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TMI Blog2024 (12) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... ce dated 24 February 2022 issued under Section 142 (1) of the IT Act. There is a further prayer that the respondents be directed by a writ of this Court, not to act upon the impugned orders and the impugned notices. 3. The petitioner has also raised an issue in regard to the approval granted under Section 151 of the IT Act for reopening of the assessment. In this regard, a prayer is made for a direction to the respondents to furnish a copy of the approval obtained under Section 151 of the IT Act for reopening of the assessment. Considering such prayer, on 14 March 2022 after hearing the parties, a coordinate Bench of this Court granted an interim relief to the petitioner in terms of the said prayer whereby the respondents were directed to furnish to the petitioner a copy of the approval under Section 151 of the IT Act. The Court also granted an ad-interim relief, of a protection in terms of prayer clause (d) restraining the respondents from acting upon the impugned order and the impugned notices. These ad-interim orders granted by the Court continue to operate till date. 4. In pursuance of the order passed by this Court, a reply affidavit on behalf of the respondents of Shri Sand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 2,00,82,74,877/-. 8. Furnish party wise details and ledger confirmation along with income tax return and bank statement of parties for short term borrowings of Rs. 25,00,00,000/-. 9. Furnish party wise details of trade payables of Rs. 5,01,81,376. 10. Furnish party wise details and ledger confirmation along with income tax return and bank statement of parties for other loans and advances of Rs. 78,64,71,626/-." 8. The said notice was also replied by the petitioner by its letter dated 14 January 2016 wherein the petitioner pointed out that it was engaged in the business of rending of infrastructure services to various companies as also it was engaged in investment and trading of shares and securities. The petitioner stated that the petitioner had incurred interest expenditure during the year which includes interest on service tax liability, profession tax liability and interest on loan. The petitioner stated that the loan on which interest had accrued was taken for the purpose of purchase of assets used in business. It was stated that such assets were given on hire and the petitioner has earned Business Support Services. The petitioner pointed out that interest on suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act was assailed by the petitioner by filing an appeal before the Commissioner of Income Tax (Appeals) which is stated to be pending. 12. It is on the aforesaid backdrop, after 5 years from the assessment order being passed under Section 143 (3) of the I.T. Act on 31 March 2021, the petitioner received the impugned notice under Section 148 of the IT Act reopening the assessment for the assessment year in question. By such notice, the petitioner was called upon to file a return of income. On 30 April 2021, the petitioner filed a return of income in response to the impugned notice. 13. On 30 June 2021, respondent no. 1 furnished the reasons for reopening the assessment. However, respondent no. 1 did not furnish to the petitioner a copy of the approval obtained under Section 151 of the IT Act. It is the petitioner's contention that the assessment was reopened to disallow the interest paid on the borrowings during the year as according to respondent no. 1, part of the borrowings were used to give interest free advances to the related parties and it is for such reason the proportionate interest of Rs. 10.49 Crores was not allowable under Section 36 (1) (iii) of the I.T Act. The peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings. Submissions 17. Mr. Nishant Thakkar, learned counsel for the petitioner would submit that in the present case, the reopening of the assessment is beyond the period of four years from the end of the relevant assessment year, which could be initiated only if there is a failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. It is submitted that in the present case, the details of the interest paid on borrowings, the details of interest free funds and interest bearing funds were on the record of the Assessing Officer, available for the assessment year under consideration. Such details were also submitted by the petitioner during the course of the proceeding by petitioner's letters dated 14 January 2016, 15 February 2016 and 29 February 2016. It is submitted that hence full and true disclosure as made by the petitioner was evident from the fact that respondent no. 1 relied on the very disclosure to reopen the assessment. It is therefore submitted that there was no failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. 18. Mr. Thakkar would next submit that respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, during the year the petitioner had interest free funds of Rs. 655.49 crores which were far in excess of the interest free advances of Rs. 104.66 crores given to related parties. It is, therefore, submitted that respondent no. 1 could not have formed any opinion so as to have any reason to believe that interest paid by the petitioner of Rs. 10.49 crores is attributable to the interest free advances given to related parties and was not allowable under Section 36 (1) (iii) of the Act. 21. Mr. Thakkar would next submit that there is also non-application of mind on the part of the Assessing Officer, which according to him is apparent from the reasons for reopening as furnished to the petitioner, as also clear from all the facts, which were already on record of respondent no. 1 and more importantly when the Revenue had not disputed the availability of interest free funds of Rs.655.49 crore reflected in the financial statements, the details of which were also submitted by the petitioner vide its letters dated 14 January, 2016, 15 February, 2016 and 29 February, 2016. It is submitted that despite this respondent no. 1 nonetheless has intended to reopen the assessment, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able expenses, which were required to be disallowed and added back in the computation of income, as opined by the Assessing Officer as set out in the reasons which were set out to reopen the assessment. 