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TMI Blog2024 (12) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... re basis for such reopening is on the materials which was already available with the AO in finalizing the petitioner s assessment u/s 143 (3). If this be so, the AO was acting on a complete change of opinion on the same material and / or intending to have a review of the assessment order passed by him. This was certainly not permissible applying the settled principles of law as discussed by us hereinabove. It was, hence, clearly not permissible for the AO to reopen the assessment on the very material on which the assessment order was passed. The law does not permit such course of action and if permitted, it would not only fall foul of the mandate of the first proviso below Section 147 but also it would amount to manifest arbitrariness and illegality resulting in drastic and unwarranted consequences being brought about to unsettle settled/concluded assessments, which the law would certainly not recognize. This is certainly not a case where on the materials which are already produced before the AO, AO has gathered or discovered further material evidence so as to construe that there was failure on the part of the assessee to make a disclosure of such materials. Moreover, there is no f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned notices. These ad-interim orders granted by the Court continue to operate till date. 4. In pursuance of the order passed by this Court, a reply affidavit on behalf of the respondents of Shri Sandip Mandal, Deputy Commissioner of Income Tax-6 (1) (2), Mumbai, is placed on record, opposing the reliefs as prayed in the petition. 5. The facts relevant for adjudication of the proceedings are : The assessment year in question is Assessment Year 2013-14. The petitioner was formerly known as Essar Infrastructure Services Pvt. Limited . The petitioner filed its return of income on 24 September 2013. On 20 July 2015 a notice under Section 142 (1) of the IT Act was issued to the petitioner in relation to the assessment in question, calling upon the petitioner to furnish in writing and verified in the prescribed manner, information on the thirteen requirements which were set out in the Annexure. The relevant requirements being: a brief note on the nature of business of the petitioner, copies of return of income (original and revised, if any), also significant information as sought was in regard to the balance sheet, Profit Loss Account, Tax Audit Report alongwith relevant schedules, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. It was stated that such assets were given on hire and the petitioner has earned Business Support Services. The petitioner pointed out that interest on such loan was fully allowable. The petitioner also stated that the petitioner had not earned any exempt income during the period under consideration and since no exempt income was earned, there was no question of making any disallowance on account of expenses incurred for earning exempt income under Section 14A of the IT Act. The petitioner also submitted the other details namely the agreement of secured loan, the details of deposits, the details of short term borrowings alongwith confirmations, the details of all the other loans and advances were enclosed as Annexure 2 and Annexure 4 and Annexure 6 respectively, to the petitioner s reply. 9. The petitioner contends that during the course of assessment proceedings, respondent no. 1 called upon the petitioner to submit a copy of the ledger, qua the secured loans taken by the petitioner from Yes Bank, along with the details of deposits received and the agreements in that regard, details of trade payables along with ageing analysis and details of unsecured borrowings. In comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e related parties and it is for such reason the proportionate interest of Rs. 10.49 Crores was not allowable under Section 36 (1) (iii) of the I.T Act. The petitioner contends that respondent no. 1 did not refer to any material or evidence to come to this conclusion that interest bearing funds were used to give interest free advances nor did he refer to any evidence to hold that interest free advances were given for other than business purpose. 14. On 23 August 2021 the petitioner filed its objections against the reopening of the assessment. The petitioner submitted that the reopening was invalid for the reason that full and true disclosure was made by the petitioner and that there was no tangible material in possession of respondent no. 1 to reopen the assessment as the reopening was based on pure change of opinion. The petitioner also brought to the notice of respondent no. 1 that during the year, it had interest free funds of Rs. 655.49 Crores available and therefore, there could not have been any reason to believe that interest bearing funds were used to give interest free advances to the related parties and consequently, proportionate interest being not allowable under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. 18. Mr. Thakkar would next submit that respondent no. 1 has not furnished any reason as to what was the failure on the part of the petitioner in its disclosure of the facts relating to the deduction of interest claimed under Section 36 (1) (iii) of the Act. It is submitted that bald statements are made by respondent no. 1 and without being substantiated, as to how the requirement of proviso to Section 147 of the Act was in any manner satisfied, in the case of the petitioner. It is, therefore, his submission that the reassessment initiated by respondent no. 1 is bad in law, being contrary to the proviso of Section 147 of the Act. 19. It is next submitted that it is a settled principle of law that reassessment cannot be initiated unless there was tangible material which had come in the possession of the Assessing Officer indicating that income chargeable to tax had escaped assessment. It is submitted that all the materials regarding the interest paid on borrowings, interest bearing loans taken by the petitioner and interest free advances given to the related parties were subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016, 15 February, 2016 and 29 February, 2016. It is submitted that despite this respondent no. 1 nonetheless has intended to reopen the assessment, on an erroneous basis that the petitioner had given interest free advances of Rs. 104.66 crores, out of interest bearing funds of Rs.159.95 crores without any material or evidence in that regard. 