TaxTMI 
TaxTMI 
2022 (6) TMI 21
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...., the learned CIT(A) erred in holding that reopening of the assessment proceedings is valid. (2) In the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition made by the AO of Rs.59,23,240/- holding interest on temporary funds parked with banks as revenue receipts chargeable to tax under the head income from other sources. The Ld. CIT(A) was not justified in confirming the addition(s) made by the AO. (3) In the facts and circumstances of the case and in law, the learned CIT(A) erred in not allowing set off of interest paid by the assessee with interest income. (4) The appellant reserves the right to amend, modify or add any of the ground/s of appeal." 2. Succinctly stated, the assessee company is a joint venture between Chhattisgarh Mineral Development Corporation Ltd. (for short 'CMDCL) AND IFFCO Chhattisgarh Power Limited (ICPL) with an object of mining of coal from Tara Coal Block Mine, Dist. Surguja, Chhattisgarh. Original assessment was framed by the Assessing Officer vide his order passed under Sec. Section 143(3) of the Act, dated 22.12.2011, determining the total income of the assessee at Rs. N....
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.... that the re-assessment proceedings had been taken recourse to on the basis of a mere "change of opinion". On the contrary, it was observed by the AO that his predecessor while framing assessment in the case of the assessee company in a subsequent year i.e assessment year 2011-12, had after detailed scrutiny held the interest income derived by the assessee company on the bank deposits in question as its income from other sources. Rebutting the aforesaid claim of the Assessing Officer, it was submitted by the assessee that the aforesaid view of the department, i.e, characterization of the interest earned on the fixed deposits as its income from other sources while framing the assessment in assessment year 2011- 12, had thereafter been vacated by the CIT(Appeals). However, the Assessing Officer taking cognizance of the fact that the order passed by the CIT (Appeals) for the assessment year 2011-12 had been assailed by the Department before the Tribunal and thus, not attained finality, therefore, vide his order passed u/s. 143(3)/147, dated 20.03.2015 followed the view taken by his predecessor and holding the interest earned by the assessee on the fixed deposits amounting to Rs. 59,23....
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....o bearing on the nature of interest income. Facts of the case are akin to the facts in M/s. Tuticorin Alkali( supra.) were also taxability of interest earned before commencement of business which was received on short term deposits with bank out of capital in the form of loan from financial instructions. In that case, the Hon'ble Supreme Court ruled in the favour of Revenue.Disregarding with the view taken by Bombay High Court, the Apex Court observed:- "25. The other case is a decision of Bombay High Court in CIT Vs. Maharashtra Electrosmelt Ltd. [19950 214 ITR 489. In that case, the assessee before commercial production had started had realized a sum of Rs.3,14,356/- as interest on short term deposit, At the same time, the assesse had paid a sum of Rs.58,51,505/- as interest on funds borrowed by it for the purpose of its business. The assesse after deducting the receipt of interest from the amount of interest paid by its capitalized the balance amount. The High Court was of the view that the background of raising of the fund by borrowing and temporary utilization of a portion of that fund by keeping the same in call deposits with the banks went to show that the interest ....
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....rd Reid: Whatever merits there may be in the company's accountancy methods for the purposes of its internal affairs I am not persuaded that Cross J. and the Court of Appeal were wrong in finding them unacceptable for tax purposes. In the case before us, the company had surplus funds in its hands. In order to earn income out of the surplus funds, it invested the amount for the purpose of earning interest. The interest thus earned is clearly of revenue nature and will have to be taxed accordingly. The accountants may have taken some other view but accountancy practice is not necessarily good law. In B.S.C. Footwear's case (supra), the House of Lords had no hesitation in holding that the accounting practice for calculating its profit followed by the assessee and accepted by the Revenue for 30 years could not be treated as sanctioned by law and was not acceptable for the purpose of computation of taxable income. Not only the House of Lords held that in such a situation, interest income will be taxable but also did not give any credence to the accounting treatment given to the interest received by the assessee in that case. The Hon'ble SC expressed the....
