TMI Blog2015 (10) TMI 2382X X X X Extracts X X X X X X X X Extracts X X X X ..... es, it cannot be said that reopening of the assessment for AY 2009-10 is mere change of opinion of the AO. It is required to be noted that reopening of the assessment is within the period of four years. Having reasons to believe that assessee had used interest bearing funds for non business purpose by giving interest free loans to its partners and therefore, interest expenses corresponding to the interest chargeable on the amount so diverted to the partners of the assessee firm for non business purposes has escaped assessment in the hands of the assessee firm within the meaning of Section 147 of the Act and having so satisfied when the impugned notice under Section 148 of the Act has been issued, it cannot be said that the AO has committed any error and / or illegality and / or assumption of jurisdiction by the AO to reopen the assessment for AY 2009-10,is invalid and / or not justified. - Decided against assessee. - Special Civil Application No. 1715 of 2015 - - - Dated:- 12-6-2015 - M. R. Shah And S. H. Vora, JJ. For the Petitioner : Mr Hardik V Vora, Adv For the Respondent : Mr Sudhir M Mehta, Adv JUDGMENT ( Per : Honourable Mr. Justice M. R. Shah ) 1.0. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hence, at this stage, petitioner has preferred present Special Civil Application under Article 226 of the Constitution of India challenging the impugned notice under Section 148 of the Act and challenging the reopening of the assessment for AY 2009-10. 3.0. Shri Hardik Vora, learned advocate for the petitioner has vehemently submitted that impugned notice under Section 148 of the Act and reopening of the assessment for AY 2009-10 is absolutely illegal and contrary to Section 147 of the Act. It is vehemently submitted that assumption of jurisdiction by the respondent authority to reopen concluded and completed assessment for AY 2009-10 is absolutely illegal, arbitrary and contrary to the provision and statute, which cannot be sustained and same deserves to be quashed and set aside. 3.1. It is vehemently submitted by Shri Vora, learned advocate for the petitioner that on the reasons recorded to reopen the concluded assessment, reopening of the assessment is not permissible and same cannot be sustained. 3.2. It is vehemently submitted by Shri Vora, learned advocate for the petitioner that as such reopening of the assessment for AY 200910 is nothing but a change of opinion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain any enabling clause to charge the the interest on the debit balances of the partners. It is submitted that in view of the above fact, it is requested that your goodselfs proposal for charging interest on the debit balances of the partners be dropped. 3.8. It is submitted that AO has also proposed to disallow interest paid to Jivraj Tea Limited vide show cause notice dated 5th December 2011, point no.2 as you have claimed interest expense of ₹ 82,88,631/- on account of creditor which is your related concerned Jivraj Tea Ltd. It is submitted that but till date you have not submitted any written agreement for charging of interest by the creditor. It is submitted that payment to creditor is outstanding since very long and in the any previous year you have not paid any interest on it. It is submitted that then what was the need to pay interest to the creditors on his outstanding payment when you have not paid the interest in any earlier year's outstanding. Therefore, you are requested to show cause why the interest paid to Jivraj Tea Limited should not be disallowed. 3.9. It is submitted that however after considering the reply of the assessee dated 16th December 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned notice under Section 148 of the Act reopening of the assessment for AY 2009-10 and assumption of jurisdiction by the AO to reopen the assessment for AY 2009-10 is neither illegal nor without jurisdiction as sought to be contended on behalf of the petitioner. It is vehemently submitted that reopening of the assessment for AY 2009-10 is not on a mere change of opinion by and of the AO as sought to be contended on behalf of the petitioner. 4.2. It is submitted that as income chargeable to tax has been escaped from assessment for AY 2009-10 and thereafter after recording the reasons as required and after obtaining the requisite approval from the appropriate authority and having satisfied with the reasons recorded the income chargeable to tax has escaped assessment, the AO has rightly issued the impugned notice under Section 148 of the Act. 4.3. It is further submitted by Shri Mehta, learned advocate for the revenue that issue and the reasons recorded while reopening of the assessment there was no application of mind by the AO at all while passing original order of assessment. It is submitted that during the original assessment / scrutiny assessment proceedings there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to issues / reasons recorded while reopening of the assessment for AY 2009-10. It is submitted that therefore, as such it cannot be said that there was any formation of opinion by the AO at the time of original assessment and therefore, reassessment is merely a change of opinion of the AO. It is submitted that none of the decisions which have been relied upon by the learned advocate for the petitioner shall be applicable to the facts of the case on hand. 5.0. Heard the learned advocates for the respective parties at length. At the outset, it is required to be noted that what is challenged in the present Special Civil Application under Article 226 of the Constitution of India is the notice issued by the respondent, under Section 148 of the Act to reopen the assessment for AY 2009-10. The reasons recorded to reopen the assessment for AY 2009-10, reads as under:- In this case, the assessee filed its return of income for AY 2009-10 declaring total income at ₹ 30,75,299/- on 31.08.2009. Assessment u/s 143(3) of the Act was completed on 26.12.2011 and the income was determined at ₹ 2,87,27,709/-. The assessee firm was engaged in the business of trading, blendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t free fund at all and part of the interest bearing funds have been utilized for making loan to partners i.e. for non business purposes. Significantly, this issue was examined for AY 2010-11 and an addition of ₹ 52,52,215/- was made on account of disalloweance of interest expenses incurred for non business purposes. In light of the above facts, the interest on the amount advanced to partners, is required to be disallowed @ 12% per annum, as shown below: Name of the partner Opening Balance as on 1.4.2008 Closing Balance as on 31.3.2009 Rate of Interest Amount of Interest Shri Viren S Shah 62,73,975/- 2,38,54,760/- 12% 42,07,724/- Shri Vijay S Shah 1,97,06,045/- 1,48,68,428/- 12% 20,74,468/- Total 62,82,192/- In view of the above, I have reason to believe that the assessee had used interest bearing funds for non business purpose by giving interest fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respect to interest free loan paid to the partners and with respect to the case on the disallowance to the interest at the rate of 12% p.a. on the amount advance to the partners. Under the circumstances, it cannot be said that reopening of the assessment for AY 2009-10 is mere change of opinion of the AO. It is required to be noted that reopening of the assessment is within the period of four years. Having reasons to believe that assessee had used interest bearing funds for non business purpose by giving interest free loans to its partners and therefore, interest expenses corresponding to the interest chargeable on the amount so diverted to the partners of the assessee firm for non business purposes amounting to ₹ 62,82,192/- has escaped assessment in the hands of the assessee firm within the meaning of Section 147 of the Act and having so satisfied when the impugned notice under Section 148 of the Act has been issued, it cannot be said that the AO has committed any error and / or illegality and / or assumption of jurisdiction by the AO to reopen the assessment for AY 2009-10,is invalid and / or not justified. 6.0. In view of the above, decisions which has been relied u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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