TaxTMI 
TaxTMI 
2024 (12) TMI 1217
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (2) of the IT Act. It also assails the notice dated 24 February 2022 issued under Section 142 (1) of the IT Act. There is a further prayer that the respondents be directed by a writ of this Court, not to act upon the impugned orders and the impugned notices. 3. The petitioner has also raised an issue in regard to the approval granted under Section 151 of the IT Act for reopening of the assessment. In this regard, a prayer is made for a direction to the respondents to furnish a copy of the approval obtained under Section 151 of the IT Act for reopening of the assessment. Considering such prayer, on 14 March 2022 after hearing the parties, a coordinate Bench of this Court granted an interim relief to the petitioner in terms of the said prayer whereby the respondents were directed to furnish to the petitioner a copy of the approval under Section 151 of the IT Act. The Court also granted an ad-interim relief, of a protection in terms of prayer clause (d) restraining the respondents from acting upon the impugned order and the impugned notices. These ad-interim orders granted by the Court continue to operate till date. 4. In pursuance of the order passed by this Court, a reply aff....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... secured loan of Rs. 1,07,85,00,000/-. 7. Furnish party wise details of deposits of Rs. 2,00,82,74,877/-. 8. Furnish party wise details and ledger confirmation along with income tax return and bank statement of parties for short term borrowings of Rs. 25,00,00,000/-. 9. Furnish party wise details of trade payables of Rs. 5,01,81,376. 10. Furnish party wise details and ledger confirmation along with income tax return and bank statement of parties for other loans and advances of Rs. 78,64,71,626/-." 8. The said notice was also replied by the petitioner by its letter dated 14 January 2016 wherein the petitioner pointed out that it was engaged in the business of rending of infrastructure services to various companies as also it was engaged in investment and trading of shares and securities. The petitioner stated that the petitioner had incurred interest expenditure during the year which includes interest on service tax liability, profession tax liability and interest on loan. The petitioner stated that the loan on which interest had accrued was taken for the purpose of purchase of assets used in business. It was stated that such assets were given ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Crores paid on the borrowings was made. The assessment order passed by respondent no. 1 under Section 143 (3) of the IT Act was assailed by the petitioner by filing an appeal before the Commissioner of Income Tax (Appeals) which is stated to be pending. 12. It is on the aforesaid backdrop, after 5 years from the assessment order being passed under Section 143 (3) of the I.T. Act on 31 March 2021, the petitioner received the impugned notice under Section 148 of the IT Act reopening the assessment for the assessment year in question. By such notice, the petitioner was called upon to file a return of income. On 30 April 2021, the petitioner filed a return of income in response to the impugned notice. 13. On 30 June 2021, respondent no. 1 furnished the reasons for reopening the assessment. However, respondent no. 1 did not furnish to the petitioner a copy of the approval obtained under Section 151 of the IT Act. It is the petitioner's contention that the assessment was reopened to disallow the interest paid on the borrowings during the year as according to respondent no. 1, part of the borrowings were used to give interest free advances to the related parties and it is for such r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the reopening of the petitioner's assessment. It is in these circumstances, the petitioner is before the Court in the present proceedings. Submissions 17. Mr. Nishant Thakkar, learned counsel for the petitioner would submit that in the present case, the reopening of the assessment is beyond the period of four years from the end of the relevant assessment year, which could be initiated only if there is a failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. It is submitted that in the present case, the details of the interest paid on borrowings, the details of interest free funds and interest bearing funds were on the record of the Assessing Officer, available for the assessment year under consideration. Such details were also submitted by the petitioner during the course of the proceeding by petitioner's letters dated 14 January 2016, 15 February 2016 and 29 February 2016. It is submitted that hence full and true disclosure as made by the petitioner was evident from the fact that respondent no. 1 relied on the very disclosure to reopen the assessment. It is therefore submitted that there was no failure on the part of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h tangible material any reason to believe could be gathered, that income chargeable to tax has escaped assessment. It is submitted that in the present case, during the year the petitioner had interest free funds of Rs. 655.49 crores which were far in excess of the interest free advances of Rs. 104.66 crores given to related parties. It is, therefore, submitted that respondent no. 1 could not have formed any opinion so as to have any reason to believe that interest paid by the petitioner of Rs. 10.49 crores is attributable to the interest free advances given to related parties and was not allowable under Section 36 (1) (iii) of the Act. 21. Mr. Thakkar would next submit that there is also non-application of mind on the part of the Assessing Officer, which according to him is apparent from the reasons for reopening as furnished to the petitioner, as also clear from all the facts, which were already on record of respondent no. 1 and more importantly when the Revenue had not disputed the availability of interest free funds of Rs.655.49 crore reflected in the financial statements, the details of which were also submitted by the petitioner vide its letters dated 14 January, 2016, 15 F....