2018 (2) TMI 1516

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....eclaring total income of Rs. 72,82,77,921. Subsequently, assessee filed a revised return of income on 29th September 2008, declaring total income of Rs. 72,06,36,526. The return of income filed by the assessee was subjected to scrutiny and an assessment order under section 143(3) was passed on 30th December 2009, determining the total income at Rs. 72,14,69,760. Subsequently, the Assessing Officer noticing that certain receipts as per TDS certificates were not offered to tax by the assessee and further, interest expenses claimed and allowed were relating to capital work-in-progress, which, otherwise should have been disallowed, formed a belief that income assessable to tax has escaped assessment and accordingly re-opened the assessment under section 147 of the Act by issuing a notice under section 148 of the Act on 29th March 2012. After complying to the notice under section 148 of the Act, the assessee requested the Assessing Officer to communicate the reasons for re-opening of assessment which were communicated to the assessee by the Assessing Officer on 12th February 2013. After receiving the reasons for re-opening of assessment the assessee on 11th March 2013, raised objections....

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....he assessee in the assessment proceedings, as, in the absence of notice under section 143(2), the Assessing Officer lacks jurisdiction to make an assessment. In support of such contention, he relied upon the following decisions:- i) Hotel Blue Moon v/s ACIT, 321 ITR 362 (SC); ii) CIT v/s Mohammad Khaleeq Commercial Taxes, 86 CCH 362 (All.); iii) Kuber Tobacco Products Ltd. v/s DCIT, 117 ITD 273 (Del.); iv) PCIT v/s Silver Line, 383 ITR 455 (Del.); v) Salman Khan, ITA no.2362 of 2009, dated 01.12.2009 (Bom.); vi) CIT v/s Salman Khan, ITA no.2362 of 2009, dated 01.12.2009; vii) Kanchanjunga Impex Pvt. Ltd. v/s ITO, 45 CCH 81 (Mum.); viii) PCIT v/s Shri Jai Shiv Shankar Traders Ltd., 383 ITR 448 (Del.). 6. Further, the learned Authorised Representative submitted, after receiving the reasons recorded, the assessee vide letter dated 11th March 2013 has raised objections against the initiation of proceedings under section 147 of the Act. He submitted, without disposing off the objections of the assessee independently before completion of assessment, the Assessing Officer dealt with the objections of the assessee i....

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....d the material on record. We have also applied our mind to the decisions relied upon. It is worth mentioning, the challenge to the impugned assessment order by the assessee is primarily on the following two planks. i) Non-issuance of notice under section 143(2) of the Act; and ii) Non-disposal of objections raised by the assessee before completion of assessment. 10. As could be seen, the learned Commissioner (Appeals) has rejected assessee's objection against non-issuance of notice under section 143(2) of the Act, primarily on the reasoning that, since, the assessee has availed full and proper opportunity by participating in the assessment proceedings, the defect, if any, due to non-issuance of notice under section 143(2) of the Act gets cured in view of section 292BB of the Act. In our view, there is a basic flaw in the aforesaid reasoning of the first appellate authority as section 292BB of the Act which was introduced to the statute by finance Act, 2008 w.e.f. 1st April 2008, will have prospective effect, hence, will not be applicable to the impugned assessment year. This view has been expressed by different High Courts, including, the Hon'ble Jurisdicti....

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....S as well as on the allowability of interest expenditure, the issues on which the Assessing Officer re-opened the assessment. After pointing out to the Assessing Officer that there is no escapement of income or under assessment on either of the issues as alleged by the Assessing Officer in the reasons recorded, the assessee requested the Assessing Officer to drop the proceedings initiated under section 147 of the Act as the proceedings are bad-in-law. However, as is evident from facts on record, the Assessing Officer did not dispose off the objections of the assessee prior to completion of the assessment under section 143(3) r/w section 147 of the Act. On the contrary, while completing the impugned assessment, the Assessing Officer simultaneously disposed off the objection of the assessee. In our view, the non-disposal of assessee's objections independently before completion of the assessment under section 143(3) r/w section 147 of the Act is against the ratio laid down by the Hon'ble Supreme Court in case of GKN Drive Shaft India Ltd. (supra). The Hon'ble Jurisdictional High Court in case of KSS Petron Pvt. Ltd. (supra) has held that non-disposal of objections raised again....

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...., it was submitted, the borrowed funds were utilized for specific purpose and without establishing nexus between the borrowed funds and investments made disallowance of interest expenditure should not be made. In this context, the assessee furnished a working of actual disallowance which could be made under section 14A which worked out to Rs. 1,52,295. The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record found that as per the Balance Sheet of the assessee own funds were Rs. 26,884.03 lakh, whereas investment in fixed assets and capital work in progress is of Rs. 28,981.04 lakh which according to the first appellate authority indicate that assessee did not have own funds to make the investment. However, he found that in assessee's own case, for assessment year 2009-10 the learned Commissioner (Appeals) after considering the submissions of the assessee that borrowed funds were utilized for specific purposes like import of fixed assets and purchase of intellectual property rights directed the Assessing Officer to examine the claim of the assessee and exclude the interest paid on the borrowed funds if assess....

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....owards acquiring intellectual property rights, etc. Considering the aforesaid submissions of the assessee, the first appellate authority in both the years have directed the Assessing Officer to verify claim of the assessee and if assessee's claim with regard to utilization of borrowed funds was found to be correct not to disallow any interest expenditure. We do not find any reason to interfere with the aforesaid direction of the first appellate authority. Further, we also agree with the direction of the first appellate authority to examine and consider assessee's working of disallowance of expenditure at Rs. 1,52,295, considering the fact that such working was furnished by the assessee before the first appellate authority for the first time. Notably, before us, the learned Authorized Representative has submitted that some of the investments are in growth oriented funds and do not give rise to exempt income. Therefore, such investments should be excluded from the average value of investment for computing disallowance under rule 8D(2). In principle, we agree with the aforesaid submissions of the learned Authorized Representative. We direct the Assessing Officer to exclude from the av....