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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI M. BALAGANESH
Date of hearing 06-05-2021 Date of pronouncement 04-06-2021 O R D E R
Per Saktijit Dey, JM:
This is an appeal by the assessee against order dated 28-07-2019 of learned Commissioner of Income Tax (Appeals)-28, Mumbai for the assessment year 2009-10.
There are two issues involved in the present appeal. Firstly, the assessee has challenged the validity of reopening of assessment under section 147 of the Income-tax Act, 1961 and secondly, the assessee has challenged the merits of the addition of broken period interest of Rs.29,68,150/-.
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3. Briefly the facts are, the assessee hitherto was a partnership firm (since, dissolved). As stated by the assessing officer, the assessee is engaged in the business of trading in shares and securities, mostly, government securities and debt securities. For the assessment year under dispute, assessee had filed its return of income on 24-09-2009 declaring total income of Rs.6,49,85,349/-. Assessment in case of the assessee was originally completed under section 143(3) of the Act vide order dated 14-11-2011 accepting the returned income. Subsequently, the assessing officer having noticed that as against interest receivable shown of Rs.1,33,76,713/- the assessee has offered interest income of Rs.1,04,08,562/-, thereby, offering less interest income, came to the conclusion that income chargeable to tax for the year under consideration has escaped assessment. Accordingly, he reopened the assessment under section 147 of the Act. In course of re-assessment proceedings, the assessing officer called upon the assessee to explain the reason for not offering the correct interest income. In response to the notice issued under section 148 of the Act, the assessee raised objection stating that there is no question of less interest income being offered by the assessee. Therefore, the proceeding initiated under section 147 of the Act has to be dropped. After rejecting the objection of the assessee in a separate order, the assessing officer proceeded to complete the assessment under section 143(3) r.w.s. 147 of the Act by adding back the interest income of Rs.29,68,150/-, which, according to the assessing officer, was not offered to tax by the assessee. Against the assessment order so passed, assessee preferred appeal before learned Commissioner of Income Tax (Appeals) challenging the validity of reopening of assessment under section 147 of the Act as well as the merits of the addition, but, the assessee was unsuccessful on both the issues.
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Before us, the learned counsel for the assessee submitted, the assessment in case of the assessee was originally completed under section 143(3) of the Act. Whereas, the reopening of assessment under section 147 of the Act was after expiry of four years from the end of the relevant assessment year. He submitted, as per the proviso to section 147 of the Act, unless, there is failure on the part of the assessee in disclosing all material facts relating to the assessment truly and correctly, reopening of assessment under section 147 of the Act after expiry of four years from the end of the relevant assessment year cannot be made. He submitted, in course of original assessment proceedings the assessing officer, from time to time, has conducted enquiries and called upon the assessee to explain various issues relating to income earned during the year with supporting evidence. Drawing our attention to the notice dated 24-06-2011 issued under section 142(1) of the Act, a copy of which is at page 1 of the paper book, along with its annexure, the learned counsel submitted, the assessing officer had called upon the assessee to furnish the balance-sheet as on 31-03-2009, both, relating to the trading activity as well as the personal balance-sheet and capital account. He submitted, in response to the query raised, assessee furnished the required details before the assessing officer. Further, he submitted, the assessing officer again issued a notice under section 142(1) of the Act on 08-08-2011 calling upon the assessee to furnish item-wise opening and closing stock, quantities, rate and amount, method of valuation of closing stock relating to investment in shares and securities. Further, he also called upon the assessee to furnish the details of interest receivable of Rs.1,33,76,712/-. Further, he also asked for details of interest, interest on trading stock, profit on sale of long-term investment received, etc. He submitted, in response to the query raised, assessee furnished
4 ITA 5836/Mum//2019 details with a point-by-point reply vide submission dated 11-08-2011 with all supporting documents. He submitted, subsequently, again on 08-11-2011 assessee furnished further details before the assessing officer. He submitted, after making proper enquiry and verifying all the facts and materials available on record, the assessing officer ultimately completed the assessment under section 143(3) of the Act on 14-11-2011 accepting the income returned by the assessee. Therefore, he submitted, there being no failure on the part of the assessee in disclosing all material facts relating to its assessment truly and correctly, reopening of assessment beyond four years is invalid. Proceeding further, he submitted, while reopening the assessment, no tangible material was available with the assessing officer. He submitted, merely having a second look at the material available in course of the original assessment proceedings, the assessing officer has formed an