M/S CMDC ICPL COAL LIMITED,RAIPUR (CG) vs. THE INCOME TAX OFFICER, 3(1), RAIPUR (CG)

आदेश/ ORDER PER RAVISH SOOD, JM: The captioned appeals filed by the assessee are directed against the common order passed by the CIT(Appeals)-1, Raipur dated 08.07.2016, which in turn arises from the respective orders passed by the A.O under Sec. 143(3)/147 of the Income-tax Act, 1961 (in short ‘the Act’) for assessment years 2009-10, 2010- 11 & 2012-13. As common issues are involved in the captioned appeals, therefore, the same are being taken up and disposed off by way of a consolidated order. We shall first take up the appeal filed by the assessee company in ITA No.348/RPR/2016 for assessment year 2009-10 wherein the impugned order has been assailed on the following grounds of appeal before us:

“(1) That in the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that reopening of the assessment proceedings is valid. (2) In the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition made by the AO of Rs.59,23,240/- holding interest on temporary funds parked with banks as revenue receipts chargeable to tax under the head income from other sources. The Ld. CIT(A) was not justified in confirming the addition(s) made by the AO. (3) In the facts and circumstances of the case and in law, the learned CIT(A) erred in not allowing set off of interest paid by the assessee with interest income. (4) The appellant reserves the right to amend, modify or add any of the ground/s of appeal.”

3 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

Chhattisgarh Power Limited (ICPL) with an object of mining of coal from Tara Coal Block Mine, Dist. Surguja, Chhattisgarh. Original assessment was framed by the Assessing Officer vide his order passed under Sec. Section 143(3) of the Act, dated 22.12.2011, determining the total income of the assessee at Rs. Nil.

4 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

simpliciter “change of opinion”, the assessee sought for dropping of the impugned proceedings. Also, the assessee tried to impress upon the AO that as the interest earned on the funds that were received as share capital and were temporarily parked as fixed deposits with the banks prior to commencement of its commercial operations were duly accounted for in its books of accounts as per the mandate of law as a capital receipt and reduced from the pre-operative expenses ,i.e, the cost of project, therefore, no adverse inference qua the said treatment of interest income was called for in its hands. However, the Assessing Officer was not persuaded to subscribe to the aforesaid claim of the assessee. Observing, that the aforesaid issue in question, i.e., as to whether the interest income claimed as a capital receipt by the assessee was in the nature of a revenue receipt or not, had not been examined by the Assessing Officer in the course of the original assessment framed by him vide his order passed u/s.143(3), dated 22.12.2011, the Assessing Officer rejected the claim of the assessee that the re-assessment proceedings had been taken recourse to on the basis of a mere “change of opinion”. On the contrary, it was observed by the AO that his predecessor while framing assessment in the case of the assessee company in a subsequent year i.e assessment year 2011-12, had after detailed scrutiny held the interest income derived by the assessee company on the bank deposits in question as its income from other sources. Rebutting the aforesaid claim of the Assessing Officer, it was submitted by the assessee that the aforesaid view of the department, i.e, characterization of the interest earned on the fixed deposits as its

5 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

income from other sources while framing the assessment in assessment year 2011- 12, had thereafter been vacated by the CIT(Appeals). However, the Assessing Officer taking cognizance of the fact that the order passed by the CIT (Appeals) for the assessment year 2011-12 had been assailed by the Department before the Tribunal and thus, not attained finality, therefore, vide his order passed u/s. 143(3)/147, dated 20.03.2015 followed the view taken by his predecessor and holding the interest earned by the assessee on the fixed deposits amounting to Rs. 59,23,238/- as its income under the residuary head of income, i.e, income from other sources, made an addition of the same to its returned income.

