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Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI RAVISH SOOD
आदेश / ORDER PER RAVISH SOOD, JM The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 15.11.2021, which in turn arises from the order passed by the A.O under Sec. 144 r.w.s. 147 of the Income-tax Act, 1961 (in short ‘the Act’) dated 28.11.2019 for the assessment year 2012-13. The assessee has assailed the impugned order on the following grounds of appeal:
“1. Ground 1: That the order of Ld. AO is opposed to law as well as facts. Prayed to delete the additions and disallowances. 2. Ground 2: That on the facts and on the circumstance of the case, Section 147 has been used as a tool merely to reopen the completed assessment which is not valid. Reopening of case u/s 147 is bad in law, entire assessment proceeding is void and may kindly be quashed. 3. Ground 3: That Order of CIT(A) has been framed on Reassessment Order which itself is defective as reopening has been done merely for the change of Opinion of completed Assessment. Hence, Order of AO making the reassessment as well as Order of CIT(A) in sustaining the same may kindly be Quashed. 4. Ground 4: That on the facts and in the circumstances of the case and in law the Ld. CIT(A) was not justified in rejecting the ground of appeal raised to the effect that ex-parte assessment finalized u/s 144 was not valid leading to change of Opinion in view of the fact Ld. A.O. in his assessment order U/s 143(3) has already considered Interest payment to loan from ICICI bank and LIC and he has allowed assessee claim of payment interest.
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Ground 5: That the AO while making the disallowance has stated that the Interest expended is not allowable as deduction u/s 57 as said funds were used by the assessee to earn Business Income. AO while framing the Assessment has to determine correct and true Income. If AO is of the Opinion that the Interest Expended is towards Business Income and if he intends to enhance 'Income from Other Sources' he should also have reduced 'Business Income' to such extent. Since reducing the same from Business Income will have setting off effect on the Total Income, Assessee has disclosed true Income. Hence disallowance made by the AO and sustained by CIT(A) is bad in law and may kindly be deleted. 6. Ground 6: That on the facts and on the circumstances of the case, Ld. CIT(A) erred in sustaining the disallowance of Rs.6,27,368/- towards interest expenditure without considering entire facts and circumstances of the case. Thus, disallowance made is bad in law, against law of natural justice and uncalled for and may kindly be deleted. 7. Ground 7: That on the facts and on the circumstances of the case, reason for reopening itself is incorrect thus entire assessment proceeding is void and may kindly be quashed. 8. Ground 8: That since the disallowance of Interest Expenses sustained by the CIT(A) itself is bad in law, initiation of penalty itself is bad in Law. 9. Ground 9: The appellant craves leave to add, amend, alter and delete the ground(s) of appeal at the time of hearing the appeal. III. RELIEF SOUGHT That above mentioned disallowance amounting to Rs.6,27,368/- made by Ld. AO and sustained by CIT(A) is uncalled for, against the natural justice may kindly be deleted.”
Succinctly stated, the assessee had filed her return of income for the assessment year 2012-13 on 31.03.2013, declaring an income of
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Rs.3,73,910/-. Original assessment was, thereafter, framed by the A.O vide his order passed u/s.143(3) dated 16.03.2015 determining the income of the assessee at Rs.4,01,095/-. Case of the assessee was thereafter reopened u/s.147 of the Act. Notice u/s.148 dated 02.08.2018 was issued to the assessee calling upon her to file her return of income in compliance thereto. As the assessee failed to comply with the notice issued u/s.148 of the Act, dated 02.08.2018, therefore, the A.O vide ‘Show Cause Notice’ (SCN), dated 23.10.2019 called upon her to explain as to why the assessment in her case may not be framed u/s.144 r.w.s. 147 of the Act.
