TaxTMI 
TaxTMI 
2026 (3) TMI 1662
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....ng additions / disallowances: a) disallowance of expenses u/s 14A Rs. 1,87,988/- b) disallowance of payment u/s 36(1)(va) Rs. 1,60,493/- c) disallowance of interest u/s 36(1)(iii) Rs. 1,50,49,685/- d) disallowance u/s 40A(3) Rs. 25,000/- 3. Subsequently the Revenue Audit Party (RAP) raised certain objections the gist of which is as under: "Section 36(1)(iii) of the IT Act stipulates that the amount of interest paid in respect of capital borrowed for the purposes of the business and profession shall be allowed while computing income under head Profits and gains of business or profession. The assessee had filed return of income for Rs. 162,41,910/- on 7/2/2018 and was assessed under scrutiny for Rs. 316,65,076/- on 26.12.2019. The case was selected for complete scrutiny under CASS. The assessee had claimed finance expenses for Rs. 17,17,83,313/- in its profit and loss account. During scrutiny assessment Rs. 1,50,49,685/- on account of interest expenses has been disallowed. The assessee had shown interest expense of Rs. 5,55,90,470/- on fixed deposits with banks (Rs. 10,91,37,582 as normal fixed deposits and Rs. 22,00,0....
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....be made. The assessee submitted that in earlier assessment years additions on similar issue have been made which have been deleted in the appellate stage. Further, there were no fresh advances during the current financial year. It was submitted that the objections raised by the audit party on the computation done by the Assessing Officer was also incorrect since the amounts included in the diverted funds as well the average rate of interest used for calculating the proposed disallowance are not correct. 5. However, the Assessing Officer was not satisfied with the submissions made by the assessee and passed an order u/s 148A(d) of the Act on 15.02.2024. The Assessing Officer thereafter issued notice u/s 148 of the Act dated 27.02.2024 in response to which the assessee filed its return of income on 12.03.2024 declaring total income at Rs. 1,62,41,910/-. The Assessing Officer thereafter issued statutory notices u/s 143(2) and 142(1) of the Act. The assessee in response to the same filed various details from time to time. 6. During the course of assessment proceedings the Assessing Officer noted that the assessee had given loans and advances to the companies in which director is ....
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.... to different parties for Rs. 62,11,34,176/- and to the directors of Rs. 5,23,76,000/- are not meant for business purposes. Since the assessee could not demonstrate that the loans / advances made are having direct nexus with the business purpose and the same has been given from interest bearing funds, he, therefore, computed the proportionate disallowance at Rs. 6,60,53,791/- 9. Before the Ld. CIT(A) / NFAC, the assessee apart from challenging the addition on merit, challenged the validity of re-assessment proceedings. Based on the arguments advanced by the assessee the Ld. CIT(A) / NFAC quashed the re- assessment proceedings as well as deleted the addition on merit. So far as the re- assessment proceedings are concerned, he noted that the Assessing Officer in the original assessment order passed u/s 143(3) dated 26.12.2019 has made addition of Rs. 1,50,49,685/- by invoking the provisions of section 36(1)(iii) of the Act on interest free loans / advances of Rs. 19,91,26,930.45 to the concerns in which the assessee is a partner and to concerns in which directors are interested. During those proceedings the assessee, in response to the Assessing Officer's notice u/s 142(1) of ....
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....ion or review of the concluded assessment which is impermissible in law. Relying on the decision of Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd reported (2010) 187 Taxman 312 (SC), the decision of Hon'ble Bombay High Court in the case of M/s. Hexaware Technologies Ltd. vs. ACIT reported in (2024) 162 taxmann.com 225 (Bom), the decision of Hon'ble Bombay High Court in the case of M/s. Aroni Commercials Ltd vs. DCIT reported in (2014) 44 taxmann.com 304 (Bom) and in the case of M/s. Siemens Financial Services Pvt Ltd vs. DCIT reported in (2023) 154 taxmann.com 159 (Bom) held that the reopening of the assessment for assessment year 2017-18 by issue of notice u/s 148 of the Act dated 27.02.2024 seeking to once again disallow interest u/s 36(1)(iii) of the Act on loans/advances already examined in the original assessment u/s 143(3) of the Act dated 26.12.2019 constitutes a mere change of opinion and review of the concluded assessment which is not permissible in law. He accordingly held that the notice u/s 148 of the Act dated 27.02.2024 is invalid, without jurisdiction and liable to be quashed. 10. So far as the merit of the case is concerned, the....