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iii), if the borrowed funds were used for the purpose of business. He would submit that the proportionate interest expenses therefore were not allowable expenses, which were required to be disallowed and added back in the computation of income, as opined by the Assessing Officer as set out in the reasons which were set out to reopen the assessment. 25. Mr. Suresh Kumar would next submit that the reasons for reopening would clearly indicate that there was failure on the part of the petitioner to fully and truly disclose all material facts, hence the proceedings would fall within the purview of Explanation 1 to Section 147 of the IT Act. In supporting such submission, Mr. Suresh Kumar submits that the petitioner did not disclose that advances to the related parties were without interest. This according to him, is something which would purely fall within the purview of Explanation 1 to Section 147 permitting reopening of the assessment. It is, hence, his submission that this is not a case of change of opinion as the assessment order does not contain any discussion in regard to the loan advance to the related party nor any query is raised by the Assessing Officer during assessment. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ke a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(3) of Section 143 or under Section 147 has been made for the relevant assessment year, no action shall be taken under the said provision after the expiry of "four years", from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of the "failure on the part of the assessee" to make a return under Section 139 or in response to a notice issued under sub-section (1) of Section 142 or Section 148 or to disclose "fully and truly all material facts necessary for his assessment, for that assessment year", the latter being relevant in the present case. 29. The question, therefore, would be whether any income of the petitioner chargeable to tax has escaped assessment for the assessment year in question, inter alia on any of the grounds falling under the first proviso to Section 147 and in the present case, primarily on the ground whether there was failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year. It would not require elaboration that in such circumstances only when any of the ingredients as falling under the first proviso stands satisfied, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the assessee has not utilised the funds for its own business and has diverted the funds to non interest bearing transactions i.e. interest free advances to related parties. It is further seen that the assessee has claimed finance cost as interest on borrowed funds amounting to Rs. 16,03,93,495/- Interest expenses on borrowed capital is allowable u/s.36 (1) (iii) if the said borrowed funds are used for the purpose of business. The proportionate interest expenses therefore are not allowable expenses. Accordingly, proportionate interest of Rs. 10,49,55,629/- are not allowable expenses and those should had been disallowed and added back in the computation of income. By way of allowing and not adding has resulted into under assessment to this extent. Basis of forming reasons to believe and details of escapement of income and applicability of Provisions of section 147: Therefore, I have reason to believe that by way of not adding the above stated interest expenses of Rs.10,49,55,629/- has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. Satisfaction of the AO In view of the above, I have "reason to believe" that income chargeable to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etion of the assessment as alleged in the reasons for reopening. The petitioner stated that in fact the petitioner had duly complied with the directions issued by the Assessing Officer during the course of the scrutiny proceedings. In such context, the petitioner also pointed out the legal position as laid down in several decisions that in the circumstances in hand, the provisions of Section 148 cannot be invoked. The petitioner also contended that this was a clear case of change of opinion, as held in several decisions of the Courts. 32. The objections of the petitioner, however, were rejected by NFAC vide order dated 24 February, 2022 relying on the documents which were available with the Assessing Officer, which is clear from the following contents of the impugned order disposing of objections: "......... However, "on perusal of details and records, Balance Sheet and Profit & Loss A/c reveals that the assessee has given loans and advances to related parties amounting to Rs. 104,66,89,883/-against which no interest income was offered. The amount of loan taken and outstanding as per the balance sheet is Rs. 159,95,54,491/- and the reserves and surplus is in ne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the assessee to the re-opening of the assessment u/s 147 for AY 2013-14 on the above grounds are hereby rejected and therefore, treated as disposed of." 33. It is in these circumstances and more particularly in the light of the reasons to reopen the assessment as furnished to the petitioner and the aforesaid findings, as recorded by respondent no. 3/NFAC in rejecting the petitioner's objections to the reasons for reopening, we examine whether it was legal and valid for the Assessing Officer to issue the impugned notice so as to reopen the petitioner's assessment. In such context, obviously, the first consideration before the Court would be as to what can be clearly inferred from the requirements of Section 147 of the I.T. Act and when the reopening is beyond the period of four years. The first proviso to Section 147 being applicable is not in dispute, which clearly sets out that no action shall be taken under