2022 (5) TMI 273 - AT - Income Tax

Tribunal invalidates assessment reopening, emphasizes no review for reassessment

M/s Shriram Construction Finance Versus The Assistant Commissioner of Income Tax, Non Corporate Circle 2 Chennai And Vice – Versa

M/s Shriram Construction Finance Versus The Assistant Commissioner of Income Tax, Non Corporate Circle 2 Chennai And Vice – Versa - TMI Issues Involved:1. Validity of proceedings initiated under Section 147 of the Income Tax Act.2. Disallowance of interest under Section 36(1)(iii) of the Income Tax Act.3. Disallowance under Section 14A read with Rule 8D of the Income Tax Act.Detailed Analysis:1. Validity of Proceedings Initiated under Section 147:The assessee challenged the reopening of the assessment under Section 147, arguing that the original assessment under Section 143(3) had already considered the issue of interest payment and disallowed an amount under Rule 8D(2)(ii). The assessee contended that the reopening was based on a mere change of opinion without any new tangible material. The Tribunal noted that the Assessing Officer (AO) had already examined the issue and made additional disallowances during the original assessment. The Tribunal cited the Supreme Court's decision in CIT v. Kelvinator of India Ltd. (320 ITR 561), which emphasized that reopening based on a change of opinion is not permissible. The Tribunal concluded that the AO's action amounted to a review rather than reassessment, which is not allowed under the Act. Therefore, the reopening of the assessment under Section 147 was deemed invalid, and the reassessment order was quashed.2. Disallowance of Interest under Section 36(1)(iii):The assessee argued that the interest paid was related to capital borrowed for business purposes, and thus, the disallowance under Section 36(1)(iii) was unjustified. The Tribunal observed that the AO had noted the firm's investments in shares, which were funded by loans, and had made a disallowance under Section 14A. The CIT(A) directed the AO to recompute the disallowance under Section 36(1)(iii) at 17.58% of the actual interest received, after reducing any disallowance made under Section 14A. However, since the Tribunal quashed the reassessment order, the issue of disallowance under Section 36(1)(iii) became academic and did not require further adjudication.3. Disallowance under Section 14A read with Rule 8D:The AO had disallowed an amount under Section 14A read with Rule 8D, arguing that the assessee's investments in shares, which yielded exempt income, warranted such disallowance. The assessee contended that the investments in share application money did not yield income until converted into shares, and thus, the provisions of Section 14A were not applicable. The Tribunal noted that the AO had already examined this issue in the original assessment and made additional disallowances. Since the reassessment was quashed, the Tribunal did not need to further address the disallowance under Section 14A.Conclusion:The Tribunal allowed the assessee's appeal, quashing the reassessment order under Section 143(3) read with Section 147, and dismissed the Revenue's appeal as academic. The judgment emphasized the principle that reopening an assessment based on a mere change of opinion, without new tangible material, is not permissible.