25. Mr. Suresh Kumar would next submit that the reasons for reopening would clearly indicate that there was failure on the part of the petitioner to fully and truly disclose all material facts, hence the proceedings would fall within the purview of Explanation 1 to Section 147 of the IT Act. In supporting such submission, Mr. Suresh Kumar submits that the petitioner did not disclose that advances to the related parties were without interest. This according to him, is something which would purely fall within the purview of Explanation 1 to Section 147 permitting reopening of the assessment. It is, hence, his submission that this is not a case of change of opinion as the assessment order does not contain any discussion in regard to the loan advance to the related party nor any query is raised by the Assessing Officer during assessment. It is also his submission that the loans which were advanced by the petitioner to the related parties were not the subject matter of appeal and thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the "failure on the part of the assessee" to make a return under Section 139 or in response to a notice issued under sub-section (1) of Section 142 or Section 148 or to disclose "fully and truly all material facts necessary for his assessment, for that assessment year", the latter being relevant in the present case. 29. The question, therefore, would be whether any income of the petitioner chargeable to tax has escaped assessment for the assessment year in question, inter alia on any of the grounds falling under the first proviso to Section 147 and in the present case, primarily on the ground whether there was failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year. It would not require elaboration that in such circumstances only when any of the ingredients as falling under the first proviso stands satisfied, the Revenue would be within its jurisdiction to take action to reopen assessment on the ground that there was income escaping assessment. 30. To consider such issue, some of the admitted facts are required to be noted: For the assessment year in question, the petitioner had filed its retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rowed capital is allowable u/s.36 (1) (iii) if the said borrowed funds are used for the purpose of business. The proportionate interest expenses therefore are not allowable expenses. Accordingly, proportionate interest of Rs. 10,49,55,629/- are not allowable expenses and those should had been disallowed and added back in the computation of income. By way of allowing and not adding has resulted into under assessment to this extent. Basis of forming reasons to believe and details of escapement of income and applicability of Provisions of section 147: Therefore, I have reason to believe that by way of not adding the above stated interest expenses of Rs.10,49,55,629/- has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. Satisfaction of the AO In view of the above, I have "reason to believe" that income chargeable to tax, to the tune of Rs. 10,49,55,629/- has escaped assessment for A.Y. 2013-14 within the meaning of Section 147 of the I.T. Act, 1961, on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment." (emphasis supplied) 31. In the objection as raised by the petitioner to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances in hand, the provisions of Section 148 cannot be invoked. The petitioner also contended that this was a clear case of change of opinion, as held in several decisions of the Courts. 32. The objections of the petitioner, however, were rejected by NFAC vide order dated 24 February, 2022 relying on the documents which were available with the Assessing Officer, which is clear from the following contents of the impugned order disposing of objections: "......... However, "on perusal of details and records, Balance Sheet and Profit & Loss A/c reveals that the assessee has given loans and advances to related parties amounting to Rs. 104,66,89,883/-against which no interest income was offered. The amount of loan taken and outstanding as per the balance sheet is Rs. 159,95,54,491/- and the reserves and surplus is in negative. Thus, it is clear that the assessee has not utilised the funds for its own business and has diverted the funds to non-interest bearing transactions i.e. interest free advances to related parties. It is further seen that the assessee has claimed finance cost as interest on borrowed funds amounting to Rs. 16,03,93,495/-, Interest expenses on borrowed capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns to the reasons for reopening, we examine whether it was legal and valid for the Assessing Officer to issue the impugned notice so as to reopen the petitioner's assessment. In such context, obviously, the first consideration before the Court would be as to what can be clearly inferred from the requirements of Section 147 of the I.T. Act and when the reopening is beyond the period of four years. The first proviso to Section 147 being applicable is not in dispute, which clearly sets out that no action shall be taken under the said provisions after the expiry of "four years from the end of the relevant assessment year", unless any income chargeable to tax has escaped assessment, for such assessment year by reason of the failure on the part of the assessee in not disclosing fully and truly all material facts necessary for assessment for the assessment year in question. 