the said provisions after the expiry of "four years from the end of the relevant assessment year", unless any income chargeable to tax has escaped assessment, for such assessment year by reason of the failure on the part of the assessee in not disclosing fully and truly ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 5. Other Long Term Liabilities Particulars As at March 31, 2013 As at March 31, 2012 Rs. Rs. Deposits Received from Related Parties 1,269,575,600 75,000,000 Deposits from others 738,699,277 515,881,018 Total 2,008,274,877 590,881,018 7. Short-Term Borrowings Particulars As at March 31, 2013 As at March 31, 2012 Rs. Rs. Loans Repayable on Demand Unsecured from others 250,000,000 Total 250,000,000 9. Other Current Liabilities Particulars As at March 31, 2013 As at March 31, 2012 Rs. Rs. Current maturities of Long term Debts 12,057,584 5,787,636 Interest Accrued but not due on Borrowings 10,110,581 1,298,174 Interest Accrued and due on Borrowings 9,342,013 - Statutory liabilities 21,820,285 26,392,588 Loans and Advances from Related Padies 17,204,806 477,196,932 Retention Money 16,057,255 Payable on Purchase of Fixed Assets 5,208,694 88,128,799 Other Loans & Advances 766,471,626 443,135,152 Book Overdraft 34,445,666 Total 896,661,254 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....failure of the assessee to fully and truly disclose all material facts necessary for his assessment, but also, amounting to a clear change of opinion of the Assessing Officer. It is also a situation as good as the Assessing Officer reviewing the assessment order, so as to make additions as set out in the reasons for reopening of the assessment. This would be certainly not permissible considering the well-settled position in law as laid down in catena of judgments, which we discuss hereunder. 37. In Andhra Bank Ltd. vs. CIT (1997) 225 ITR 447 when the Income-tax Officer knowingly allowed the change in the method of accounting during the relevant assessment years, the Supreme Court held that it was not a case of an inadvertent error or oversight and that without any new information comes from an extraneous source, the reopening of assessment under Section 147 (b) of the I.T. Act was unjustified. The Court concluded that it was a case of change of information by the Income-tax Officer, which did not constitute any valid ground for reopening of assessment. The observations as made by the Court reads thus: "7. The facts stated above clearly disclose that the Income Tax Offic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essary to keep in mind the conceptual difference between power to review and power to reassess. The Court held that the Assessing Officer has no power to review; he has the power to reassess, however, the reassessment has to be based on fulfillment of certain precondition, and if the concept of "change of opinion" is removed, as the department contended, then in the garb of reopening the assessment, review would take place. The relevant observations made by the Supreme Court are required to be noted, which reads thus: "6. We must also keep in mind the conceptual difference between power to review and power to reassess. The assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment 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. 7. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the assessing officer. Hence, after 1-4-1989, the assessing officer has power to reopen, provided there is "tangible material" to come to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the use of this power is conditional upon the fact, that the Assessing Officer has some reason to believe that the income has escaped assessment. The Court observed that the use of the words "reason to believe" in Section 147 were required to be interpreted schematically, as a liberal interpretation of the word would have the consequence of conferring arbitrary powers on the Assessing Officer who may even initiate such reassessment proceedings, merely on his change of opinion on the basis of same facts and circumstances, which were already considered by him during the original assessment proceedings. It was observed that this could not be the intention of the legislature. The Court held that the said provision was incorporated in the scheme of the I.T. Act so as to empower the assessing authorities to reassess any income on the ground, which was not brought on record during the original proceedings and escaped his knowledge, and the said fact would have material bearing on the outcome of the relevant assessment order. The Court further held that Section 147 of the I.T. Act does not allow the reassessment of an income, merely because of the fact that the Assessing Officer has a cha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 147/148 of the Act, for the reason that there is a finality/sanctity attached to an assessment order and it is only on the Assessing Officer strictly satisfying the provisions of Section 147 of the Act, he would acquire jurisdiction to re-open an assessment. The Court held that on a mere change of opinion the impugned notice under Section 148 could not have been issued, having regard to the opinion formed in the assessment order passed under Section 143 (3) of the I.T. Act. The Court observed that the Assessing Officer on the same material would cease to have any reason to believe, that income has escaped assessment in the absence of the assessee having failed to fully and truly disclose all materials, relevant to the assessment, as held by the Supreme Court in Kelvinator of India Ltd. (supra). It was observed that the power to re-assess under Section 147/148 of the Act was not a power to review an order of assessment passed under Section 143 (3) of the Act. 44. Adverting to the principles of law as the aforesaid decisions lay down to the facts of the present case, we may observe that the Assessing Officer in issuing the impugned notice under Section 148 of the IT At has c....