“2.3. First issue is challenging of reopening of assessment. The assessee had not specifically claimed the interest income as exempt but it had adjusted the interest with capital expenses. The claim was thus hidden in the books of accounts. It could be know to the AO only after due diligence. In the case of 348 ITR 439 BOM 2012 Indian Humepipe Comp. I Ltd. Vs. CIT Central, it has been held that where full facts were not disclosed by the assessee during assessment, reopening is valid. Mere production of account books from which material evidence could have been discovered with due diligence, does not necessarily amount to disclosure within meaning of first proviso to section 147. Coming to the merit of the additions, from the facts as per assessment order and submission made by the assesee’s AR the sum and substance of the assessee’s contention is thjat since the interest received by it is out of fixed deposits made from funds received as share capital for the purpose of project

6 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

which were temporarily remaining surplus and therefore, the interest is not taxable and is a capital receipt. Another contention made by the assessee is regarding consistency. It has been contented that since in the AY 2009-10 similar claim of the assessee was allowed by AO, therefore, in the current year also the claim should be allowed. Dealing with the first contention, the fact that interest has been earned out of deposits made from surplus share capital the income would not become capital receipt and non taxable. If it is held so then in case of several assessee’s part of share capital is often parked is bank as short term deposit till it is required for the purpose of project, in all such cases the income should be treated as capital receipts but it is not so. Interest from such deposits is duly taxed as income. The project of joint venture company was mining of coal and other related activities. However, this fact will have no bearing on the nature of interest income. Facts of the case are akin to the facts in M/s. Tuticorin Alkali( supra.) were also taxability of interest earned before commencement of business which was received on short term deposits with bank out of capital in the form of loan from financial instructions. In that case, the Hon’ble Supreme Court ruled in the favour of Revenue.Disregarding with the view taken by Bombay High Court, the Apex Court observed:- “25. The other case is a decision of Bombay High Court in CIT Vs. Maharashtra Electrosmelt Ltd. [19950 214 ITR 489. In that case, the assessee before commercial production had started had realized a sum of Rs.3,14,356/- as interest on short term deposit, At the same time, the assesse had paid a sum of Rs.58,51,505/- as interest on funds borrowed by it for the purpose of its business. The assesse after deducting the receipt of interest from the amount of interest paid by its capitalized the balance amount. The High Court was of the view that the background of raising of the fund by borrowing and temporary utilization of a portion of that fund by keeping the same in call deposits with the banks went to show that the interest was earned for the purpose of reducing the liability of the assessee. The High Court came to the conclusion that it was evident that the assessee id not derive any income by temporary utilization of the loans and since no income was derived by the assessee, the question of assessing the sum of Rs.3,14,366/- in the hands of the assessee as ‘income from other sources’ did not raise. 26. It is difficult to follow this reasoning. If a person borrows money for business purpose but utilizes that money to earn interest. However, temporarily the interest so generated will be his income. This income can be utilized by the assessee whichever way he likes. He may or may not discharges his liability to pay interest with this income. Merely because it was utilized to repay the interest on the

7 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

loan taken by the assessee, it did not cease to be his income. The interest earned by the assessee could have been used for many other purposes. If the assessee purchased a house and distributed dividend or paid salary of its employees with the money received as interest, will the interest amount be treated as not his income? This is not a case of diversion of income by overriding tile. The assessee was entirely at liberty to deal with the interest amount as he liked. The application of the income for payment of interest could not affect its taxability in any way. The Apex Court opined that “…..An assessee company may have raised its capital by issue of shares or debentures or by borrowing. But when that capital or a portion of it was utilized for whatever reason, even for a short period, to earn interest that interest must be treated as the revenue receipt and will have to be taxed accordingly. Any set off or deduction of any expenditure can only be made in accordance with the provision of the Act.’ In coming to this conclusion the Apex Court agreed with the decision of House of Lords in case of BSC Footwear Ltd. Vs. Ridgway as under: 20. In the case of B.S.C Footwear Ltd. Ridgway ( Inspector of Taxes) (1972) 83 ITR 269 ( HL), Russel, L.J while rejecting an argument based on well-settled accountancy practice, pointed out that the Income Tax Laws does not march step by step in the divergent footprints of the accountancy profession. 21. The view of Russel, L.J was upheld by the House of Lords on appeal. It was observed by the Lord Reid: Whatever merits there may be in the company's accountancy methods for the purposes of its internal affairs I am not persuaded that Cross J. and the Court of Appeal were wrong in finding them unacceptable for tax purposes. In the case before us, the company had surplus funds in its hands. In order to earn income out of the surplus funds, it invested the amount for the purpose of earning interest. The interest thus earned is clearly of revenue nature and will have to be taxed accordingly. The accountants may have taken some other view but accountancy practice is not necessarily good law. In B.S.C. Footwear's case (supra), the House of Lords had no hesitation in holding that the accounting practice for calculating its profit followed by the assessee