opinion that income has escaped assessment. He submitted, after completion of the original assessment and before reopening of assessment under section 147 of the Act, no tangible material has come to the possession of the assessing officer indicating escapement of assessment. Therefore, the reopening of assessment being on a mere change of opinion is unsustainable. Further, drawing our attention to the letter dated 27-05-2013 issued by the assessing officer, learned counsel submitted, on the basis of objection raised by the audit on the very same issue of short offering of interest income, the assessee had furnished a detailed reply on 04-06-2013 explaining all the details with supporting evidence and reiterating that interest income was correctly offered. He submitted, in spite of all the evidences and materials available on record demonstrating that the assessee has correctly offered the interest income, the assessing officer simply went ahead with the reopening of 5 ITA 5836/Mum//2019 assessment by issuing the notice under section148 of the Act on 30-03-2016. Thus, he submitted, the reopening of assessment by the assessing officer was not with independent application of mind, but on borrowed satisfaction. Thus, he submitted, the reopening of assessment under section 147 of the Act is invalid. In support of his contentions, he relied upon the following decisions:- 1. Indian Bank vs DCIT 63 taxmann.com 145 (Mad) 2. DCIT vs Bank of Baroda & 5605/Mum/2016 5. As regards merits of the issue, the learned counsel submitted, during the year, the assessee had purchased 350 units of 11.2% Power Finance Corporation Bond. The issue date and maturity date of these bonds were on 29-11-2008 and 28-11-2018 respectively. He submitted, 200 units were purchased on 23-12-2008, 50 units on 30-12-2008 and 100 units on 05-01-2009. He submitted, assessee purchased these bonds from HDFC trustee/Kotak MF cum interest basis, i.e. cost (+) interest upto the date of purchase. Interest on these bonds is paid on 28th day of November of each year. He submitted, the person, who holds the bond on the due date is entitled to interest for the full year. In case the bonds are purchased after the interest payment date, the purchaser, apart from the cost of bond also has to pay for the accrued interest i.e. interest on the last interest payment date till the date of purchase. He submitted, since the assessee purchased the bonds after the interest payment date, it had to pay the cost of the bond amounting Rs.40,76,29,450/- along with interest of Rs.33,13,356/-. He submitted, interest income amounting to Rs.1,04,08,562/- was rightly offered to tax as the amount of Rs.33,13,356/- shown as receivable was actually not received as it is a broken period interest. He submitted, now it is fairly well settled that broken period
6 ITA 5836/Mum//2019 interest is not taxable. In this context, he drew our attention to the following decisions:- 1. Akshar Anshul Construction LLP vs ACIT (104 taxmann.com 94)(Bom) 2. Amruta Quarry Works vs ITO –
ICICI Home Finance Co. Ltd vs ACIT ( 25 taxmann.com 241)(Bom) 4. State Bank of India vs ACIT (418 ITR 485)(Bom) 5. Pr.CIT vs State Bank of Saurashtra (100 taxmann.com 437)(Bom) 6. CIT vs Shakardas B Pahajani 93 taxmann.com 248)(Bom) 7. American Express International Banking Corpn vs CIT 258 ITR 601 (Bom) 7. CIT vs CitiBank N.A. (Civil Appeal No.1549 of 2006)(SC) 8. JCIT vs Dena Bank (20 taxmann.com 278)(Mum) 9. State Bank of India vs DCIT (44 taxmann.com 99)(Mum) 10. Standard Chartered Bank vs DCIT (54 ITD 570)(Bom)
The learned departmental representative strongly relied upon the observations of the assessing officer and learned Commissioner of Income-tax (Appeals).
We have considered rival submissions in the light of decisions relied upon and perused materials on record. At the outset, we will proceed to address the issue relating to validity of reopening of assessment under section 147 of the Act. Undisputedly, for the impugned assessment year, the assessee had filed its return of income under section 139(1) of the Act. The return of income filed by the assessee was subjected to scrutiny and assessment was completed under section 143(3) of the Act accepting the returned income. On perusal of material on 7 ITA 5836/Mum//2019 record, we find, in course of original assessment proceedings the assessing officer, from time to time, had conducted thorough enquiry on various issues concerning the assessment of the assessee. This is evident from the notices issued under section 142(1) along with its annexure placed in the paper book. As could be seen from the notice dated 08-08-2011 issued under section 142(1) of the Act and its annexure, the assessing officer had specifically called for the details of opening/closing stock item wise, quantities, rate and amount, method of valuation of closing stock, details of interest receivables of Rs.1,33,76,712/-, details of interest, interest on trading stock, profit on sale of long-term investment, etc.
In response to the queries raised by the assessing officer, as aforesaid, the assessee had furnished its reply dated 11-08-2011 explaining all the details with supporting documentary evidences. Thus, it is evident, the assessing officer was conscious of the fact that as against the accrued interest shown of Rs.1,33,76,712/- assessee had offered the amount of Rs.1,04,08,562/-. Therefore, it becomes amply clear, being satisfied with the documentary evidences furnished by the assessee as well as the explanation furnished, the assessing officer concluded that the assessee has correctly offered all its interest income and accordingly completed the assessment under section 143(3) of the Act.
