TaxTMI 
TaxTMI 
2014 (11) TMI 255
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....4,770/- under the provisions of Section 115JA of the Act. Along with the return of income, the assessee attached a sheet containing "Notes forming part of return of income" and the para 11 of the said Notes read as under:- "During the year the company has accounted a sum of Rs. 13,26,01,510.00 as income being interest received from the I.T. Dept. The Department has claimed during the year a sum of Rs. 3,87,76,670.00 as interest payable by the assessee. The amount of interest paid Rs. 3,87,76,670.00 has been deducted and only the balance amount of Rs,9,38,24,849.00 has been offered for tax in the computation of income. Reliance is placed on the decision of Hon'ble Bombay Tribunal in the case of Cynamid India Limited for this claim. Suitable adjustment has been made in the computation of income." The assessment was completed u/s 143(3) of the Act on 27.3.2002 determining the total income of the assessee at Rs. 11,51,48,375/- under the normal provisions of Act. It appears that the AO did not consider the above said notes attached by the assessee along with the return of income. The assessee preferred an appeal before the ld. CIT(A) challenging the order or AO. Consequent to ....
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....ment of Rs. 3.87 crores shall not be claimed as deduction. Since, the interest payment was made to the Income Tax Department and interest income was received from the Income Tax Department, the assessee netted the interest payment against the interest receipt and accordingly offered net interest only as income in the return of income and for this purpose, it drew support from the Tribunal decision rendered in the case of Cynamid India (supra). However, the AO has observed that the the interest expenditure of Rs. 3.87 crores claimed by the assessee cannot be allowed as deduction under the provisions of Income Tax Act in view of the decision rendered by Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd (230 ITR 733). He further observed that the decision of the Tribunal in the case of Cynamid India Ltd (I.T.A.No.4561/Bom/1982) was rendered prior to the decision of the Hon'ble Supreme Court referred above. Accordingly, the AO disallowed the claim of interest expenditure of Rs. 3.87 crores in the reopened assessment. 5. The Ld A.R pleaded for annulling the impugned assessment order on technical ground, viz., non-furnishing of reasons for re-opening of asses....
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....ng its income. The interest levied by the department under various provisions of Act is not an allowable ITA No.3455/M/2005 expenditure u/s 37. Thus I have reason to believe that income to the extent of Rs. 3,87,76,760/- has escaped assessment as under the provisions of explanation 2, clause (c)(i) to Sec. 147, an assessment has been made but the income chargeable to tax has been under assessed. Therefore, reassessment proceedings are initiated and notice u/s 148 is issued." However, according to Ld A.R, the same was not in accordance with the procedure prescribed by the Hon'ble Supreme Court in the case of G.K.N. Drive Shafts (India) Ltd (supra) read with the decisions of Hon'ble Bombay High Court referred supra. 6. The Ld D.R submitted that the assessing officer has reopened the assessment within four years from the end of the assessment year under consideration and hence the claim of disclosure made in the notes attached with the return of income about the claim of interest paid to the department shall not have any significance. Further the question of change of opinion also does not arise, since the AO has not expressed any opinion in the original assessment proce....
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....d subsequently. Accordingly, he submitted that the assessing officer was justified in forming belief that the claim for deduction of interest paid under the Income tax Act is not allowable as deduction. 9. The Ld D.R further submitted that there was no violation of principles of natural justice also in non-furnishing of reasons, since the AO cannot complete the assessment without seeking explanations from the assessee on the issues in respect of which the assessment was re-opened. The AO was duty bound to seek explanations from the assessee during the course of assessment proceedings and upon addressing all the explanations/objections of the assessee with regard to the proposed additions/disallowances only, the AO could complete the assessment. The Ld D.R submitted that, in the instant case also, the assessing officer has sought explanations from the assessee before disallowing the claim for deduction of interest paid under the Act and after duly addressing the same only, the AO has disallowed the above said claim, by following the decision of Hon'ble Supreme Court rendered in the case of Bharat Commerce and Industries (referred supra). Hence, it cannot be said that the asse....
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....essment years 1995-96 and 1996-97 against which appeals were preferred before ld CIT(A) and were pending. The assessments of the remaining five years were pending to be completed. The revenue had furnished the copies of reopening of assessments before the Hon'ble Court. Under these set of facts, the Hon'ble Apex Court confirmed the order passed by the Hon'ble Delhi High Court by making the observations extracted above. The Ld D.R submitted that the Hon'ble Supreme Court has given an opportunity to the assessee to file objections and accordingly directed the assessing officer to dispose of the objections, if filed, by passing a speaking order. However, the said direction was given by the Hon'ble Apex Court only in respect of five assessment years which were pending to be completed. However, in respect of two assessment years, viz., AY 1995-96 and 1996-97 the assessment of which had already been completed and appeals were pending before the first appellate authority, the Hon'ble Apex Court has only directed the Ld CIT(A) to dispose of the appeals expeditiously. The Ld D.R submitted that the assessing officer had not supplied the reasons for reopening of assess....
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.... to deal with the adjudication covering assessments with the objective of providing an element of fairness in the process of adjudication and create an atmosphere of transperancy, a mechanism, which was not found in the Statute. The said procedure was evolved by asking the assessing officer to pass a reasoned order. The Ld D.R accordingly submitted that the decision of the Hon'ble Supreme Court has to be considered as part of procedural law and hence non-compliance of the same will not nullify the reassessment proceedings, which were otherwise validly initiated by the assessing officer. 14. The ld D.R submitted that the disallowance of interest claim made by the assessing officer is liable to be confirmed, since the interest paid to the department under the provisions of the Act cannot be considered as an expenditure incurred for earning any income or profits. Hence, it can only be said that the assessee is challenging the said disallowance on technical grounds only to withhold the payment of tax, which the state is otherwise legally entitled to. 15. We have heard the rival contentions and perused the record. There is no dispute with regard to the fact that the assessing ....