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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER D.S. SUNDER SINGH, Accountant Member:
This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Vijayawada vide I.T.A.No.18/CIT(A)/VJA/2012-13 dated 10.07.2017 for the assessment year 2008-09.
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Ground Nos. 1 and 5 are general in nature which does not require specific adjudication.
Ground No.2 is related to the insufficient opportunity given by the Ld.CIT(A). Since the order was passed ex-parte by the Ld.CIT(A), the Ld.AR requested to remit the matter back to the file of the Ld.CIT(A) to decide the issue after giving one more opportunity.
We have gone through the Ld.CIT(A)’s order and observed that the Ld.CIT(A) has given more than six opportunities as recorded in the Ld.CIT(A)’s order. Therefore, we do not find any merit in the ground raised by the assessee hence this ground of appeal filed by the assessee is dismissed.
Ground No.3 is related to the issue of notice u/s 148 of Income Tax Act (hereinafter called as ‘Act’). During the appeal hearing, the Ld.AR argued that the AO recorded the reasons for reopening the assessment as under : “As per Balance Sheet for the year ended 31.03.2008, the assessee firm has advanced loan of Rs.60 lakhs and Rs.25 lakhs to M/s Kamakshi Steel Private Limited and Lotus Associates respectively on which no interest was charged. The assessee is paying huge interest of Rs.44.26 lakhs on loans borrowed from banks and others. As the assessee has not charged any interest on loans
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advanced to the above concerns, the income chargeable to tax has escaped assessment and notice u/s 148 was issued.” 5.1. The Ld.AR invited our attention to assessment order passed u/s 143(3) dated 12.04.2010 and argued that the AO had examined the issue in the original assessment proceedings with regard to the interest on borrowed funds and application of funds. Therefore, there is no case for reopening the assessment to reexamine the issue which was already examined and there is no fresh information with regard to the advances given to M/s Kamakshi Steels Pvt. Ltd. and M/s Lotus Associates which was already made available in the balance sheet. Thus the Ld.AR submitted that there is no case for reopening the assessment and the initiation of reassessment proceedings is bad in law and argued that the notice issued u/s 148 is to be quashed.
Another proposition made by the Ld.AR during the appeal hearing is that the reasons recorded by the AO indicates the insufficiency of the reasons for taking the action u/s 148. The AO is not permitted to reopen the assessment for not charging the interest which is neither escapement of income nor the understatement of income. Therefore, the Ld.AR submitted that reassessment is bad in law on both the grounds and according to the Ld.AR, the notice issued u/s 148 is required to be quashed.
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On the other hand, the Ld.DR supported the order of the Ld.CIT(A) and argued that from the scrutiny of the assessment order made u/s 143(3) dated 12.04.2010, there is no indication of having examined the issue of disallowance of interest for diversion of funds. Therefore, it cannot be viewed that the AO had examined the issue at the time of original assessment. Further, the Ld.DR submitted that the assessee had borrowed funds and paid huge interest and the funds in question were advanced as loans to M/s Kamakshi Steel Private Ltd and M/s Lotus Associates as per the reasons recorded. Having advanced the loans to the other concerns and paying huge interest, the proportioned interest on the loans advanced for non-business purposes should have been disallowed by the assessees. Non disallowance of the interest for diversion of funds reduced the taxable income which amounts to escapement of income thus there is no error in reopening the assessment. Ld.DR further submitted that the assessment is reopened within 4 years from the end of the relevant assessment year, hence, argued that the proposition made by the Ld.AR on both the grounds fails. Accordingly argued that the issue of notice is valid and required to be upheld.
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We have heard both the parties and perused the material placed on record. In this case, plain reading of the assessment order dated 12.04.2010 annexed in paper book as per page No.40 does not indicate that the AO had examined the issue which was raised for reopening the assessment. Therefore, the contention of the Ld.AR that the AO had examined the issue at the time of original assessment is unfounded and accordingly rejected.
8.1. The second proposition made by the Ld.AR is that the insufficiency of the reasons. As per the reasons recorded by the AO, it is apparent that the assessee had borrowed huge funds and paying the interest of Rs.48.28 lakhs on borrowed funds from banks and others. The assessee had advanced huge sums to M/s Kamakshi Steels Pvt.Ltd and Lotus Associates amounting to Rs.60,00,000/- and Rs.25,00,000/- respectively but neither charged the interest nor received the interest. Therefore, the AO held that having advanced huge funds without the disallowance of proportionate interest results into escapement of income which is required to be brought into tax u/s 148 of the Act. Therefore, the AO has given a clear view in the reasons recorded u/s 148 that the income chargeable to tax has escaped assessment which required to be reassessed. Therefore, the reasons
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recorded by the AO cannot be held as insufficient reasons as argued by the Ld.AR. The Ld.CIT(A) has upheld the validity of issue of notice after verifying the ITMR as well as the assessment record in para No.5.1 to 5.3 which reads as under:
5.1. Ground of appeal nos, 1, 15, 16 8 17 are general in nature, They do not require any adjudication. Though several grounds were raised, to put it precisely, appellant Is aggrieved by (I) the reopening of assessment and (ii) the additions made by assessing officer totaling to Rs,10 20,000/-. 5.2. On perusal of ITMR, it could be noted that the appellant had advanced a total amount ofRs.25 Iakhs during the previous year 2005-06 relevant to asst.year 2006-07 which was shown under loans and advances as on 31.03.2008, This amount was given for purchase of Land in Lotus Associates, Vijayawada. Due to dispute in the rate of lend, purchase of the same property could not be registered as on 31.03.2008. There is no receipt of income from suchproperty. .
