Income Tax Appellate Tribunal - Pune
Deputy Commissioner Of Income-Tax, ... vs Sharada Erectors Private Limited, Pune on 24 March, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI R. K. PANDA, VICE PRESIDENT
AND
SHRI VINAY BHAMORE, JUDICIAL MEMBER
ITA No.2899/PUN/2025
Assessment year : 2017-18
DCIT, Circle - 5, Pune Sharada Erectors Private Limited
Vs. 11/1, Sharada Centre, Karve Road,
Pune - 411004
PAN: AACCS6028D
(Appellant) (Respondent)
Assessee by : Shri Nikhil S Pathak
Department by : Shri Amit Bobde, CIT
Date of hearing : 12-03-2026
Date of pronouncement : 24-03-2026
ORDER
PER R.K. PANDA, VP:
This appeal filed by the Revenue is directed against the order dated
02.09.2025 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2017-18.
2. Facts of the case, in brief, are that the assessee is a company and engaged in the business of generation of electricity by non-conventional renewable source by the use of wind turbine generators. It is also engaged in the business of commercial complexes and development of properties. It filed its return of income on 07.02.2018 declaring total income of Rs.1,62,41,910/-. The Assessing Officer completed the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') on 26.12.2019 determining the total income of the assessee at Rs.3,16,65,076/- by making the following additions / disallowances: 2 ITA No.2899/PUN/2025
a) disallowance of expenses u/s 14A Rs.1,87,988/- b) disallowance of payment u/s 36(1)(va) Rs.1,60,493/- c) disallowance of interest u/s 36(1)(iii) Rs.1,50,49,685/- d) disallowance u/s 40A(3) Rs.25,000/-
3. Subsequently the Revenue Audit Party (RAP) raised certain objections the gist of which is as under:
3ITA No.2899/PUN/2025
4. The Assessing Officer after analysis of the objections raised by the Revenue Audit Party held that the proportionate interest expenses of Rs.6,60,53,791/- cannot be allowed as deduction as per provisions of section 36(1)(iii) of the Act. He, therefore, issued a show cause notice u/s 148A(b) of the Act on 12.01.2024 asking the assessee to explain as to why the addition based on the above audit objection should not be made. The assessee submitted that in earlier assessment years additions on similar issue have been made which have been deleted in the appellate stage. Further, there were no fresh advances during the current financial year. It was submitted that the objections raised by the audit party on the computation done by the Assessing Officer was also incorrect since the amounts included in the diverted funds as well the average rate of interest used for calculating the proposed disallowance are not correct.
5. However, the Assessing Officer was not satisfied with the submissions made by the assessee and passed an order u/s 148A(d) of the Act on 15.02.2024. The Assessing Officer thereafter issued notice u/s 148 of the Act dated 27.02.2024 in response to which the assessee filed its return of income on 12.03.2024 declaring total income at Rs.1,62,41,910/-. The Assessing Officer thereafter issued statutory notices u/s 143(2) and 142(1) of the Act. The assessee in response to the same filed various details from time to time.
6. During the course of assessment proceedings the Assessing Officer noted that the assessee had given loans and advances to the companies in which director 4 ITA No.2899/PUN/2025 is a member or director for Rs.6,86,68,274/-, loans to firm where director is a partner for Rs.13,04,58,656/-, advance for purchase of property (Others) for Rs.62,11,34,176/- and advance for purchase of property (Directors) for Rs.5,23,76,000/-. He observed that the assessee has shown average long term borrowings for Rs.66,60,30,472/- and average short term borrowings for Rs.40,38,34,921/- totaling to Rs.1,06,98,65,393/- in its balance sheet. Therefore, the assessee has utilized borrowed funds for other than business purposes. He, therefore, issued a show cause notice asking the assessee to explain as to why the balance interest expenses of Rs.6,60,53,791/- utilized for other than business purposes should not be disallowed as per provisions of section 36(1)(iii) of the Act.
