2016 (7) TMI 462 - HC - Income Tax

Reopening of assessment - issuance of notice at the instance of the audit party - claim of interest on borrowed funds - Held that - Entire claim of interest expenditure was before the Assessing Officer during the original assessment proceedings. The Assessing Officer had raised several queries with respect to the interest paid by the assessee on the borrowed capital. The present issue of interest to the extent of ₹ 2.68 crores forms part of the larger interest claim of ₹ 7.28 crores made by the assessee in the original assessment. The Assessing Officer only after being satisfied, upon examination of various details, materials and documents supplied by the assessee in response to the various queries raised, chose not to make any disallowance. Any attempt on part of the Assessing Officer now to reopen this issue would be based on mere change of opinion. It may be that the present issue of interest expenditure of ₹ 2.68 crores is merely an element of larger claim of assessee of ₹ 7.28 crores. Nevertheless, the Assessing Officer cannot be allowed a second innings by addressing one element of entire claim of the assessee which was scrutinized during the assessment. As noted, the petitioner had putforth a claim of interest expenditure of ₹ 7.28 crores for the entire borrowed sum of ₹ 41.43 crores. Interest expenditure of ₹ 2.68 crores against newly issued OFCD of ₹ 14.89 crores was part of this larger claim. When the entire claim was examined by the Assessing Officer by calling upon the assessee to produce all supporting documents and materials, it would now not be possible for Assessing Officer to disallow this claim and contend that this element of assessee s claim was not examined and would be open for reexamination during the fresh assessment. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the reopening of assessment based on change of opinion.
2. Alleged escapement of income chargeable to tax.
3. Issuance of notice for reopening assessment at the behest of the audit party.

Issue-wise Detailed Analysis:

1. Validity of the reopening of assessment based on change of opinion:
The petitioner challenged the notice dated 23.03.2015 issued to reopen the assessment for the year 2010-11, arguing that the Assessing Officer (AO) had already examined the entire claim of interest on borrowed funds during the original assessment proceedings. The AO had scrutinized the return, raised various queries, and framed the order of assessment on 05.02.2013 without making any additions. The petitioner contended that any attempt to disallow the claim now would be based on a change of opinion. The court noted that during the original assessment, the AO had raised several queries regarding the interest paid by the petitioner on borrowed capital and had examined various details, materials, and documents supplied by the petitioner. The court held that reopening the issue based on the same facts would amount to a mere change of opinion, which is not permissible. The entire claim of interest expenditure was before the AO during the original assessment proceedings, and thus, the AO cannot be allowed to reopen the assessment to address one element of the claim that was already scrutinized.

2. Alleged escapement of income chargeable to tax:
The petitioner argued that even if the reasons recorded by the AO were accepted, there was no escapement of income chargeable to tax. The petitioner had utilized the funds raised through Optionally Fully Convertible Debentures (OFCD) for repayment of past loans, and the interest expenditure in connection with such borrowings would be allowable under section 24B of the Income Tax Act. The court noted that the AO had raised queries regarding the interest paid on the borrowed capital, and the petitioner had provided detailed responses. The entire claim of interest expenditure, including the interest on the newly issued OFCD, was examined by the AO during the original assessment. Therefore, the court held that it would not be possible for the AO to disallow this claim during the reassessment proceedings, as it would amount to reexamination of an issue already scrutinized.

3. Issuance of notice for reopening assessment at the behest of the audit party:
The petitioner contended that the notice for reopening the assessment was issued at the instance of the audit party, and the AO was not convinced that the interest expenditure should be disallowed. The court examined the original files produced by the Revenue and noted that the issue had surfaced during audit inquiries. However, the impugned notice was issued by a different officer, Shri K.L. Solanki, Deputy Commissioner of Income Tax, who had independently applied his mind and found the issues raised by the audit party to be valid. The court observed that an interesting question would arise whether the opinion of the original AO or the present respondent who issued the notice for reopening would prevail. However, since the court had already concluded that the reopening of the assessment was based on a change of opinion, it was not necessary to delve into this aspect.

Conclusion:
The court quashed the impugned notice dated 23.03.2015, allowing the petition and disposing of it accordingly. The reopening of the assessment was deemed invalid as it was based on a change of opinion, and the entire claim of interest expenditure had already been scrutinized during the original assessment proceedings.