TMI Blog2014 (7) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... nd formed part of the record when the assessment order u/s 143(3) read with section 153A was passed by the AO on 31/12/2007. There are no fresh/tangible material available before the AO for reopening of assessment - AO on re-appreciation of the same material, which is already available on record at the time of original assessment has formed his belief for reopening assessment is not permissible as it does not amount to non-disclosure of any material facts truly and fully by the assessee – Relying upon Parashuram Pottery Works Co. Ltd., Vs. ITO [1976 (11) TMI 1 - SUPREME Court] - the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary fact. It is for the AO to draw correct inference from the primary facts - It is not the responsibility of the assessee to advise the AO with regard to inference which he should draw from the primary fact. Entire reassessment is on the basis of the materials disclosed by assessee, which formed part of the record at the time of completion of the original assessment u/s 143(3) read with section 153A of the Act - the AO having completed original assessment on verifying all these facts and materials, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the department could reopen the case. vi. The CIT(A)-V, Hyderabad is not correct on the ground that during the course of assessment proceedings, the assessee has given a statement showing that the total amount of interest paid to the investor, i.e., India Value Fund Trust at ₹ 6,99,75,456/- on the investment of ₹ 15 crores from 20/08/2001 to the date of allotment i.e. 08/02/2004. vii. The CIT(A) has ignored the fact that the interest at ₹ 6,99,76,000/- is calculated on the total investment of ₹ 15 crores instead of total amount of share application money refunded i.e. 13,59,25,224/- which works out to ₹ 5,51,98,930/-. The assessee has deducted the entire interest amount of ₹ 6,99,76,000/-. 3. As can be seen from the grounds raised, the department has basically challenged the order of the CIT(A) on the following two issues: 1. Validity of assessment u/s 147 of the Act 2. Deleting the addition of ₹ 6,21,52,070/- on account of excess interest claim 4. Briefly the facts are, the assessee company is a super speciality hospital. For the AY under consideration assessee filed its return of income on 29/10/2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,76,000/- by the assessee in computation of statement as against charged to P L A/c of ₹ 2,26,01,000/- is incorrect as the AO is only making a mere comparison of the figures stated in the computation of statement and P L A/c. The AO, however, did not accept the contentions of the assessee. He was of the view that the assessee though has debited the amount of ₹ 2,26,01,000/- to the P L A/c after capitalizing interest of ₹ 4,73,75,000/-, but, in the computation of income, the assessee has claimed deduction of an amount of ₹ 6,99,76,000/-. Further, the AO was also of the view that the interest claimed computed by the assessee at ₹ 6,99,76,000/- is not correct as the actual interest amount worked out to ₹ 5,51,98,930/-. Therefore, after capitalization of interest of ₹ 4,73,75,000/- an amount of ₹ 78,23,930/- to be treated as revenue expenditure as against ₹ 2,26,01,000/-. Accordingly, the AO concluded that the excess amount of interest of ₹ 6,21,52,070/- is required to be disallowed and added back to the total loss. Accordingly, the AO completed the assessment vide order dated 26/12/2011 passed u/s 143(3) of the Act read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und Trustee Company Pvt. Ltd., as per the terms of agreement entered between them dated 05/09/2001 will attract interest @ 15% to 18%. Therefore, interest calculated at year-wise only compounded rate of 18% for the FY 2001-02 to 2003-04 of ₹ 6,99,76,000/-. It was submitted by the assessee in accordance with accepted accounting principles AS-16, the assessee has capitalized portion of interest to the extent advanced from M/s India Value Fund Trustee Company Pvt. Ltd., are utilized for purchase of capital equipment and leasehold improvements for expanding existing line of business. It was submitted that after deducting interest portion to capital asset amounting to ₹ 34,730,012/- and netting of deferred tax asset of ₹ 1,26,44,498/-. The balance interest of ₹ 2,26,01,490/- was debited to the P L A/c. 8. The assessee relying upon a number of decisions, contended before the first appellate authority that interest paid in respect of capital borrowed for the purpose of business is allowable deduction. The CIT(A) after considering the submissions of the assessee in the light of materials on record noted the fact that initiation of proceeding u/s 147 of the Act wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c.147 of the Act. 9.6 The Hon'ble Apex Court in the case of CIT v Kelvinator of India Ltd (2010) 320 ITR 561 (SC) has clearly laid down that the Assessing Officer has to have a reason to believe that income has escaped assessment but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. The concept of change of opinion must be treated as an inbuilt test to check the abuse of power. The assessing officer has power to reopen an assessment provided there is tangible material to come to the conclusion that there was escapement of income from assessment. Reason must have link with the formation of the belief. 