2023 (7) TMI 348 - HC - Income Tax

Reopening of assessment u/s 147 - reason to believe - change of opinion - allowability of interest and other expenditure as revenue expenditure - HELD THAT - Just because the assessee revised the return of income for AY-2005-2006 by disallowing the expenses on account of interest income, the refund was for assessment year entirely different from the impugned assessment year, each assessment year is separate and that can never be a ground for re-opening the assessment. The primary thrust was, of course, on change of opinion. The same issue of investment and interest on loans taken etc., were subject matter of a query raised by the AO as can be seen from the letter issued to petitioner. Petitioner also addressed a communication to give an explanation in regard to allowability of interest and other expenditure as revenue expenditure, i As held in Aroni Commercials Ltd. 2014 (2) TMI 659 - BOMBAY HIGH COURT once a query is raised during the assessment proceedings and the assessee has replied to it, it follows the query raised was a subject of consideration of the assessing officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. If an assessing officer has to record the consideration bestowed by him on all issues raised by him during the assessment proceedings even where he is satisfied, it would be impossible for the assessing officer to complete all the assessments which are required to be scrutinised under Section 143(3) - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Alleged change of opinion by the Assessing Officer (AO).
3. Allowability of interest and other expenses as revenue expenditure.

Summary:

1. Validity of the Notice Issued Under Section 148:
The petitioner challenged a notice dated 28th March 2008 issued under Section 148 of the Income Tax Act, 1961, for the assessment year 2003-2004, and the subsequent order on objections dated 22nd May 2009. The petitioner contended that the notice was issued without proper reasons to believe that income had escaped assessment, arguing that it was based on a mere change of opinion by the AO.

2. Alleged Change of Opinion by the Assessing Officer (AO):
The court found that the AO had previously scrutinized the same issues during the original assessment proceedings, as evidenced by the detailed queries raised and responses provided by the petitioner. The court held that once a query is raised and answered during the assessment proceedings, it is presumed to have been considered by the AO. The court referenced the judgment in Aroni Commercials Ltd. Vs. Deputy Commissioner of Income Tax-2(1), stating, "It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised." The court concluded that the notice to reopen the assessment was merely based on a change of opinion, which does not justify reopening under Section 148.

3. Allowability of Interest and Other Expenses as Revenue Expenditure:
The petitioner argued that the interest on borrowings should be allowed as revenue expenditure, citing the Supreme Court's decision in Deputy Commissioner of Income Tax Vs. Core Health Care Ltd. and the Bombay High Court's decision in Commissioner of Income Tax Vs. Maharashtra Hybrid Seeds Co. Ltd. The court noted that if the petitioner succeeded on the issue of change of opinion, it would not need to address the allowability of interest expenses further. However, the court acknowledged the principle that interest on money borrowed for business purposes is a necessary item of expenditure, irrespective of whether the borrowing was for acquiring a capital or revenue asset.

Judgment:
The court allowed the petition, stating that the notice to reopen the assessment was based on a change of opinion, which does not constitute justification or reasons to believe that income chargeable to tax had escaped assessment. The court quashed and canceled the notice issued under Section 148 dated 28th March 2008, and the order on objections dated 22nd May 2009. The petition was disposed of with no order as to costs.