Undisputedly, the assessing officer has reopened the assessment after expiry of four years from the end of the relevant assessment year. Therefore, the proviso to section 147 of the Act automatically comes into play. That being the case, it is incumbent upon the assessing officer to demonstrate that there is escapement of income due to failure on the part of the assessee to fully and truly disclose all material facts relating to its assessment. On factual analysis, as 8 ITA 5836/Mum//2019 narrated above, we are of the view that no such failure on the part of the assessee as contemplated in the proviso to section 147 of the Act could be demonstrated by the revenue authorities. That being the case, the conditions of the proviso to section 147 of the Act are not fulfilled. Therefore, for this reason alone, the reopening of assessment under section 147 of the Act is invalid.
Having held so, it is necessary to examine whether, before reopening of assessment the assessing officer had any tangible material in his possession to indicate escapement of income. On a perusal of reasons recorded for reopening of assessment, a copy of which is at page 38 of the paper book, we find that the assessing officer has very clearly stated that on perusal of record and more particularly, on examining the balance-sheet as on 31-03-2009, he has found that as against interest receivable shown at Rs.1,33,76,712/-, assessee has offered interest income of Rs. 1,04,08,562/-. Thereby, the assessee has offered less interest income. Thus, from the aforesaid facts it is patent and obvious that between completion of the original assessment and reopening of assessment under section 147 of the Act, no fresh tangible material has come to the possession of the assessing officer to indicate escapement of income. It is very much clear, on revisiting the material already considered at the time of original assessment, the assessing officer has formed an opinion on escapement of income. That too, when the very same issue relating to interest receivable shown of Rs.1,33,76,712/- was thoroughly enquired into by the assessing officer during the original assessment and after examining all documentary evidences including balance-sheet as on 31-03-2009 he had completed the original assessment.
As discussed earlier, after verifying all the details the assessing officer, while completing the original assessment, has taken a conscious decision that the 9 ITA 5836/Mum//2019 assessee had correctly offered its interest income. In contrast, while reopening the assessment, the assessing officer had merely revisited the material already considered during the original assessment proceedings and has formed an opinion regarding escapement of income. These facts clearly demonstrate that not only the assessing officer has no tangible material in his possession to, prima facie, come to a conclusion that income chargeable to tax has escaped assessment but has reopened the assessment on a mere change of opinion on an issue which stood concluded in the original assessment proceedings. Thus, in the garb of reopening of assessment the assessing officer, in reality, intended to review his earlier decision. This, in our considered opinion, is impermissible. That being the case, the reopening of assessment under section 147 of the Act is invalid for this reason also.
We may further add, in course of hearing it has been brought to our notice by learned counsel for the assessee that on the basis of an audit objection, the assessing officer, after completion of assessment under section 143(3) of the Act had issued a notice on 27-05-2013 specifically calling upon the assessee to explain as to why against the interest receivable shown at Rs.1,33,76,712/-, the assessee has offered interest income of Rs.1,04,08,562/-, thereby, not offering to tax interest income of Rs.29,68,150/-. Pertinently, in reply to the aforesaid show cause notice, the assessee has furnished its reply on 04-06-2013 explaining the reason for offering interest income of Rs.1,04,08,502/- as against amount of Rs.1,33,76,712/-. After receiving the aforesaid reply of the assessee, there was complete silence at the end of the assessing officer and suddenly, after more than two and half years, the assessing officer again sprang into action by issuing notice under section 148 of the Act on 30-03-2016. Thus, the aforesaid facts clearly
10 ITA 5836/Mum//2019 demonstrate that, though, the assessing officer himself was satisfied that the assessee had correctly offered the interest income; however, only because of the audit objection, he initiated the proceedings under section 147 of the Act. That being the case, the reopening of assessment under section 147 of the Act, being merely on borrowed satisfaction, is invalid.
At the cost of repetition, we must observe, the materials placed before us clearly demonstrate that in course of original assessment proceedings, not only the assessing officer has made thorough enquiry with regard to the disputed issue on which the assessment has been reopened, but the assessee has also furnished all relevant and necessary materials to justify the income offered by it. That being the case, we are of the considered opinion that the reopening of assessment in the present case is invalid and void ab-initio. The decisions relied upon by the learned counsel for the assessee clearly supports this view. Accordingly, for the aforestated reasons, we quash the assessment order passed under section 143(3) r.w.s. 147 of the Act.
Since, while deciding the legal issue we have quashed the assessment order itself, there is no need for us to adjudicate upon the issue raised on merits, as to whether the addition of Rs.29,68,150/-, being the broken period interest, is valid or not. In the result, ground 1 along with the additional ground challenging the validity of reopening of assessment under section 147 of the Act is allowed. Whereas, ground 2 having become redundant, is not adjudicated upon. However, the issue raised in ground 2 is kept open for adjudication if it arises in assessee’s case at a later stage.
In the result, appeal is allowed as indicated above.
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