7. The assessee in response to the same submitted that the entire loans and advances are not free of interest rather the assessee has earned interest of Rs.3,28,83,638/- from Modern Reality Private Limited, Rs.1,02,26,666/- from Sheth Capital Services Pvt Ltd, Rs.12,64,978/- from S.A. Trafin Pvt Ltd, Rs.6,06,171/- from Prashasti Properties Pvt Ltd and Rs.3,92,296/- from Mega Venture Developers Pvt Ltd. Thus, the assessee has earned interest of Rs.4,53,73,749/- from the related parties. After considering the interest on loans and advances of Rs.41 crores on which the assessee has received interest, the balance amount remains Rs.46 crores (approx.) which is far less than the own capital, free reserves and other non-interest bearing funds available with the assessee. Relying on the decision of Hon'ble Bombay High Court in assessee's own case for assessment year 2005-06 the assessee submitted that the Hon'ble 5 ITA No.2899/PUN/2025 High Court has dismissed the appeal filed by the Revenue against the order of the Tribunal. The Tribunal in the said order has placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd reported in 313 ITR 340 (Bom) where it has been held that where interest free funds available with the assessee are sufficient to meet its investments then it shall be presumed that the investments have been made from the interest free funds available and not out of borrowed funds.
8. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He noted that the loans and advances given to different parties for Rs.62,11,34,176/- and to the directors of Rs.5,23,76,000/- are not meant for business purposes. Since the assessee could not demonstrate that the loans / advances made are having direct nexus with the business purpose and the same has been given from interest bearing funds, he, therefore, computed the proportionate disallowance at Rs.6,60,53,791/-
9. Before the Ld. CIT(A) / NFAC, the assessee apart from challenging the addition on merit, challenged the validity of re-assessment proceedings. Based on the arguments advanced by the assessee the Ld. CIT(A) / NFAC quashed the re- assessment proceedings as well as deleted the addition on merit. So far as the re- assessment proceedings are concerned, he noted that the Assessing Officer in the original assessment order passed u/s 143(3) dated 26.12.2019 has made addition of Rs.1,50,49,685/- by invoking the provisions of section 36(1)(iii) of the Act on 6 ITA No.2899/PUN/2025 interest free loans / advances of Rs.19,91,26,930.45 to the concerns in which the assessee is a partner and to concerns in which directors are interested. During those proceedings the assessee, in response to the Assessing Officer's notice u/s 142(1) of the Act dated 03.12.2019, had filed detailed submissions vide letter dated 14.12.2019 on the issue of loans / advances which formed the basis of the Assessing Officer's proposed disallowance u/s 36(1)(iii) of the Act. The assessee has furnished complete details of loans / advances which included loans / advances to firms and companies in which the director was a partner or member / director as well as advances to concerns in which the company was a partner / shareholder and in which the director was interested. The assessee had furnished the details of total interest free funds available amounting to Rs.62,55,64,453/- out of which net interest free loans / advances of Rs.32,46,58,497/- were made. The Assessing Officer after considering the details, had made disallowance of Rs.1,50,49,685/- by invoking the provisions of section 36(1)(iii) of the Act in respect of interest free loans / advances of Rs.19,91,26,930.45 given to the concerns in which the assessee was a partner and to the concerns in which the directors of the assessee company had an interest. Thus, the Assessing Officer had specifically called for, examined and considered these details during the original assessment proceedings before making the aforesaid disallowance. Further, similar disallowances u/s 36(1)(iii) of the Act have been made in assessee's own case right from assessment year 2000- 01 to 2017-18 and in all these years the Ld. CIT(A) / NFAC has consistently deleted such disallowances. He observed that the Tribunal in assessee's own case for assessment year 2004-05 and 2005-06 vide a consolidated order dated 7 ITA No.2899/PUN/2025 25.06.2013 has deleted the disallowance. Similarly for assessment years 2010-11 and 2011-12 also the Tribunal vide order dated 08.06.2022 and for assessment year 2013-14 vide order dated 06.04.2022 has deleted the part disallowance made by the Assessing Officer. He noted that the Hon'ble Bombay High Court in assessee's own case for assessment years 2004-05 and 2005-06 has upheld the decision of the Tribunal in deleting the disallowance made by the Assessing Officer. In view of the above, he held that the reopening of assessment by issue of notice u/s 148 of the Act seeking once again to disallow the interest u/s 36(1)(iii) of the Act on loans/advances that were duly examined in the original assessment u/s 143(3) dated 26.12.2019 amounts to mere change of opinion or review of the concluded assessment which is impermissible in law. Relying on the decision of Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd reported (2010) 187 Taxman 312 (SC), the decision of Hon'ble Bombay High Court in the case of M/s. Hexaware Technologies Ltd. vs. ACIT reported in (2024) 162 taxmann.com 225 (Bom), the decision of Hon'ble Bombay High Court in the case of M/s. Aroni Commercials Ltd vs. DCIT reported in (2014) 44 taxmann.com 304 (Bom) and in the case of M/s. Siemens Financial Services Pvt Ltd vs. DCIT reported in (2023) 154 taxmann.com 159 (Bom) held that the reopening of the assessment for assessment year 2017-18 by issue of notice u/s 148 of the Act dated 27.02.2024 seeking to once again disallow interest u/s 36(1)(iii) of the Act on loans/advances already examined in the original assessment u/s 143(3) of the Act dated 26.12.2019 constitutes a mere change of opinion and review of the concluded assessment which is not permissible in law. He accordingly held that 8 ITA No.2899/PUN/2025 the notice u/s 148 of the Act dated 27.02.2024 is invalid, without jurisdiction and liable to be quashed.
