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2024 Supreme(Online)(ITAT) 4280
INCOME TAX APPELLATE TRIBUNAL (HYDERABAD BENCH)
Shri Laliet Kumar, JM, Shri Manjunatha G, AM
M/s. Indur Avenues and Foods Private Limited – Appellant
Versus
Commissioner of Income Tax (Appeals) – 12, Hyderabad – Respondent
Income Tax Appeal – ITA No.666/Hyd/2020 | ITA No.667/Hyd/2020 | ITA No.672/Hyd/2020
For the Appellants/Petitioners: Shri S. Rama Rao
For the Respondents: Ms. Reema Yadav
Reopening of tax assessments must be based on tangible evidence specific to the taxpayer, not generalized findings from other cases, establishing necessity for a clear nexus between evidence and claimed income omission.
Headnote:(A) Income Tax Act, 1961 - Sections 132, 147, 148, 143(3) & 36(1)(iii) - Validity of reopening of assessment - Assessee engaged in real estate claimed interest on customer advances - AO disallowed based on perceived diversion of funds to other companies, while CIT(A) only partly confirmed disallowance - Tribunal held reopening invalid as it lacked specific evidence for the year in question. (Paras 7-8, 12-13, 19-22 32)
(B) Reopening of assessment - Must be based on tangible material specific to the taxpayer being assessed; general practices discovered in another group assessment case does not suffice. The court stressed that re-opening must demonstrate a clear nexus between the new evidence and the claimed income omission. (Paras 22-23)
Facts of the case:
The assesses claimed deductions for interest on customer advances but faced disallowance post-search due to alleged diversions of funds within its corporate group. (Paras 3, 26)
Findings of Court:
The Tribunal found insufficient support for the AO's conclusions and appointed a clearer understanding of business expenses reimbursed by the taxpayer and did restore full interest claims. The grounds related to the reopening were thus treated as infructuous. (Paras 12, 13, 24)
Issues: The Tribunal addressed the validity of assessment reopening under Section 147 and the appropriateness of disallowance of finance charges based on customer advance interest. (Paras 19-20)
Ratio Decidendi: Revenue actions must yield empirical grounding linking taxpayer business practices with income declarations to validate assessments; the Tribunal's ruling revoked arbitrary application of funds' movement assumptions not substantiated by direct evidence. (Paras 22-23)
Result: Appeals allowed.
| Table of Content |
|---|
| 1. validity of the assessment reopening. (Para 3 , 26) |
| 2. arguments on interest and business funds. (Para 10 , 11) |
| 3. court observations on ao's conclusions. (Para 12 , 13) |
| 4. requirement for evidence in tax assessments. (Para 22) |
| 5. final ruling and appeals outcomes. (Para 24 , 34) |
ORDER
PER BENCH :
These appeals filed by the assessees are directed against the order of learned Commissioner of Income Tax (Appeals) – 12, Hyderabad dated 18.09.2020 for the assessment years 2012-13, 2013-14 and 2016-17, respectively.
2. First, we will deal with assessee’s appeal in ITA No.666/Hyd/ 2020 for A.Y. 2012-13.
M/s. Indur Avenues and Foods Private Limited ITA 666/Hyd/2020 FOR A.Y. 2012-13
2.1 The grounds raised by the assessee read as under : “1. The order of the ld.CIT(A) is erroneous to the extent it is prejudicial to the appellant.
2. The ld.CIT(A) erred in confirming the action of the Assessing Officer in initiating the proceedings u/s 147 of the I.T. Act particularly when the proceedings were initiated in connection with or as consequence to the search and seizure operations conducted u/s 132 of the I.T. Act.
3. The ld.CIT(A) erred in confirming Rs.15,78,237/- out of Rs.1,31,51,977/- towards the finance cost debited to the development expenditure without properly considering the fact that the expenditure was incurred in connection with and in relation to business activity carried on by the appellant.
4. The ld.CIT(A) ought to have held that no disallowance can be made as the appellant did not derive any exempted income and as the trade payables do not form part of interest bearing loans for the purposes.
3. The brief facts of the case are that the assessee is engaged in the business of real estate development and part of Kapil Group of business, filed its return of income for AY 2012-13 on 26.09.2012 admitting total income of Rs.3,13,540/-. A search and seizure operation under Section 132 of the Income Tax Act, 1961 was conducted on 07-04-2017 on the group of Kapil Consultancy Services Ltd and in which, the assessee was also covered. The assessment has been subsequently re-opened under Section 147 of the Income Tax Act, 1961 for the reasons recorded, as per which income chargeable to tax has escaped the assessment. Accordingly, a notice under Section 148 of the Act, dated 29-03-2019 was issued. In response to the notice under Section 148 of the Act, the appellant filed return of income admitting the same income. The AO completed the assessment under Section 143 (3) read with Section 147 on 28-12-2019 and determined total income at Rs.34,54,516/- by making additions towards disallowance of finance charges and disallowance under Section 14A of the Act.
4. The assessee carried the matter in appeal before the ld.CIT(A). The ld.CIT(A) for the reasons stated in their order dated 18-09-2020, partly allowed the appeal filed by the assessee, where he had confirmed the addition made towards disallowance of finance cost to an extent of 15,78,237/- out of Rs.29,79,665/- and however deleted the addition made u/s 14A of the Act.
5. The assessee preferred a further appeal before the Tribunal. The ITA T, Hyderabad Bench vide its common order in ITA No.666/Hyd/2020 dated 21-03-2022, set aside the issue to the file of the AO for fresh examination. The assessee filed an appeal before the Hon'ble High Court of Telangana, and the Hon'ble High Court of Telangana, in its common order dated 02-02-2023, set aside the common order passed by the Tribunal dated 21-03-2022 and directed the Tribunal to dispose of the appeal on the limited grounds urged by the appellant, namely, disallowance of interest expenditure under Section 36 (1)(iii) of the Act to the extent disallowed by the first appellate authority as well as the validity of the reassessment proceedings.
6. The first issue that came up for our consideration from the assessee's appeal is the validity of re-opening of assessment under Section 147 of the Act.
7. During the course of assessment procee