8 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

and accepted by the Revenue for 30 years could not be treated as sanctioned by law and was not acceptable for the purpose of computation of taxable income. Not only the House of Lords held that in such a situation, interest income will be taxable but also did not give any credence to the accounting treatment given to the interest received by the assessee in that case. The Hon’ble SC expressed their agreement to this view. On similar issue, Hon’ble M.P High Court in the case of Bharat Oman Refinery Vs. CIT 356 ITR 399 has held that the interest earned by investing the surplus share money in bank deposits is taxable as income from other sources. Similar view has been taken by the division bench of Bombay High Court in the case of Shri Krishna Polyester Ltd. Wherein it has been held that interest on short term deposit with bank by investing surplus fund accrued in public issue was leviable as income from other sources. In the case of Bharat Oman Refinery which was a joint venture of M/s. Bharat Petroleum Company Limited and Oman Oil Company with equal equity contribution, part of the capital received from the issue of debenture covetable into shares was also in fixed deposits. The taxability of interest has been held as under: 8. We have considered the rival contentions of the parties and find that in Tuticorin Alkali Chemicals & Fertilizers (supra), the Apex Court considering the legal position held that the interest earned by the assessee before commencement of business on short term deposits with banks, even out of term loans secured from financial institutions, is an income chargeable under the head "income from other sources" and would not go to reduce the interest payable by the assessee which would be capitalised after the commencement of commercial production. The Apex Court have held that it was an income from other sources and shall be liable to be taxed accordingly. The Division Bench of this Court considering similar controversy in M.P. State Industries Corpn. (supra) held that the interest earned by investing the surplus share money in bank deposits, such interest is taxable as income from other sources and not as business income. The Division Bench of Bombay High Court in Shree Krishna Polyster Ltd (supra) have also considered the legal position and held that the interest on short term deposits with bank by investing surplus fund acquired in public issue invested in short term bank deposits did not spring or emanate from the business activity of the assessee, hence it cannot be considered as business income and is liable as income from other sources. The Bombay High Court considered all the judgments including the judgment in Tuticorin Alkali Chemicals & Fertilizers (supra), Division Bench's judgment of this Court in M.P. State Industries Corpn. (supra)

9 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

and held that such income is an income from other sources and cannot be treated as an income from business and held that the said interest is liable to be taxed. 9. As the Division Bench of this Court have considered this question in M.P. State Industries Corpn. (supra) and have decided the question, we do not find any reason to differ with the aforesaid. So we find that this appeal does not involve aforesaid substantial questions of law for our consideration and accordingly we dismiss this appeal at admission stage.

Regarding the assessee’s plea for having no addition made in the A.Y. 2009-10, estoppels does not apply in Income Tax Proceedings, therefore, the view taken by another AO for the same assessee in different assessment years may not stop the present AO from taking a different view if there are sufficient basis. I am conscious of the fact that my predecessor in office has decided the issue in favour of the assessee in A.Y. 2011-12. The then CIT(Appeals) held that since the funds with the assessee were linked to the project of the assessee and particularly with land acquisition to be made for the purpose of project, therefore, interest on short term parking of funds will be capital receipt. However, on similar facts the Hon'ble Delhi High Court in the case of CIT Vs. Indian Vaccines Copr. Ltd.44 Taxman. Com 130 has held that since interest on bank deposits cannot be linked to the project of the assessee, the interest receipt is a taxable receipt.

10 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

of the assessee on the issue are NTPC-SAIL Power Company. P. Ltd. Vs. CIT 210 Taxman.com 358 wherein it was held that such interest is capital receipt entitled to be set off against on pre-operative expenses. On going through all these decisions, I find that the decision in the case of M/s. Tuticorin Alkali has wider ambit and connotation and has emanated from the basic principles of income theory and shrined in the taxation of income this country. The operating paras in the decision are as under: As can be seen above, the Hon'ble Supreme Court have passed their decision on the basis theory of income as per Income Tax Act as per which any receipts in the hands of the assessee is income unless it is exempt specifically under the certain section of the Act. Nature of income is not dependent on the purpose for which the assessee’s fund was to be deployed. Therefore, interest on fixed deposits has to be taxed under one or other head. Since assessee’s business had not commenced the interest could not be treated as business income. Therefore, it had to be taxed under the residual i.e. income from other sources. Respectfully, following the same, I hereby hold that the income in question is taxable under the head ‘other sources’. Accordingly, the addition made by the AO is hereby sustained and the grounds taken by the appellant are dismissed.”