10. So far as the merit of the case is concerned, the Ld. CIT(A) / NFAC also allowed the grounds raised by the assessee holding that similar disallowance has been made in the case of the assessee since 2001-02 and consistently they have been deleted by the CIT(A). The Tribunal in assessee's own case has upheld the order of the CIT(A) and the appeal filed by the Revenue against the decision of the Tribunal has been dismissed by the Hon'ble High Court. The Ld. CIT(A) / NFAC reproduced the chart from assessment year 2006-07 to 2017-18 where similar disallowance of interest u/s 36(1)(iii) of the Act on advances to the concerns in which the directors of the assessee company are interested which is as under: 9 ITA No.2899/PUN/2025
11. He noted that the assessee is having interest free funds to the tune of Rs.95,14,94,550.31, the details of which are as under:
10ITA No.2899/PUN/2025
12. He noted that the loans / advances which the Assessing Officer has considered for disallowance of interest were to the tune of Rs.87,26,37,106/-. He referred to the decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utility & Power Ltd (supra) and the decision of Hon'ble Supreme Court in the case of S.A. Builders Ltd vs. CIT reported in (2007) 288 ITR 1 (SC) and held that if there are funds available both interest free and overdraft and / or loans taken, then a presumption would arise that the investments would be out of interest free fund generated or available with the company if the interest free funds were sufficient to meet the investments. Since in the instant case the assessee has established that the interest free funds were sufficient to meet the investments, therefore, following the decision in the case of CIT vs. M/s. Reliance Utilities & Power Ltd (supra), he held that a presumption would arise that investments would be out of the interest free funds, therefore, there is no justification in disallowing a part of the interest paid by invoking provisions u/s 36(1)(iii). He, accordingly, deleted the addition on merit.
13. Aggrieved with such order of the Ld. CIT(A) / NFAC the Revenue is in appeal before the Tribunal by raising the following grounds:
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding the reassessment proceedings initiated u/s 147 as invalid and quashing the notice u/s 148 dated 27.02.2024 by wrongly relying upon the judgment of Hon'ble Bombay High Court In Hexaware Technologies Ltd. (2024) 468 ITR 561 (Bom), whereas the said judgment is wholly distinguishable since it dealt only with procedural defects (limitation, absence of DIN, jurisdiction of officer and validity of approval), none of which are present in the instant case.11 ITA No.2899/PUN/2025
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the reopening was based on specific "Information" in the form of a Revenue Audit Objection within the meaning of Explanation 1 to section 148 of the Act, pointing out that the original assessment was not made in accordance with the provisions of the Act; hence the issue of "change of opinion" is wholly irrelevant and the decisions in Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) and Aroni Commercials Ltd. (2014) 362 ITR 403 (Bom) have no application in the instant case.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) grossly erred in deleting the disallowance of ₹6,60,53,791/- made u/s 36(1)(iii) of the Act by mechanically applying the decision of Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd.
(2009) 313 ITR 340 (Bom) without examining whether own interest-free funds were actually available in A.Y. 2017-18 for making interest-free advances.
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that share capital and reserves of earlier years stood fully utilised for fixed assets and other business purposes as on the opening of A.Y. 2017-18 and cannot be presumed to be perpetually available for giving interest-free advances in subsequent years; in the absence of any commercial expediency and in the presence of huge interest-bearing borrowings, proportionate disallowance of interest was rightly made by the Assessing Officer.
5. The appellant craves leave to add, amend and alter any of the above grounds of appeal.
14. The Ld. DR heavily relied on the order of the Assessing Officer. He submitted that the principle of res judicata does not apply to the income tax proceedings as every assessment year is separate and distinct. Since the Assessing Officer in the instant case has given justifiable reasons while disallowing the part of interest expenditure by invoking the provisions of section 36(1)(iii), therefore, the same should be upheld and the grounds raised by the Revenue be allowed.