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.... M.P. State Industries Corpn. (supra) and held that such income is an income from other sources and cannot be treated as an income from business and held that the said interest is liable to be taxed. 9. As the Division Bench of this Court have considered this question in M.P. State Industries Corpn. (supra) and have decided the question, we do not find any reason to differ with the aforesaid. So we find that this appeal does not involve aforesaid substantial questions of law for our consideration and accordingly we dismiss this appeal at admission stage. Regarding the assessee's plea for having no addition made in the A.Y. 2009-10, estoppels does not apply in Income Tax Proceedings, therefore, the view taken by another AO for the same assessee in different assessment years may not stop the present AO from taking a different view if there are sufficient basis. I am conscious of the fact that my predecessor in office has decided the issue in favour of the assessee in A.Y. 2011-12. The then CIT(Appeals) held that since the funds with the assessee were linked to the project of the assessee and particularly with land acquisition to be made for the purpose of project, t....
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....sessee's fund was to be deployed. Therefore, interest on fixed deposits has to be taxed under one or other head. Since assessee's business had not commenced the interest could not be treated as business income. Therefore, it had to be taxed under the residual i.e. income from other sources. Respectfully, following the same, I hereby hold that the income in question is taxable under the head 'other sources'. Accordingly, the addition made by the AO is hereby sustained and the grounds taken by the appellant are dismissed." 6. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 7. We have heard the ld. Authorised Representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. Before us, the Ld. AR for the assessee has assailed the order passed by the A.O u/s.143(3)/147 of the Act, dated 20.03.2015 on two folds reasons., viz. (i) that as the A.O had wrongly assumed jurisdiction and had merely on the basis of a 'change of opin....
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....turned income was accepted as such, Page 20-21 of the APB. It is the claim of the Ld. AR, that in the course of original assessment proceedings the A.O had, inter alia, called for the details of interest income and, in compliance thereof the same were duly filed by the assessee before him, which after necessary deliberations was accepted by him. In order to support his aforesaid contention the Ld. AR had drawn our attention to a copy of the notice u/s.142(1), dated 10.10.2011 a/w query lettter, wherein the A.O vide a query placed at Sr. No.20 had specifically called upon the assessee to furnish details of the interest income that were received during the year under consideration. Our attention was drawn by the Ld. AR to the reply that was filed by the assessee vide its letter dated 24.10.2011 wherein complete details of the interest income received on short term deposits were furnished with the A.O, Page 10-16 of the APB. It was submitted by the Ld. AR that now when the A.O had called for the requisite details of the interest income on short term deposits and, had after necessary verification found the claim of the assessee in order, then, in the absence of any fresh tangible mater....
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....47 of the Act. Controverting the claim of the assessee that the interest earned on the funds which were parked with the banks as short-term deposits was rightly accounted for by the assessee as a capital receipt, it was submitted by the Ld. DR, that as observed by the Assessing Officer, and rightly so, the same being an independent income was without choice liable to be brought to tax as the income of the assesee from other sources. It was submitted by the Ld. DR that as the assessee had failed to offer the interest earned on the short-term deposits as its income from other sources, therefore, the A.O had justifiably reopened its case u/s. 147 of the Act. Rebutting the claim of the Ld. AR that the reopening of the case of the assessee was on the basis of mere 'change of opinion', it was submitted by the Ld. AR that as the A.O while framing the original assessment vide his order passed u/s.143(3), dated 23.12.2011 had not deliberated on the issue in hand, i.e., taxability of the interest earned by the assessee on the short term deposits with the banks, therefore, there was no forming of any opinion on his part qua the aforesaid issue, failing which the issue of reopening of assessme....
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....lidity of the jurisdiction that was assumed by the A.O for reopening the concluded assessment as well as those that were advanced by him qua the merits of the addition made by the A.O, dismissed the appeal. 13. After giving a thoughtful consideration to the contentions advanced by Ld. Authorized Representatives of both the parties, 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 vide its letter dated 24.10.2011 furnished complete details of the interest earned on the short term deposits, Page 10-16 of the APB. Backed by the aforesaid facts, we are of a strong c....
