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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
PER MAHAVIR PRASAD, JUDICIAL MEMBER
This appeal filed by the Assessee is directed against the order of the Ld. CIT(A)-I, Baroda dated 02.05.2014 pertaining to A.Y. 2008-09 and following grounds have been taken:
ITA No . 2203/Ahd/2014 2 . A.Y. 2008-09 1] The order passed b the Hon. CIT(A) is bad-in-law, contrary to legal pronouncement and same be quashed. 2] The Hon. CIT(A) has erred in holding that the Id. AO has validly reopened the case of the Appellant for the year under appeal u/s. 147 of the IT. Act, 1961. 3] Your appellant's submits that the Hon. CIT(A) has failed to appreciate the facts submitted during the course of hearing and also not considering various decisions more particularly the decision of Delhi High Court in the case of CIT Vs. Usha International Ltd. 348 ITR 485 (FB) wherein, the Hon. Delhi High Court clearly held that if an issue or query is raised and answered by the assessee in original assessment proceedings the reassessment will be invalid. Further it is submitted the Id. CIT(A) ought to have considered that the issue had been raised in the original assessment proceedings and had been answered by the Appellant and hence, reassessment in invalid. 4] The Hon. CIT(A) has erred in confirming addition on account of write back of loan of Rs.4,94,32,000/- as income liable to tax. It is respectfully submitted that the waiver of loan is not liable to tax as the same is capital receipts. It is further submitted that the Id. CIT(A) ought to have followed the decision of jurisdictional high court of Gujarat in the case of Chetan Chemicals Pvt. 267 ITR 770 Your appellant's submits that when the loan liability is written back on account of OTS the same is capital receipt not liable to tax.
The facts of the case are as emanates from the order of the ld. CIT(A). "In this case, assessment u/s 143(3) was completed on 20.12.2010 determining total income at (-) Rs.7,77, 32, 375/-. 2. Subsequently, it was noticed that the income chargeable to tax had escaped assessment, therefore, after recording reasons for reopening the assessment u/s. 147 of the IT Act, a notice u/s. 148 was issued on 26.03.2012 and was served upon the assessee by Speed Post requiring the assessee to deliver the return of income within 30 days. In response to notice u/s. 148 of IT Act, the assessee company did not file any return of income. Thereafter, a notice u/s 142(1), notice u/s 143(2) r,w.s 147 of IT Act, show cause notice & copy of reason recorded for the reopening the assessment was issued on 21.11.2012. In response to the said notices, Shri K.D. Shah, Tax advocate & authorized representative of the assessee company attended filed its reply objecting the validity of notice u/s 148 of IT 'Act. An order of disposing off the objection filed by the assessee was passed on 03.12.2012 and served upon the assessee.
ITA No . 2203/Ahd/2014 3 . A.Y. 2008-09 Thereafter the assessee company further submitted a letter dated 10.12.2012 wherein the company again filed objection. The reply is also considered hereunder as well as earlier submission for finalizing the assessment order. 3. Waiver of Principal Amount During the year the assessee company had shown Rs.494.26 lacs In the balance sheet as capita/ reserve. It was the principal amount waived by the Oriental Bank of Commerce as OTS. The assessee company was requested vide this office letter dated 20.11.2012 to explain as to why the same income should not be treated as income from other sources. The reply of the assessee company is reproduced hereunder: “Company has applied for OTS proposal with Oriental Bank of Commerce (OBC) on 13th June, 2008 and OBC has sanctioned OTS against the principal and interest amount outstanding as on 31st March, 2008. As per the OTS sanctioned letter, the OTS amount has to be paid within 30 days from the date of OTS sanctioned letter the OTS amount has to be paid with 30 days from the date of OTS sanctioned letter. The principal amount outstanding in books as on 31st March, 2008 is Rs.1338.2O lakhs and interest outstanding is Rs.21S.30 lakhs. The relief sanctioned under OTS scheme is Rs.494.26 lakhs against the principal outstanding of Rs.1338.20 lakhs and Rs.21S.30 lakhs against interest sanctioned in Principal amount of Rs.494.26 lakhs as capital Reserve and the relief in interest of Rs.215.30 lakhs has been written back, since the relief sanctioned were against the outstanding as on 31st March,2008. The OTS conditions are still to be complied with. However company is confident of complying with the condition laid down in OTS. Your honour will see that interest waived has already been offered for taxation. But as stated in the note the principal amount cannot be treated as deemed to accrue or arise and cannot be taxed as income. Thus basically the amount in question is Capital Receipt, the same cannot be treated as income for even deeming purposes. Your kind attention is also invited to bur letter dt. 04.12.10 with regard to query raised during the course of the assessment proceedings. In the said letter, all the information regarding OTS, and the waiver of Principal and interest has been furnished, and hence reopening of assessment now would amount to change of opinion.