15. The Ld. Counsel for the assessee on the other hand heavily relied on the order of the Ld. CIT(A) / NFAC. He submitted that since assessment year 2003-04 12 ITA No.2899/PUN/2025 onwards the assessee had given advances to the sister concerns as well as non- related concerns. The Assessing Officer was consistently disallowing the proportionate interest on loans and advances given to the sister concerns. Referring to pages 1 to 49 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the audited accounts of the assessee for the impugned assessment year. Referring to page 13 of the paper book, he drew the attention of the Bench to the share capital of Rs.20.30 crores and Reserves and surplus of Rs.16,46,34,144.31. Referring to page 25 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the Note A-17 which gives the details of short term loans and advances, the details of which are as under:
16. Referring to pages 151 to 164 of the paper book, he drew the attention of the Bench to the reply given by the assessee to the Assessing Officer vide letter dated 21.06.2024. Referring to pages 165 to 170 of the paper book, he drew the attention of the Bench to the reply given to the Assessing Officer vide letter dated 02.07.2024. Referring to pages 171 to 178 of the paper book, he drew the attention of the Bench to the copy of reply dated 21.11.2024 wherein the assessee had given 13 ITA No.2899/PUN/2025 the details of loans and advances on which the assessee has earned interest of Rs.4,53,73,749/- on advances given to certain parties amounting to Rs.41 crores on which the assessee has charged interest. Referring to pages 242 to 243 of the paper book, he drew the attention of the Bench to the query raised by the Assessing Officer during the course of original assessment proceedings. Referring to pages 244 to 254 of the paper book, he drew the attention of the Bench to the reply dated 03.12.2016 given to the Assessing Officer. He submitted that the Assessing Officer after considering the various replies given by the assessee from time to time during the original assessment proceedings had disallowed an amount of Rs.1,50,49,685/- only. Therefore, again issuing notice u/s 148 of the Act on the very same issue when full details were given by the assessee during the course of original assessment proceedings amounts to mere change of opinion and therefore, the re-assessment proceedings initiated by the Assessing Officer have rightly been quashed by the Ld. CIT(A) / NFAC.
17. Referring to the ground of appeal No.1 raised by the Revenue, he submitted that the ground so raised by the Revenue is mis-conceived. Referring to the decision of Hon'ble Bombay High Court in the case of M/s. Hexaware Technologies Ltd. vs. ACIT (supra), he drew the attention of the Bench to the observations of the Hon'ble High Court where it has specifically been held that an assessment cannot be reopened on mere change of opinion. The Assessing Officer had no powers to review his own assessment when the information was provided and considered by him during the original assessment proceedings. Referring to 14 ITA No.2899/PUN/2025 the decision of Hon'ble Bombay High Court in the case of Siemens Financial Services (P.) Ltd. vs. DCIT (supra), the Ld. Counsel for the assessee submitted that the Hon'ble High Court in the said decision has held that where the assessee claimed expenses of software consumables and submitted a detailed break-up of said expenses during course of assessment proceedings and the Assessing Officer after considering said submissions passed assessment order, the Assessing Officer would not have any power to review his own assessment order and reopen assessment on ground that software consumables were capital expenditure.
18. Referring to the decision of Hon'ble Bombay High Court in the case of Shri Dilip Laximan Powar vs. ITO reported in (2025) 474 ITR 72 (Bom), he submitted that the Hon'ble High Court in the said decision has quashed the re-assessment proceedings where the Assessing Officer reopened the assessment subsequent to assessment framed under section 143(3) on basis of audit objection that assessee had cash balance of certain amount as on 8-11-2016; whereas he had deposited much more cash in specified bank notes during demonetization period. The Assessing Officer issued a notice under section 148A(b) stating that income chargeable to tax for assessment year 2017-18 had escaped assessment. The Hon'ble High Court held that since in scrutiny assessment issue of deposit of specified bank notes by assessee had been examined by Assessing Officer and same objection was now raised by audit party, therefore, the audit objection would come within fold of change of opinion.
15ITA No.2899/PUN/2025
19. Referring to the decision of the Pune Bench of the Tribunal in the case of Om Shriniwas Developers vs. ITO reported in (2025) 177 taxmann.com 610 (Pune-Trib.), he submitted that in that case where the Assessing Officer issued reopening notice on ground that the assessee had sold flats below market rate and, thus, provisions of section 43CA were attracted, the Tribunal held that since reopening notice was issued based on documents which were submitted by assessee during original assessment proceedings and the Assessing Officer had not brought on record any new facts, therefore reopening notice was nothing but a change of opinion which was not permissible.