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....d be out of interest free fund generated or available with the company if the interest free funds were sufficient to meet the investments. Since in the instant case the assessee has established that the interest free funds were sufficient to meet the investments, therefore, following the decision in the case of CIT vs. M/s. Reliance Utilities & Power Ltd (supra), he held that a presumption would arise that investments would be out of the interest free funds, therefore, there is no justification in disallowing a part of the interest paid by invoking provisions u/s 36(1)(iii). He, accordingly, deleted the addition on merit. 13. Aggrieved with such order of the Ld. CIT(A) / NFAC the Revenue is in appeal before the Tribunal by raising the following grounds: 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding the reassessment proceedings initiated u/s 147 as invalid and quashing the notice u/s 148 dated 27.02.2024 by wrongly relying upon the judgment of Hon'ble Bombay High Court In Hexaware Technologies Ltd. (2024) 468 ITR 561 (Bom), whereas the said judgment is wholly distinguishable since it dealt only with procedural defects (....
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....NFAC. He submitted that since assessment year 2003-04 onwards the assessee had given advances to the sister concerns as well as non- related concerns. The Assessing Officer was consistently disallowing the proportionate interest on loans and advances given to the sister concerns. Referring to pages 1 to 49 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the audited accounts of the assessee for the impugned assessment year. Referring to page 13 of the paper book, he drew the attention of the Bench to the share capital of Rs. 20.30 crores and Reserves and surplus of Rs. 16,46,34,144.31. Referring to page 25 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the Note A-17 which gives the details of short term loans and advances, the details of which are as under: Particulars Figures as at the end of current reporting period ending on March 31,2017 Figures as at the end of previous reporting period ending on March 31,2016 Note: A-17 Short term loans and advances (i) Advance for Purchase of property - Others 62,11,34,176.00 62,60,82,369.00 (ii) Ad....
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....of Hon'ble Bombay High Court in the case of M/s. Hexaware Technologies Ltd. vs. ACIT (supra), he drew the attention of the Bench to the observations of the Hon'ble High Court where it has specifically been held that an assessment cannot be reopened on mere change of opinion. The Assessing Officer had no powers to review his own assessment when the information was provided and considered by him during the original assessment proceedings. Referring to the decision of Hon'ble Bombay High Court in the case of Siemens Financial Services (P.) Ltd. vs. DCIT (supra), the Ld. Counsel for the assessee submitted that the Hon'ble High Court in the said decision has held that where the assessee claimed expenses of software consumables and submitted a detailed break-up of said expenses during course of assessment proceedings and the Assessing Officer after considering said submissions passed assessment order, the Assessing Officer would not have any power to review his own assessment order and reopen assessment on ground that software consumables were capital expenditure. 18. Referring to the decision of Hon'ble Bombay High Court in the case of Shri Dilip Laximan Powar vs.....
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....s. 75,67,70,169/- which is far more than the amount of interest free loans and advances given to the related parties: Sr Particulars INR 1 Share Capital 20,30,00,000 2 Reserves & Surplus 16,46,34,144 3 Deferred Tax Liability 53,98, 134 4 Accumulated Depreciation 16,41,52,534 5 Deposit from customers towards leased premises 7,58,79,641 6 Booking advance from customers 9,58,81,569 7 Advance from customers 53,58,692 8 Due to related parties 2,83,39,171 9 Advances from directors 1,41,26,284 75,67,70,169 22. Referring to the decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd (supra) he submitted that the Hon'ble High Court has held that where interest free funds available with the assessee are sufficient to meet its investments then it shall be presumed that the investments have been made from the interest free funds available and not out of borrowed funds and therefore, no disallowance u/s 36(1)(iii) of the Act is called for. He accordingly submitted that since the Ld. CIT(A) / NFAC while deciding the issue has followed the....
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....re-assessment proceedings on the ground that the assessee during the course of original assessment proceedings had given full details based on which the Assessing Officer had passed the order u/s 143(3) of the Act disallowing the interest expenditure of Rs. 1,50,49,685/- u/s 36(1)(iii) of the Act. Therefore, issue of notice u/s 148 of the Act on the very same issue to disallow further interest u/s 36(1)(iii) of the Act amounts to change of opinion and therefore, the re-assessment proceedings are invalid. Even on merit also it was argued that the own capital, free reserves and non-interest bearing funds far exceeds the loans and advances given to the directors and other related concerns. 25. We find based on the above arguments advanced by the assessee, the Ld. CIT(A) / NFAC quashed the re-assessment proceedings and also deleted the addition on merit. We do not find any infirmity in the order of the Ld. CIT(A) / NFAC on this issue. We find the Ld. CIT(A) / NFAC while quashing the re- assessment proceedings had given a finding that the Assessing Officer in the original assessment order passed u/s 143(3) on 26.12.2019 has made addition of Rs. 1,50,49,685/- by invoking the provision....
