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TMI Blog2013 (3) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... e initiation of proceedings u/s 148 merely for making fishing enquiries are totally wrong and illegal. 2. That the learned authorities below have not interpreted the provisions of section 148/147 of I.Tax Act properly as no new information has come to the knowledge of Assessing Officer after filing of return except the audit objection raised by audit party. The authorities below have wrongly ignored the Hon'ble Supreme Court and High Court decisions that no valid initiation of reassessment proceedings can be made on the basis of audit objection. Thus the assessment order framed on invalid proceedings is totally wrong, illegal and void ab initio. 3. That the authorities below have not dealt the objections raised by the appellant against initiation of reassessment proceedings by a speaking order. Even the Assessing Officer has not applied his mind independently that particulars of income has escaped assessment and has merely followed audit objections raised by audit party. Thus, the initiation of reassessment proceedings u/s 148 of the I.T. Act is totally wrong, illegal and void ab initio." 4. At the time of hearing before us, the learned counsel for the assessee referred to page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of material cannot be examined. If there is a prima facie case of escapement of income, reopening of assessment is valid. In this case, assessee claimed the deduction for interest which was not permissible, therefore, certainly, there was escapement of income. Therefore, the assessment was validly reopened and the same should be sustained. In support of this contention, he relied upon the following decisions:- (i) CIT Vs. (1) Kelvinator of India Ltd. & (2) Eicher Ltd. - 320 ITR 561 (SC). (ii) Raymond Woollen Mills Ltd. Vs. ITO & Others - 236 ITR 34. (iii) CIT Vs. P.V.S. Beedies Pvt.Ltd. - 237 ITR 13 (SC). (iv) CIT Vs. Usha International Ltd. - 348 ITR 485 (Delhi). 6. We have carefully considered the arguments of both the sides and perused the material placed before us. The reasons recorded for issue of notice under Section 148 read as under:- "The assessee is the owner of two concerns styled as (i) M/s Rishi Ship Breakers (ii) M/s Satya Prakash & Sons (HUF), Rohtak. In the profit & loss account of M/s Rishi Ship Breakers, the assessee had claimed deduction of Rs.2495407/- and in M/s Satya Prakash & Sons, of Rs.4337681/- on account of interest paid on borrowed funds. Scrutiny o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under other sources only. Details of own capital, borrowings and its utilization as per balance sheet were as under: In the books of M/s Satya Parkash & Sons Own capital (5613779-1133240) = Rs.4480539 (Credit balance) : Rs.5613779 Less minus balance under Rishi Ship Breakers = Rs.1133240 Personal investment: own car, flat & shares : 1195025+1452568+2235688 = Rs.4883281 Loans/borrowings from bank & others : = Rs.12041369 Loans & advances granted by assessee: = Rs.12784203 From the above, it was obvious that the assessee was not having any capital of his own, but has provided interest free loan & advances of Rs.12784203 to his relatives and others by arranging the borrowed funds for their use and claimed deduction of interest of Rs.4337681 by way of debit in the profit & loss account of M/s Satya Prakash & Sons. Since the entire borrowings were diverted by providing as interest free loans to others, deduction of Rs.4337681 as interest paid was not admissible. Omission to do so resulted in under assessment of income of Rs.4337681 involving tax effect of Rs.1593317 as under:" 7. From a perusal of above audit objection and reasons recorded, it is evident that the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) relied upon by the learned DR, Hon'ble Apex Court held as under:- "Held, allowing the appeal of the Department, that the internal audit party had merely pointed out a fact which had been overlooked by the Income-tax Officer in the assessment. The fact that the recognition granted to the charitable trust had expired on September 22, 1972, was not noticed by the Income-tax Officer. This was not a case of information on a question of law. The internal audit party was entitled to point out a factual error or omission in the assessment. Reopening of a case on the basis of a factual error pointed out by the audit party was permissible under law. Therefore, the reopening of the assessment was valid." 12. Hon'ble Jurisdictional High Court in a recent decision dated 2nd January, 2013 in W.P.(C) Nos.8483 to 8486/2010 in the case of Xerox Modicorp Ltd., held at paragraph 17 of the decision as under:- "17. It is difficult to sustain the notice issued u/s. 148. The audit objection is only an inference that the royalty payment resulted in a capital benefit; such an opinion expressed by the audit cannot constitute tangible material on the basis of which the assessment can be reopened. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Indian Eastern and Newspaper Society (supra) would be applicable. The decision of Hon'ble Apex Court in the case of P.V.S. Beedies Pvt.Ltd. (supra) relied upon by the learned DR would not be applicable to the facts of the assessee's case because in that case, there was only a factual error. In that case, the recognition granted to the charitable trust had expired on 22nd September, 1972 which was not noticed by the Income-tax Officer. This factual error was pointed out by the audit party and, therefore, on these facts, Hon'ble Apex Court had held the reopening of assessment to be valid. However, in the case under appeal before us, the audit party had expressed the legal opinion that interest on the borrowed money should be disallowed because, in their opinion, borrowed money has been diverted for interest free loans and advances and, therefore, not used for the purpose of the business. 15. In view of the above, respectfully following the decision of Hon'ble Jurisdictional High Court in the case of Xerox Modicorp Ltd. (supra), of the Hon'ble Bombay High Court in the case of Air India (supra) and of Hon'ble Apex Court in the case of Indian Eastern and Newspaper S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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