20. He accordingly submitted that the order of the Ld. CIT(A) / NFAC quashing the re-assessment proceedings are in accordance with law and therefore, the ground raised by the Revenue on this issue is liable to be quashed.
21. So far as the merit of the case is concerned, he submitted that out of total loans and advances of around Rs.87 crores, the assessee has charged interest on the amount of Rs.41 crores and on the balance amount of Rs.46 crores on which the assessee has not charged any interest, the same is less than the amount of own capital and free reserves and other non-interest bearing funds available with the assessee. Referring to page 241 of the paper book he drew the attention of the Bench to the following table and submitted that the assessee has own capital, free reserves and non-interest bearing funds to the tune of Rs.75,67,70,169/- which is 16 ITA No.2899/PUN/2025 far more than the amount of interest free loans and advances given to the related parties:
22. Referring to the decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd (supra) he submitted that the Hon'ble High Court has held that where interest free funds available with the assessee are sufficient to meet its investments then it shall be presumed that the investments have been made from the interest free funds available and not out of borrowed funds and therefore, no disallowance u/s 36(1)(iii) of the Act is called for. He accordingly submitted that since the Ld. CIT(A) / NFAC while deciding the issue has followed the decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd (supra), therefore, the same being in accordance with law, the grounds raised by the Revenue on merit also should be dismissed.
23. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the original assessment order passed u/s 143(3) on 26.12.2019 had determined the total income of the assessee at Rs.3,16,65,076/- as against the returned income of Rs.1,62,41,910/- wherein apart 17 ITA No.2899/PUN/2025 from other additions, he made disallowance of Rs.1,50,49,685/- u/s 36(1)(iii) of the Act. We find the Revenue Audit Party raised an objection that the assessee had diverted its interest bearing funds to certain related concerns and the directors without charging any interest. According to the RAP such interest at 16.06% on borrowed funds utilized for other than business purpose amounting to Rs.50,50,02,962/- comes to Rs.8,11,03,476/-. Since the Assessing Officer had already disallowed an amount of Rs.1,50,49,685/-, therefore, the balance interest expenses of Rs.6,60,53,791/- needs to be disallowed. Based on the above objection of the Audit Party, the Assessing Officer issued a show cause notice u/s 148A(b) of the Act asking the assessee to explain as to why the addition based on the above audit objection should not be made. Rejecting the various explanations given by the assessee, the Assessing Officer passed the order u/s 148A(d) of the Act and thereafter issued a notice u/s 148 of the Act on 27.02.2024. During the course of assessment proceedings despite the assessee stating that the assessee has earned interest of Rs.4,53,73,749/- on loans and advances of Rs.41 crores given to various parties and related concerns and that the balance loans and advances which are given free of interest does not exceed the capital, free reserves and other non- interest bearing funds available with the assessee for which no disallowance is called for, the Assessing Officer rejected the same and disallowed interest expenditure of Rs.6,60,53,791/-.
24. We find before the Ld. CIT(A) / NFAC, the assessee apart from challenging the addition on merit, challenged the validity of the re-assessment proceedings on 18 ITA No.2899/PUN/2025 the ground that the assessee during the course of original assessment proceedings had given full details based on which the Assessing Officer had passed the order u/s 143(3) of the Act disallowing the interest expenditure of Rs.1,50,49,685/- u/s 36(1)(iii) of the Act. Therefore, issue of notice u/s 148 of the Act on the very same issue to disallow further interest u/s 36(1)(iii) of the Act amounts to change of opinion and therefore, the re-assessment proceedings are invalid. Even on merit also it was argued that the own capital, free reserves and non-interest bearing funds far exceeds the loans and advances given to the directors and other related concerns.
