By TIOL News Service

MUMBAI, JULY 16, 2014: THE issues before the Bench are - Whether facts related to AY 2005-06 were already known to the Revenue when it was only during the assessment proceedings of AY 2009-10 it was revealed that interest expenditure on which deduction was claimed u/s 57 was infact related to home loan; whether the theory of consistency can be applied, when each assessment is a separate assessment unit; whether the obligation of the assessee to comply with the provisions of the Income Tax Act have to be complied with in each AY and whether when the assessee may be able to satisfy the AO that reopening of the assessment was not justified, the assessment cannot be reopened, although the reasons recorded do indicate that there was prima facie evidence to form a reasonable belief of income escaping assessment. And the verdict goes against the assessee.

Facts of the case

The assessee had claimed deduction u/s 57 as "Interest paid to HDFC" as Rs.53,65,251/- for the AY 2005-06. The AO reopened the assessment for this AY on the ground that such interest was paid on home loan and so no deduction should have been allowed u/s 57. The AO recorded in the reasons for reopening of assessment as that during AY 2009-10, various loan documents, including loan application from the assessee and sanction letter by the HDFC Ltd., was called for. From these, it was observed that the assessee had taken this loan in FY 2002-03, but that this loan was a Home Loan (under Adjusted Rate Home Loan Scheme- ARHL) taken for the purpose of purchasing a residential property. The AO further observed in the reasons that certificate obtained from HDFC stated that the assessee was granted a Housing Loan of Rs.7,00,00,000 @ 8.25% per annum in respect of the property at Nariman Point, Bombay. Later on it was observed by the AO that the assessee had not disclosed this property as assets in his balance sheet. The AO observed that in the loan application form, the assessee had ticked the check boxes indicating "Home Loan (ARHL)" in "Type of Loan" segment and "Purchase" in "Purpose of Loan" segment. The AO observed that deduction u/s 57 was not applicable as this deduction was allowable only for deduction for expenses in earning "Income from other sources". The AO observed that the interest expense borne by the assessee was interest paid on a Housing Loan to HDFC Ltd., for which deduction was available u/s 24(b) for earning "Income from House Property". The AO also disallowed deduction u/s 24(b) as the loan availed was not used for purchasing residential property. The AO proceeded to reopen the assessment which had been challenged by the assessee through this writ petition before the High Court.

The counsel of the assessee submitted that the AO had proceeded to reopen the assessment beyond a period of four years from the end of the relevant AY and therefore, the AO assumed no valid jurisdiction u/s 147. It was submitted that all facts were known to the Revenue and there was no failure to disclose truly and fully all material facts on the part of the assessee in the first place. On merits, it was submitted that the deduction allowed u/s 57 as to arrive at compute the income under the head income from other sources was appropriate in law.  

Having heard the parties, the High Court held that,

++ On perusal of the reasons we find that the reasons for reopening very categorically state that it is only during the assessment proceeding for Assessment Year 2009-10 that various documents including the loan application and sanction letter of HDFC Limited were called for. It is on receipt of the same, the assessing officer realized that loan which was taken for the purposes of residential property was utilized to purchase debentures. Mr. Andhyarujina, Senior Counsel for the assessee in support of his contention that reassessment notice is not referring to any fresh material but referring to material already disclosed during the original assessment places reliance upon the decision of the Delhi High Court in CIT vs. Atul Kumar Swami. The aforesaid decision to our mind is completely distinguishable from the present facts for the reason that in the notice u/s.148 of the Act issued in the case of Atul Kumar Swami did not disclose any fresh material warranting reopening of assessment. In the present case the grounds for reopening specifically point out that fresh material was received by the Assessing Officer during the course of assessment proceeding for A.Y. 2009-10. Therefore, from the above facts, it prima facie appears that the assessing officer on the basis of the information obtained during the assessment proceeding for A.Y. 2009-10 came to the reasonable belief that income chargeable to tax has escaped assessment;

++ So far as the other objection viz. theory of consistency is concerned, we are of the view that each assessment is a separate assessment for an assessment year. The obligation of the assessee to comply with the provisions of the Act have to be complied with in each assessment year. Each assessment year is separate and distinct and the assessee is assessed to tax on the basis of the facts as existing therein. The principle of res-judicata would not strictly apply in tax matters. However, it may be open to an assessee in a given case to satisfy the authorities that facts are so identical in the earlier years and subsequent years assessments and decision is taken therein on consideration of the facts are such that the Revenue is obliged to follow the same. This would, if at all, be a matter to be considered by the assessing officer and it is not to be examined in a proceeding challenging the jurisdiction to issue a notice. This is particularly so when the revenue is pointing out features which would possibly militate against taking the above view. In any case the assessment proceeding for the earlier years i.e. 2003-04 and 2004-05 are concerned, Mr. Suresh Kumar invited our attention to letters addressed to the assessing officer during those assessment proceedings wherein the petitioner had pointed out that he had taken loan from HDFC and in support produced the bank statement and not HDFC Certificate stating that the loan from HDFC was for housing purposes. Nor any statement was made that the loan from  HDFC Ltd.   for housing purpose was utilized for debenture purchases. In any case, this issue whether or not the information disclosed during the earlier or subsequent assessment year is sufficient to attribute a forming of an opinion on the part of the assessing officer is best to be considered during the reassessment proceedings. At this stage, we see no reason to interfere with the impugned notice as the reasons for reopening referred to material obtained during the assessment proceedings for A.Y. 2009-10;

++ The reasons for reopening indicate prima facie that the interest deduction claimed under the head "income from other sources" could not have been claimed as the loan was obtained for the purpose of residential property and the claim for interest under Section-24 of the Act could not be granted as no property was purchased from the loan taken. Thus, it cannot be said at this stage that there was no reason to believe in the mind of the assessing officer that income chargeable to tax has escaped assessment for the purpose of issuing the impugned notice dated 29 February 2012;

++ It is likely that the petitioner may have complete answer to all the issues raised in the reopening notice. The petitioner may be able to satisfy the assessing officer that reopening of the assessment was not justified in law in the present facts. However, the reasons as recorded by the assessing officer do indicate that there was prima facie evidence before the assessing officer to form a reasonable belief that income chargeable to tax for A.Y.2005-06 is escaped assessment. We are not inclined to entertain the present petition.

(See 2014-TIOL-1125-HC-MUM-IT)