11 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

jurisdiction and had merely on the basis of a ‘change of opinion’ reopened the concluded assessment of the assessee u/s. 147 of the Act, therefore, the same was not sustainable in eyes of law and was liable to be vacated; and (ii) that the assessee company prior to commencement of its commercial operations, had duly accounted for the interest on the funds which were received by way of share capital and were temporarily parked with the banks for productive exploitation and effective reduction of the cost of the project, as a capital receipt, and rightly reduced the same from the pre-operative expenses. At the very outset of the hearing of the appeal, the Ld. AR for the assessee assailed the validity of jurisdiction that was assumed by the Assessing Officer for reopening the concluded assessment of the assessee company under section 147 of the Act. It was submitted by the Ld. AR, that now when the reassessment proceedings have been embarked upon by the Assessing Officer on the basis of a mere ‘change of opinion’, therefore, the consequent assessment framed by him vide his order passed u/s. 143(3) r.w.s 147, dated 20.03.2015 could not be sustained and was liable to be struck down on the said count itself. In support of his aforesaid contention the Ld. AR had relied on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Kelvinator of India (2010) 320 ITR 561 (SC). Apart from that, it was submitted by the Ld. AR that as the assessee company prior to commencement of its commercial operations, had duly accounted for the interest earned on the funds which were received by way of share capital and were temporarily parked with the banks for productive exploitation and effective reduction

12 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

of the cost of the project, as a capital receipt, and had rightly reduced the same from the pre-operative expenses to be capitalized, therefore, no adverse inferences qua such treatment of the interest income was called for in its case.

13 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

received on short term deposits were furnished with the A.O, Page 10-16 of the APB. It was submitted by the Ld. AR that now when the A.O had called for the requisite details of the interest income on short term deposits and, had after necessary verification found the claim of the assessee in order, then, in the absence of any fresh tangible material coming to his notice after the culmination of the assessment proceedings it was not permissible on his part to have reopened the said concluded assessment on the basis of a mere ‘change of opinion’. In support of his aforesaid contention the Ld. AR had relied on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Kelvinator of India (2010) 320 ITR 561 (SC). In the backdrop of his aforesaid averments, it was submitted by the Ld. AR that now when the case of the assessee had been reopened merely on the basis of a ‘change of opinion’, the reassessment order passed by the A.O u/s. 143(3)/147, dated 20.03.2015 in the absence of valid assumption of jurisdiction by the A.O thus could not be sustained and was liable to be struck down on the said count itself.

14 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

Indian Oil Panipat power Consortium Ltd. vs. ITO, (2009) 315 ITR 255 (Delhi). It was submitted by the Ld. AR that involving identical facts the Hon’ble High Court, had observed, that interest earned by the assessee company before them, on the funds which were received in the form of share capital for infusion in the business and were temporarily parked as deposit with a bank, i.e, prior to commencement of its business was in the nature of a capital receipt which was required to be set-off against the pre operative expenses and could not have been brought to tax in its hands as income from other sources.

15 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

u/s. 147 of the Act. Rebutting the claim of the Ld. AR that the reopening of the case of the assessee was on the basis of mere ‘change of opinion’, it was submitted by the Ld. AR that as the A.O while framing the original assessment vide his order passed u/s.143(3), dated 23.12.2011 had not deliberated on the issue in hand, i.e., taxability of the interest earned by the assessee on the short term deposits with the banks, therefore, there was no forming of any opinion on his part qua the aforesaid issue, failing which the issue of reopening of assessment on the basis of a change of opinion could not arise at all. Adverting to the contentions advanced by the assessee as regards the merits of the addition made by the A.O, it was submitted by the Ld. DR that as the interest income earned by the assessee on the short-term deposits was an independent income, therefore, the same was rightly brought to tax by the A.O as the income of the assessee from other sources. In support of his aforesaid claim the Ld. DR had relied on the judgment of the Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT, (1997) 227 ITR 172 (SC). On the basis of his aforesaid contentions, it was submitted by the Ld. DR that not only the A.O had validly assumed jurisdiction and reopened the case of assessee company but also, addition made by him was duly justified.