25. We find based on the above arguments advanced by the assessee, the Ld. CIT(A) / NFAC quashed the re-assessment proceedings and also deleted the addition on merit. We do not find any infirmity in the order of the Ld. CIT(A) / NFAC on this issue. We find the Ld. CIT(A) / NFAC while quashing the re- assessment proceedings had given a finding that the Assessing Officer in the original assessment order passed u/s 143(3) on 26.12.2019 has made addition of Rs.1,50,49,685/- by invoking the provisions of section 36(1)(iii) of the Act on interest free loans / advances of Rs.19,91,26,930.45 to the concerns in which the assessee is a partner and to the concerns in which the directors are interested. During those proceedings the assessee, in response to the notice u/s 142(1) of the Act dated 03.12.2019 of the Assessing Officer had filed detailed submissions giving details of total interest free funds available amounting to Rs.62.56 crores out of which net interest free loans / advances of Rs.32.47 crores were made. After 19 ITA No.2899/PUN/2025 considering the various details filed by the assessee the Assessing Officer had made the disallowance of Rs.1,50,49,685/- by invoking the provisions of section 36(1)(iii) of the Act in respect of interest free loans and advances of Rs.19.91 crores. He had also given a finding that similar disallowances u/s 36(1)(iii) of the Act have been made in assessee's own case right from assessment year 2000-01 to 2017-18 and in all these years the Ld. CIT(A) / NFAC has consistently deleted such disallowances. Further the Tribunal in assessee's own case has dismissed the appeal filed by the Revenue and on further appeal the Hon'ble High Court also dismissed the appeal filed by the Revenue. Thus, he has given a finding that the reopening of assessment by issue of notice u/s 148 of the Act seeking once again to disallow the interest u/s 36(1)(iii) of the Act on loans/advances that were duly examined in the original assessment u/s 143(3) amounts to mere change of opinion or review of the concluded assessment which is impermissible in law. The Ld. DR could not controvert the above factual findings given by the Ld. CIT(A) / NFAC.
26. We find the Hon'ble Hon'ble Bombay High Court in the case of Hexaware Technologies Ltd. vs. ACIT (supra) while quashing the re-assessment proceedings has held that there cannot be reopening of assessment based on change of opinion. It has been held that the Assessing Officer does not have any power to review his own assessment when the assessee had provided all the relevant details and which were considered by him before passing the assessment order u/s 143(3) of the Act. The relevant observations of the Hon'ble High Court read as under:
"42. As regards issue no.6, respondent no.1 has no power to review his own assessment when the same information was provided and considered by him 20 ITA No.2899/PUN/2025 during the original assessment proceedings. We agree with petitioner that there cannot be a reopening based on a change of opinion. The claim of deduction under Section 80JJAA of the Act was made by petitioner in the return of income and petitioner had filed Form 10DA being the report of the Chartered Accountant. In the said Form, a note has been filed alongwith Form 10DA and it has specifically been submitted by petitioner that software development activity constitutes 'manufacture/ production of article or thing'. The claim of deduction under Section 80JJAA of the Act was also disclosed in the Tax Audit Report filed by petitioner alongwith the return of income. Further, during the assessment proceedings, the Assessing Officer had issued a notice dated 5th October 2017 asking for details of deduction claimed under Chapter VI of the Act. Petitioner vide a letter dated 13th November 2017 gave the details of deduction claimed under Chapter VI of the Act alongwith supporting documents. The Assessing Officer has passed the assessment order dated 30th November, 2017 allowing the claim of deduction under Section 80JJAA of the Act. The claim for deduction under Section 80JJAA of the Act was allowed by the Assessing Officer in the previous years as well. Hence, the present case is clearly a case of change of opinion or review of the original assessment order which is not permissible even under the new provisions.
43 In Siemens Financial Services (P.) Ltd. (Supra) in paragraphs 35 to 39 the Court held as under:
35. During the course of assessment proceedings, notice had been issued to petitioner. In reply to the notice under Section 143(2), petitioner had by its letter dated 6 th December 2018 recorded, "......... based upon our discussion during the course of the hearing ..................". The transaction wise summary of the software consumable was made available. This was considered during the assessment proceedings and the assessment order accepting revised return came to be passed.
36. We would agree with the submissions of Mr. Pardiwalla that if change of opinion concept is given a go by, that would result in giving arbitrary powers to the Assessing Officer to reopen the assessments. It would in effect be giving power to review which he does not possess. The Assessing Officer has only power to reassess not to review. If the concept of change of opinion is removed as contended on behalf of the Revenue, then in the garb of re-opening the assessment, review would take place. The concept of change of opinion is an in-built test to check abuse of power by the Assessing Officer. As held in Dr. Mathew Cherian (Supra), whether under old or new regime of reassessment, it is settled position that the issues decided categorically should not be revisited in the guise of reassessment.
