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2024 Supreme(Cal) 1361
IN THE HIGH COURT AT CALCUTTA
SURYA PRAKASH KESARWANI, RAJARSHI BHARADWAJ, JJ.
Commissioner Of Income Tax, Kolkata-II, Kolkata – Appellant
Versus
M/s. Kesoram Industries Limited – Respondent
ITA No.1 Of 2014
Decided On : 06-05-2024
For the Appellant :Mr. Soumen Bhattacharjee, Advocate Mr. Ankan Das, Adv.
For the Respondent: Mr. J. P. Khaitan, Sr. Adv., Ms. Nilanjana Banerjee Pal, Adv.
IMPORTANT POINT
Reassessment under Section 147 requires tangible material indicating income escapement; a mere change of opinion is insufficient.
Headnote:
Reassessment - Income Tax - Section 147, 148, 36(1)(iii) - The court interpreted the provisions regarding reassessment, emphasizing that a mere change of opinion does not justify reopening assessments without new tangible material indicating income escapement.
Fact of the Case:
The respondent, engaged in manufacturing, claimed interest as revenue expenditure during the assessment year 1997-98. The assessing officer initially treated it as capital expenditure. After appeals, the ITAT quashed reassessment proceedings initiated under Section 147, leading to the current appeal.
Finding of the Court:
The court found that the assessing officer's reassessment was based on a change of opinion rather than new evidence, thus invalidating the reassessment under Section 147.
Issues: Whether the ITAT erred in setting aside the order under Section 147 of the Income Tax Act, 1961.
Ratio Decidendi: The court held that reassessment under Section 147 cannot be based on a mere change of opinion without new tangible material indicating income escapement.
Result: The appeal is dismissed, affirming the ITAT's decision in favor of the assessee.
JUDGMENT :
1. Heard Sri Soumen Bhattacharjee, learned junior standing counsel for the appellant and Sri J. P. Khaitan, learned senior advocate assisted by Sm. Nilanjana Banerjee Pal, learned counsel for the respondent assessee.
2. This appeal was admitted by this Court by order dated 31st July 2013 on the following substantial question of law:-
“Whether on facts and in the circumstances of the case, the Learned Income Tax Appellate Tribunal erred in law in setting aside the order under Section 147 of the Income Tax, 1961?”
Facts :
3. Briefly stated, facts of the present case are that the respondent assessee is engaged in manufacture and sale of textile goods, rayon, transparent paper, cast iron pipes, fire bricks and cement through its different units i.e. Kesoram Textiles, Kesoram Rayon, Kesoram Spun Pipes, Kesoram Refractories, Kesoram Cement and Vasavadatta Cement. During the assessment year in question i.e. AY 1997-98, the respondent assessee shown “capital work in progress” relating to thermal power plant and expansion of project of the cement section at Basantnagar and Sedam. In item no.6 of Schedule 17 to the balance sheet, under the heading “Capital Work in Progress”, the assessee also showed interest paid/payable Rs.28,89,56,752/-. The amount of work in progress was reduced by the assessee by Rs.2,89,68,884/- as interest received. The respondent assessee claimed the aforesaid interest paid/payable Rs.28,89,56,752/-as revenue expenditure. He added the aforesaid interest amount of Rs.2,89,68,884/- as revenue receipt. Vide original assessment order dated 27.03.2000 (paragraph 8) under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act, 1961’], the assessing officer rejected the claim of the assessee and held that the amount of interest paid is capital expenditure. After holding so, in final computation, the assessing officer took the net profit of Rs.45,95,97,148/-without allowing deduction of the aforesaid interest paid of Rs.2,89,68,884/-and without adding interest received of Rs.2,89,68,884/-. Thus, the assessing officer treated the interest paid as capital receipt and the interest received as revenue receipt. Although the assessing officer discussed in detail in paragraph 8 of the assessment order the claim of the aforesaid interest paid but has not discussed about the interest received amount of Rs.2,89,68,884/-, both shown under the head “work-in-progress”. Aggrieved with the aforesaid assessment order, the respondent assessee is stated to have filed an appeal before the CIT (A) which was allowed by an order dated 27.03.2001 and the amount of interest paid was held to be revenue expenditure. Against order of the CIT(A), the revenue filed an appeal before the Income Tax Appellate Tribunal [for short, ‘ITAT’] which was allowed by order dated 25.01.2007 and the aforesaid amount of interest paid was held to be capital expenditure. … Against the order of the ITAT, the assessee filed ITA No. 322 of 2007 (Kesoram Industries Ltd. Vs. Commissioner of Income Tax-II) in which the following substantial questions of law was framed :-
“Whether on the facts and circumstances of the instant case, the Tribunal is justified in disallowing the sum of Rs.28,89,56,562/- paid as interest on borrowed capital for acquisition of fixed assets under Section 36(1)(iii) of the Act inasmuch as the said assets have been acquired for the purposes of expansion of existing business of your petitioner and the findings of the Tribunal to this extent is unreasonable, arbitrary and perverse ?”
4. By judgement and order dated 5.1.2009 in the aforesaid ITA no. 322 of 2007 this Court answered the aforequoted substantial questions of law in ‘negative’, i.e. in favour of the assessee and against the revenue. This judgement has attained finality. Thus finally the claim of the assessee for interest paid as revenue expenditure was accepted.
5. After the CIT(A) passed the order dated 22.03.2001 allowing the appeal of the respondents/asse