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....g the original assessment proceedings. We agree with petitioner that there cannot be a reopening based on a change of opinion. The claim of deduction under Section 80JJAA of the Act was made by petitioner in the return of income and petitioner had filed Form 10DA being the report of the Chartered Accountant. In the said Form, a note has been filed alongwith Form 10DA and it has specifically been submitted by petitioner that software development activity constitutes 'manufacture/ production of article or thing'. The claim of deduction under Section 80JJAA of the Act was also disclosed in the Tax Audit Report filed by petitioner alongwith the return of income. Further, during the assessment proceedings, the Assessing Officer had issued a notice dated 5th October 2017 asking for details of deduction claimed under Chapter VI of the Act. Petitioner vide a letter dated 13th November 2017 gave the details of deduction claimed under Chapter VI of the Act alongwith supporting documents. The Assessing Officer has passed the assessment order dated 30th November, 2017 allowing the claim of deduction under Section 80JJAA of the Act. The claim for deduction under Section 80JJAA of the Ac....
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....him before passing the assessment order under section 143(3) of the Act dated 23rd December 2018. Petitioner had debited an amount of Rs. 6,41,87,931/- on account of software consumables in the profit and loss account and a detailed break-up of the said expenses were submitted before the Assessing Officer during the course of assessment proceedings vide a letter dated 6th December 2018. It is settled law that proceedings under section 148 cannot be initiated to review the earlier stand adopted by the Assessing Officer. The Assessing Officer cannot initiate reassessment proceedings to have a relook at the documents that were filed and considered by him in the original assessment proceedings as the power to reassess cannot be exercised to review an assessment. In petitioner's case the Assessing Officer having allowed the amount of software consumables as a revenue expenditure now seeks to treat the same as capital expenditure which is a clear change of opinion. Various judicial precedents have held that reassessment proceedings initiated on the basis of a mere change of opinion are invalid and without jurisdiction. 38. The Apex Court in Kelvinator of India Ltd (Supra) em....
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.... in-built test to check abuse of power by the Assessing Officer and the Assessing Officer having allowed the claim of deduction under Section 80JJAA of the Act in the assessment order dated 13th November 2017, now to disallow the same is based on a clear change of opinion. Reassessment proceedings initiated on the basis of a mere change of opinion is invalid and without jurisdiction. On this ground also the impugned notice issued under Section 148 of the Act has to be quashed and set aside." 27. Therefore, the first ground raised by the Revenue that the Ld. CIT(A) / NFAC has wrongly relied upon the decision of Hon'ble Bombay High Court in the case of M/s. Hexaware Technologies Ltd. vs. ACIT (supra) which deals only with the procedural defect (limitation, absence of DIN, jurisdiction of officer and validity of approval) is incorrect and without going through the entire judgment the Revenue has taken a ground which is liable to be quashed. Hence, ground of appeal No.1 by the Revenue is dismissed. 28. We find Hon'ble Bombay High Court in the case of Shri Dilip Laximan Powar vs. ITO (supra) has held that where the Assessing Officer in the scrutiny assessment proceedings has consi....
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....r the relevant assessment year has not been made in accordance with the provisions of this Act; or " 15. Having perused Section 148 of the said Act extracted above, we now seek guidance from the decision of the Hon'ble Supreme Court in Mangalam Publications v. CIT [2024] 158 taxmann.com 564/297 Taxman 537/461 ITR 159, in support of our conclusions. We seek guidance from the observations made therein. Paragraph 35 reads thus :- "35. Kelvinator of India Ltd. (supra) is a case where this Court examined the question as to whether the concept of "change of opinion" stands obliterated with effect from 1-4-1989 i.e. after substitution of section 147 of the Act by the Direct Tax Laws (Amendment) Act, 1987. his Court considered the changes made in section 147 and found that prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions i.e., (a) the Income-tax Officer had reason to believe that by reason of omission or failure on the part of the assessee to make a return under section 139 for any assessment year or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had es....
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....ered view, would amount to an attempt to review the same issue and consequently come within the fold of change of opinion which is not permissible in accordance with the settled position of law. As indicated earlier, we have relied upon Mangalam Publications (supra) in support of the view that we take. 19. In our opinion, it is not necessary to go into the scope and import of explanation 1(ii) to Section 148 in the present facts and the same is left open to be examined in an appropriate case. 20. Consequently, the petition is allowed. he impugned notice dated 19-3-2024 at Exh.D of the petition under clause (b) of Section 148A of the Income-tax Act, 1961 is quashed and set aside. . 21. here shall be no order for costs. 29. We find Hon'ble Bombay High Court in the case of M/s. Siemens Financial Services Pvt Ltd vs. DCIT (supra) has held that where the assessee claimed expenses of software consumables and submitted a detailed break-up of said expenses during course of assessment proceedings and the Assessing Officer after considering said submissions passed assessment order, the Assessing Officer would not have any power to review his own assessment o....