That would include issues where query have been raised during the assessment and query have been answered and accepted by the Assessing Officer while passing the assessment order. As held in Aroni Commercials (supra) even if assessment order has not specifically dealt with that issue, once the query is raised it is deemed to have been considered and the explanation accepted by the Assessing officer. It is not necessary that an assessment order should contain reference and/or discussion to disclose his satisfaction in respect of the query raised. 21 ITA No.2899/PUN/2025
37. The Assessing Officer does not have any power to review his own assessment when during the original assessment petitioner provided all the relevant information which was considered by him before passing the assessment order under section 143(3) of the Act dated 23rd December 2018. Petitioner had debited an amount of Rs.6,41,87,931/- on account of software consumables in the profit and loss account and a detailed break- up of the said expenses were submitted before the Assessing Officer during the course of assessment proceedings vide a letter dated 6th December 2018. It is settled law that proceedings under section 148 cannot be initiated to review the earlier stand adopted by the Assessing Officer. The Assessing Officer cannot initiate reassessment proceedings to have a relook at the documents that were filed and considered by him in the original assessment proceedings as the power to reassess cannot be exercised to review an assessment. In petitioner's case the Assessing Officer having allowed the amount of software consumables as a revenue expenditure now seeks to treat the same as capital expenditure which is a clear change of opinion. Various judicial precedents have held that reassessment proceedings initiated on the basis of a mere change of opinion are invalid and without jurisdiction.
38. The Apex Court in Kelvinator of India Ltd.(Supra) emphasised on the difference between a power to review and the power to reassess. The Apex Court held that the Assessing Officer has no power to review but has only the power to reassess. The concept of 'change of opinion' must be treated as an in-built test to check abuse of power by the Assessing Officer. The relevant extract of the judgment is reproduced as under :-
".......However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to re- assess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4- 1989, Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987 , Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression 22 ITA No.2899/PUN/2025 and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer............."
39. The Delhi High Court in Seema Gupta v. ITO held that the order under section 148A(d) and notice under section 148 of the Act should be set aside when the reassessment was initiated on a change of opinion where the same was discussed and verified by the Assessing Officer at the time of original assessment proceedings.
43.1 Therefore, the concept of change of opinion being an in-built test to check abuse of power by the Assessing Officer and the Assessing Officer having allowed the claim of deduction under Section 80JJAA of the Act in the assessment order dated 13th November 2017, now to disallow the same is based on a clear change of opinion. Reassessment proceedings initiated on the basis of a mere change of opinion is invalid and without jurisdiction. On this ground also the impugned notice issued under Section 148 of the Act has to be quashed and set aside."
27. Therefore, the first ground raised by the Revenue that the Ld. CIT(A) / NFAC has wrongly relied upon the decision of Hon'ble Bombay High Court in the case of M/s. Hexaware Technologies Ltd. vs. ACIT (supra) which deals only with the procedural defect (limitation, absence of DIN, jurisdiction of officer and validity of approval) is incorrect and without going through the entire judgment the Revenue has taken a ground which is liable to be quashed. Hence, ground of appeal No.1 by the Revenue is dismissed.
28. We find Hon'ble Bombay High Court in the case of Shri Dilip Laximan Powar vs. ITO (supra) has held that where the Assessing Officer in the scrutiny assessment proceedings has considered the issue of deposit of specified bank notes by the assessee and after examination of the same has passed the order the objection would come within fold of change of opinion. Thus, the re-assessment notice was not valid. The relevant observations of the Hon'ble High Court read as 23 ITA No.2899/PUN/2025 under:
24ITA No.2899/PUN/2025
29. We find Hon'ble Bombay High Court in the case of M/s. Siemens Financial Services Pvt Ltd vs. DCIT (supra) has held that where the assessee claimed expenses of software consumables and submitted a detailed break-up of said expenses during course of assessment proceedings and the Assessing Officer after considering said submissions passed assessment order, the Assessing Officer would not have any power to review his own assessment order and reopen assessment on ground that software consumables were capital expenditure. The relevant observations of the Hon'ble High Court read as under: 25 ITA No.2899/PUN/2025 26 ITA No.2899/PUN/2025 27 ITA No.2899/PUN/2025
30. We find the Co-ordinate Bench of the Tribunal in the case of Om Shriniwas Developers vs. ITO (supra) has held that where the Assessing Officer issued reopening notice on ground that the assessee had sold flats below market rate and, thus, provisions of section 43CA were attracted and since reopening notice was issued based on documents which were submitted by assessee during original assessment proceedings and the Assessing Officer had not brought on record any new facts, therefore reopening notice was nothing but a change of opinion which was not permissible. The relevant observations of the Tribunal read as under: 28 ITA No.2899/PUN/2025 29 ITA No.2899/PUN/2025
31. Since in the instant case also the Assessing Officer in the original assessment proceedings had called for various details from the assessee which were duly submitted by the assessee and after considering such details given by the assessee the Assessing Officer had disallowed interest expenses of Rs.1,50,49,685/- by invoking the provisions of section 36(1)(iii) of the Act, therefore, based on the same set of facts reopening of assessment on the basis of audit objection for disallowing of interest u/s 36(1)(iii) is nothing but change of opinion and such notice issued u/s 148 is not valid and is liable to be quashed.
