TMI Blog2013 (3) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... l and Shri Bharat Bhushan, Advocates. ORDER This appeal by the Revenue is directed against the order of learned CIT(A), Rohtak dated 3rd June, 2011 for the assessment year 2005-06. 2. At the time of hearing before us, it was stated by the learned counsel for the assessee that in the cross-objection, the assessee has challenged the validity of reopening of assessment and, therefore, the cross-objection should be adjudicated first. The learned DR also agreed with the submission of the assessee's counsel. We, therefore, proceed to adjudicate the cross-objection. 3. In the cross-objection, following grounds are raised:- "1. That the learned authorities below have erred in law as well as on facts of the case in holding the initiation of re- assessment proceedings u/s 147 of the I.Tax Act as valid though the appellant has disclosed all relevant particulars in the return of income which is on record. Thus the 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 As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the following decisions:- (i) Indian and Eastern Newspaper Society Vs. CIT, New Delhi - 119 ITR 996 (SC). (ii) Delhi High Court decision dated 2nd January, 2013 in Xerox Modicorp Ltd. Vs. DCIT in W.P.(C) Nos.8483/2010, 8485/2010 8486/2010. (iii) Air India Vs. V.K.Srivastava, CIT Others - 213 ITR 739 (Bombay). (iv) Transworld International Inc. Vs. JCIT - 273 ITR 242 (Delhi). 5. The learned DR, on the other hand, stated that the reopening of assessment had been made by the Assessing Officer because there was escapement of income. Original assessment was completed under Section 143(1) accepting the returned income. After the audit objection, the Assessing Officer has duly applied his mind and since he fully agreed with the views expressed by the audit party, he recorded the same as the reasons for reopening of assessment. He also stated that while judging the validity of reopening of assessment, sufficiency 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of interest on borrowed funds is admissible provided the funds so raised are utilized for business purposes of the assessee." The audit objection dated 24th June, 2008 reads as under:- "Under the provisions of section 36(1)(iii) of the Act, deduction of interest on borrowed funds is admissible provided the funds so raised are utilized for the business purposes of the assessee. Assessee is owner of two concerns styled as (i) M/s Rishi Ship Breakers Mumbai (ii) M/s Satya Parkash Sons (HUF) Rohtak. In profit loss account of M/s Rishi Ship Breakers, assessee had claimed deduction of Rs.2495407 and in M/s Satya Parkash sons, of Rs.4337681 on account of interest paid on borrowed funds. Scrutiny of profit loss account and the balance sheet of M/s Satya Parkash Sons (HUF) revealed that this unit of the assessee was not carrying out any business, and had shown profits of Rs.619758 on sale of shares assessable under capital gains and of 11469 as interest and Rs.3593795 as money forfeited assessable 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 capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... validity of reopening of assessment on the basis of audit objection has been considered. Therefore, we shall deal with only those cases. 9. In the case of Indian and Eastern Newspaper Society (supra), the Hon'ble Apex Court held as under:- "The opinion of an internal audit party of the income-tax department on a point of law cannot be regarded as "information" within the meaning of s. 147(b) of the I.T.Act, 1961, for the purpose of reopening an assessment." 10. In the case of Air India (supra), Hon'ble Bombay High Court held as under:- "That the reopening of the assessment based on the audit objection was without jurisdiction. The Commissioner of Income-tax had failed to exercise jurisdiction by placing blind reliance upon the opinion expressed by the Ministry of Law. It was not permissible to reopen the completed assessment in pursuance of an audit objection and, consequently, the issue whether the chef was a technician or not could not have been examined. The order passed by the Commissioner of Income-tax was liable to be quashed." 11. In the case of P.V.S. Beedies Pvt.Ltd. (supra) relied upon by the learned DR, Hon'ble Apex Court held as under:- "Held, allowing the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Jurisdictional High Court in the recent decision in the case of Xerox Modicorp Ltd. (supra) has expressed the view that it is difficult to sustain notice under Section 148 issued on the basis of audit objection. While taking the said view, they have relied upon the decision of Hon'ble Apex Court in the case of Indian Eastern and Newspaper Society (supra). 14. In the case under appeal before us, from a perusal of the audit objection, it is evident that audit party has not pointed out any factual error or omission but has expressed the opinion on the analysis of the balance sheet of one of the two concerns of the assessee that the interest paid by the assessee needs to be disallowed because the borrowed funds were diverted by providing interest free loans to others. The audit objection is based upon the legal opinion expressed by them and not pointing out any factual error or omission and, therefore, on these facts, 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 Society (supra) would be applicable. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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