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....ptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to s. 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in s. 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the....
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....s merely a fresh application of mind by the same officer to the same set of facts. Thus, it is a case of mere change of opinion, which, in our opinion, does not provide jurisdiction to respondent No. 1 to initiate proceedings under s. 148 of the Act. It can now be taken as a settled law, because of a series of judgments of various High Courts and the Supreme Court, which have been referred to in the judgment of the Full Bench of the Delhi High Court in the case of Kelvinator of India Ltd. (supra) referred to above, that under s. 147 assessment cannot be reopened on a mere change of opinion." We further find that the Hon'ble High Court of Bombay in the case of Asian Paints Ltd. Vs. DCIT (2008) 308 ITR 195 (Bom) had observed, that as no new information /material was received by the A.O, therefore, the fresh application of mind by him to the same set of facts and material which were available on record at the time of framing of the assessment, but had inadvertently remained omitted to be considered would tantamount to review of order which is not permissible as per law, had held as under: "10. It is further to be seen that the legislature has not conferred power on the....
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....needs to give a schematic interpretation to the words "reason to believe‟ failing which we are afraid s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of "mere change of opinion‟, which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of "change of opinion‟ is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion‟ as an inbuilt test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is "tangible material‟ to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief." 24. In the present case, for all the assessment years in question, and a fortiorari for asst. yr. 2004-05, what the AO has purported to do is to reopen the assessment on the ba....
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....T & Anr. [2010] 325 ITR 459 (Bom). 15. We, thus, in the backdrop of our aforesaid observations not being able to persuade ourselves to subscribe to the order passed by the CIT(Appeals), who had upheld the jurisdiction assumed by the A.O u/s. 147 of the Act, set-aside his order and quash the assessment framed by the A.O u/s. 143(3)/147 of the Act dated 20.03.2015 for want of jurisdiction. 16. As we have quashed the assessment for want of valid assumption of jurisdiction by the AO u/s. 147 of the Act, therefore, we refrain from adverting to the other contentions advanced by the Ld. AR, i.e, both as regards the validity of jurisdiction assumed by the AO u/s. 143(3)/147, dated 20.03.2015, as well as those advanced by him as regards the merits of the addition made by the AO, which, thus, are left open. 17. In the result, appeal of the assessee in ITA No.348/RPR/2016 for the assessment year 2009-10 is allowed in terms of our aforesaid observations. ITA No.349/RPR/2016 A.Y.2010-11 18. As the facts and the issues involved in the present appeal remains the same as were there before us in the aforementioned appeal of the assessee in ITA No.348/RPR/2016 for assessment year 2....
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....his order passed u/s.143(3)/147, dated 20.03.2015 made an addition of the aforesaid interest income under the residuary head of income, i.e, income of assesse from other sources and determined its income at Rs.2,08,37,710/-. 23. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without any success. 24. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter before us. 25. Controversy involved in the present appeal lies in a narrow compass, i.e., as to whether the interest income earned by the assesee 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. At this stage, we may herein observe that the aforesaid interest income was earned by the assessee on the funds which were received by way of share capital and were temporarily p....
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....of Tuticorin Alkali Chemicals (1997) 227 ITR 172, it was found by the authorities that the funds available with the assessee in that case were "surplus" and, therefore, the Supreme Court held that the interest earned on surplus funds would have to be treated as "income from other sources‟. On the other hand in Bokaro Steel Ltd (1999) 236 ITR 315 (SC) where the assessee had earned interest on advance paid to contractors during pre-commencement period was found to be "inextricably linked‟ to the setting up of the plant of the assessee and hence was held to be a capital receipt which was permitted to be set off against pre-operative expenses." Also, it was observed by the Hon'ble High Court as under: "In our view the situation in the instant case is quite similar except here instead of paying interest on funds brought in for specific purpose interest is earned on funds brought in by way of share capital for a specific purpose. Could it be said that in the former situation interest could have been capitalized and in the later situation it cannot be capitalized. To test the principle we could extend the example, that is, would our answer be any different had asse....