As the assessee failed to comply with the notice issued u/s.148 of the Act, dated 02.08.2018, therefore, the A.O proceeded with and framed the assessment vide his order passed u/s.144 r.w.s. 147 of the Act, dated 28.11.2019. Considering the fact that the assessee had wrongly claimed deduction of Rs. 6,27,368/- u/s.57 of the Act (including interest paid to ICICI of Rs.6,09,143/- and interest on LIC loan of Rs.18,225/-), as the same as per the A.O was not in the nature of an expenditure that was borne wholly and exclusively for earning of the interest income of Rs. 5,04,040/- u/s.56 of the Act, therefore, while framing the re-assessment he disallowed the assessee’s claim for deduction of interest expenditure which though was earlier allowed by his predecessor while framing the original assessment u/s.143(3) of
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the Act, dated 16.03.2015. Accordingly, the A.O vide his order passed u/s.144 r.w.s. 147, dated 28.11.2019 reassessed the income of the assessee at Rs.10,28,463/-.
Aggrieved, the assesee carried the matter in appeal before the CIT(Appeals) but without any success.
The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me.
I have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
Controversy involved in the present appeal lies in a narrow compass, i.e., sustainability of the disallowance of the assessee’s claim for deduction of interest expenditure of Rs.6,27,368/- (supra) u/s.57 of the Act, which was claimed by her to have been borne exclusively for earning of interest income on the investment of Rs.45,78,038/- with Balaji Distributors, a partnership firm in which the assessee as a partner was in receipt of interest income @12%.
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Shorn of unnecessary details, the assessee had raised secured loans of Rs.46,43,681/- from ICICI Bank and LIC and had utilized the same for making an investment with M/s Balaji Distributor, i.e., a firm in which the assessee was a partner and was, inter alia, in receipt of interest @12% on the investment therein made. The A.O was of the view that as the assessee was in receipt of both interest income of Rs.5,04,040/- and profit share of Rs.4,69,792/- from the aforesaid firm, viz. Balaji Distributors (supra), therefore, the interest expenditure of Rs.6,27,368/- (supra) that was claimed by her as a deduction u/s.57 of the Act, having not been incurred wholly and exclusively for earning of the interest income u/s.56 of the Act from the said firm, thus, was wrongly allowed as a deduction by his predecessor while framing the original assessment u/s.143(3) of the Act, dated 16.03.2015. Accordingly, the A.O on the basis of his aforesaid deliberations reopened the assessee’s concluded assessment and disallowed her claim for deduction of interest expenditure of Rs.6,27,368/- (supra) u/s.57 of the Act.
The Ld. Authorized Representative (for short “A.R”) for the assessee, had at the very outset of the hearing of the appeal assailed the validity of the jurisdiction that was assumed by the A.O for reopening the concluded assessment of the assesee. It was the claim of the ld. A.R that the A.O had reopened the concluded assessment of
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the assessee merely on the basis of a change of opinion, on the same set of facts as were available before the A.O while framing of the original assessment u/s.143(3), dated 16.03.2015. It was averred by the Ld. AR that the issue of allowability of the assessee’s claim for deduction of interest expenditure had been adverted to and was allowed by the A.O after exhaustive deliberations in the course of the original assessment proceedings. The Ld. A.R in order to fortify his aforesaid contention had taken us through the copy of the original assessment order passed by the A.O u/s.143(3), dated 16.03.2015, Page 8 to 10 of APB. Also, it was claim of the Ld. AR that the assessee’s claim for deduction of the interest expenditure in question had been allowed by the A.O while framing the assessment immediately succeeding year i.e. A.Y.2013-14 vide his order passed u/s.143(3), dated 27.03.2016. On the basis of the aforesaid facts, it was the claim of the Ld. AR that the reopening of the concluded assessment of the assessee on the basis of the same set of facts, which were not only available on record but had been deliberated upon by the A.O while framing of the original assessment was not permissible in the eyes of law, and thus, the re- assessment therein framed was liable to be quashed on the said count itself. The Ld. A.R in support of his aforesaid contention had relied on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) and that of the Hon’ble
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High Court of Delhi in the case of Rasalika Trading & Investment CO. (P) Ltd. Vs. Deputy Commissioner of Income Tax & Anr. (2014) 365 ITR 447 (Del).
Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities. It was submitted by the Ld. DR that as the interest expenditure in question was not incurred by the assessee wholly and exclusively for earning of interest income, and thus was wrongly allowed by the A.O while framing of the original assessment u/s.143(3), dated 16.03.2015, therefore, the A.O remaining well within his jurisdiction had validly reopened the concluded assessment and disallowed the assessee’s claim for deduction u/s. 57 of the Act.
Before adverting any further, I deem it fit to cull out the “reasons to believe” which had formed the very basis for reopening of the assessee’s case, as under:
“Reasons for the belief that income has escaped assessment The assessee filed return of income declaring total taxable income of Rs.3,73,910/- on 31.03.2013. The case was selected for scrutiny and assessment was completed u/s. 143(3) at Rs.4,01,095/- on 16.03.2015 by making addition of Rs.27,185/- on account of low withdrawal for household expenses. On perusal of computation of income for the A.Y.2012-13, it is found that the assessee has shown income from interest to the tune of Rs.5,64,841/- and claimed expenses of Rs.6,53,060/- against this income ( under the head interest paid to ICICI of
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Rs.6,09,143/-, interest to LIC loan of Rs.18,225/-, and interest to Sharda Nathani of Rs.25,692/) The discrepancy is noted above press that the assessee has utilized the secured loans taken from ICICI and LIC to meet the expenses of business and not to earn interest income as claimed by the assessee. Herein, it is pertinent to mention that to claim deduction u/s.57 of the IT Act, it is important to satisfy the following conditions: (i) “the expenditure must have been laid out or expended wholly and exclusively for the purpose of making or earning “income from other sources” Therefore, in view of Para (b) of explanation 2 of Section 147, income chargeable to tax of Rs.6,27,368/- has escaped assessment. In view of above, I have reason to believe that income chargeable to tax amounting to Rs.6,27,368/- has escaped assessment for the A.Y.2012-13 within the meaning of section 147 of the Income Tax Act, 1961.”
Having given a thoughtful consideration, I find substance in the claim of the Ld. AR that the A.O had merely on the basis of a change of opinion on the same set of facts that were not only available on his record, but had in fact been deliberated upon by his predecessor while framing of the original assessment u/s.143(3), dated 16.03.2015, reopened the concluded assessment of the assessee. I, say so, for the reason that a bare perusal of the original assessment order passed by the A.O u/s. 143(3), dated 16.03.2015 reveals beyond doubt that the issue that the assessee had utilized the loan funds of Rs.46,43,681/- raised from ICICI and LIC for making an investment with Balaji Distributors (supra) from where she was in receipt of interest @ 12%
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a/w. share of profit was specifically looked into by the A.O while framing the original assessment vide his order passed u/s 143(3), dated 16.03.2015. On a perusal of the records, I find that the A.O while framing the original assessment had found the assessee’s claim for deduction of interest expenditure u/s 57 in order, and had not drawn any adverse inferences as regards the same, Para 4 of the assessment order. On the basis of the aforesaid facts, I am of the considered view that reopening of the concluded assessment of the assessee which was earlier framed by the A.O u/s.143(3), dated 16.03.2015 on the basis of a change of opinion can by no means be held to be justified. The aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India (2010) 320 ITR 561 (SC). The Hon’ble Apex Court in its aforesaid order, had held, that the case of an assessee cannot be reopened on the basis of a mere “change of opinion” by observing as under:-
"On going through the changes, quoted above, made to s. 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in s. 147 of the Act (w.e.f. 1st April, 1989), they are given a go by and only one condition has remained, viz., that where the AO has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to ITA No.1212/Mum/2019 A.Y. 2012- 13 M/s Medley Pharmaceuticals Ltd. Vs. DCIT-10(2)(2) give a schematic interpretation to the words "reason to believe" failing which, we are afraid, s. 147 would give arbitrary powers to the AO to
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reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to s. 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in s. 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the AO. We quote hereinbelow the relevant portion of Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1], which reads as follows: " “7.2 Amendment made by the Amending Act, 1989, to re- introduce the expression „reason to believe‟ in s. 147.-- A number of representations were received against the omission of the words „reason to believe‟ from s. 147 and their substitution by the „opinion‟ of the AO. It was pointed out that the meaning of the expression, „reason to believe‟ had been explained in a number of Court rulings in the past and was well settled and its omission from s. 147 would give arbitrary powers to the AO to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended s. 147 to reintroduce the expression „has reason to believe‟ in place of the words „for reasons to be recorded by him in writing, is of the opinion‟. Other provisions of the new s. 147, however, remain the same."