16 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

company under Sec. 147 of the Act, we find that it is a matter of fact borne from record that a regular assessment in the case of the assesee company was earlier framed by the Assessing Officer vide order passed by him u/s. 143(3), dated 22.12.2011, and the returned income of the assessee was accepted as such. As observed by us hereinabove, the A.O. taking cognizance of the fact that the assessee company had failed to offer the interest income of Rs.59.23 lacs earned on its fixed deposits of Rs.18.82 crore with three banks, under the residuary head of income, i.e, as its income from other sources and had wrongly treated the same as a capital receipt which was reduced from the pre-operative expenses incurred during the stage of construction, the A.O for the purpose of bringing the aforesaid amount of interest income to tax had reopened its case u/s.147 of the Act. Order of re- assessment was, thereafter, passed by the A.O u/s. 143(3)/147, dated 20.03.2015 wherein after treating the interest income of Rs.59.23 lacs (supra) as the assessee’s income from other sources its income was assessed at Rs.59.23 lacs. On appeal, CIT(Appeals) not finding favour with the contentions advanced by the assessee, i.e, both as regards validity of the jurisdiction that was assumed by the A.O for reopening the concluded assessment as well as those that were advanced by him qua the merits of the addition made by the A.O, dismissed the appeal.

17 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

company was prompted on the basis of a mere ‘change of opinion’ on the same set of facts as were there before the A.O while framing the original assessment vide his order passed u/s. 143(3), dated 23.12.2011. As stated by the Ld. AR, and rightly so, it is a matter of fact borne from record, that the A.O in the course of original assessment proceedings had vide his query letter issued a/w. notice u/s. 142(1), dated 10.10.2011 at Sr. No.20 specifically called upon the assesee to furnish details of its interest income. In reply, we find that the assessee had vide its letter dated 24.10.2011 furnished complete details of the interest earned on the short term deposits, Page 10-16 of the APB. Backed by the aforesaid facts, we are of a strong conviction, that the A.O in the course of the regular assessment proceedings after calling for the requisite details had found no infirmity in the claim of the assessee company that prior to commencement of its commercial operations, the interest earned on the funds that were received by it as share capital and temporarily parked as short term fixed deposits with the banks, being in the nature of a capital receipt was to be reduced from the pre-operative expenses. As stated by the Ld. AR, and rightly so, in the absence of any fresh tangible material coming to the notice of the A.O after the original assessment proceedings had culminated vide his order passed u/s. 143(3), dated 23.12.2011, the reopening of its case on an issue which had been deliberated upon by him in the course of the regular assessment proceedings would be nothing short of taking recourse to re-assessment proceedings on the basis of a mere ‘change of opinion’, which as observed by us hereinabove is not permissible

18 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

under law. We are afraid that such a substitution of a view of a successor A.O cannot form a justifiable basis for reopening the case of an assessee. We find that the Hon'ble Supreme Court in its landmark judgment in the case of CIT Vs. Kelvinator of India (2010) 320 ITR 561 (SC) had observed, that the case of an assessee cannot be reopened on the basis of a mere “change of opinion‟, holding 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 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:

19 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

"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." Further, following the judgment of the full bench of the Hon‟ble High Court of Delhi in the case of Kelvinator of India (supra), which thereafter had been upheld by the Hon‟ble Apex Court, 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

20 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

to above, that under s. 147 assessment cannot be reopened on a mere change of opinion." We further find that the Hon'ble High Court of Bombay in the case of Asian Paints Ltd. Vs. DCIT (2008) 308 ITR 195 (Bom) had observed, that as no new information /material was received by the A.O, therefore, the fresh application of mind by him to the same set of facts and material which were available on record at the time of framing of the assessment, but had inadvertently remained omitted to be considered would tantamount to review of order which is not permissible as per law, had held as under: "10. It is further to be seen that the legislature has not conferred power on the AO to review its own order. Therefore, the power under s. 147 cannot be used to review the order. In the present case, though the AO has used the phrase "reason to believe", admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the AO, nothing new has happened, therefore, no new material has come on record, no new information has been received; it is merely a fresh application of mind by the same AO to the same set of facts and the reason that has been given is that the some material which was available on record while assessment order was made was inadvertently excluded from consideration. This will, in our opinion, amount to opening of the assessment merely because there is change of opinion. The Full Bench of the Delhi High Court in its judgment in the case of Kelvinator (supra) referred to above, has taken a clear view that reopening of assessment under s. 147 merely because there is a change of opinion cannot be allowed. In our opinion, therefore, in the present case also, it was not permissible for respondent No. 1 to issue notice under s. 148". Further, the Hon'ble High Court of Bombay in the case of ICICI Prudential Life Insurance Co. Ltd. Vs. ACIT (2010) 325 ITR 471 (Bom), relying on the judgment of the Hon’ble Supreme Court in the case of Kelvinator of India (supra), had held as under: “23. Though the power to reopen an assessment within a period of four years of the expiry of the relevant assessment year is wide, it is still structured by the existence of a reason to believe that income chargeable to tax has escaped assessment. The Supreme Court, in a recent judgment in Kelvinator

