Case Law Details
Quantum Real Est & Prop Dev India Pvt. Ltd. Vs ACIT (ITAT Mumbai)
The Mumbai ITAT upheld reopening and addition of ₹50 lakh towards accrued interest income, holding that an assessee following the mercantile system of accounting cannot defer taxation merely because the amount was actually received in a later year. The Tribunal noted that the assessee was entitled to receive ₹1 crore interest income during AY 2007-08 but had offered only ₹50 lakh in that year and disclosed the balance ₹50 lakh in AY 2009-10 upon actual receipt.
The assessee argued that due to ongoing legal proceedings, the balance amount could not be offered earlier and that taxing the same in AY 2007-08 would amount to double taxation since it was already offered in AY 2009-10. However, the Tribunal observed that the assessee failed to produce any corroborative evidence showing that accrual itself was postponed due to litigation or any legal impediment.
The ITAT approved the earlier appellate direction that the entire ₹1 crore ought to have been assessed in AY 2007-08 on accrual basis, while simultaneously directing the AO to verify and rectify AY 2009-10 to avoid double taxation of the same income.
On reopening, the Tribunal rejected the assessee’s “change of opinion” argument and held that the issue of accrued income was never examined in the original scrutiny assessment. The reopening was triggered based on tangible material emerging during remand proceedings for AY 2009-10 and therefore was legally valid.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The captioned appeal is preferred by the assessee, directed against the order of Commissioner of Income Tax Appeals/ National Faceless Appeal Centre (NFAC), Delhi [in short, “the Ld. CIT(A)”] dated 29.09.2025, for the assessment year (AY) 2007-08, arises from assessment order u/s 147 r.w.s. 144 of the Income Tax Act, 1961 (“the Act”), dated 24.02.2016 passed by ACIT – 11(1)(1), Mumbai (in short, “ the Ld. AO”). The grounds of appeal are as under:
“1. The Learned Commissioner of Income Tax (Appeals) Income tax Dept., National Faceless Appeal Centre (hereinafter referred to as the CIT(A)-NFAC) erred in upholding the reopening of assessment made by the Assessing Officer (AO) u/s. 147 of the Income Tax Act, 1961.
Your appellant submits that on the facts and circumstances of the case and in law, reopening of the assessment u/s. 148 of the Act is bad in law, not justified and the Assessment Order passed u/s. 144 r.w.s. 147ought to be set-aside.
2. The Ld. CIT(A)-NFACerred in upholding the addition of Rs.50,00,000/- made by the AO, on account of alleged Interest Income assessed at Rs.1croreon accrual basis, as against Interest Income declared at Rs.50,00,000/-, in Return of Income filed for said asst. year.
Your appellant submits that due to the ongoing legal proceedings the balance amount of Rs.50,00,000/- as interest income could not be offered to tax in A. Y.2007-08 and instead an amount of Rs.65,00,000/-has been offered for tax in A.Y.2009-10, when it was actually received.
Your appellant submits that, on the facts and circumstances of the case and in law, the said addition made of Rs.50,00,000/- is unjustified, bad-in-law and ought to be deleted.”
2. The sole controversy in the present case is with regard to offering of accrued interest income amounting to Rs. 50,00,000/- for tax in the relevant assessment year 2007-08. However, the same has been contented to be declared as income and offered for tax by the assessee, subsequently in AY 2009-10. The Ld. AO has made disallowance for not declaring the accrued income by the assessee, which is upheld by the Ld. CIT(A) on law as well as on merits, under the following observations:
“5. Decision
I have carefully perused grounds of appeal, statement of facts, assessment order, submissions made by the Appellant and other details/evidences on records.
5.1.Ground 1
Vide this Ground, the Appellant has challenged the re-assessment proceedings as being bad in law since it was reopened merely the basis of ‘on change of opinion’. No fresh material was on records for the purpose of reopening. The AO had examined the issue in the original assessment proceedings and noadverse inference was drawn. Thus, reopening has been done on mere ‘change of opinion’. The reassessment proceeding is, therefore, bad in law. In support of the contention, the Appellant has placed reliance on various case laws.
