2020 (6) TMI 400 - AT - Income Tax

Tribunal rejects assessment reopening, emphasizes tangible material requirement

DCIT, Circle-3 (1), Visakhapatnam. Versus M/s. K.V. Mohana Rao and Co. Pvt. Ltd. And (Vice-Versa)

DCIT, Circle-3 (1), Visakhapatnam. Versus M/s. K.V. Mohana Rao and Co. Pvt. Ltd. And (Vice-Versa) - TMI Issues:1. Validity of reopening the assessment2. Disallowance of interest on service taxIssue 1: Validity of reopening the assessmentThe appeal and cross objection were against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2013-14. The Revenue raised grounds challenging the order of the CIT(A) on various points, including the reopening of the assessment. The Assessing Officer had reopened the assessment based on the claim of interest on service tax paid by the assessee. The CIT(A) quashed the notice issued by the Assessing Officer, citing it as a change of opinion and relying on the judgment of the Hon'ble Supreme Court in the case of M/s. Kelvinator of India Ltd. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Assessing Officer had already allowed the interest paid on service tax in the original assessment, and reopening the assessment based on the same claim was considered a change of opinion, not permissible under the law. The Tribunal referred to the requirement of 'tangible material' for reopening assessments after the amendment to the Income Tax Act in 1989, emphasizing the need for a live link between the reasons and the belief of income escapement. Therefore, the Tribunal found the reopening of the assessment invalid and upheld the decision of the CIT(A).Issue 2: Disallowance of interest on service taxThe Assessing Officer disallowed an amount claimed towards interest on service tax in the revised return filed by the assessee. The CIT(A), following the judgment of the Hon'ble Jurisdictional High Court in the case of Andhra Sugars Ltd., held that the payment of service tax qualifies as an allowable deduction under section 43B of the Act, irrespective of the accounting method used. The CIT(A) deleted the addition made by the Assessing Officer, stating that once the payment is made during the relevant previous year, the year to which the expenditure relates becomes irrelevant. The Tribunal found no reason to interfere with the CIT(A)'s decision and dismissed the appeal filed by the Revenue. The cross objection filed by the assessee, being supportive of the CIT(A)'s order, was also dismissed as infructuous. Therefore, the Tribunal upheld the decision to allow the deduction for interest on service tax and dismissed both the appeal and cross objection.---