34. From the reasons for reopening of the petitioner's case under Section 147 of I.T. Act as furnished to the petitioner, it is very clear that the Assessing Officer has not stated that the petitioner has failed to disclose fully and truly all material facts necessary for assessment. In fact the reasons for reopening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Other Current Liabilities Particulars As at March 31, 2013 As at March 31, 2012 Rs. Rs. Current maturities of Long term Debts 12,057,584 5,787,636 Interest Accrued but not due on Borrowings 10,110,581 1,298,174 Interest Accrued and due on Borrowings 9,342,013 - Statutory liabilities 21,820,285 26,392,588 Loans and Advances from Related Padies 17,204,806 477,196,932 Retention Money 16,057,255 Payable on Purchase of Fixed Assets 5,208,694 88,128,799 Other Loans & Advances 766,471,626 443,135,152 Book Overdraft 34,445,666 Total 896,661,254 1,057,996,536 16. Short Terms Loans and Advances (Unsecured and considered good unless otherwise stated) Particulars As at March 31, 2013 As at March 31, 2012 Rs. Rs. Loans and Advances to Related Parties 1,046,699,883 755,646,605 Prepaid Expenses 427,243 577,045 Employee Loans & advances 1,235,616 1,967,374 Balances with Government Authorities 34,959,868 6,524,596 Others 112,417,460 87,659,867 Considered Doubtful 21,847,873 21,847,873 Less: Provision for doubtful advance (21,847,873) (21,847,873) Total 1,95,730,071 852,375,486 21. Finance Costs Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vertent error or oversight and that without any new information comes from an extraneous source, the reopening of assessment under Section 147 (b) of the I.T. Act was unjustified. The Court concluded that it was a case of change of information by the Income-tax Officer, which did not constitute any valid ground for reopening of assessment. The observations as made by the Court reads thus: "7. The facts stated above clearly disclose that the Income Tax Officer allowed the change in the method of accounting for the assessment years concerned herein knowingly. It was not a case of an inadvertent mistake which was discovered later on after completion of the assessment or oversight. Once it is found that the change in the method of accounting was knowingly allowed by the Income Tax Officer after taking into account all the relevant facts it is not permissible for the Income Tax Officer, or his successor, to reopen the assessment at a later point of time under Section 147 (b) of the Income Tax Act unless any information comes from an extraneous source. 8. Further, we fail to see what is the "information" available to the Income Tax Officer in this case on the basis of which he is see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of certain precondition 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. 7. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the assessing officer. Hence, after 1-4-1989, the assessing officer 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 belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the assessing officer." 40. In NYK Line (India) Ltd. vs. Deputy Commissioner of Income-tax (No. 2) 2012 SCC OnLine Bom 195 this C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t so as to empower the assessing authorities to reassess any income on the ground, which was not brought on record during the original proceedings and escaped his knowledge, and the said fact would have material bearing on the outcome of the relevant assessment order. The Court further held that Section 147 of the I.T. Act does not allow the reassessment of an income, merely because of the fact that the Assessing Officer has a change of opinion, with regard to the interpretation of law differently on the facts which were well within the knowledge even at the time of assessment and doing so would have the effect of giving the assessing officer powers of review, as Section 147 confers power to reassess and not the power to review. 42. In ACIT vs. Marico (supra), the Supreme Court was considering a case where the Assessing officer had gathered the information and material from the record of the assessment and had sought to reopen the assessment after four years. It is in such context, the Court observed that it was well settled, that where the Assessing Officer exercises power of reassessment beyond the period of four years from the end of relevant assessment year, an essential requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in Kelvinator of India Ltd. (supra). It was observed that the power to re-assess under Section 147/148 of the Act was not a power to review an order of assessment passed under Section 143 (3) of the Act. 44. Adverting to the principles of law as the aforesaid decisions lay down to the facts of the present case, we may observe that the Assessing Officer in issuing the impugned notice under Section 148 of the IT At has clearly acted without jurisdiction. This firstly for the reason that the Assessing Officer was reopening an assessment beyond the period of four years and in such context the first proviso to Section 147 was strictly applicable inter alia to the effect that when the petitioner/assessee had not defaulted in fully and truly disclosing all material facts necessary for his assessment for the assessment year in question, the Assessing Officer would not have jurisdiction to reopen the concluded assessment. Secondly, the reasons as furnished to the petitioner, in no manner whatsoever make out a case on the failure on the part of the petitioner to fully and truly disclose all the materials. This apart, the reasons demonstrate that the entire basis for such reopening is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that this is certainly not a case where on the materials which are already produced before the Assessing Officer, the Assessing Officer has gathered or discovered further material evidence so as to construe that there was failure on the part of the assessee to make a disclosure of such materials. Moreover, there is no further tangible material which has been gathered on due diligence from the existing material and hence it is quite futile for the respondents to take recourse to this provision. 46. We are also not impressed with the contention as urged on behalf of the Revenue that the petition ought not to be entertained as the petitioner has an alternate remedy of filing an appeal. This for the reason that when the impugned reopening itself lacks compliance of the jurisdictional requirements, as ordained by the provisions of Section 147 of the IT Act, considering the settled principles of law, such Writ Petition under Article 226 of the Constitution certainly needs to be entertained and adjudicated. In plethora of decisions including those we have discussed hereinabove, the Courts have exercised its power of judicial review, to interfere in the cases of reopening of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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