21 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

of India Ltd. (supra) while drawing upon the legislative history of s. 147 held that the expression „reason to believe‟ needs to be given a schematic interpretation in order to ensure against an arbitrary exercise of power by the AO. The judgment of the Supreme Court emphasises that the power to reopen an assessment is not akin to a power to review the order of assessment and a mere change of opinion would not justify a recourse to the power under s. 147. Unless the AO has tangible material to reopen an assessment, the power cannot be held to be validly exercised. The Supreme Court has held thus : "...Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to 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 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 precondition 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 inbuilt 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 link with the formation of the belief." 24. In the present case, for all the assessment years in question, and a fortiorari for asst. yr. 2004-05, what the AO has purported to do is to reopen the assessment on the basis of a mere change of opinion. That the AO had no tangible material is evident from the circumstance that the reasons which have been disclosed contain a reference to the same basis, namely the existence of a nil surplus/deficit in Form 1 which was drawn to the attention of and was present to the mind of the AO during the assessment proceedings under s. 143(3). Consequently, it is evident that there is an absence of tangible material before the AO". Also, the Hon‟ble High Court of Bombay in the case of Aventis Pharma Ltd. Vs. Asst. CIT (2010) 323 ITR 570 (Bom), reiterating its aforesaid view that reassessment proceedings cannot be permitted on the basis of a „Change of opinion‟, had held as under:- "There is merit in the submission which has been urged on behalf of the assessee that there was no tangible material before the AO on the basis of

22 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

which the assessment could have been reopened and what is sought to be done is to propose a reassessment on the basis of a mere change of opinion. This, in view of the settled position of law is impermissible. No tangible material is shown on the basis of which the assessment is sought to be ITA No.1212/Mum/2019 A.Y. 2012-13 M/s Medley Pharmaceuticals Ltd. Vs. DCIT- 10(2)(2) reopened. In the absence of tangible material, what the AO has done while reopening the assessment is only to change the opinion which was formed earlier on the allowability of the deduction. The power to reopen an assessment is conditional on the formation of a reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power. There is no tangible material in the present case. 14. At this stage, we may herein observe, that as per the mandate of law, even where a concluded assessment is sought to be reopened by the A.O within a period of 4 years from the end of the relevant assessment year, it is must that the A.O has fresh material or information with him, that had led to the formation of belief on his part that the income of the assessee chargeable to tax has escaped assessment. Our aforesaid view is fortified by the judgments of the Hon'ble High Court of Bombay in the case of NYK Lime (India) Ltd. Vs. DCIT (No.2) [2012] 346 ITR 361 (Bom) and Purity Tech Textile Pvt. Ltd. Vs. ACIT & Anr. [2010] 325 ITR 459 (Bom).

23 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

ITA No.349/RPR/2016 A.Y.2010-11 18. As the facts and the issues involved in the present appeal remains the same as were there before us in the aforementioned appeal of the assessee in ITA No.348/RPR/2016 for assessment year 2009-10, therefore, our order therein passed while disposing off the said appeal shall apply mutatis-mutandis for disposing off its present appeal in ITA No.349/RPR/2016 for the assessment year 2010-11. In this case also, grounds raised by the assessee are allowed in terms of our aforesaid observations.

24 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

ITA No. 350/RPR/2016 A.Y. 2012-13 20. We shall now advert to the appeal filed by the assessee for the assessment year 2012-13 wherein the impugned order has been assailed by the assessee on the following grounds of appeal before us : “(1) on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition made by the AO of Rs.2,08,37,710/- holding interest on temporary funds parked with banks as revenue receipts chargeable to tax under the head income from other sources. Ld. CIT(A) was not justified in confirming the addition made by the A.O. (2) In the facts and circumstances of the case and in law, the learned CIT(A) erred in not allowing set off of interest paid by the assessee with interest income. (3) The appellant reserves the right to amend, modify or add any of the ground/s of appeal.”

25 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

i.e, income from other sources, but the assessee had shown the same as a capital receipt and reduced it from the pre-operative expenses which was thereafter to be capitalized, the A.O called upon the assessee to put forth an explanation justifying the treatment of interest income as a capital receipt. As the reply filed by the assessee did not find favour with the A.O, therefore, he vide his order passed u/s.143(3)/147, dated 20.03.2015 made an addition of the aforesaid interest income under the residuary head of income, i.e, income of assesse from other sources and determined its income at Rs.2,08,37,710/-.

26 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

was earned by the assessee on the funds which were received by way of share capital and were temporarily parked with the banks prior to commencement of its commercial operations. We find that the issue involved in the present appeal is squarely covered by the judgment of the Hon’ble High Court of Delhi in the case of Indian Oil Panipat power Consortium Ltd. vs. ITO (2009) 315 ITR 255 (Delhi). In its aforesaid judgment, it was observed by the Hon’ble High Court that in the case of the assessee before them which was joint venture entered into between Indian Oil Corporation and a foreign company for setting up a power project, interest income was earned on the funds that were received as share capital with a specific purpose for infusion in its business, i.e, acquiring of land and development of infrastructure, which had to be temporarily parked as short term fixed deposit with a bank as the acquisition of lands had run into legal entanglements. Backed by the aforesaid facts, it was observed by the Hon’ble High Court that the interest income earned on the funds which were primarily brought for infusion of its business cannot be classified as the income of the assessee from other sources, as the same was earned in a period prior to commencement of its business and, the same being in nature of capital receipt was required to be set-off against its pre- operative expenses.

27 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

otherwise. For the sake of clarity, we herein cull out the relevant observations that were arrived at by the Hon’ble High Court in its aforesaid judgment in the case of Indian Oil Panipat power Consortium Ltd.(supra), as under: “It is clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for a specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. Since the income was earned in a period prior to commencement of business it was in the nature of capital receipt and hence was required to be set off against pre-operative expenses. In the case of Tuticorin Alkali Chemicals (1997) 227 ITR 172, it was found by the authorities that the funds available with the assessee in that case were “surplus” and, therefore, the Supreme Court held that the interest earned on surplus funds would have to be treated as “income from other sources‟. On the other hand in Bokaro Steel Ltd (1999) 236 ITR 315 (SC) where the assessee had earned interest on advance paid to contractors during pre-commencement period was found to be “inextricably linked‟ to the setting up of the plant of the assessee and hence was held to be a capital receipt which was permitted to be set off against pre-operative expenses.” Also, it was observed by the Hon’ble High Court as under: “In our view the situation in the instant case is quite similar except here instead of paying interest on funds brought in for specific purpose interest is earned on funds brought in by way of share capital for a specific purpose. Could it be said that in the former situation interest could have been capitalized and in the later situation it cannot be capitalized. To test the principle we could extend the example, that is, would our answer be any different had assessee passed on the interest to the respective shareholders. If not, then in our view the only conclusion possible is that interest earned in the present circumstances ought to be capitalized.”

28 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

share capital that was temporarily parked as short term deposits with the banks could not have been brought to tax as its income from other sources and had rightly been claimed by the assessee as a capital receipt which was reduced from its pre-operative expenses, i.e, from the cost of the project. We, thus, not being able to persuade ourselves to subscribe to the view taken by the lower authorities set-aside the order passed by the CIT(Appeals) and, vacate the addition of interest income of Rs.2,08,37,710/- made by the A.O by treating the same as income of the assessee from other sources.

Order pronounced in open court on 09th day of May, 2022.

Sd/- Sd/- JAMLAPPA D BATTULL RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 09th May, 2022 **SB

29 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G) 4. The Pr. CIT-1, Raipur (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, रायपुर ब�च, रायपुर / DR, ITAT, Raipur 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.

30 ITA Nos.348 to 350/RPR/2016 A.Ys.2009-10, 2010-11 & 2012-13

Date 1 Draft dictated on 29.04.2022 Sr.PS/PS 2 Draft placed before author 04.05.2022 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr. Sr.PS/PS PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order