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TMI Blog2023 (5) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... t bearing advances given to the relatives and group concerns of assessee, which is in violation of the legal provisions of the Act u/s 36(1)(iii) of the I T Act, 1961?" 3. "Whether on points of law, the Ld. CIT(A) was justified in not considering the ratio laid down by the Hon'ble Apex Court in the case of S.A. Builders Ltd. vs CIT [288 ITR 1,9, Supreme Court], since as per the facts on record the assessee has advanced the interest free funds to the sister concern/relatives without establishing the components of "commercial expediency" in these transactions?" 4. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT (A) was justified in holding that since the re-opening was done on the basis of change of opinion by the AO, thereby quashing the reopening proceedings u/s 147 of the I T Act?" 5. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in placing reliance on the case of Anil Nagapal 291 ITR 272 (P&H)(2017), for quashing the proceedings u/s 147 of the I T Act which is factually distinguishable with the case of the assessee?" 6. "Whether on points of law and on facts & circumstances of the case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts case u/s.147 of the Act. The A.O vide his order passed u/ss. 143(3)/147 dated 26.03.2015 disallowed the assessee's claim for deduction of interest of Rs.14,99,670/- u/s.36(1)(iii) of the Act and assessed its income at Rs.25,37,790/-. 4. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). The CIT(Appeals) was of the view that now when the A.O while framing the original assessment vide his order passed u/s.143(3) dated 30.12.2010, had considered the issue on the basis of which the case of the assessee was reopened u/s.147 of the Act and had considered it proper not to make any addition, therefore, in absence of any fresh material having been brought on record there was no justification for the A.O to have reopened the said concluded assessment on the basis of a mere change of opinion. 4.1 On merits, the CIT(Appeals) found favour with the claim of the assessee that as the A.O while framing the original assessment had accepted the allowability of the assessee's claim for deduction of corresponding interest expenditure, for the reason that the respective amounts were advanced due to commercial expediency and future business needs for smooth running of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30/12/2010 at an income of Rs.1038120/- against the returned income of Rs. 963120/-. Thereafter, the AO decided that proportionate interest of Rs.1499665/- on the amount advanced to friends and relatives is disallowable. Therefore, the AO issued notice u/s 147 and proceed further to complete the assessment u/s 147/143(3). Appellant contended that this issue was considered at the time of original assessment, therefore, issue of notice u/s 147 was due to change of opinion. At the time o original assessment the issue was considered and assessee had furnished following reply a copy of which was submitted-as under: - "Our firms gives a advance of Rs. 18029000/- to Tanushree Regency (P) Ltd, Raipur (Sister concern of our firm). Tanushree Regency (P) Ltd, Raipur purchased a land backside of the hotel Ishika from the above advance. Thereafter the company given the said land to our firm on lease and our firm constructed the hotel on the above said land. Hence this advance given by our firm for future increase of hotel business, hence our firm not charge any interest on the same i.e. the advances purely used for legitimate purpose of business. Further we want to explain that our company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to ITA No.1212/Mum/2019 A.Y. 2012- 13 M/s Medley Pharmaceuticals Ltd. Vs. DCIT-10(2)(2) give a schematic interpretation to the words "reason to believe" failing which, we are afraid, s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of business and was utilized for the purpose of business only by making advances for the purpose of consideration of hotel, the interest on the same is duly allowable u/s.36(1)(iii). Even if the amount has been advanced to family members and sister concerns unless it is shown that excessive benefits has been given to these persons the interest cannot be disallowed. Sec. 36(1)(iii) gives discretion to the AO only to allow deduction of interest paid claimed by the assessee if concerned amount is borrowed for the purpose of business and not to make disallowance out of interest by deeming interest earned on interest free advances given by the assessee. Therefore the action of the AO in making disallowance out of interest paid without having finding about utilization of borrowed funds, on which interest was paid, for non-business purposes is not as per law (Kolkata ITAT in the case of ITO Vs. Snowtex Investment Ltd ITA No. 356/Ko1/2012 dated 06/11/2015). On the same issue Hon'ble Supreme Court in the case of Delhi Safe Deposits Co. Ltd 133 ITR 756 held that the true test of an expenditure laid out wholly and exclusively for the purposes of trade of business is that it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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