5.1.1. I have considered the submissions made by the Appellant. However, I do not agree with the same. The Appellant has not furnished any documents to show that the AO had examined the issue of taxability of ‘Interest income’ on accrual basis. In the original assessment proceedings, the AO has simply accepted the retum filed by the Appellant. Thus, the AO did not form any opinion on the taxability of interest income following mercantile system of accounting, which has been adopted by the Appellant for the relevant year. Thus, when the AO did not form any opinion on the issue on hand, the question of any ‘change of opinion’ does not arise. It is a settled issue that for ‘change of opinion’, it is essential that the AO has formed an opinion in the original assessment proceedings. The AO was in possession of information that the Appellant was due to receive Rs. 1,00,00,000/- from Mr AL Prasad during the relevant year. However, the Appellant offered only Rs.50,00,000/- in the return filed for AY 2007-08. Thus, the AO formed a reasonable belief that the income to the extent of Rs.50,00,000/- has escaped assessment and, therefore, proceeded to reopen the assessment, following due procedures as laid down under the law. Thus, I hold that the assessment has been validly reopened. Ground is, thus, dismissed.
5.2. Ground 2
Vide this ground, the Appellant has objected to the addition of Rs.50,00,000/-. In this regard, the Appellant has made a detailed submission which has been reproduced at para 4 above.
5.2.1. I have considered the submission made by the Appellant. I do not agree with the same. It is an undisputed fact that the Appellant follows mercantile system of accounting. It is also an undisputed fact that interest of Rs 1,00,00,000/- was due to him during the relevant year from Mr AL Prasad. The Appellant, however, offered to tax only Rs.50,00,000/- which was actually received by him. The balance amount of Rs.50,00,000/- was not offered to tax in AY 2007-08. This is not in accordance with mercantile system of accounting. Thus, I hold that the AO has correctly taxed the remaining amount of Rs.50,00,000/- in AY 2007-08, on accrual basis. Ground is, thus, dismissed.”
3. Before us, Ld. AR representing the assessee came up with two-fold contentions. First, that the present assessment was completed u/s 147 r.w.s 143(3), whereas the scrutiny assessment of the assessee was earlier completed u/s 143(3) and the issue has been examined by the Ld. AO. Therefore, there was a change of opinion on the part of AO, which cannot be a basis for reopening assessment u/s 147 of Act, since it is not permissible as per settled principle of law. Reliance has been placed on the decision of Commissioner of Income-tax vs. Kelvinator of India Limited (2010) 187 Taxman 312 SC. The second contention of the Ld. AR was that the assessee had already declared the alleged income in assessment year 2009-10, which is duly examined by the Ld. CIT(A) in the appellate order for assessment year 2009-10, the same cannot be taxed twice. The findings of Ld. CIT(A) in 2009-10 are brought to our knowledge, which being relevant in the present case are reproduced as under:
“From the perusal of the submissions and facts of the case mentioned in the remand report it is an undisputed issue that the assessee is following mercantile system of accounting and has to account for the income on accrual basis. Again, it is an undisputed issue that as per the mortgage deed the appellant has to receive Rs.1 crore interest income in the A.Y.2007-08. The AO has mentioned that the assessee has shown Rs.50 lacs in the A.Y.2007-08 and the balance of Rs.50 lacs was not shown till A.Y.2009-10. Therefore, it has deferred the tax instance on this arnount. Thus, the AO has requested that necessary direction may be given to assess the amount of Rs.50 lac in Α.Υ.2007-08. On the comments of the assessing officer the AR of the appellant has submitted that the entire interest income has been declared in A. Y.2007-08 and A.Y.2009-10 therefore, no addition should be made. From the facts of the case, it is clear and there is no ambiguity that the assessee has to show entire interest income in A.Y.2007-08 but it has declared Rs.50 lacs which means that it has deferred tax liability. In view of these facts, I agree with the comments of the AO that the entire Income of Rs. 1 crore should have been assessed in A. Y.2007-08 only. Since the AO has verified that Rs.50 lac has already been assessed in A.Y.2007-08 therefore, she is directed to assess the remaining amount of Rs.50 lacs of interest income on, accrual basis in A.Y.2007-08 by taking necessary action u/s 147/148 of the I.T. Act. The AO is also directed to verify and rectify if the assessee has declared Rs.50 lac inA.Y.2009-10 because same income cannot be taxed twice. The AO is directed accordingly The ground of appeal is partly allowed.”
