Amit Shukla, J.M.:— The aforesaid appeals have been filed by the revenue against separate impugned ordersdated 3.12.2013 and 13.3.2014, passed by the ld. CIT (Appeals) New Delhi for the quantum of assessment passed u/s 144/143(3) for the A. Ys. 2004-05 and 2007-08.
2. We will first take up appeal ITA No. 3441/Del/2014 for the A.Y. 2004-05, wherein the revenue has raised following grounds of appeal:—
“1. On the facts and circumstances of the case and in law, the CIT(A) has erred inquashing the assessment order passed u/s 147/143(3) of the Act.
2. On the facts and circumstances of the case and in law, the CIT(A) has erred inholding that the reasons recorded for initiation of reassessment proceeding formreview or change of opinion.
3. On the facts and circumstances of the case and in law, the CIT(A) has erred indeleting the addition of Rs. 1,40,33,000/- made on account of disallowance u/s 43B without examining the facts of the case.
4. The appellant craves leave to add, alter or amend any ground of appeal raisedabove at the time of hearing.”
3. Brief facts qua the issue of reopening u/s 147 as challenged by the revenue vide ground nos. 1 and 2 are that, the assessee had filed its return of income on 30.10.2004 for the A.Y. 2004-05, declaring income of Rs. 4,15,84,748/- which was processed u/s 143(1). Later on, revised return of income was filed on 29.3.2006 which was also processed on 31.3.2006. The said revised return was selected for scrutiny and consequently, assessment order was passed u/s 143(3) vide order dated 27.12.2006 at an income of Rs. 4,62,11,350/-. The said order of the Assessing Officer (dated 27.12.2006) was later on found to be erroneous and prejudicial to the interest of the revenue by the Learned CIT (Central), New Delhi under his revisionary jurisdiction u/s 263. In pursuance thereof, again reassessment order was passed afresh vide order dated 30.12.2009 wherein the income of the assessee was finally assessed Rs. 4,98,49,413/-. After having completed the assessment in the aforesaid manner, the assessee's case was again reopened u/s 147on following “reasons recorded”:—
“1. The assessee has claimed deduction of interest amount in contravention to the provisions of section 43B of the Act. According to the provisions of section 43B of the Act any sum payable as interest on any loan from any public financial institution is deductable only on “actual payment” basis, and not merely on the basis of accrual of the liability. Interest actually paid on or before the due date of submissionof the return of income for the relevant previous year shall also be allowed as deduction. The Finance Act,2003 w.e.f. 01.04.2004 amended the provisions of section 43B and as per section 43B as applicable from 01.04.204, any sum payable by the assessee as interest on any kind of loan or advance (and not just term loan) from a schedule bank shall be allowed as deduction only on payment basis.
2. A perusal of the record indicates that the assessee had shown Rs. 184.66 lacs as interest accrued but not due in the balance sheet as on 31.03.2004. According to the audit report u/s 44AB of the Act, the unpaid liability on account of interest payable on term loans was Rs. 44.33 lacs and this amount was paid before the due date of filing of return. However, no explanation was given regarding the balance amount of Rs. 140.33 lacs, and this balance amount of Rs. 140.33 lacs was not added to the income in the computation of income filed. The assessee had not furnished the details of amounts constituting the head “interest accrued but not due” during the assessment proceedings. A breakup of this amount of Rs. 184.66 lacs has been obtained by the undersigned. A perusal of this breakup shows that an amount of Rs. 137.90 lakhs is the unpaid liability on account of interest on cumulative FDR, Rs. 44.33 lacs is unpaid liability on account of interest payable on term loan and Rs. 240805/- is the unpaid liability on account of interest otherwise.
3. Therefore, the action of the assessee in claiming deduction of the entire amount has resulted in under assessment of income to the extent of Rs. 140.33 lacs. The under assessment has resulted because of the failure of the assessee to disclose the material facts of the components of ‘interest accrued but not due’. The assessee has claimed deduction of interest amount in contravention to the amended provisions of section 43B.”