32. Since the Ld. CIT(A) / NFAC while deciding the issue has followed various decisions which are in consonance with law, therefore, in absence of any contrary material brought to our notice by the Ld. DR, the order of the Ld. CIT(A)/ NFAC quashing the re-assessment proceedings does not call for any interference from our side. The grounds raised by the Revenue on the issue of reopening are accordingly dismissed.
33. Even on merit also, we do not find any infirmity in the order of the Ld. CIT(A) / NFAC. We find the Ld. CIT(A) / NFAC while deleting the addition has recorded a finding that the Assessing Officer since assessment year 2001-02 onwards is disallowing such interest which has been consistently deleted by the Ld. CIT(A) / NFAC and on appeal by the Revenue the Tribunal has dismissed the appeals. When the Revenue for assessment years 2004-05 and 2005-06 challenged the decision of the Tribunal before the Hon'ble High Court, the Hon'ble High 30 ITA No.2899/PUN/2025 Court dismissed the appeal filed by the Revenue. Further, he has also given a finding that the assessee is having interest free funds to the tune of Rs.95.15 crores and after considering the loans and advances given to various parties on which the assessee has earned interest, such non-interest bearing funds advanced to various parties free of interest is less than its own capital, free reserves and other non- interest bearing funds available with the assessee.
34. We find Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd (supra) has held that where interest free funds available with the assessee are sufficient to meet its investments then it shall be presumed that the investments have been made from the interest free funds available and not out of borrowed funds. The relevant observations of the Hon'ble High Court read as under:
"16. If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds avail-able. In our opinion, the Supreme Court in East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627 had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. [1982] 134 ITR 219 where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but con-sidering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcombers of India Ltd.'s case [1982] 134 ITR 219 the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle, therefore, would be that if there are funds available both interest-free and over draft and/or loans taken, then a 31 ITA No.2899/PUN/2025 presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments In this case this presumption is established considering the finding of fact both by the Commissioner of Income-tax (Appeals) and the Income- tax Appellate Tribunal."
35. Since the own capital, free reserves and non-interest bearing funds available with the assessee are far more than the interest free loans and advances given to the directors and sister concerns, therefore, in view of the decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd (supra), no disallowance is called for. Since the Ld. CIT(A) / NFAC has followed the said decision while deleting the disallowance, therefore, in absence of any distinguishable features brought before us by the Ld. DR, we do not find any infirmity in the order of the Ld. CIT(A) / NFAC deleting the addition / disallowance on merit. Accordingly, the grounds raised by the Revenue on this issue are also dismissed.
36. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 24th March, 2026.
Sd/- Sd/-
(VINAY BHAMORE) (R. K. PANDA)
JUDICIAL MEMBER VICE PRESIDENT
पुणे Pune; दिन ां क Dated : 24th March, 2026
GCVSR
Gajjala Chinna Digitally signed by
Gajjala Chinna Venkata
Venkata Subba Subba Reddy
Date: 2026.03.24
Reddy 17:20:10 +05'30'
32
ITA No.2899/PUN/2025
आदे श की प्रतितिति अग्रे तिि/Copy of the Order is forwarded to:
1. अपील र्थी / The Appellant;
2. प्रत्यर्थी / The Respondent
3. The concerned Pr.CIT, Pune
4. DR, ITAT, 'B' Bench, Pune
5. ग र्ड फ ईल / Guard file.
आदे शानुसार/ BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune S.No. Details Date Initials Designation 1 Draft dictated on 12.03.2026 Sr. PS/PS 2 Draft placed before author 13.03.2026 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS Date on which the file goes to the Office 9 Superintendent 10 Date on which file goes to the A.R. 11 Date of Dispatch of order