The Assessee filed a return of income declaring a loss. The learned Assessing Officer (“Ld. AO”) completed the assessment proceedings under section 143(3) of the Income Tax Act (‘the Act’) and made a disallowance under section 14A of the Act. Aggrieved, the Assessee filed an appeal before the Hon’ble CIT (A), which was pending for adjudication.

Subsequently, the Ld. AO initiated Reassessment proceedings and issued notice under section 148 of the Act, alleging that the Assessee had given loans and advances to related parties against which no interest income was offered and claimed finance cost as interest on borrowed funds. The Ld. AO held that the proportionate interest expenses were not allowable expenses under section 36(1)(iii) of the Act.  Aggrieved, the Assessee filed a Writ Petition before the Hon’ble High Court against the Reassessment proceedings.

The Hon’ble High Court observed that the Reassessment is on the basis of materials which were already available with the Ld. AO, in finalising the assessment proceedings under section 143(3) of the Act. The Ld. AO has acted on a complete change of opinion on the same material and / or intending to have a review of the Assessment Order which was not permissible under law. On both the counts namely on failure of the Ld. AO in adhering to the mandate as contained in the first proviso to section 147 of the Act and on exceeding his jurisdiction as conferred by the said provision by forming an opinion on the same material, which was available with him in the course of assessment proceedings, was wholly an impermissible exercise of jurisdiction, to issue the notice and thereby reopening was quashed.(AY. 2013-14)