2022 (11) TMI 1134 - AT - Income Tax

Reopening of assessment u/s 147 - reason to believe - change of opinion - Deduction of interest expenditure u/s. 57 - Deduction as claimed to have been borne exclusively for earning of interest income on the investment with a partnership firm in which the assessee as a partner was in receipt of interest income @12% - HELD THAT - AO while framing the original assessment had found the assessee s claim for deduction of interest expenditure u/s 57 in order, and had not drawn any adverse inferences as regards the same - On the basis of the aforesaid facts, of the considered view that reopening of the concluded assessment of the assessee which was earlier framed by the A.O u/s.143(3) on the basis of a change of opinion can by no means be held to be justified. The aforesaid view is fortified by the judgment in the case of CIT Vs. Kelvinator of India 2002 (4) TMI 37 - DELHI HIGH COURT We concur with the claim of the AR that the A.O had exceeded his jurisdiction and reopened the concluded assessment in the case of the assessee merely on the basis of change of opinion u/s.147 of the Act, which is not permissible in the eyes of law. A.O had exceeded his jurisdiction and reopened the concluded assessment in the case of the assessee merely on the basis of change of opinion u/s.147 which is not permissible in the eyes of law. Thus, on the basis of my aforesaid observations quash the reassessment framed by the A.O vide order passed u/s.144 r.w.s. 147 for want of valid assumption of jurisdiction on his part. Appeal of the assessee is allowed.

Issues Involved:
1. Validity of the reopening of assessment under Section 147 of the Income-tax Act, 1961.
2. Sustainability of the disallowance of interest expenditure claimed under Section 57 of the Income-tax Act, 1961.
3. Jurisdiction of the Assessing Officer (AO) in reopening the assessment on the basis of a change of opinion.

Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147:

The appellant contended that the reopening of the assessment under Section 147 was invalid as it was based merely on a change of opinion. The original assessment was completed under Section 143(3) on 16.03.2015, and the reassessment was initiated on the same set of facts available during the original assessment. The appellant argued that the AO had no new tangible material to justify the reopening, thus making the reassessment proceedings void.

Analysis:
The Tribunal found merit in the appellant's contention, noting that the AO had indeed reopened the concluded assessment based on a change of opinion. The Tribunal referred to the judgment of the Hon'ble Supreme Court in CIT Vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), which held that reopening on the basis of a mere change of opinion is not permissible. The Tribunal also cited the Hon'ble High Court of Delhi in Rasalika Trading & Investment CO. (P) Ltd. Vs. Deputy Commissioner of Income Tax & Anr. (2014) 365 ITR 447 (Del), which supported the appellant's position.

Conclusion:
The Tribunal quashed the reassessment framed by the AO under Section 144 read with Section 147 for lack of valid jurisdiction, as it was based on a mere change of opinion.

2. Sustainability of the Disallowance of Interest Expenditure Claimed under Section 57:

The AO disallowed the appellant's claim for deduction of interest expenditure amounting to Rs.6,27,368/- under Section 57, asserting that the expenditure was not incurred wholly and exclusively for earning interest income under Section 56. The appellant argued that the interest expenditure was correctly claimed as it was incurred for earning interest income from investments made with Balaji Distributors.

Analysis:
Given that the reassessment was quashed for lack of valid jurisdiction, the Tribunal did not delve into the merits of the disallowance of interest expenditure under Section 57. The Tribunal left this issue open for consideration if required in future proceedings.

Conclusion:
The Tribunal refrained from adjudicating on the merits of the disallowance of interest expenditure, as the reassessment itself was quashed.

3. Jurisdiction of the AO in Reopening the Assessment on the Basis of a Change of Opinion:

The appellant argued that the AO had exceeded his jurisdiction by reopening the assessment based on a change of opinion, which is not permissible under the law. The AO's basis for reopening was the same set of facts that were available during the original assessment proceedings.

Analysis:
The Tribunal concurred with the appellant's argument, emphasizing that the AO had no new tangible material to justify the reopening. The Tribunal reiterated the principle established by the Hon'ble Supreme Court in CIT Vs. Kelvinator of India Ltd., which prohibits reopening on the basis of a mere change of opinion.

Conclusion:
The Tribunal held that the AO had overstepped his jurisdiction by reopening the assessment on the basis of a change of opinion, thus rendering the reassessment proceedings invalid.

Final Judgment:
The appeal of the assessee was allowed, and the reassessment framed by the AO under Section 144 read with Section 147 was quashed for want of valid jurisdiction. The Tribunal did not adjudicate the merits of the disallowance of interest expenditure, leaving the issue open.

Order pronounced in open court on 23rd day of November, 2022.

← Previous Next →