ITA No . 2203/Ahd/2014 4 . A.Y. 2008-09 It is submitted that in the following cases, it has been clearly held that except for the interest, the principal amount remitted is not taxable. I CIT vs. Phoolchand Jivram(1961) 131ITR 37(Delhi) II Chetan Chemicals Ltd. 267 ITR 770(Guj)(Jursidictional High Court) III CIT vs Toosha International Ltd. (2009) 176 Taxman 187(Delhi) IV Mahindra & Mahindra Ltd vs CIT (2003) 231 ITR 501(Bombay)” The submission of the assessee company has been perused but not found to be acceptable. The aforementioned amount was principal amount waived by the Oriental Bank of Commerce as One Time Settlement of dues. Further, the amount waived was principal amount of loan taken in the past which was utilized for the purpose of acquiring fixed assets as well as working capital. Loan was waived as one time settlement and it cannot be reduced from actual cost of fixed assets. The interest on working capital will always be allowable as revenue expenditure and any receipt on account of this by way of remission will also be a revenue receipt only. Hence, in view of the 'provision of section 5, all income from whatever source received or is deemed to be received or accrues or deemed to accrue during the year is to be included in the total income. Further, decisions cited by the assessee are not applicable as the facts and the circumstance of the cases are different from that of assessee Company. Since, the same receipt is revenue; therefore, the objection is not found to be tenable. Therefore, principal amount waived of amounting to Rs.494.23 lacs shown as capital reserve is added back to the total income as income from other sources."
Thereafter, assessee preferred first statutory appeal before the ld. CIT(A) who confirmed the action of the ld. A.O.
We have gone through the relevant record and impugned order. In this case, assessee -company had shown Rs. 494.26 lakhs in the balance sheet as Capital Reserve. As it was principal amount waived by the Oriental Bank of Commerce as One Time Settlement of dues and assessee treated the principal amount waived as Capital Reserve and stated that loan taken in the past was utilized for the purpose of acquiring fixed assets as well as working capital and loan waived
ITA No . 2203/Ahd/2014 5 . A.Y. 2008-09 as per One Time Settlement cannot be reduced from actual cost of fixed assets. The amount of Rs. 494.26 lakhs was required to be included in the total income as it was deemed to be required or accrued were liable to Income Tax under provisions of section 5. As such principal amount waived of Rs. 494.26 lakhs shown as Capital Reserve was required to be taxed as “Income from other sources”. And on the basis of above said, ld. A.O issued notice alleging escapement of assessment within the meaning of section 147.
On the other hand, assessee’s contention was that in original assessment u/s. 143(3), assessee has satisfactorily given all explanation to the best of the knowledge and to the satisfaction of the ld. A.O. As we can see, ld. A.O. issued a notice for re-opening of the assessment and in reply to that, assessee submitted detailed reply dated 04.12.2010 and same is part of paper book at page no. 35 and assessee in its original assessment u/s. 143(3) has given all the details such as balance sheet computation of income explaining all the details pertaining to one time scheme of Rs. 494.26 lakhs.
