Reopening u/s 147 /148 for escaped interest income upheld when AO by oversight failed to assess interest income duly disclosed in the books of accounts
ABCAUS Case Law Citation:
ABCAUS 3256 (2020) (02) HC
Important case law relied upon by the parties:
Commissioner of Income-Tax v. Corporation Bank Ltd. (2002) 122 Taxman 826 (SC)
ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd.’ 2007 291 ITR 500
Raymond Woolen Mills Ltd. Vs. ITO’ (1999) 236 ITR 34 (SC)
Anand Prakash Agrawal vs. CIT’ 121 DTR 227
CIT vs. United Racing & Blood Stock Breeders Pvt. Ltd. 131 DTR 344
In the instant case, the Assessing Officer (AO) had framed original assessment u/s 143(3) by estimating profit rate after rejecting books of account.
Subsequently the AO noticed that the assessee’s interest income from FDRs had escaped assessment within the meaning of section 147 of the Act. Accordingly, the AO while taking due cognizance of fact that interest income from FDR had escaped assessment, recorded his satisfaction on the escapement of the assessee’s income from other sources and reopened the assessee’s case u/s 147 of the Act by way of issue of notice u/s 148 of the Act.
In the reassessment proceedings, the AO accordingly made an addition towards the interest income of fixed deposits under the head income from other sources.
Being aggrieved from the AO’s order, the assessee went in appeal before the CIT(A), challenging the reopening of the case u/s 147 of the Act as in bad in law.
The CIT(A) rejected the legal ground by observing the issue being covered by the decision of the Hon’ble Apex Court and the Jurisdictional High Court. Aggrieved, the assessee went in second appeal before the ITAT.
The Tribunal observed that the computation of original assessment order passed u/s 143(3) of the Act showed that there was no reference made regarding the other income earned by the assessee on account of interest on FDR’s either in the notices issued by the AO or the compliance and written submission furnished by the assessee during the course of assessment proceedings.
The Tribunal observed that the Hon’ble Supreme Court had held that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, however, the Income-tax Officer had not considered the material and subsequently come by the material from the record itself, then such a case would fall within the scope of section 147(b) of the Act.
Again, the Tribunal observed that the Hon’ble Supreme Court had clarified that at the initial stage, what is required is reason to believe but not to establish the fact of escapement of income and such formation of believe by the AO is within realm of subject to satisfaction.
The Hon’ble Supreme Court had also held that at the time of reopening assessment proceedings u/s 147, it is only to be seen whether there was prima facie material on the basis of which the department could reopen the case. The sufficiency and correctness of the material is not a thing to be considered as this stage.
Accordingly, the Tribunal had held that there was no sufficient material to establish that there was change of opinion on the part of the AO while recording reasons to believe u/s 147 of the Act. The Tribunal also held that the AO had ‘reason to believe’ that the interest income had escaped assessment within the meaning of section 147 of the Act.
Not satisfied with the judgment of the Tribunal, the assessee challenged it before the Hon’ble High Court by way of appeal.
The assessee framed the following two substantial questions of law:-
(i) “Whether the ITAT was legally justified in upholding the action of Assessing Officer reassessing the “interest income” of the appellant u/s 147 / 148 of the Act, when AO admittedly on account of oversight / mistake failed to assess the interest income which was duly disclosed in the books of accounts of the appellant?”
(ii) “Whether on the basis of audit objection raised by the revenue audit party reassessment is permissible u/s 147 / 148 of the Act being change of opinion when the interest income of FDR’s had been duly disclosed in the audited Profit & Loss A/c and Balance sheet filed along with the return of income?”
Reopening for escaped interest income upheld
The Hon’ble High Court noted that the provisions of law contained in section 147 of the Act have undergone several amendments whereby several provisos have been introduced.
It was observed that in the instant case, the Assessing Officer had observed that from the perusal of the computation it was clear that the Assessing Officer had worked out profit of the assessee on the basis of contract income and sub contract income only and had not added interest income by mistake. Also the AO had noted that the assessee himself shown interest as other income in audited balance sheet.
The Hon’ble High Court answered the question as to whether the learned Tribunal was legally justified in upholding the action of the Assessing Officer reassessing the “interest income” of the appellant under sections 147 / 148 of the Act in the affirmative, against the assessee notwithstanding the fact that the Assessing Officer, admittedly, on account of oversight / mistake failed to assess the interest income since there was no question of double addition.
Accordingly, the appeal was disposed of by affirming the judgment and order passed by the Income Tax Appellate Tribunal.
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