3. Thus, the assessee's case was reopened for the purpose of disallowance u/s 43B for sum of Rs. 1,40,33,000/- on the ground that the said amount of interest was payable and had not been actually paid before the due date of filing of return of income. As noted by the ld. Assessing Officer, the assessee did not file any return of income in response to notice u/s 148 and assessee's objection regarding reopening had also been disposed off by him vide letter dated 03.11.2011. Since, there was not much response from the assessee, he therefore, added the amount of Rs. 1,40,33,000/- u/s 43B.
4. Before the Learned CIT (Appeals), the assessee after explaining the entire background of the case and previous history of various assessments made in the case of the assessee, submitted that in this case the reopening u/s 147 has been done beyond the period of 4 years from the end of the relevant assessment year and without there being any failure on the part of the assessee to disclose truly and fully all material facts, the assessee's case could not have been reopened in terms of Proviso to section 147. It was further pointed out that during the course of the original assessment proceedings, the Learned Assessing Officer vide his query letter issued u/s 142(1) had raised specific question (being Q no. 21) asking for the details of interest payment in the specified format and in response the entire details of interest paid and payable were submitted before him. After these details were examined and verified, the Assessing Officer has allowed the claim of the interest payment and completed the assessment. Now without there being any tangible material coming on record, such a reopening is bad in law. Not only that, in the tax audit report u/s 44AB the details of liabilities and the actual payment of interest qualifying for deduction u/s 43B was given along with the entire details of interest accrued but not due. It was further pointed out that the objections disposed off by the Assessing Officer have not been communicated to the assessee and that is why assessee could not respond. It was brought on record that the Assessing Officer initially wanted to carry out rectification u/s 154 on same issue in view of audit objections and even notice u/s 154 was issued to the assessee. Thus, it shows that entire reopening is based on audit objection and not on failure on the part of the assessee. The assessee's detailed submission along with reliance on various case laws have been dealt and incorporated from pages 4 to 14 of the appellate order. The Learned CIT (Appeals) after detailed discussion and relying upon the following decisions including that of Hon'ble Jurisdictional High Court held that the reopening by the Assessing Officer u/s 147 is invalid:—
i. Mohan Gupta (HUF) v. CIT W.P. (C) 7660/2012 dated 28.1.2014.
ii. Phool Chand Bajrang Lal v. Income Tax Officer, (1993) 203 ITR 456 (Supreme Court)
iii. Ito v. Lakhmani Mewal Das 1976 (103) ITR 437 (Supreme Court)
iv. Sri Krishna Pvt. Ltd. Etc. v. Income Tax Officer, Calcutta (1996) 9 SCC 534
v. CIT v. Kelvinator, (2010) 2 CC 723/320 ITR 561 (Supreme Court)
vi. The Commissioner Of Income Tax-V v. Orient Craft Ltd., (2013) 354 ITR 536 (Del)
The final conclusion of the Learned CIT (Appeals) for quashing the reassessment order reads as under:—
“In this case, the original assessment was completed by the Assessing Officer u/s 143(3) of the Act on 27.12.2006. The details of the interest payable were filed by the appellant before the Assessing Officer vide letter dated 24th March, 2011. It was categorically stated by the assessee that the provisions of section 43B are not applicable as the interest is not payable to the Public financial institutions and scheduled banks. The records do not show any tangible material that created the reason to believe that the income had escaped the assessment. The reassessment proceedings amount to a review or change of opinion. In view of the judicial pronouncements discussed above, it is held that the reassessment proceedings are bad in law and the consequent assessment order passed by the Assessing Officer is null and void.”
5. Before us the ld. DR, strongly relied upon the order of the Assessing Officer and submitted that even though the case has been reopened on the basis of audit objection but the fact remains that the prima facie there are a wrong claim of interest payable which could not have been allowed in terms of u/s 43B. Therefore, the Assessing Officer has rightly acquired jurisdiction for reopening the assessment u/s 147.
