Saurav Sood, Shashank Sharma, Subhashree Rao Advs. for the Petitioner. Samar Bhadra CIT DR for the Respondent.

01. These are the three appeals of the parties for the assessment year 2003 – 04.

02. ITA number 2953/del/2014 is filed by the learned Deputy Commissioner of income tax, Circle – 11 (1), New Delhi (the learned AO) against the order of the learned Commissioner of income tax (appeals) –XVIII, New Delhi dated 28th of February 2014 for assessment year 2003 – 04 wherein the appeal of the assessee is partly allowed against the order passed by the learned assessing officer on 30 March 2006 u/s 143 (3) of the act. The learned AO has preferred following grounds of appeal.

i. On the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the disallowance of Rs 2 39,97,000/– made in respect of share issue expenses claimed u/s 35D of the act.

ii. on the facts and the circumstances of the case and in law, the CIT (A) has erred in deleting the disallowance of ₹ 135,044,767/– made in respect of depreciation on plant and machinery least to various parties

iii. on the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the disallowance of Rs. 1,33,87,142/– made in respect of redemption of premium against the said capital being treated as capital in nature.

iv. On the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the disallowance of ₹ 1,707,454/– made in respect of expenses incurred for issue of bonds being treated as capital in nature.

v. On the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the disallowance of Rs 4 52,971/– made in respect of expenses incurred from benevolent fund which is a reserve fund not arise from the profits earned by the assessee.

vi. On the facts and circumstances of the case and in law, the CIT (A) has erred in restricting the disallowance to ₹ 30 lakhs out of total disallowance of ₹ 69,871,316/– made in respect of proportionate administrative expenses towards exemption of income u/s 10 (23G) of the act.

03. Facts culled out from the assessment order shows that Assessee Company is engaged in the business of leasing and finance and it also finances projects in the form of rupee loans, foreign loans, underwriting and subscribing to the capital issues.

04. The assessee filed its return of income on 28th of March 2003 declaring loss of ₹ 12,231,737,989/–. Assessee revised that on 16 April 2004 claiming the further amount of tax deduction at source however the returned income remained unchanged. The case of the assessee was selected for scrutiny. The learned assessing officer passed an assessment order on 31st of March 2003 wherein he determined the total loss of Rs 11,921,762,790/–. Several additions were made. The same were contested before the learned CIT – A. The learned CIT – A passed an order on 28th of February 2014 partly allowing the appeal of the assessee. Therefore, aggrieved, AO preferred this appeal.

05. The first ground of appeal is with respect to deleting the disallowance of Rs. 2,39,97,000 made in respect of share issue expenses claimed u/s 35D of the act.

06. The parties agreed that the facts of this case are identical to the facts in the case of the appeal for assessment year 2002 – 03 wherein the appellant assessee contested as per ground number 3 of its appeal in ITA number 2120/del/2005.

07. We have decided this issue as per the order in that appeal holding that assessee is not an industrial undertaking and therefore it is not eligible for deduction u/s 35D of the act. Therefore respectfully following that decision of the even date, we allow this ground of appeal. Accordingly, ground number 1 of the appeal is allowed. 08. Ground number 2 is with respect to the disallowance of depreciation on plant and machinery which is leased out by the assessee to various parties amounting to Rs 135,044,767/–.

09. The parties confirmed that the facts of this case are identical to the facts in case of the appeal of assessee for assessment year 1999 – 2000 and 2000 – 2001.

10. We have carefully considered the rival contention and perused the orders of the lower authorities. Identical issue has been decided by us in the appeal of the assessee for assessment year 1999 – 2000 and 2000 – 2001 in ITA number 1200/del/2005 and 1201/del/2005 wherein we have held that the assessee is the owner of the leased assets. Assessee has shown lease rent as its income, assets in its balance sheet, various clauses of lease agreement supporting case of assessee, lessees confirmed that they have not claimed depreciation on those assets and they are owned by the assessee. On these facts, the claim of the assessee for depreciation was allowed for those years. No change in the facts was brought to our notice. Therefore following the order in that case of even date, we dismiss ground number two of the appeal and confirm the order of the learned CIT – A.

11. Ground number three is with respect to the claim of the assessee of Rs. 1,33,87,142/– with respect of the redemption of the premium against the share capital.

12. The parties before us confirmed that the facts of the case are identical to the ground number five of the appeal of the learned assessing officer for assessment year 2002 – 03 in ITA number 2934/del/2010. As per order of even date in that, appeal we have allowed the claim of the assessee holding that disallowance made by the learned assessing officer is unsustainable. For the same reasons, we confirm the order of the learned CIT – A and dismiss ground number three of this appeal.

13. Ground number 4 is with respect to the deletion of the disallowance of ₹ 1,707,454/– by the learned CIT – A in respect of expenses incurred for issue of bonds. AO treated that expenditure as capital in nature.

14. Parties confirmed that this issue is identical to ground number six of the appeal of the learned assessing officer for assessment year 2002 – 03 in ITA number 2934/Del/2010.

15. We have carefully considered the rival contentions and find that the facts in the case of the assessee for this year are identical to the facts in the case of assessee for assessment year 2002 – 03 wherein the learned CIT – A deleted the above disallowance and same was challenged before us by the AO in ITA number 2934/del/2010 as per ground number 6. In that appeal, we have confirmed the order of the learned CIT – A deleting above disallowance holding that it is a revenue expenditure. For similar reasons we dismiss ground number 4 of this appeal.

16. Ground number 5 is with respect to the deletion of disallowance of Rs 452,971/– respect of expenses incurred by the assessee from benevolent fund. The parties confirm that this issue is identical to ground number seven of the appeal of the learned assessing officer for assessment year 2002 – 03 in ITA number 2934/del/2010.

17. On careful consideration of the facts before us and the orders of the lower authorities we find that the facts in this ground of appeal are identical to the ground number seven of the appeal in ITA number 2934/del/2010 preferred by the learned assessing officer for assessment year 2002 – 03. As per the order in that appeal of even date, we have confirm the order of the learned CIT – A deleting the above disallowance. For the same reasons, we also confirm the order of the learned CIT – A and dismiss ground number 5 of the appeal.

18. Ground number 6 of the appeal of the assessing officer is with respect to restricting the disallowance to ₹ 30 lakhs out of the total disallowance of ₹ 69,871,316/– in respect of proportionate administrative expenses towards exemption of income u/s 10 (23G) of the act. The parties confirmed that the facts in this case are identical to the facts in the case of appeal of the learned assessing officer for assessment year 2002 – 03 wherein in ground number eight the AO challenged the action of the learned CIT – A in locating administrative expenditure while working out exemption u/s 10 (23G) of the act.

19. We have carefully considered the rival contention and perused the orders of the lower authorities. This ground is identical to the ground number eight in the appeal of AO for assessment year 2002 – 03 wherein we have confirmed the action of the learned CIT – A in deleting the expenditure allocation of ₹ 39,100,474 and restricting estimate of allocable establishment and restricting answers to the extent of ₹ 20 lakhs in that year. In this year, the learned CIT – capital has restricted to ₹ 30 lakhs. Therefore, we do not find any infirmity in the order of the learned CIT – A and dismiss ground number 6 of the appeal of the learned assessing officer.

20. In the result, appeal filed by the learned assessing officer in ITA number 2953/del/2014 for assessment year 2003 – 04 is partly allowed.

(appeals Under reassessment proceedings)

21. In the present case, as stated above the assessment u/s 143 (3 ) was completed on 30th of March 2006 at a loss of Rs 11,921,760,790/–. Subsequently notice u/s 148 was issued on 31st of March 2008. The assessee submitted as per letter dated 12 May 2008 that the return of original filed by the assessee may be treated as return in response to the above notice. Thereafter the reassessment proceedings took place. The assessment was passed by the learned assessing officer u/s 143 (3) read with Section 147 of the income tax act on 15th of December 2009 wherein following three additions/disallowances were made.

a. Addition on account of the liabilities taken over by the government of India of Rs 1830 crores

b. addition on account of reduction in the cost of borrowing RS. 411 crores

c. disallowance u/s 43B of the act of ₹ 1,296,521,028 on account of interest converted into additional borrowings

22. Consequently gross total income of the assessee was determined at Rs 11,784,758,238/– by order dated 15 December 2009.

23. The assessee aggrieved with the order of the learned AO preferred an appeal before the learned Commissioner of Income Tax (Appeals) – XXX, New Delhi. He passed an order on 28th of March 2011 partly allowing the appeal of the assessee. He confirmed action of AO u/s 147 and also some of the additions, he also deleted some of the additions/ disallowances. Therefore the learned assessing officer as well as the assessee both are aggrieved with that order has preferred the cross appeals.

24. ITA number 2817/del/2011 is filed by the Asst Commissioner of income tax, Circle 11 (1), New Delhi against the order of Commissioner of income tax (appeals) – XXX, New Delhi dated 28th of March 2011 raising following grounds of appeal:-

i. on the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the addition of RS 224,000 100 lakh on account of liabilities taken over by the government of India and reduction from the cost of borrowings

ii. on the facts and circumstances of the case and in law, the CIT (A) has erred in restricting the addition of rupees 1296521028/- on account of Section 43B of the act to ₹ 593,350,420/–

iii. on the facts and circumstances of the case and in law, the CIT (A) has erred in directing the AO not to impose interest u/s 234B of the act.

25. ITA number 2659/Del/2011 filed by IFCI Ltd (the appellant) against the order of the learned Commissioner of income tax (appeals) – XXX, New Delhi dated 28th of March 2011 wherein the appeal filed by the assessee against the order of the income tax officer, Ward 11 (1), New Delhi (the learned AO) was partly allowed.

The assessee has raised following grounds of appeal:-

i. that the Commissioner of income tax (appeals) erred on facts and in law in upholding the validity of assessment order passed u/s 143 (3) read with Section 147 of the income tax act (the act), without appreciating that the order of assessing officer was beyond jurisdiction, bad in law and void ab initio.

ii. That the Commissioner of income tax (appeals) erred on facts and in law in not appreciating that the reassessment proceedings were initiated by the assessing officer on a mere change of opinion without forming reasonable belief of escapement of income and consequently, the assessment order was illegal and bad in law.

iii. That the Commissioner of income tax (appeals) erred on facts and in law in sustaining disallowance of interest to the extent of Rs 593,350,420 u/s 43B of the act

26. We first come to the appeal of the assessee wherein as per ground number one of the appeal the reopening of the assessment proceedings were challenged. The claim of the assessee is that reassessment proceedings were initiated by the assessing officer on a mere change of opinion without forming reasonable belief of escapement of income and therefore this order is illegal and bad in law.

27. The learned authorised representative submitted a written note as Under:-

1. The assessee submits that the reopening of the assessment is invalid based on the following:

a. Bad in law and void ab initio having been initiated on mere change of opinion without any availability of any fresh material/fact coming to his knowledge subsequent to the completion of the original assessment. Vide letter dated 28th November 2006 Ld. AO asked for details of addition in unsecured loans along on which the Appellant in its reply vide letter dated 22.12.2005 had specifically answered the total amount of outstanding at the end of year along with the specific mentioned that Rs. 523 crore received as loan from Government of India under restructuring arrangement. Further, in computation of income filed with Income Tax Return, which was submitted before the Ld. AO at the time, the assessee submitted a notewith regard to the liabilities taken over by Govt of India amounting to Rs. 1,83,00,00,000/-.

b. The Appellant submitted tax audit report before the Ld. AO, wherein Annexure VI consisting the details of clause no 21(i) with regard to the payments covered under section 43B was mentioned. In the said annexure by making a note, the Appellant has specifically provided that the amount of interest on PP Bonds-UTI and interest on PP Bonds-FIs is the amount re-invested as per restructuring package.

c. The Assessing Officer has not satisfied the limb of „reason to believe‟, which is a mandatory condition to reassess the income. the reasons recorded must show application of mind by the assessing officer to come to the belief that any income of the assessee had escaped assessment. If the reasons recorded are vague or ambiguous, the proceedings initiated under section 147 of the Act are liable to be held invalid and bad in law.

d. In this regard, it is submitted that the Hon‟ble Apex Court in the case of ITO v. TechSpan India Private Ltd. &Anr.(TS-200- SC-2018) held that “The use of the words 'reason to believe' in Section 147 has to be interpreted schematically as the liberal interpretation of the word would have the consequence of conferring arbitrary powers on the assessing officer who may even initiate such re-assessment proceedings merely on his change of opinion on the basis of same facts and circumstances which has already been considered by him during the original assessment proceedings.”

e. In regard, reliance is placed on the decision of Hon‟ble Supreme Court in case ITO v. LakhmaniMewal Das (1976) 103 ITR 437 (SC), wherein it was held that there should be rational connection, direct nexus or live link between the material and the belief. If there is no rational and intelligible nexus between the material and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Assessing Officer could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assesseeBased on above submission, the Appellant submits that mere statement of facts cannot be a substitute for reasons required to be recorded under section 148 of the Act and also without direct or live linking with the material which has come into the knowledge of the Ld. AO

f. The requirement of failure to disclose full particulars on part of the assessee or fresh tangible material is relevant even in case of reopening of assessement within 4 years.

g. Reliance is placed on the decision of the Full Bench High Court in CIT v. Usha International Ltd,[2012] 25 taxmann.com 200 (Delhi) (FB) which was concluded on the basis of the judgement of the Full BenchCIT, Delhi v. M/s Kelvinator of India Ltd[2002] 123 TAXMAN 433 (DELHI) (FB)

“23. On the first question referred to this Full Bench as to the meaning of the term "change of opinion", I have nothing to add to the draft proposed. As to the first part of the second question my answer would be that the assessment proceedings cannot be validly reopened under section 147 of the Act even within four years, if an assessee has furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, if the original assessment was made u/s 143(3). My answer to the second part of the second question is that the issue is concluded by the judgment of the Full Bench of this court in Kelvinator of India Ltd. (supra).”

[emphasis supplied]

h. The Appellant wishes to place reliance on the decision of Jurisdictional High Court in case of Ranbaxy Laboratories Ltd. v. DCIT [2013] 351 ITR 23 (Delhi)wherein it was held that even when no specific query has been raised and specific information which do not require any due diligence where placed at the time of original assessment proceedings then it would be clearly a case of full and true disclosure of all material facts necessary of assessment, then initiation of reassessment proceedings amounts to mere change in opinion. Relevant extract of the decision is given below for your ready reference: -

“13. Mr Maratha appearing on behalf of the respondents, vehemently supported the re-opening of the assessment in respect of the assessment year 2003- 04 and submitted that there was failure on the part of the assessee to fully and truly disclose all material facts which were necessary for assessment. He strongly relied upon the 4th reason, that is, of club expenses by stating that the assessee had not disclosed this at the time of the assessment. On a pointed query, Mr Maratha could not show as to which particular information or material fact had not been disclosed by the assessee at the time of the original assessment proceedings. He only sought to place reliance on Explanation 1 to Section 147 which reads as under:-

"Explanation 1: Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso." However, we do not see as to how Mr Maratha could place reliance on the said Explanation. Insofar as all the purported reasons other than the reason pertaining to club expenses are concerned, specific queries had been raised and the Assessing Officer had considered the material placed by the petitioner before him. As regards club expenses, Mr Maratha states that since no specific query had been raised, Explanation 1 would get triggered. We do not agree with this submission. This is so because the club expenses were specifically mentioned at serial No. 17(d) of the tax audit report in Form No. 3CD which was annexed along with the return. This was a clear statutory disclosure on the part of the assesseewith regard to the claim of club expenditure. It was not a piece of evidence which was hidden in some books of accounts from which the Assessing Officer could have possibly, with due diligence, discovered the same. On the contrary, this was material which was placed before the Assessing Officer along with the return which the Assessing Officer was duty bound to go through before completing the assessment. Clearly this does not fall in the category of material which is referred to in Explanation 1 to Section 147 of the said Act.

14. Having considered the matter at length, we find that this is clearly not a case of failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment. This is of material significance because the notice under Section 148 has been issued after expiry of four years from the end of the relevant assessment year. Therefore, the notice is time barred. Apart from this, we also feel that it amounts to a mere change of opinion. On both counts, the petitioner is entitled to succeed. Consequently, the impugned notice dated 29.03.2010 is quashed and all proceedings pursuant thereto are also quashed. The writ petition is allowed. There shall be no order as to costs.”

[emphasis supplied]

Therefore it was submitted before us that the reopening is bad in law.

28. The learned departmental representative vehemently supported the order of the learned assessing officer and submitted that the learned assessing officer is reopened the case of the assessee after properly recording the reasons. Therefore there cannot be any infirmity in reopening of the assessment.

29. Brief facts of the case shows that the assessment for AY 2003-04 was completed under Section 143(3) on 30.03.2006. Ld. AO initiated reassessment proceeding under sections 147 read with section 148 of the Act vide notice dated 31.03.2008, which was received by the Assessee on 02.04.2008.

30. The reason for reopening was stated as

“2. From the verification of case records, it has been observed that the sum of Rs. 224100 lakh consists of two items i.e. liabilities taken over by Govt. of India of Rs. 18300 Lakh and Rs. 41100 lakh reduction from cost of borrowings has not been brought to tax.

3. Further it has been observed that interest on PP Bonds – UTI, borrowings from the GIC and subsidiaries,PP Bonds, FIS paid by way of reinvestment as per restructuring package to the extent of Rs. 12965.21 lakhs has not been disallowed although it is not paid”

31. By order dated 15th December 2009, the ld AO disallowed the entire amount of Rs. 22,41,00,00,000 comprising of Rs. 1,83,00,00,000 being liabilities taken over by the Govt. of India and Rs. 4,11,00,00,000 claimed as reduction from the cost of borrowings. Also, he disallowed the interest on PP Bonds and on convertible bonds discharged by way of re-investment to the Financial Institutions of Rs. 1,29,65,21,028/-, claimed by the Appellant, under section 43B of the Act. Ld. CIT(A) upheld the validity of impugned reassessment proceedings stating that the proceedings have been initiated well within 4 years and therefore, the condition of failure on part of the assessee is not applicable. The learned CIT – A decided this issue as Under:-

“I have carefully considered the assessment order, the reasons recorded and also the submissions filed on behalf of the appellant. The reassessment proceedings in the case of the appellant have been initiated after obtaining proper satisfaction from the jurisdictional CIT. Also, perusal of the reasons recorded for initiating the reassessment proceedings, in my view, clearly shows application of mind by the assessing officer. Further, the reassessment proceedings were initiated within four years and hence the limitation prescribed in proviso to Section 147 of the IT act, which requires that no reassessment proceedings can be initiated after four years unless there is a failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment is not applicable. In light of the aforesaid, I am of the considered view that the present reassessment proceedings are in accordance with law and are therefore, upheld. The grounds taken by the appellant are accordingly dismissed.”

32. The first argument that has been advanced by the learned authorised representative is that reopening has been initiated without any availability of any fresh material/tangible material coming to the knowledge of the learned assessing officer subsequent to the completion of the original assessment and assessing officer has merely changed his opinion after framing the original assessment proceedings. The claim of the assessee is that as per letter dated 28 November 2006 the AO asked for details of addition in unsecured loans which has been explained by the assessee as per letter dated 22nd 12 2005. As per this letter the assessee, disclosed the total amount of outstanding at the end of the accounting year along with the specific mention that ₹ 523 crores are received as a loan from government of India Under restructuring arrangement. In the computation of the total income also the assessee submitted a note with regard to the liabilities taken over by the government of India amounting to Rs. 183 crores. The details of applicability of Section 43B as well as the amount of interest on the bonds of UTI and interest on such bonds of Fis were also disclosed as the amount reinvested as per the above restructuring package. Further, to reopen concluded assessment proceedings, there has to be a alive or fresh tangible material even in case of reopening of assessment even within four years. There is no mention of any fresh tangible material coming into the possession of the learned assessing officer. Such mention is absent either in the reasons recorded by the assessing officer or even in the assessment order itself. It is in fact shows that the case of the assessee is reopened on the re - appreciation of the same material, which was available before the assessing officer at the time of original assessment proceedings. The judicial precedent relied upon by the learned authorised representative also supports the above view. Further, in the appellate order, the learned CIT – A did not consider the argument of the assessee that it is a meer change of opinion and no fresh tangible material has come into the possession of the AO. In view of this, we hold that the reassessment proceedings initiated by the learned assessing officer are void and not valid. We reverse the order of the learned CIT – A on this account. Accordingly, we allow ground number one of the appeal of the assessee quashing the reassessment proceedings itself.

33. As we have already quashed the reassessment proceedings, the ground number two of the appeal of the assessee becomes infructuous and without adjudication on merits of the same, we dismiss it.

34. Accordingly, we allow the appeal of the assessee in ITA number 2659/del/2011 for assessment year 2003 – 04.

35. As we have quashed reassessment proceedings in the appeal of the assessee for this year, the appeal of the learned assessing officer against the order of the learned CIT – A in that appeal wherein the additions were deleted on the merits becomes infructuous. Accordingly, we also dismiss the appeal of the revenue in ITA number 2817/del/2011 for assessment year 2003 – 04, without going into the merits of each of the grounds raised.

36. In the result appeal of the assessee is allowed and appeal of the revenue is dismissed.

37. Accordingly, all the three appeals of this assessee for assessment year 2003 – 04 are disposed of.

Order pronounced in the open court on 31/08/2020 .

-Sd/- -Sd/-

(SUCHITRA KAMBLE) (PRASHANT MAHARISHI)

JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 31/08/2020