In support of its contention, assessee cited an order of Co-ordinate Bench in ITA No. 778/Ahd/2016 for assessment year 2008-09 titled as Smt. Nivvaniben D. Sandesara vs. ITO wherein Co-ordinate Bench has held as under:- 7. We have heard the rival contentions and perused the materials available on record. In the instant case, the assessee has challenged the reassessment proceedings framed u/s 147 of the Act on the ground that the AO has formed his reason to believe from the same set of documents which are available at the time of original assessment proceedings. As per the ld. AR the reassessment proceedings on the same set of documents available at the time of original assessment u/s 143(3) cannot be relied. However, the Revenue authorities disregarded the contention of the assessee and held that the reassessment proceedings u/s 147 of the Act as valid and in accordance with law.
From the above facts, we find that the AO at the time of original assessment has duly verified the Capital gain and related exemption u/s 54F /54EC as
ITA No . 2203/Ahd/2014 6 . A.Y. 2008-09 claimed by the assessee. The submission of assessee clearly shows that the exemption under section 54F/ 54EC was allowed after due verification. In this regard, we disagree with the view taken by the ld. CIT(A) as detailed under:
That no submission was made by the assessee in respect of exemption u/s 54F/54EC of the Act during the original assessment proceedings. 2. That no query in this regard was raised by the AO in the questionnaire annexed to notice u/s 142(1) of the IT Act. 3. There was no discussion on the issue of capital gain at the time of original assessment proceeding u/s 143(3) of the Act.
From preceding discussion, we note that the relevant data/information was available before the AO at the time of assessment and it was duly verified. Thus, it can be inferred that the AO in the original assessment proceedings has not consciously made the disallowance of exemption. Thus, in our considered view, the initiation of proceedings u/s 147 of the Act on the same set of documents is nothing but a mere change of opinion. In this regard, we find support and guidance from the judgments of the Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. Reported in 320 ITR 561 (SC) wherein it has been held as under:-
"The concept of "change of opinion" on the part of the Assessing Officer to reopen an assessment does not stand obliterated after the substitution of section 147 of the Income-tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. The concept of ((change of opinion "must be treated as an in- built test to check the abuse of power. Hence after April 1, 1989, the Assessing Officer has power to reopen an assessment, provided there is ((tangible material" to come to the conclusion that there was ent income from assessment. Reason must have a link with the formation of the belief"
Further, reliance is also placed on the following judgments wherein it is repeatedly held that re-opening of assessment on mere change of opinion is not sustainable:
ITA No . 2203/Ahd/2014 7 . A.Y. 2008-09 (1) M.J. Pharmaceuticals Ltd vs. CIT (2008) 297 ITR 119 (Bom) (the Assessment Year 2003- 2004), in this case, the Hon'ble High Court observed as under: "Issue regarding addition of amount of deferred taxation for computing book profits u/s. 115JB having been raised by the AO at the time of original assessment u/s. 143(3) and no addition having been made by AO on the account on being satisfied with the explanation of the assessee reopening of assessment on the very same issue suffered from change of opinion in the absence of any fresh material hence invalid." (2) D. T. & T. D. C. Ltd. vs. CIT (2010) 324 ITR 234 (Del.), in the said case, it was held as under: "The assessing officer has been given power to reassess under section 147 upon certain conditions being satisfied, and the assessing officer does not have power to review. If such a change of opinion were to be permitted as a ground of reassessment then it would amount to granting a licence to the assessing officer to review his decision, which he does not have under the provision of section 147." (3) Asteroids Trading & Investment P. Ltd. vs. DClT (2009) 308 lTR 190 (Bom), in the said case, it was held that since no new ITA No.778/Ahd/2016 Smt Nivvaniben D. Sandesara vs. ITO Asst.Year -2008- 09- 10 - material brought on record, reassessment on change of opinion of an officer not valid. (4) Asian Paints Ltd. vs. DCIT (2008) 308 ITR 195 (Bom), in this case, the Hon'ble High Court observed that mere change of opinion of A.O. not ground for reassessment. (5) ICICI Prudential Life Insurance Co. Ltd. (2010) 325 ITR 471 (Bom), in the said case, the Hon'ble Bombay High Court held that re-opening of assessment on the same ground in the absence of any tangible material was based on the mere change of opinion and therefore is not sustainable.
