation case, where it was held that broken period interest should be treated as revenue expenditure. The Court also highlighted that the ITAT, in a subsequent order, supported this view, rendering the basis for reopening the assessment invalid. Issue 4: Previous Assessment Proceedings and Judicial Decisions: The Court considered the Petitioner's consistent treatment of broken period interest as a revenue item in earlier years, which was allowed by the Commissioner of Income Tax. Additionally, the Court noted that the American Express International Banking Corporation judgment had dismissed the Special Leave Petition filed by the department, reinforcing the treatment of broken period interest as revenue expenditure. Issue 5: Pending Appeals by Revenue: The Court expressed surprise at the Revenue's persistence in pending Appeals regarding broken period interest, despite previous judgments favoring the assessee. The Court urged the concerned departmental head to reconsider the viability of keeping such Appeals active. Ultimately, the Petition was allowed, quashing the notice and order related to the assessment year 2008-09. In conclusion, the Court's decision favored the Petitioner, emphasizing the importance of consistent treatment of broken period interest as a revenue item and highlighting judicial precedents supporting this treatment. The judgment underscored the need for a thorough assessment of facts before reopening assessments and the significance of judicial decisions in determining the tax treatment of specific items.
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