22. In support of the above submissions insofar as the position in law is concerned, Mr. Thakkar has placed reliance on the decision of this Court in Saraswat Cooperative Bank Ltd. vs. ACIT 166 taxmann.com 360 (Bom.), ACIT vs. Marico Ltd. 133 taxmann.com 122 (SC), Tumkur Minerals (P) Ltd. vs. JCIT 132 taxmann.com 121 (Bom) and First Source Solutions Ltd. vs. ACT 132 taxmann.com 121 (Bom) to submit that when there was no failure on the part of the petitioner to disclose fully and truly all material facts and for such reason, the proceedings cannot be initiated in view of the first Proviso to Section 147 of the I.T. Act, to support his contention that to reopen the assessment completed under Section 143 (3), there ought to exist some new material. 23. Mr. Thakkar has also placed reliance on this decision of this Court in GKN Sinter Metals Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also his submission that the loans which were advanced by the petitioner to the related parties were not the subject matter of appeal and thus, the proviso to Section 147 is not applicable. It is hence his submission that all jurisdictional requirements to reopen the petitioner s assessment in question were met. He would also submit that approval was granted by the Commissioner in compliance of the requirement of Section 151 of the IT Act. Mr. Suresh Kumar would accordingly submit that none of the contentions as urged on behalf of the petitioner ought not to be accepted by this Court. Mr. Suresh Kumar would next submit that the present case does not deserve any interference in exercising the extra-ordinary jurisdiction of this Court under Article 226 of the Constitution also for the reason that the petitioner has an alternate remedy of filing an appeal against the reassessment order. He would accordingly submit that the petition ought to be dismissed. Reasons and conclusion :- 26. We have heard learned counsel for the parties. With their assistance, we have perused the record. 27. At the outset, as the proceedings pertain to reopening of the petitioner s assessment, the relevant pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;] (d) where a person is found to have any asset (including financial interest in any entity) located outside India. Explanation 3. For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be noted: For the assessment year in question, the petitioner had filed its return of income on 24 September, 2013 declaring loss of Rs. 78,80,717/-. The case of the petitioner was selected for scrutiny by issuance of notice under Section 143 (2) of the Act. The same was responded by the petitioner, when all the necessary details in regard to the petitioner s income were furnished to the Assessing Officer. After scrutiny of the return and the details and information submitted by the petitioner, the Assessing Officer completed assessment under Section 143 (3) of the Act under an assessment order dated 23 March, 2016 determining income at Rs. 2,75,26,250/-, after making certain disallowances, namely, disallowance under Section 14A of the Act of Rs. 3,07,35,169/- and other disallowances including addition of mismatch of income in terms of Form 26AS. It is on such backdrop, the petitioner was issued a notice under Section 148 of the I.T. Act dated 31 March, 2021 to reopen the assessment whereunder the petitioner was called upon to file a return of income. In response to such notice, on 30 April, 2021, the petitioner filed a return of income. On 30 June, 2021, respondent no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phasis supplied) 31. In the objection as raised by the petitioner to the aforesaid reasons for reopening, the petitioner inter alia contended that reassessment notice was issued to the petitioner, beyond the period of four years, from the end of the relevant assessment year, hence, the Assessing Officer was required to have reason to believe not only on escapement of income, but such escapement, having occurred for the reason of either omission or failure on the part of the assessee to disclose fully and truly all material facts, necessary for the assessment. It was contended that a mere suspicion on the part of the Assessing Officer in regard to the escapement of the income cannot justify any action under the said provision. It was submitted that the powers of the Assessing Officer were not unbridled but subject to restriction imposed by the provision itself. It was also submitted that in the present case the conditions prescribed under Section 148 of the I.T. Act conferring jurisdiction were not satisfied, hence the notice on such context was invalid. It was next submitted that for the original assessment, the petitioner had provided all information which was called by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,03,93,495/-, Interest expenses on borrowed capital is allowable u/s. 36 (1) (iii) if the said borrowed funds are used for the purpose of business. The proportionate interest expenses therefore are not allowable expenses. Accordingly, proportionate interest of Rs. 10,49,55,629/- are not allowable expenses and those should had been disallowed and added back in the computation of income . Hence the amount of Rs. 10,49,55,629/- has escaped assessment in the hand of the assessee within the meaning of section 147 of the IT Act, 1961. During the assessment proceedings, the assessee had failed to disclose fully and truly all material facts necessary for assessment. So the reopening has been rightly made by the AO in this case. Further for the purpose of initiation of reassessment proceedings what is required is reason to believe but not established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. JACIT Vs Rajesh Jhaveri Stock Brokers Pvt Ltd. (2007) (SC)]. 3. The assesse has raised objection that the case is pending before the Ld. CIT(A) but the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact the reasons for reopening are clearly based on the records like Balance Sheet and Profit Loss Account, which were already submitted by the petitioner in the course of assessment proceedings. There is not a whisper of allegations against the petitioner that income has escaped assessment attributable to the petitioner not disclosing fully and truly all material facts necessary for assessment. 35. Perusal of the record indicates that during the assessment proceedings, there was a series of correspondence between the petitioner and the Assessing Officer to which we have made a detailed reference hereinabove. In response to such notices issued to the petitioner under the assessment proceedings, petitioner had filed detailed replies furnishing all the information which we have noted hereinabove, which would clearly go to show that there was a complete disclosure of all details in regard to the Long Term borrowings, Other long term liabilities, which included deposits received from related parties as also Short Term borrowings setting out loans repayable on demand as also on Loans and Advances from related parties, being shown in the Current Liabilities as reflected in the Statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,116,131 Other Borrowing Cost: Processing charges 106,000,000 2,893,820 Net (gain) / Loss on Foreign Currency Transactions and transaction 140,155 273,880 Total 160,393,495 53,991,972 36. It is thus clear that all such details were available with the Assessing Officer, during the course of assessment. Also in the reasons for reopening as furnished to the petitioner, the Assessing Officer had taken a clear position that from the reading of all these documents, which were on record of the assessment, an opinion was formed by him that the assessee, has not utilized the funds for its own business and had diverted the funds to non-interest bearing transactions, i.e., interest free advances to related parties. Also a further opinion that the assessee has claimed finance cost as interest on borrowed funds amounting to Rs. 16,03,93,495/- and it is for such reason that proportionate interest expenses were not allowable expenses and accordingly, an amount of Rs. 10,49,55,629/- was not allowable expenses, which should have been disallowed and added back in the computation of income was formed on the basis of materials which were already on the record of the assessment proceedings. In our opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion System Ltd. vs. Assistant Commissioner of Income-tax Ors. 2007 SCC OnLine Bom 1292, the Division Bench of this Court held that the Income-tax Officer does not possess the power of review, he cannot achieve that object by initiating a proceeding for reassessment or by way of rectification of mistake. The Court observed that a mere change of opinion on an interpretation of a provision by itself without anything more, cannot give rise to reason to believe . It was held that the power of reopening an assessment is conferred by the Legislature not with the object of enabling the Income-tax Officer to reopen the full declaration made by the assessee, in respect of questions raised that arose directly for consideration in the earlier proceedings, and that if this was not the legal position, it would result in placing unrestricted powers of review in the hands of the assessing authorities depending on their changing moods. 39. The Supreme Court in Commissioner of Income Tax, Delhi vs. Kelvinator of India Ltd. (2010) 2 SCC 723 held that it was necessary to give a schematic interpretation to the words reason to believe failing which, Section 147 would give arbitrary powers to the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd which was not available when the assessment order was passed for the assessment year, which was not the case of the revenue. It was held that all the material which was relevant to the determination was available when the assessment was completed for the assessment year. It was held that consequently, mere formation of another view would not justify the revenue in reopening the assessment although in the said case the assessment had taken place within a period of four years. It was observed that the power to reopen assessments is structured by law. The Court held that the guiding principles which have been laid down by the Supreme Court in Kelvinator (supra) must be fulfilled. As there was no tangible material, no new information and no fresh material which had come before the Assessing Officer, it was held that reopening of the assessment was not justified. The situation is similar to the case in hand. 41. In Income Tax Officer, Ward No. 16(2) vs. Techspan India Private Ltd. Anr. (2018) 6 SCC 685, the Supreme Court held that the language of Section 147 of the I.T. Act makes it clear that the Assessing Officer certainly has the power to reassess any income which escaped assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held to be a mandatory requirement. Considering the settled principles of law, it was held that once the revenue was unable to bring to the notice of the Court any aspect or element which did not form part of the record and on the basis of which, reasons for reopening were recorded, it could be culled out that the Assessing Officer had formed a belief that income chargeable to tax has escaped assessment purely on the basis of materials be possessed and not on new tangible materials. It was held that in clear terms, there was no failure on the part of the assessee to disclose truly and fully all material facts. It was thus held that once there was no failure on the part of the petitioner to disclose fully and truly all material facts, it was not open to the Assessing Officer to reopen the petitioner s assessment considering the clear provisions of the first proviso under Section 147 of the I.T. Act. 43. In GKN Sinter Metals Ltd. (supra), the Division Bench of this Court, of which one of us (Justice G.S. Kulkarni) was a member, observed that the law on re-opening of an assessment under the Act is fairly settled that the assessment once made is final. It was held that the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as certainly not permissible applying the settled principles of law as discussed by us hereinabove. Thus, on both the counts namely on failure of the Assessing Officer in adhering to the mandate as contained in the first proviso to Section 147, and on exceeding his jurisdiction as conferred by the said provision by forming an opinion on the same material, which was available with him in the course of assessment proceedings, was wholly an impermissible exercise of jurisdiction, to issue the impugned notice. This is writ large from the plain reading of the reasons for reopening as furnished to the petitioner. We have already observed that there was substantive correspondence between the petitioner and the Assessing Officer on all materials and subject matter of reopening and all such materials had formed part of the disclosure by the petitioner. It was, hence, clearly not permissible for the Assessing Officer to reopen the assessment on the very material on which the assessment order was passed. The law does not permit such course of action and if permitted, it would not only fall foul of the mandate of the first proviso below Section 147 but also it would amount to manifest arbitrar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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