IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH AHMEDABAD

ITA. No. 2806/Ahd/2013 (Assessment Year:2007-08)
M/s. M.D. Shah & Co (Appellant) vs Income-tax Officer (Respondent)
Date of Order : 30-10-2015

ORDER

PER S. S. GODARA, JUDICIAL MEMBER
This assessee’s appeal for assessment year 2007-08, arises from order of the CIT(A) - 6, Ahmedabad, dated 07.10.2013 passed in proceedings u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961, hereinafter ‘the Act’.

2. The instant appeal raises two substantive grounds. The first one challenges validity of re-opening in question taken recourse to by the Assessing Officer and affirmed in the lower appellate order. The second ground assails correctness of interest expenditure disallowance of Rs.2,31,887/- on the ground that the assessee had availed unsecured loans from relatives of Rs.19,40,230/- and its partners were found to have withdrawn sums exceeding their share capital resulting in debit balances.

3. The assessee firm trades in industrial and hardware items on retail and semi wholesale basis. It filed its return on 29.10.2007 declaring income of Rs.1,63,388/-. The Assessing Officer took up scrutiny. He issued Section 142(1) notice along with a questionnaire on 12.06.2009. The assessee filed its reply on 20.06.2009 along with copy of audit report and partner’s capital accounts and details of unsecured loans. Page 3 of the paper book is a letter dated 23.06.2009 addressed to the Assessing Officer filing the necessary capital accounts of assessee’s two partners. The Assessing Officer framed regular assessment on 14.07.2009. We find that he did not make any disallowance of the interest expenditure in question qua the partners’ debit balances.

4. A perusal of the case file reveals that the Assessing Officer formed reasons to believe that assessee’s income liable to be assessed had escaped assessment. He issued Section 148 notice on 13.09.2010. This was followed by the impugned re-assessment being framed on 05.12.2011 disallowing the impugned interest expenditure amount of Rs.2,31,887/- in view of the fact that the assessee on the one hand had availed unsecured loans from relatives of Rs.19,40,230/- corresponding to the above stated interest amount and on the other hand its partners had withdrawn sums exceeding their share capital resulting in debit balances.

5. The assessee preferred appeal. We find from the case file that the CIT(A) rejects its legal ground challenges validity of the re-opening in question by observing that the same is within 4 years from the end of the impugned assessment year. The lower appellate order appears to be totally non speaking on merits as well. This leaves the assessee aggrieved.

6. We have heard both the parties and perused the case file. The assessee’s first argument is a legal plea challenging validity of the re-opening. It refers to the paper book and states that it had already filed all relevant details in furtherance to specific query being put by the Assessing Officer during its scrutiny regarding the interest amount incurred and partners’ capital account. Its case is that the impugned re-opening is mere change of opinion as the Assessing Officer had examined the issue in first round of scrutiny assessment. The Revenue’s arguments strongly support the impugned re-opening. We have given our thoughtful consideration to the rival contentions. There is no dispute that the assessee had filed specific replies to the Assessing Officer’s notices issued u/s.142(1) and 143(2) of the Act. Page 1 of the paper book is its letter dated 20.06.2009 filing copy of the partners’ account. The same is followed by another correspondence dated 23.06.2009 enclosing its two partners’ capital accounts. The Assessing Officer framed regular assessment thereafter. He re opened the same resulting in the impugned re-assessment disallowing the interest expenditure in question of Rs.2,31,887/-. We are of the view in these peculiar facts and circumstances that the Assessing Officer’s action is mere change of opinion not permissible as per the case law of CIT vs. Kelvinator of India Ltd. 320 ITR 561. The Revenue at this stage raises an argument that assessee has not filed copy of the re-opening reasons. We do not agree to this plea. In our view, this argument either way has to be rejected. If the re-opening reason pertains to interest disallowance, then, it amounts to mere change of opinion as indicated hereinabove. In case, there is some other reason for the impugned re-opening not leading to any disallowance, we quote hon’ble jurisdictional high court decision in (2014) 355 ITR 172 (Gujarat) CIT(A) vs. Mohmed Juned Dadani that when there is no addition from the re-opening reason, no further disallowance or addition could be made on some other grounds not forming part of re-opening reasons. We accordingly accept assessee’s arguments challenging validity of the re-opening in question. The Revenue’s submissions are rejected. The impugned re-opening is accordingly quashed. This renders the latter ground infructuous.

7. This assessee’s appeal is allowed.

Pronounced in the open Court on this the 30th day of October, 2015.

Sd/-                                                      Sd/-
(ANIL CHATURVEDI)              (S. S. GODARA)
ACCOUNTANT MEMBER        JUDICIAL MEMBER