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ARYAN ARCADE LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX

2016 (7) TMI 462 - GUJARAT HIGH COURT

Reopening of assessment - issuance of notice at the instance of the audit party - claim of interest on borrowed funds - Held that:- Entire claim of interest expenditure was before the Assessing Officer during the original assessment proceedings. The Assessing Officer had raised several queries with respect to the interest paid by the assessee on the borrowed capital. The present issue of interest to the extent of ₹ 2.68 crores forms part of the larger interest claim of ₹ 7.28 crores .....

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of assessee of ₹ 7.28 crores. Nevertheless, the Assessing Officer cannot be allowed a second innings by addressing one element of entire claim of the assessee which was scrutinized during the assessment. - As noted, the petitioner had putforth a claim of interest expenditure of ₹ 7.28 crores for the entire borrowed sum of ₹ 41.43 crores. Interest expenditure of ₹ 2.68 crores against newly issued OFCD of ₹ 14.89 crores was part of this larger claim. When the ent .....

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USHAR P HEMANI, ADVOCATE, MS VAIBHAVI K PARIKH, ADVOCATE FOR THE RESPONDENT : MR PRANAV G DESAI, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged a notice dated 23.03.2015 issued by the respondent, seeking to reopen the petitioner's assessment for the assessment year 2010-11. Brief facts are as under. 2. The petitioner is a company registered under the Companies Act. For the assessment year 201011, the petitioner had filed return of income on .....

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f assessment on 05.02.2013 making no additions. To reopen this assessment, impugned notice came to be issued which may be noticed, was done within a period of four years from the relevant assessment year. In order to issue the notice, the Assessing Officer had recorded following reasons: In this case the assessee filed the return of income on 15.10.2010 showing total income at Rs.NIL/. An order u/s. 143(3) of the IT Act passed on 05.02.2013 determining total income at Rs.NIL/. Subsequently, on v .....

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ly Fully Convertible Debentures (OFCD) at ₹ 41.43 cr. have been shown. The assessee has claimed the interest payable on these OFCDs at ₹ 7,28,00,166/- from the income from house property due to following reasons. (a) The interest paid on loan taken for purchase of property is an allowable expenditure u/s. 24(ii) of the IT Act. In the instant case, it can be seen from the statement of fixed assets that the addition on building during the year was just ₹ 34,53,367/- whereas the a .....

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utilized for addition in the existing property and interest of ₹ 6,21,606/- 18% on ₹ 34,53,367/- ) was required to be allowed. Therefore, the interest paid to the extent of ₹ 2,61,92,468/- is required to be disallowed. Since the assessee has not disallowed the said interest of ₹ 2,61,92,468/- there is escapement of income to the extent of ₹ 6,21,606/- 18% on ₹ 34,53,367/- was required to be allowed. Therefore, the interest paid to the extent of ₹ 2,61,92 .....

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owing contentions. I. That the entire claim of interest on borrowed funds was examined by the Assessing Officer during the original assessment proceedings. Any attempt on his part now to disallow such claim, would be based on change of opinion. II. Even accepting the reasons recorded by the Assessing Officer, it cannot be believed that there has been any escapement of income chargeable to tax. Counsel submitted that the assessee had utilized the fund raised through OFCD for repayment of past loa .....

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tended that in the original assessment, the question of allowing expenditure of the assessee company towards interest on borrowed funds which were never used for acquiring house property was never examined by the Assessing Officer. Notice for reopening which was issued within the period of four years by recording proper reasons is therefore, valid. Counsel further submitted that whether there has been escapement of income, can be judged only during the reassessment proceedings and cannot be gone .....

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tion 40A(2)(b) of the Act to the tune of ₹ 7.28 crores by way of interest expenditure. During the course of assessment, the Assessing Officer had raised multiple queries. Following queries are relevant for our purpose. 1. A brief note on the nature of activities under taken during the year relevant to A.Y 2010-11. Also furnish the address of the office, branches and other premises if any and the nature of activities conducted from these premises. Please given details of sister concerns, if .....

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educted thereon. … … 10. Furnish complete details in respect of following incomes (i) Other income Rs.392786/- ii) Rental income Rs.43167919/- iii) Advisory Fees Rs.5375000/- 11. Please clarify and give details of tax deducted from following payments. (1) Salary Expense Rs.1678785/- 2) Interest Rs.58664000/- 3) Legal & Professional Charges Rs.1036056/- 4) Security Service Charges Rs.1085541/- … … 14. Please produce copy of all the ledger account of following expen .....

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es Rs.1143549/- 15) Legal & Professional Charges Rs.1034056/- 16) Security Service Charges Rs.1085541/- … … 20. Please furnish details of payment to persons specified in Section 40A(2)(6). Specify nature of work/Service these persons are doing for the company. Produce evidence of qualifications these persons are having with respect to job assigned to them with due justification as to why this claim should not be considered excessive.? 7. Under letter dated 24.12.2012, the petit .....

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income from immovable properties. For address of office, branches and other premises, please refer AnnexureI Page Numbers from 01 to 01 4 As regards unsecured loans (Rs.414359187/- please give party wise breakup in Descending order. Also give address, PAN and confirmation and ledger copy. Please give interest paid on the loans and tax deducted thereon. AnnexureIV Page Numbers from 04 to 06 11 Please clarify and give details of tax deducted from following payments. AnnexureX (1) Salary Expense R .....

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5097/- (10) Mall Operating Expenses Rs.2676947/- (11) Insurance Rs.206719-/ (12) Los on Sale of Fixed Assets Rs.88779/- (13) Interest on TDS Rs.1422617/- (14) House Keeping Expenses Rs.1487974/- (15) Legal & Professional Charges Rs.2319851/- (16) Security Service Charges Rs.1377899/- 20 Please furnish details of payment to persons specified in Section 40A(2)(b). Specify nature of work Service these persons are doing for the company. Produce evidence of qualifications these persons are having .....

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42(1) dated 03/01/2012 along with questionnaire was issued and duly served on the assessee. Due to change in incumbency, notice u/s. 143(2) of the Act dated 11/10/2012 was issued and served on assessee on 12/10/2012 by speed post. Further notice u/s. 142(1) of the Act dated 22/10/2012 was issued calling for certain details/Information/documents which was served on Assessee Company on 23/10/2012. 3. In response to the above notices, General Manager of the assessee company Shri K. Ramakrishnan att .....

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e original assessment proceedings. The Assessing Officer had raised several queries with respect to the interest paid by the assessee on the borrowed capital. The present issue of interest to the extent of ₹ 2.68 crores forms part of the larger interest claim of ₹ 7.28 crores made by the assessee in the original assessment. The Assessing Officer only after being satisfied, upon examination of various details, materials and documents supplied by the assessee in response to the various .....

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ecall, the reasons for the Assessing Officer to reopen the assessment is that according to him the assessee has claimed interest of ₹ 7.28 crores payable on OFCD of ₹ 41.43 crores out of the income from house property. Interest paid on loan taken on purchase of property is allowable expenditure, however, in the present case, the assessee had shown addition only to the extent of ₹ 34.53 lacs towards building, but had obtained loan of ₹ 14.89 crores by issuing new debenture .....

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penditure of ₹ 2.68 crores against newly issued OFCD of ₹ 14.89 crores was part of this larger claim. When the entire claim was examined by the Assessing Officer by calling upon the assessee to produce all supporting documents and materials, it would now not be possible for Assessing Officer to disallow this claim and contend that this element of assessee's claim was not examined and would be open for reexamination during the fresh assessment. 11. In view of our conclusions, the .....

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