A sum of Rs.60 lakhs was paid to M/s Kamakshi Steel Pvt. Ltd. towards share application money. The said company allotted Rs.6 lash equity shares of Rs.10/- each to the four partners of appellant firm. There is no dividend income received from the said investment. Appellant had borrowed funds from banks and others and paid huge interest of Rs.46.27 lakhs during the relevant assessment year. The fact that during the original assessment proceedings Assessing Officer did not examine / consider the issue of disallowance of. interest i.e, non-charging of interest on the advances investments made by appellant is borne out by records. Hence Assessing Officer after due recording of reasons and getting approval from competent authority had reopened the assessment to bring to tax the income which had escaped assessment. 5.2.1. There is no change of opinion as claimed by appellant in reopening of
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assessment. When there is no discussion on this issue in the original assessment order and no details were called for by the Assessing Officer or filed by the assesses on the issue, no finding either positive or negative was arrived at during the course of the original assessment proceedings, there is no question of change of opinion in such circumstances. The above decision was held in the following cases:
(i) L.A. Firm Vs. CIT (Med) 102 ITR 622. (ii) Ess Kay Engineering Co. (P) Ltd. Vs. CIT (SC) 247 ITR 516. (iii) Revathy C.P. Equipments Ltd. Vs. DC!T & Ors, (Mad) 241 ITR 856. (iv) EMA India Ltd. Vs. ACIT (AU) 30 DTR 82.
5.2.2. Appellant cannot rake up issue of reopening once assesses participated in the reassessment proceedings after receipt of order passed by Assessing Officer rejecting his objections towards reopening. This view was held in the case of Sushil Kumar Jalan Vs ITO in I.T.A. No.34/Gau/2011 by Hon’ble Guwahati Tribunal.
5.2.3. Similar view was held by Hon’ble Delhi Tribunal the case of ACIT Vs. Veena Guganani in ITA No.5128IDeIf2011 (once the assessee subjects itself to the Jurisdiction of the Assessing Officer who issued notice u/s. 148 of the Act to him, he cannot later on challenge the said notice). In view of the above, reopening of assessment is, in my view, in order. There was proper application of mind by Assessing Officer on this issue. There was no change of opinion as contested by the appellant. Existence of prima fade reason for escapement of income is necessary for re-opening of assessment. In my view, Assessing Officer had recorded such - reason and appellant would not be allowed to take advantage of an oversight or mistake committed by the taxing authority. Reliance is placed on the Apex Court decision in the case of Kalyanji Mavji & Co. Vs. CT (Sc) 102 ITS 287, Hence ground of .appeal no.2 is dismissed.
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8.2. The assessment is reopened within 4 years from the relevant assessment year and in the instant case, the AO has given a finding that the assessee had diverted the funds for non-business purposes by giving the loans and paying huge interest on borrowed funds and viewed that the proportionate interest required to be disallowed, hence, the AO held that there was escapement of income. Since the assessment is reopened within 4 years and the AO has given a clear reasoning for his belief, we uphold the validity of issue of notice u/s 148 and the order of the Ld.CIT(A) on this issue. The reasons recorded by the AO are sufficient to reopen the assessment. Accordingly, the appeal of the assessee on this ground is dismissed. 9. Ground No.4(a) is related to the disallowance of interest u/s 36(i)(iii) amounting to Rs.3,00,000/- @12% on Rs.25,00,000/- amounts advanced to Lotus Associates for purchase of land. Similarly Ground No.4(b) is related to the disallowance of interest u/s 14A for an amount of Rs.7,20,000/- on investments made by the assessee in M/s Kamakshi steels Pvt. Ltd., on a sum of Rs.60,00,000/-. As far as disallowance of interest on Rs.25,00,000/- is concerned the AO has not given any finding with regard to the diversion of funds from the borrowed funds, whereas the Ld.CIT(A) has given a finding that the borrowed funds have been diverted. In respect of
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disallowance u/s 14A, there was no finding given in the assessment order or in the appellate order with regard to the earning of income. Therefore, both the issues require detailed verification of the facts with regard to the diversion of borrowed funds and earning of dividend income. The assessee’s case is that interest bearing funds were not diverted for advancing the amount to Lotus Associates and there is no dividend income for disallowing the expenses relatable to earning of the income which attracts the disallowance u/s 14A. The revenue’s case is that the assessee had diverted the interest bearing funds and the proportionate interest disallowance required to be made. The facts regarding diversion of interest bearing funds to non-business purposes and non-earning of the dividend income are not emerging out of the orders of the lower authorities. Therefore, we are of the considered opinion that the issue needs detailed verification at the level of the AO. Accordingly, we set aside both the issues and remit the matter back to the file of the AO to examine both the issues and decide the issues afresh on merits. Appeal of the assessee on these grounds is allowed for statistical purpose.
In the result, the appeal of the assessee is allowed for statistical purpose.
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The above order was pronounced in the open court on 26th September, 2018.
Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर ससह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER धिशाखापटणम /Visakhapatnam ददिांक /Dated : 26.09.2018 L.Rama, SPS आदेश की प्रधिधलधप अग्रेधर्ि/Copy of the order forwarded to:- 1. ननर्ााररती/ The Assessee- M/s Ramya Steel Syndicate, Plot No.21A and 21B Iron Complex, Bhavanipuram, Vijayawada 2. राजस्व/ The Revenue – ITO, Ward-1(2), Vijayawada 3. The Pr.Commissioner of Income Tax, Vijayawada 4. The Commissioner of Income-Tax (Appeals), Vijayawada 5. धिभागीय प्रधिधिधि, आयकर अपीलीय अधिकरण, धिशाखापटणम /DR, ITAT, Visakhapatnam 6.गाडाफ़ाईल / Guard file आदेशािुसार / BY ORDER // True Copy //
Sr. Private Secretary ITAT, VISAKHAPATNAM