2022 (12) TMI 1321 - AT - Income Tax

Reopening of assessment u/s 147 - reason to believe - Change of opinion - proportionate interest attributable to the interest free advances made by the assessee to its related parties - HELD THAT - As all the material papers which the learned AO made a basis to reopen the concluded assessment were available with the learned Assessing Officer at the time of original assessment itself. From the record is also evident that the learned Assessing Officer noticed from the P L Account and Balance Sheet that during the year the assessee incurred interest expenditure on long-term borrowings and the amount of interest free advances to related parties, by specifically asking the assessee to furnish the information relating to the loans and advances where no interest was charged/chargeable. It is only after the assessee furnished the information, the assessment was complete after scrutiny considering the income only under house property and other sources , and loss from business was not allowed observing that as there remains no business income/activity, the expenditure is not allowed to be set of against income computed under other heads. We are of the considered opinion that the original assessment under section 143(3) of the Act was concluded after noticing all the relevant facts which forms basis for issuance of the notice under section 148 of the Act, and, therefore, the opinion formed by the learned Assessing Officer on subsequent perusal of the record is nothing but change of opinion and in view of the decisions of the Hon ble Apex Court in the cases of Kelvinator of India Ltd ( 2010 (1) TMI 11 - SUPREME COURT and Techspan India ( 2018 (4) TMI 1376 - SUPREME COURT such a course is impermissible. - Decided against revenue.

Issues Involved:
1. Delay in filing cross objections by the assessee.
2. Legitimacy of reopening the assessment under section 147 of the Income Tax Act.
3. Determination of whether the reopening was based on a change of opinion.

Detailed Analysis:

1. Delay in Filing Cross Objections by the Assessee:
The assessee filed cross objections with a delay of 498 days. The appeal memo was served on 05/02/2021, and the cross objections were due by 07/03/2021 but were filed on 18/07/2022. The delay was evaluated in light of the Hon'ble Supreme Court's order in the Suo Motu proceedings (M.A.No. 21/2022 in M.A.No. 665/2021 in SMW(C) No.3 of 2020), which extended the limitation period due to the pandemic. Despite this extension, the cross objections were still barred by limitation, and no explanation was provided by the assessee. Consequently, the cross objections were dismissed as barred by limitation.

2. Legitimacy of Reopening the Assessment under Section 147:
The assessee, engaged in leasing IT parks, filed a return of income for the assessment year 2013-14, declaring a total income of Rs. 5,33,33,350/-. The assessment was completed on 23/11/2015, computing the income at Rs. 7,51,77,901/-. The Assessing Officer later noticed that the assessee had long-term borrowings of Rs. 142.9 crores and paid interest of Rs. 19.66 crores while advancing interest-free loans to related parties amounting to Rs. 104.77 crores. It was observed that the interest pertaining to these borrowings was claimed against the income from house property, leading to an alleged escapement of income amounting to Rs. 8,17,02,757/-. Consequently, the Assessing Officer reopened the proceedings under section 147, adding Rs. 8,17,02,507/- to the income of the assessee.

3. Determination of Whether the Reopening was Based on a Change of Opinion:
The assessee contended that the original assessment was completed under section 143(3) and that reopening could only occur if there was a failure to disclose material facts. The CIT(A) agreed, stating that the Assessing Officer did not bring any new material to justify the reopening, thus constituting a change of opinion, which is impermissible under law. The Revenue argued that no opinion was formed on the interest-free loans during the original assessment, hence no change of opinion occurred.

Upon review, it was noted that the reasons for reopening were based on material already available during the original assessment. The CIT(A) concluded that the reopening was unjustified as it was based on a change of opinion, relying on precedents from various High Courts and the Supreme Court, including ITO v. TechSpanIndia (P.) Ltd. and CIT Vs. Kelvinator of India Ltd. The Supreme Court emphasized that the Assessing Officer must have "tangible material" to justify reopening and that a mere change of opinion does not suffice.

The Tribunal found that all relevant facts were considered during the original assessment, and the reopening was indeed a change of opinion. Therefore, the Tribunal upheld the CIT(A)'s decision, finding no illegality or irregularity.

Conclusion:
The appeal by the Revenue and the cross objection by the assessee were both dismissed. The Tribunal pronounced the order on 28th December 2022.

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