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....d be impossible for the Assessing Officer to complete all the assessments which are required to be scrutinized by him under section 143(3) of the Act. Moreover, one must not forget that the manner in which an assessment order is to be drafted is the sole domain of the Assessing Officer and it is not open to an assessee to insist that the assessment order must record all the questions raised and the satisfaction in respect thereof of the Assessing Officer. The only requirement is that the Assessing Officer ought to have considered the objection now raised in the grounds for issuing notice under section 148 of the Act, during the original assessment proceedings. There can be no doubt in the present facts as evidenced by a letter dated 8 September 2012 the very issue of taxability of sale of shares under the head capital gain or the head profits and gains from business was a subject matter of consideration by the Assessing Officer during the original assessment proceedings leading to an order dated 12 October 2010. It would therefore, follow that the reopening of the assessment by impugned notice dated 28 March 2013 is merely on the basis of change of opinion of the Assessing Officer ....
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....review and power to re-assess. The Assessing Officer 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 re-opening 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 Assessing Officer. Hence, after 1-4-1989, Assessing Officer 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 section 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 section 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 arbitra....
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....e interpreted by any presumption or assumption. A taxing statute has to be interpreted in light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency. Before taxing any person it must be shown that he falls within the ambit of charging section by clear words used in the section and if the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject. There is nothing unjust in the tax payer escaping if the letter of the law fails to catch him on account of the legislature's failure to express itself clearly. A Constitution Bench in the case of Commissioner of Customs (Import), Mumbai v. Dilip Kumar And Company (2018) 9 SCC 1, had reiterated these principles. It was a case where on a reference to the Larger Bench the Supreme Court was considering a question whether an ambiguity in a tax exemption provision or notification, the same must be interpreted so as to favour the assessee. Making a clear distinction between a charging provision of a taxing statute and exemption notification which waives a tax or a levy normally imposed, ....
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....r at the appropriate stage. 30. We find the Co-ordinate Bench of the Tribunal in the case of Om Shriniwas Developers vs. ITO (supra) has held that where the Assessing Officer issued reopening notice on ground that the assessee had sold flats below market rate and, thus, provisions of section 43CA were attracted and since reopening notice was issued based on documents which were submitted by assessee during original assessment proceedings and the Assessing Officer had not brought on record any new facts, therefore reopening notice was nothing but a change of opinion which was not permissible. The relevant observations of the Tribunal read as under: 9. In this case, admittedly, the Assessing Officer had issued notice u/s. 148A based on the documents submitted by the Assessee during the original assessment proceedings. During the original assessment proceedings, the ITO, Ward-6(3), Pune had verified all these documents and passed the assessment order accepting the returned income. Therefore, issuing notice u/s.148 and 148A based on the same facts, documents is nothing but change of opinion. The Assessing Officer has not brought on record any new fact before issuing notice ....
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....ain. In our view, the reopening of the assessment is purely on the basis of change of opinion of the AO from that held earlier during the course of assessment proceedings. This change of opinion does not constitute justification for assuming that income chargeable to tax has escaped assessment." 11. Respectfully following Hon'ble Bombay High Court, we hold that notice u/s.148 is bad in law. Accordingly, Ground No.5 raised by the Assessee is allowed. 12. We have observed that in the order u/s. 148 dated 09.05.2023 Assessing Officer has made an addition of Rs. 2,18,495/- u/s.43CA of the Act. The difference between the Stamp Duty Value and agreement value as mentioned by the Assessing Officer is as under : Flat No. Agreement Value Market Price Difference %Difference 101 23,00,00 23,90,595/- 90,595/- 3.93% 202 27,10,100/- 28,38,000/- 1,27,900/- 4.72% TOTAL 2,18,495/- 13. Thus, it can be observed that the difference is less than 5%. ITAT Pune in the case of V.K.Developers v. ACIT [IT Appeal No.923 (PUNE) OF 2019. Dated 4-8-2022] has held as under : "4. We find no meri....
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....u/s 148 is not valid and is liable to be quashed. 32. Since the Ld. CIT(A) / NFAC while deciding the issue has followed various decisions which are in consonance with law, therefore, in absence of any contrary material brought to our notice by the Ld. DR, the order of the Ld. CIT(A)/ NFAC quashing the re-assessment proceedings does not call for any interference from our side. The grounds raised by the Revenue on the issue of reopening are accordingly dismissed. 33. Even on merit also, we do not find any infirmity in the order of the Ld. CIT(A) / NFAC. We find the Ld. CIT(A) / NFAC while deleting the addition has recorded a finding that the Assessing Officer since assessment year 2001-02 onwards is disallowing such interest which has been consistently deleted by the Ld. CIT(A) / NFAC and on appeal by the Revenue the Tribunal has dismissed the appeals. When the Revenue for assessment years 2004-05 and 2005-06 challenged the decision of the Tribunal before the Hon'ble High Court, the Hon'ble High Court dismissed the appeal filed by the Revenue. Further, he has also given a finding that the assessee is having interest free funds to the tune of Rs. 95.15 crores and after c....