9.1 Based on the ratio of judgment decided in the aforesaid cases, it follows that no valid proceeding u/s.147 could be initiated even within a period of four years on mere change of opinion, if all material facts had been disclosed by the assessee, and the AO had complete knowledge of all such materials and further, the assessment had also been completed after taking into consideration all such material facts.
ITA No . 2203/Ahd/2014 8 . A.Y. 2008-09 10. Therefore, in this case of assessee, following the above judgements the conclusion can be drawn that in the absence of new information or detail being available to the AO, after completion of the original assessment u/s.l43(3) of the Act, proceedings initiated u/s.l47 of the Act for the relevant assessment year is not valid.
It is clear in the present case of the assessee that the "reason to believe" is based on non existing material and therefore in the absence of tangible material to reach a reasonable belief that the income liable to tax has escaped assessment, the entire proceeding initiated u/s.147 of the Act is liable to be quashed. Reference in this connection is invited to the decision of the Hon'ble Bombay High Court in the case of CIT vs. Amitabh Bachchan, ITA No.4646 of 2010 wherein it was held as under: "The assessee had made a claim for 30% adhoc expenditure. This was withdrawn by the assessee when asked by the AO to substantiate. The reopening on the basis that the said adhoc expenditure constituted "unexplained expenditure" u/s 69 was based on the same material. There was no fresh tangible material before the AO to reach a reasonable belief that the income liable to tax has escaped assessment. It is a settled position of law that review under the garb of reassessment is not permissible."
Again, at this juncture attention is invited to the recent decision of the Hon'ble Delhi High Court in the case of PR. Commissioner of Income-tax v. Tupperware India (P.) Ltd. reported in [2016] 236 Taxman 494, wherein the Court while observing that the expression "reason to believe" cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1), held as under:
"The reopening order of the Assessing Officer only refers to the report of statutory auditor under section 44AB which report was already enclosed with the return filed by the assessee. Therefore, factually, there was no new material that the Assessing Officer came across so as to have treasons to believe that the income had escaped assessment."
In view of the above decisions, we note here that the assessee's case is on a much better footing than the above-said cases. Since in the case of the assessee the assessment was originally completed u/s 143(3) of the Act and complete
ITA No . 2203/Ahd/2014 9 . A.Y. 2008-09 details of the capital gain income & its exemption were already filed before the AO at the time of completion of assessment u/s 143(3) of the Act.
In view of the above, we quash the proceeding u/s 147 of the Act. As the issue has been decided by us on the technical ground, we refrain our-self from adjudicating the issue on merit. The appeal of the assessee is allowed.
In the result, appeal of the assessee is allowed.
Since assessee in its assessment u/s. 143(3) had satisfactorily given all the reply to the queries raised by the ld. A.O. with regard to One Time Settlement of Rs. 494.26 lakhs and same were duly accepted by the ld. A.O. In our considered opinion, change of opinion by the ld. A.O. is not permissible in the eyes of law. Therefore, in parity with the above said Co-ordinate Bench order, we allow the appeal of the assessee. Since on technical ground appeal has been allowed, therefore, we do not want to go into the merit of the case.
In the result, appeal filed by the Assessee is allowed.
Order pronounced in Open Court on 30 - 05- 2019 Sd/- Sd/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad: Dated 30/05/2019 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER
Deputy/Asstt.Registrar ITAT,Ahmedabad