Apart from that reliance is placed on the judgment of the Hon’ble High Court of Delhi in the case of Rasalika Trading & Investment CO. (P)
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Ltd. Vs. Deputy Commissioner of Income Tax & Anr. (supra). It was observed by the Hon’ble High Court that in a case where notice u/s.148 is based upon stale information which was available at the time of the original assessment, and in fact appears to have been used by the A.O during the completion of proceedings u/s.143(3) of the Act, then, reopening of the case cannot be sustained. Further, the Hon'ble High Court of Bombay in the case of Asteroids Trading & Investment P. Ltd. Vs. DCIT (2009) 308 ITR 190 (Bom), had held, that an A.O is precluded from assuming jurisdiction to initiate reassessment proceedings on the basis of a “change of opinion”, observing as under:
"8. Perusal of the record shows that the petitioner had made full disclosure necessary for claiming deduction under s. 80M. The AO after applying his mind to the relevant records had made a specific order allowing the deduction. A perusal of the record shows that now respondent No. 1 proposes to reopen the assessment because according to him deduction under s. 80M was wrongly allowed, and, therefore, he was of the opinion that the income has ITA No.1212/Mum/2019 A.Y. 2012-13 M/s Medley Pharmaceuticals Ltd. Vs. DCIT-10(2)(2) escaped assessment. Though, in the notice respondent No. 1 has used the phrase "reason to believe", admittedly between the date of the order of assessment sought to be reopened and the date of forming of opinion by respondent No. 1, nothing new has happened and there is no change of law, no new material has come on record, no information has been received. It is merely a fresh application of mind by the same officer to the same set of facts. Thus, it is a case of mere change of opinion, which, in our opinion, does not provide jurisdiction to respondent No. 1 to initiate proceedings under s. 148 of the Act. It can now be taken as a settled law, because of a series of judgments of various High Courts and the Supreme Court, which have been referred to in the judgment of the Full Bench of the Delhi High Court in the case of Kelvinator of India Ltd. (supra) referred to above, that under s. 147 assessment cannot be reopened on a mere change of opinion."
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Accordingly, on the basis of my aforesaid observation, I concur with the claim of the Ld. AR that the A.O had exceeded his jurisdiction and reopened the concluded assessment in the case of the assessee merely on the basis of “change of opinion” u/s.147 of the Act, which is not permissible in the eyes of law. I, thus, on the basis of my aforesaid observations quash the reassessment framed by the A.O vide order passed u/s.144 r.w.s. 147, dated 28.11.2019 for want of valid assumption of jurisdiction on his part.
As the reassessment framed by the A.O vide order passed u/s.144 r.w.s. 147 dated 28.11.2019 had been quashed for want of valid assumption of jurisdiction, therefore, I refrain from adverting to and therein adjudicating the other contentions advanced by the Ld. AR on the sustainability of the additions made by the A.O qua the merits of the case, which, thus, are left open.
In the result, appeal of the assessee is allowed in terms of the aforesaid observations.
Order pronounced in open court on 23rd day of November, 2022. Sd/- (रवीश सूद /RAVISH SOOD) �या�यक सद�य/JUDICIAL MEMBER रायपुर / Raipur; �दनांक / Dated : 23rd November, 2022 **SB
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आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals), Raipur (C.G.) 4. The Pr. CIT, Raipur (C.G.) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च, रायपुर / DR, ITAT, “SMC” Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur