2019 (7) TMI 441 - HC - Income Tax

High Court remands assessment appeal, granting assessee chance to contest reopening under Income Tax Act Section 147.

The Commissioner of Income Tax, Chennai. Versus M/s. Arvind Healthcare Pvt. Ltd.

The Madras High Court allowed the Revenue's appeal challenging the reopening of assessment for the assessment year 2003-04 under Section 147 of the Income ... Reopening of assessment u/s 147 - intimation was issued under Section 143(1) - no opportunity to contest the reopening of the assessment - whether intimation passed under Section 143(1) was not an assessment order ? - HELD THAT:- As find from the assessment order that the notice sent was not responded by the assessee and consequently, the Assessing Officer completed the assessment. Further, there was a gross delay in filing the appeal before the CIT(A) and a faint plea was raised by the assessee before the CIT(A) objecting to the issuance of notice for reopening. There was no finding rendered by the CIT(A) as to the validity of the reopening except by observing that such a contention was not raised before the Assessing Officer and that the contention could not be entertained at the appellate stage. CIT(A), being the First Appellate Authority, is entitled to examine the entire facts and the validity of reopening of assessment being a mixed question of law and fact, the same can very well be entertained by the CIT(A). Even before the Tribunal, we find that the respondent/assessee did not specifically contest the reopening proceedings by placing decisions nor there was any contest with regard to the stand taken by the Revenue that only intimation under Section 143(1) of the Act was issued and that no assessment order was passed under Section 143(3) - Assessee should be granted an opportunity to contest the reopening of the assessment, for which purpose, we deem it appropriate to remand the matter to the CIT(A) for a fresh consideration. Issues:1. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961.2. Application of decisions by the Apex Court regarding intimation under Section 143(1) not being an assessment order.3. Allowance of interest paid as expenditure without establishing nexus under Section 37 of the Income Tax Act.Issue 1: Validity of Reopening of Assessment:The appeal before the Madras High Court challenged the order of the Income Tax Appellate Tribunal regarding the reopening of assessment for the assessment year 2003-04 under Section 147 of the Income Tax Act, 1961. The Revenue contended that the Tribunal erred in reversing the order of the Commissioner of Income Tax (Appeals) and sustaining the reopening. The Revenue argued that there had been no assessment as only an intimation was issued under Section 143(1), and thus, the question of reassessment did not arise. The Court noted that the CIT(A) did not provide a finding on the validity of the reopening, and as the First Appellate Authority, the CIT(A) could examine the facts and validity of the reopening. The Court decided to remand the matter to the CIT(A) for fresh consideration, allowing the assessee an opportunity to contest the reopening.Issue 2: Application of Apex Court Decisions:The Revenue urged the Court to apply the decisions of the Hon'ble Supreme Court in the cases of ACIT Vs. Rajesh Jhaveri Stock Brokers P. Ltd. and DCIT Vs. Zuari Estate Development and Investment Company Ltd. These cases held that the intimation passed under Section 143(1) was not an assessment order, and therefore, the First Proviso to Section 147 of the Income Tax Act did not apply. However, the Court did not directly address this issue in its judgment, as the focus was on remanding the matter for fresh consideration.Issue 3: Allowance of Interest Paid as Expenditure:The Tribunal's finding that interest income had been taxed, and thus, the interest paid should be allowed as an expenditure under Section 37 of the Income Tax Act without establishing a nexus between the expenditure and income earned was also challenged. The Court did not delve into this aspect in its judgment as the primary decision was to remand the matter for further consideration by the CIT(A).In conclusion, the Madras High Court allowed the appeal filed by the Revenue, set aside the orders of the Tribunal and the CIT(A), and remanded the matter to the CIT(A) for fresh consideration, providing both the assessee and the Revenue the opportunity to present their arguments, which would be decided on merits and in accordance with the law.