4. While the appeal for assessment year 2009-10 was disposed by the Ld. CIT(A), it was directed assessee Rs. 1.00 Crore in AY 2007-08 and to verify and rectify income of AY 2009-10 reducing it by Rs. 50.00 Lac, so as to avoid double taxation of same income. Consequently, the ld. AO had passed the impugned order u/s 147 r.w.s.144 dated 24.02.2026 making addition of Rs. 50.00 Lac for AY 2007-08, following the findings of Ld. CIT(A). During the assessment proceedings the assessee was provided with the opportunities to clarify the issues, as to why such income should not be added in AY 2007-08 in light of the observations of CIT(A) for Y 2009-10, but the assessee failed to furnish any reply / explanation before the ld. AO, thus the assessment was completed u/s 144 of the Act.
5. Before us, it is submitted by Ld. AR that, once the income was offered for tax by the assessee, the same cannot be taxed twice. It was again submitted that instead of taxing the amount in assessment year 2007-08 and allowing credit in assessment yea 2009-10, the income as offered by the assessee in assessment year 2009-10, due to some legal proceedings, shall be treated for the income of 2009-10 only, the addition made by Ld. AO in assessment year 2007-08 shall be deleted.
6. Per contra, Ld. Sr. DR vehemently supported the orders of revenue authorities.
7. We have considered the rival submissions, perused the material available on record. Admittedly, the finding of ld. CIT(A) for AY 2009-10 had attained finality, once the assessee chooses not to explain the reasons for not considering the accrued income in AY 2007-08. The assessee, rather, never rebutted on this aspect before the revenue authorities below, nor was able to substantiate by way of any corroborative evidence to prove that such income was not accrued in AY 2007-08 on account of any litigation between the parties or for any cogent reason for which it is received in 2009-10 and taxed therein. We find substance and justification in the decision of Ld. CIT(A) in the appellate order for 2009-10, directing the AO to add the income on accrued basis in AY 2007-08 and to verify and rectify the income for AY 2009-10, if the same is declared therein, as it cannot be taxed twice. We too approve the said view which was adopted by the AO in order impugned before us. We, thus, in terms of above discussion find substance in the decision of Ld. CIT(A)in impugned order for AY 2007-08 dated 29.09.2025 on merits, as the assessee was unable to dislodge the opinion of revenue, that while the assessee is following mercantile method of accounting why the amount accrued in year under consideration was not taken into income to offer it for tax. Ground no 2 of the appeal of assessee thus fails, being unsupported with any corroborative evidence to disregard the accrual of income in the relevant year.
Regarding change of opinion, we agree with the finding of Ld. CIT(A) that the issue of accrued income was never examined by the AO in original assessment, thus the question of ‘change of opinion’ does not arise. Before us the Ld. AR has furnished the copy of original assessment u/s 143(3) dated 31.12.2009, wherein the ld. AO had noted about the compensation of Rs. 50 Lac but had not whispered qua the remaining accrued income of Rs. 50 Lac, there is no finding on the issue neither there was any query or submission of the assessee in original assessment, which has been brought on record to substantiate the contention to support change of opinion aspect. In present case the reopening took place consequent to the remand proceedings for AY 2009-10 and the information revealed therein had created a ‘live link’ and ‘tangible material’ to come to the conclusion that there is escapement of income from assessment in AY 2007-08. The reliance of assessee on CIT Vs. Kelvinator of India Ltd.(supra), thus also would not be of help in the present case, as it was not a reopening merely based on change of opinion. Ground of appeal no 1 thus also stands rejected.
In result the appeal of assessee stands dismissed, in above terms.
Order pronounced in the open court on 15-05-2026.
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