6. On the other hand the ld. counsel for the assessee submitted that, first of all, this amount of Rs. 1,40,33,000/- was unpaid liability on account of interest on cumulative FDRs (Rs. 137.90 lakhs) and partly (Rs. 2.41 lakhs) on account of other interest liability. These amounts do not qualify for any disallowance u/s 43B as it is not the amount payable to any bank or financial institution as stipulated u/s 43B. Therefore, the entire basis for reopening the case that such interest is disallowable u/s 43B is erroneous and on this ground alone the whole proceedings should quashed. In any case, all these details were available on the assessment record filed during the time of original assessment proceedings in response to specific query raised by the Assessing Officer and therefore, such a reopening of the assessment without any tangible material coming on record amounts to “change of opinion”. That apart, no failure has been ascribed by the AO that there is failure on part of the assessee to disclose fully and truly material facts in the “reasons recorded”, because all these details were duly furnished and were also available in the audit report. Hence, in view of the Proviso to Sec. 147 such a reopening beyond the period of 4 years from the end of the relevant assessment year is bad in law.
7. We have heard the rival submissions and perused the relevant material placed on record and also the relevant findings given in the impugned order. As narrated above, in the case of the assessee original assessment order u/s 143(3) was passed vide order dated 27.12.2006. Thereafter, such an order was set aside by the Learned CIT in his revisionary jurisdiction u/s 263 and again a fresh assessment order was passed vide order dated 30.12.2009. After having completed the regular assessments in said manner, such an assessment has been sought to be reopened u/s 147 on the ground that the claim of deduction of interest by the assessee is in contravention of provision of section 43B, which is evident from the “reasons recorded” as incorporated above. It is seen that there is a specific finding as well as observation in the impugned order that during the course of the original assessment proceedings the Assessing Officer in his detailed questionnaire had required the assessee to furnish all the details of interest payment as appearing in the balance sheet. In response thereof, the entire details were furnished by the assessee along with the details of liabilities and also the interest accrued but not due and interest payable as appearing in the balance sheet. Based on such scrutiny assessee's claim was allowed by the AO. Once all these facts relating to interest and claim of deduction, both in relation to interest paid and interest payable were there before the Assessing Officer during the time of the original assessment proceedings, then without there being tangible material coming on record, it cannot be held that, there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for the purposes of assessment. It is a trite law that, where an assessment has been completed u/s 143(3), then there is a limitation upon the AO to take any action for reopening the assessment u/s 147 beyond the period of 4 years from the end of the relevant assessment year. To overcome such a limitation for acquiring jurisdiction u/s 147, it is mandatory for the Assessing Officer to bring out on record that the assessee has failed to disclose fully and truly all material facts necessary for the assessment. If such a failure has not been ascribed in the “reasons recorded” then Assessing Officer cannot acquire jurisdiction to reopen the assessment u/s 147. This is a mandate of law as provided in first Proviso to section 147. The impugned notice u/s 148 for reopening the assessment is purely based on material already on record which has been also considered by the Assessing Officer and once that is so, then ostensibly, reopening u/s 147 is not permissible in law as it amounts to “change of opinion”. Not only that, as submitted by the ld. counsel and also noted by the Learned CIT(Appeals), the amount of interest which is a subject matter of reassessment in the impugned proceedings was not payable to any Public Financial Institution or any Scheduled Bank, albeit out of total interest accrued but not due for sums amounting to Rs. 184.66 lakhs, interest aggregating to Rs. 44.33 lakhs was paid before filing of the return on which deduction was allowed u/s 43B and balance interest payable of Rs. 140.33 lakhs was unpaid liability on cumulative FDR (Rs. 137.90 lakhs) and other interest liability (Rs. 2.41 lakhs) and therefore, prima facie such interest amount was not hit by the provision of section 43B. On this count also, the Assessing Officer was not justified for reopening the assessment u/s 147 as there could not be any prima facie “reason to believe” based on any tangible material. Thus, the order of the Learned CIT(Appeals) holding that reassessment proceeding is bad in law is upheld and consequently the impugned reassessment order is null and void and hence quashed. Accordingly, the grounds raised by the revenue are dismissed.
8. Ground no. 3 does not require any separate adjudication in view of our finding given above.
9. In the result, the appeal filed by the revenue is dismissed.
10. Now, we will take up appeal in ITA No. 1811/Del/2014 for the A.Y. 2007-08, wherein following ground has been raised by the revenue:—
“1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 97,42,800/- made u/s 36(1)(iii) of the Act.”
