2012 (9) TMI 69 - HC - Income Tax

Reopening of the assessment - exemption u/s 10(23G) has been wrongly granted - had the interest been earned on long term finance as defined in section 10(23G) r.w.s. 36(1)(viii), the investment would have been classified in Schedule 8 of Balance Sheet as “Loans and Advances” and not as “investment” in Schedule 5 as shown by assessee - Held that:- The assessee put forth his claim for exemption u/s 10(23G) with respect to three different incomes, namely, (1) interest from SSNNL bonds, (2) interest from GIPCL bonds, and (3) capital gain from sale of shares by GPEC being supported by the notes forming part of the return of income. It is not as if the AO did not notice these claims. In fact, the AO asked the assessee to justify all the claims and the assessee gave detailed reply to the query raised with respect to capital gain. The assessee, thereafter, contended that such justification would apply with respect to interest on the bonds also.

As if for some reason the AO was not satisfied with such explanation, surely it was open for him to call for further explanation. In the final order of assessment, it is not as if the Assessing Officer totally lost sight of such claims. He in fact took into account the fact that the assessee was claiming exemption on the interest income from the bonds. He, therefore, examined as to what extent expenditure for earning such tax free income should be disallowed. In the order of assessment, he gave detailed reasons why a portion of the expenditure relating to earning tax free interest should be disallowed, thus in the reasons which the AO recorded for reopening the assessment, he based his case on wrong exemption of interest from SSNNL/GIPCL Bonds claimed under section 10(23G)such reopening would be based on a mere change of opinion - the reasons of AO started with the words, “from the records, it can be seen that .....” , thus the entire information and the material that the AO, therefore, had at his command was reflected from the record itself. This coupled with the fact that in the original assessment, the Assessing Officer examined such claims in detail, would convince that any reopening of the assessment of same claims on the basis of same material, amounts to a mere change of opinion - thus notice was issued without jurisdiction - in favour of assessee.