2022 (6) TMI 21 - AT - Income Tax

Tribunal rules interest income on parked funds as capital receipt, not taxable.

The Tribunal ruled in favor of the assessee, quashing the reassessment proceedings for lack of jurisdiction. It held that interest income earned on ... Reopening of assessment u/s 147 - eligibility of reasons to believe - change of opinion - interest income earned on its fixed deposits to be brought to tax under the residuary head of income, i.e, income from other Sources - HELD THAT:- We find substantial force in the claim of the Ld. AR that the reopening of the concluded assessment of the assessee 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 furnished complete details of the interest earned on the short term deposit. 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 under law. Thus 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 (1) TMI 11 - SUPREME COURT] had observed, that the case of an assessee cannot be reopened on the basis of a mere “change of opinion'. 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. Thus quash the assessment framed by the A.O u/s. 143(3)/147 - Decided in favour of assessee. Correct head of income - characterization of receipts - interest income on funds that were received by way of share capital and were temporarily parked as short term fixed deposits with the banks - whether the interest income earned by the assessee company on the funds that were received by it by way of share capital and were temporarily parked as short term deposits with the banks, was rightly claimed by the assessee prior to commencement of its commercial operations as a capital receipt and reduced from the pre-operative expenses i.e project cost or, was liable to be assessed as its income under the residuary head of income, i.e, income from the sources, as claimed by the department? - HELD THAT:- As relying on Indian Oil Panipat power Consortium Ltd [2009 (2) TMI 32 - DELHI HIGH COURT] the interest income received by the assessee prior to commencement of its commercial operations on the amount of 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 made by the A.O by treating the same as income of the assessee from other sources. - Decided in favour of assessee. Issues Involved:1. Validity of reopening assessment proceedings.2. Taxability of interest on temporary funds parked with banks.3. Set-off of interest paid by the assessee with interest income.Issue-wise Detailed Analysis:1. Validity of reopening assessment proceedings:The primary contention was whether the reopening of the assessment proceedings under Section 147 of the Income-tax Act, 1961, was justified. The assessee argued that the reopening was based on a mere 'change of opinion' by the Assessing Officer (AO), which is not permissible under law. The AO had initially accepted the assessee's treatment of interest income during the original assessment under Section 143(3). The Tribunal noted that the AO had previously called for and reviewed the details of interest income during the original assessment, and no fresh tangible material had come to light to justify reopening. Citing the Supreme Court's judgment in CIT Vs. Kelvinator of India (2010) 320 ITR 561 (SC), the Tribunal held that reopening on the basis of a mere change of opinion is not permissible. Consequently, the Tribunal quashed the reassessment proceedings for want of jurisdiction.2. Taxability of interest on temporary funds parked with banks:The second issue was whether the interest earned on funds temporarily parked as fixed deposits with banks should be treated as a capital receipt or income from other sources. The AO had treated this interest as income from other sources, while the assessee contended it should be considered a capital receipt and set off against pre-operative expenses. The Tribunal referred to the Delhi High Court's judgment in Indian Oil Panipat Power Consortium Ltd. vs. ITO (2009) 315 ITR 255 (Delhi), which held that interest earned on funds received as share capital for specific business purposes and temporarily parked as deposits should be treated as a capital receipt. The Tribunal found that the facts of the case were similar to those in the Indian Oil Panipat case and concluded that the interest income should be treated as a capital receipt, not taxable as income from other sources.3. Set-off of interest paid by the assessee with interest income:The assessee argued for the set-off of interest paid against the interest income earned. However, since the Tribunal had already concluded that the interest income should be treated as a capital receipt and not taxable as income from other sources, the issue of set-off became redundant. The Tribunal did not delve into this argument further.Conclusion:The Tribunal allowed the appeals of the assessee for the assessment years 2009-10, 2010-11, and 2012-13. It quashed the reassessment proceedings for lack of jurisdiction and held that the interest income earned on temporarily parked funds should be treated as a capital receipt, not taxable as income from other sources. This decision was based on the principle that reopening assessments on a mere change of opinion is not permissible and that interest earned on funds intended for specific business purposes should be treated as a capital receipt.