ITAT Invalidates Reopening Based on Audit Objection as Change of Opinion, Upholds Deletion of ₹6.60 Cr Interest Disallowance u/s 36 [Read Order]

The Income Tax AppellateTribunal (ITAT) Pune Bench has held that reassessment proceedings initiated on the sole reason of an objection raised in the audit is a mere change of opinion and is not valid in law. The Tribunal accordingly upheld the deletion of a disallowance of ₹6.60 crore made in respect of interest under Section 36(1)(iii) of the Income Tax Act, 1961.

In the case of the Revenue’s appeal before the Tribunal, the ITAT dismissed the same and upheld the order of the CIT(A) noting that the reassessment of the matter that had already been dealt with in the original scrutiny is not permissible. It has further held that no disallowance of interest is warranted if sufficient interest-free funds are available with the assessee.

READ MORE:Interest Received ByCooperative Banks From Fixed Deposit Receipts Are Deductible u/s 80P of IncomeTax Act: ITAT

The assessee Shardha Erectors Pvt Ltd., which was in the renewable energy business and real estate development, was originally assessed under Section 143(3), where the Assessing Officer (AO) had already made partial disallowance under Section 36(1)(iii).

Subsequently, on account of an objection raised by Revenue Audit Party (RAP) regarding excess allowance of interest expenditure, the AO initiated reassessment proceedings and made an additional disallowance of ₹6.60 crore on the grounds of diversion of borrowed funds for non-business purposes.

The assessee company argued that the issue of loans and advances was thoroughly examined in the original assessment and, therefore, reopening on the same set of facts amounts to change of opinion. The assessee further argued that it has substantial own funds and has earned interest on substantial advances.

However, the Revenue department stated that audit objections qualify as information for reopening assessment and further argued that the assessee has not demonstrated business nexus for the advances.

The Tribunal comprising R.K. Panda [Vice President] and Vinay Bhamore [Judicial Member] held that the AO had already scrutinized the issue of interest disallowance in the original assessment itself by asking detailed explanations. It further noted that audit objections merely pointing out perceived errors do not constitute valid grounds for reopening.

Accordingly, the Bench held that reassessment cannot be made for the review of the assessment. It further held that the audit objections only pointed out the errors and hence cannot be regarded as valid grounds for reassessment.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates