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III. Useful Case Laws:
1. Inductotherm (India) Pvt. Ltd. Vs. DY. CIT, Special Civil Application No. 858 of 2006, Dated: 06/08/2012, High court of Gujarat
Issue:
When return accepted u/s 143(1) without scrutiny, whether notice issued for reopening assessment u/s 147 in absence of “tangible material” is valid?
Held:
Even in a case where only a section 143(1) intimation is passed, the power to reopen can be exercised only where there is “reason to believe that income has escaped assessment” and not merely to “scrutinize” the return or “verify” the expenditure. Further, even in case of reopening of an assessment which was previously accepted u/s 143(1) without scrutiny, the AO would have power to reopen the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. Such reason to believe need not necessarily be a firm final decision of the AO. This safeguard is necessary to prevent arbitrary exercise of powers u/s 147 to circumvent the scrutiny proceedings which could not be framed in view of notice u/s 143(2) having become time barred. On facts, in respect of two issues, the AO reopened the assessment to verify the claims. For mere verification of the claim, power of reopening of assessment cannot be exercised. The AO in the guise of power to reopen an assessment cannot seek to undertake fishing or roving inquiry and seek to verify the claims as if it were a scrutiny assessment.
(Please click here for judgment)
2. NTPC SAIL Power Co. Pvt. Ltd. Vs. CIT, ITA No. 1238/2011, Decided on: 17.07.2012, High court of Delhi
Interest received which was linked with setting up power plan was capital receipt not revenue receipt.
The proviso to s. 36(1)(iii) enacts that any amount of the interest paid towards (“in respect of”) capital borrowed for acquisition of an asset or for extension of existing business regardless of its capitalization in the books or otherwise, “for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use” would not qualify as deduction, in all these cases, when the interest was received by the assessee towards interest paid for fixed deposits when the borrowed funds could not be immediately put to use for the purpose for which they were taken, the Courts held that if the receipt is “inextricably linked” to the setting up of the project, it would be capital receipt not liable to tax but ultimately be used to reduce the cost of the project. By the same logic, in the present case too, the funds invested by the assessee and the interest earned were inextricably linked with the setting up of the power plant and, therefore, the interest earned on fixed deposit of amounts borrowed cannot be treated as a revenue receipt.
(Please click here for judgment)
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