11. The brief facts of the case qua the aforesaid issue are that the assessee company is engaged in the business of manufacturing, supply and distribution of automobile components, etc. During the course of the assessment proceedings the Assessing Officer noted that the assessee has paid interest amounting to Rs. 36.44 crores on the loans. He further noted that the assessee has also advanced a sum of Rs. 811.90 lakhs to its 100% subsidiary company, M/s. Satara Rubber & Chemicals Ltd’. In view of these facts the Assessing Officer required the assessee to substantiate its claim of interest amount and also why the proportionate interest should not be disallowed. The assessee in response submitted that it has incurred certain expenses on behalf of its subsidiary company which was shown as recoverable loan and therefore, no amount of interest was attributable on notional basis. The ld. Assessing Officer, held that since it was interest free loan given to the subsidiary, therefore, disallowance of interest has to be made in view of the decision of Hon'ble Punjab and Haryana High Court in the case of Abhishek Industries Ltd. (286 ITR 1) and accordingly, worked out the disallowance at Rs. 96,42,800/- which was @ 12%.
12. Before the Learned CIT (Appeals), assessee submitted that, first of all, the said loan (in the form of incurring the expenditure on behalf of its subsidiary) was given out of business expediency and commercial relation between the assessee and subsidiary; and secondly, the assessee had huge surplus funds from which such loan was given. It was stated that the total cash generation from operating activities as per cash flow statement was Rs. 182.63 crores and as compared to this amount, the said amount of loan/expenses incurred on behalf of subsidiary was much less. A detailed chart was furnished with regard to the availability of funds and the amounts invested and spent on various items like fixed assets, payments towards repayments of loan, interest etc. The assessee's detailed submission in this regard have been dealt and incorporated by the Learned CIT (Appeals) from pages 2 to 7 of the appellate order. After considering the entire facts and material placed on record, the Learned CIT (Appeals) deleted the said disallowance of interest on the ground that assessee had sufficient funds which was interest free advances given to its subsidiary. He also relied upon various decision including the decision of Hon'ble Supreme Court in the case Munjal Sales Corporation v. CIT reported in (2008) 298 ITR 288 wherein the judgment of Hon'ble Punjab and Haryana High Court in CIT v. Abhishek Industries Ltd. (supra) has been reversed.
13. After hearing both the parties and on perusal of relevant finding given in the impugned order, we find that the proportionate disallowance of interest of Rs. 97,42,800/- has been made by the Assessing Officer on the ground that the assessee has granted interest free loan/expenses incurred on behalf of its subsidiary, therefore, disallowance should be made in view of the decision of Hon'ble Punjab and Haryana High Court in the case of CIT v. Abhishek Industries Ltd. (supra). Before the Learned CIT (Appeals), the assessee had furnished details of cash flow chart along with availability of interest free funds available with the assessee to demonstrate that assessee had huge surplus funds at the time of giving the loan. This finding of the fact that the assessee had huge surplus funds which was interest free has not been disputed at any stage by the department. Once it is found that the assessee company had huge surplus funds then it can be safely presumed that any such advance or interest free loan given to subsidiary is out of such surplus funds only unless the department brings on recrd that the surplus funds have been utilized for some other purposes and borrowed funds have been diverted to subsidiary/sister concern. The sole reliance placed by the Assessing Officer on the judgment of CIT v. Abhishek Industries Ltd. (supra) for making the disallowance, now does not hold ground in view of the judgment of Supreme Court in the case of Munjal Sales Corporation v. CIT (supra), wherein the judgment of CIT v. Abhishek Industries Ltd. (supra) has been reversed and it has been specifically held by the Hon'ble Apex Court that so long as funds have been given to the sister concern out of interest free funds, no disallowance u/s 36(1)(iii) can be made. Thus, without their being material to controvert the finding of the Learned CIT (Appeals) that advance standing in the name of the subsidiary is out of assessee's own interest free funds, we do not find any reason to deviate from such a finding of fact. Accordingly, the order of the Learned CIT (Appeals) is upheld and ground raised by the Revenue is dismissed.
14. In the result, both the appeals filed by the revenue are dismissed.