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TMI Blog2014 (12) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... ut verifying as to whether such order is served on the assessee or not and whether the same is in accordance with law or not. 4. The learned CIT(A) further failed to appreciate the fact that the ITAT has allowed the appeal of the department ex-parte without considering the decision that is relied by the learned CIT(A) while allowing the appeal and therefore ought to have given an opportunity to the assessee to make submissions on such order." 5. Any other ground that may be urged at the time of hearing. 3. As can be seen, Ground nos. 1 & 5 being general grounds do not require any specific adjudication. 4. Ground No. 2 is on a legal issue challenging the validity of proceeding initiated u/s 147 of the Act. Since facts relating to the aforesaid issue are being common in respect of all appeals, for the sake of convenience, we refer to the facts involved in ITA No. 1728/Hyd/2011 relating to AY 2002-03. 5. Briefly the facts are, assessee a company is engaged in the business of manufacture and sale of white crystal sugar (WCS). For the AY under dispute, assessee filed its return of income declaring loss of Rs. 14,39,64,985 and assessment in case of assessee was completed u/s 143(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant cannot raise such plea during this appeal. Hence the said ground number 4 is liable to be rejected. 6.2 Further, as may' be seen from the said ground, it is stated that all information was already disclosed by the company in the annual report and in the assessment proceedings. During hearing appeal, in the written submissions filed by Id. AR, it was submitted that the company has disclosed the above transactions relating to CRPS and its effect on the accounts for the future years by way of disclosure in the notes to accounts in the Annual Report. It was stated, hence there has been full and fair dlsclosure in the account. It is further stated since above information was available on record, it is not a fit case of reopening of assessment. It is further contended that apparently there was a change of opinion on the part of the AO, which led to reopening of assessment in this case. i However, such submissions of the appellant are not correct. After going through the second Annual Report for the year 2001-02, which was filed along with the return of income filed on 30.10.2002, it is seen that, it is only at point No.7 .of the Accounting Policies & notes on accounts (Sched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is for reopening, as per reasons recorded also finds place on annual reports of all earlier assessment years. The AOs while completing assessments for earlier assessment years have also examined this aspect. 7.1 Narrating the facts for each assessment year, ld. AR submitted, in the computation of income filed along with the return of income for AY 2002-03, assessee has added back interest amount of Rs. 2,52,23,705 of IDBI and Rs. 98,55,013 of IFCI while arriving at a loss of Rs. 14,39,64,985. As assessee has not claimed any deduction towards interest on IDBI and IFCI term loans, reopening of assessment for disallowing interest of Rs. 59.30 lakhs based on improper appreciation of facts was totally unwarranted. It was submitted, like in AY 2006-07, annual report of AY 2002-03 also contained similar Note No. 7 in respect of interest suspense account. That apart, auditors in Annexure E to their report has shown liability towards interest to IDBI and IFCI. Ld. AR referring to the statement of income filed along with return of income for AY 2003-04 submitted, before arriving at net loss of Rs. 18,05,80,187 assessee claimed interest expenditure of Rs. 2,52,23,705 for IDBI and Rs. 98,55,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id. In support of his argument, ld. DR relied upon CIT Vs. Rinku Chakaraborthy, 242 CTR 425 (Kar.) 9. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. We have also gone through the decisions placed before us by the parties. Before going into the merits of the issue, it is relevant to take note of the statutory provision for reopening of assessment. Section 147 of the Act empowers AO to reopen an assessment if he has reason to believe that any income chargeable to tax relating to any AY has escaped assessment. However, subsequent to first proviso to section 147, carves out an exception by prescribing that in a case where an assessment has been made u/s 143(3) or u/s 147 no reopening can be made after expiry of four years from the end of the relevant AY unless any income chargeable to tax has escaped assessment in such AY due to failure on the part of the assessee to make a return u/s 139 or in response to notice u/s 142(1) or u/s 148 or to disclose fully and truly all material facts necessary for the assessment in that AY. 10. If we examine the facts of the present case in the light of the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redeemable preference shares with an option of converting them into equity shares. This tantarnounts to converting the interest amount into an investment in the form of equity. So, the repayment of redeemable preference share is a liability on capital account and not on revenue account. Secondly even If It is considered a revenue liability, the same is not allowable u/s43B(d), as no payment has been made to the financial institution during the year. I, therefore, have reason to believe that income chargeable to tax to the tune of Rs. 59.30 lakhs has escaped assessment. The assessment for the AY 2002-03 is hence reopened to bring the escaped income to tax" 11. On perusal of the reasons recorded, it can be seen, AO has formed his belief on the basis of item - 7 of significant accounting policies of Schedule - K forming part of the annual report for AY 2006-07. He has also referred to the letter dated 22/12/2000 of IDBI in respect of reduction of rate of interest from 21% to 16.5% per annum with effect from 01/10/2000. On the basis of the aforesaid information, AO has formed an opinion that conversion of differential interest amount into redeemable preferential shares with an option ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo assessment years as well as assessment years 2004-05 and 2005-06, which were reopened within four years is not valid for following reasons. We have already mentioned hereinbefore assessee has made full and true disclosure of all facts relating to debiting of differential interest of IDBI and IFCI to the 'interest suspense account' not only in the final accounts, but, also in the computation of income, P&L account filed along with return of income. 14. At the cost of repetition, we would like to observe, in the reasons recorded AO has referred to Note No. 7 of Schedule K forming part of annual report of AY 2006-07 which reads as under: "The Interest Suspense amount representing the net presence value of differential interest on IDBI and IFCI Ltd. term loans due to reduction of rate of interest on account of restructuring is being charged to profit and loss account over the tenure of the term loans." On a perusal of annual reports for AYs 2002-03 to 2005-06, it is evident that similar note appears in all of them. Further, in course of original assessment proceeding for AY 2003-04, AO issued a questionnaire to the assessee seeking information on various issues. On perusal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obliterated after the substitution of section 147 of the IT Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the AO has to have reason to believe that income has escaped assessment, but this does not imply that the AO can reopen an assessment on mere change of opinion. The concept of 'change of opinion' must be treated as an in-built test to check the abuse of power. Hence after April 1, 1989, the AO 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 a link with the formation of the belief." 16. The full Bench of Hon'ble Delhi High Court in case of CIT Vs. Usha International Ltd. (supra)on a conspectus of various decisions of Hon'ble Supreme Court, including CIT Vs. Kelvinator of India Ltd. (supra), and as well as different high courts, while expressing the majority view held as under: "39. In view of the above observations we must add one caveat. There may be cases where the Assessing Officer does not and may not raise any written query but still the Assessing Officer in the first round/ original proceedings may have examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has overlooked or not examined the issue, there cannot be any formation of opinion which will amount to change of opinion while reopening, in our view, is unacceptable. As can be seen, original assessments for the assessment years under consideration have been completed after scrutiny u/s 143(3) not by the same AO but by different AOs. It is highly improbable that each of the AOs in successive assessment years have not examined or overlooked this issue when assessee has disclosed full particulars regarding the issue in dispute. On the contrary, on going through the facts and materials on record the impression one gets is only because the AO in assessment order passed for AY 2006-07 has taken a different view on the issue, assessments for the preceding assessment years have been reopened to unsettle the issues already considered and decided in original assessments completed after scrutiny. 18. Once an assessment order is passed u/s 143(3) after scrutiny of books of account and other materials, it has to be presumed that AO has examined all facts and materials and concluded assessment after due application of mind. Therefore, unless there is tell tale evidence that AO has passed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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