9.7 Applying the above rationale of the Hon'ble Apex Court, I am of the opinion that the AO in this case has failed to establish either at the time of issue of notice or during the course of assessment any material facts to establish that the appellant has failed to disclose material facts impacting the assessment u/s 143(3) r.w.s. 153A which was completed on 31/12/2007, more specifically keeping in view that the same issue was also the subject matter of audit, and has been clarified to the satisfaction of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellant was already carrying on business of heath care and for this purpose has established reputed hospitals at Nampally, Banjara Hills and Secunderabad in the course of expansion of its business. It is not that the business had not commenced. In order to extend state of the art health services to the residents of Hyderabad and improve its standing as one of the best cardiology hospitals in the country, the assessee company expanded its existing business operations by purchasing latest medical equipment, augmenting the number of beds and facilities by improving the leasehold structures. 11.1.1 Therefore, an asset acquired by the assessee in course of his business, when the business has already commenced and such asset was acquired for the expansion of the existing unit, would not be a capital expenditure but a revenue expenditure so far as it relates to the interest paid on the advance share application money which was used for the purpose of financing the assets. Though it has been shown in the account to have been capitalized, but no depreciation having been claimed, the assessee was at liberty to claim benefit as business expenditure since the account was mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s disallowed the amount of Interest claimed by the appellant. 11.2.2 Explanation 8 to Sec.43(1) is clear and unambiguous. The asset acquired by an assessee for expansion of its existing business or industry, by reason of Explanation. 8 will not stand in a different footing. It is the actual cost of the asset that has to be ascertained on the cutoff date as to when such asset is first put to use. The interest paid in connection with acquisition of asset with the borrowed capital until the asset is first put to use is to be treated differently from the interest paid after the asset is first put to use. Explanation 8 makes it clear that such interest paid after the asset is first put to use shall not be added to the actual cost of such asset. Therefore, this interest paid on the borrowed capital after the machinery is first put to use would be a revenue expenditure, since it could not be treated to be the actual cost of such asset for being capitalized for the purpose of claiming depreciation. 11.2.3 Having regard to the scheme and the law already established, I am of the opinion that the principle is clear and since the appellant has put to use the assets during the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding that initiation of proceeding u/s 147 legally unsustainable is correct. 10.1 So far as the finding of the CIT(A) on merits of the issue is concerned, the learned AR submitted that CIT(A) having exhaustively dealt with the issue and come to a reasonable conclusion there is no need to interfere with his finding. In support of his contention, the learned AR relied upon following decisions: 1. CIT Vs. Kelvinator of India Ltd., 320 ITR 561 (SC) 2. CIT Vs. Usha International Ltd., 348 ITR 485 (Del.) (FB) 11. We have heard the submissions of the parties and perused the materials on record as well as the orders of the revenue authorities. Undisputedly, it is a fact on record that notice u/s 148 of the Act was issued on 31/03/2011, which is beyond 4 years from the end of the AY under dispute. As can be seen, section 147 of the Act empowers AO to assess income chargeable to tax which has escaped assessment for any assessment year. However, the first proviso to section 147 of the Act makes it clear that in a case where an assessment u/s 143(3) or section 147 has been made no action can be taken after expiry of 4 years from then end of the AY unless the escapement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rifying all these facts and materials, reopening of assessment on self-same facts and material on a mere change of opinion, that too after expiry of four years from the assessment year is not permissible in law. In these circumstances, the action of the AO u/s 147 of the Act is clearly without jurisdiction in view of the ratio laid down by the Hon ble Supreme Court in case of Kelvinator of India Ltd and Hon ble Delhi High Court in case of Usha International Ltd. (supra). In this view of the matter, we do not find any infirmity in the order of CIT(A) in holding that the reopening of assessment u/s 147 of the Act in the present case is unsustainable in law. Accordingly, we uphold the same. In view of our aforesaid finding, the issue regarding merits of the disallowance becomes purely academic. However, on going through the findings of the CIT(A) on merits of the issue, we are of the view that the disallowance made by the AO will also not be sustainable in view of the reasoning given by the CIT(A), which is not only reasonable, but, in accordance with the statutory provisions. Further, it is also a fact on record that the assessee has not claimed any depreciation on the interest capit ..... 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