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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI INTURI RAMA RAO
Date of hearing : 09.01.2018 Date of Pronouncement : 06.04.2018 O R D E R
Per Sunil Kumar Yadav, Judicial Member
This appeal is preferred by the assessee against the order of the CIT(Appeals) inter alia on the following grounds:-
“1. The order of the CIT (A) in so far as it is against the appellant is opposed to law, equity, and weight of evidence, probabilities, facts and circumstances of the case.
2. The appellant denies himself to be liable to be assessed to a total income of over and above the returned income of Rs. 1,87,770/- under the facts and circumstances of the case.
The learned CIT(A) was not justified in not adjudicating the legal grounds raised on the reopening of the assessment on the facts and circumstances of the case.
The learned CIT(A) was not justified in not noticing that the order of assessment passed under section 143(3) read with section 147 of the Act is bad in law since the mandatory conditions as envisaged in the Act to assume jurisdiction did not exist or having not been complied with and consequently, the reassessment ought to have been cancelled under the facts and circumstances of the case.
The appellant urges that the notice issued under section 148 is bad in law and without jurisdiction and consequently the entire assessment is required to be cancelled on the facts and circumstances of the case. 6. Whether the learned CIT (A) was justified in ignoring the fact that there was no cessation of liability of the amounts of Rs. 1,86,14,426/ - due, during the AY 2011-12, under the facts and circumstances of the case. 7. Whether the learned CIT(A) was not justified in ignoring the fact that the parties were in dispute and had exchanged legal notices and there was no cessation of liability in the true sense, on the facts and circumstances of the case. 8. The assessment is further bad in law as the data collected has not been given to the appellant and there is a violation of the principles of natural justice. 9. Without prejudice and not conceding that there was a cessation of liability in the AY 2011-12, the appellant has credited his profit and loss account in the AY 2015-16 and the said amounts have been offered as income, and hence the addition of Rs.1,86,14,426/ - in the impugned assessment year requires to be deleted. 10. Without prejudice, the AO/CIT (A) failed to appreciate that the amount pertains to prior to 31/03/2011 and this can never be added for the impugned assessment year on the facts and circumstances of the case. 11. The appellant denies the liability to pay interest under section 234B and 234C of the Act in view of the fact that there is no liability to additional tax as determined by the learned assessing officer. Without prejudice the rate, period and on what quantum the interest has been levied are not discernable from the order and hence deserves to be cancelled on the facts and circumstances of the case.
12. The appellant craves leave to add, alter, modify, delete or substitute any or all of the grounds and to file a paper book at the time of hearing the appeal.
13. In view of the above and other grounds that may be taken at the time of the hearing the appeal, the appellant prays that the appeal be allowed in the interest of justice and equity.”
During the course of hearing, the ld. Counsel for the assessee has also moved an application dated 28.10.2017 for admission of the following additional grounds:-
“1. Whether the order passed under section 143(3) r.w.s 147 of the Act, without disposing the objections to the reopening by passing a speaking order, was bad in law as the conditions stipulated in GKN Driveshafts (India) Ltd. vis D.C.I.T. (2003) 259 ITR 19 (SC) has not been adhered to and the order is required to be set aside as non est on the facts and circumstances of the case. 2. The Appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal
3. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered.”
3. Besides, the assessee has also moved one more application for admission of the grounds which are as under:-
“1. The authorities below were not justified in not reducing the brought forward loss for the previous years in computing the income of the appellant for the impugned assessment year, on the facts and circumstances of the case.
2. The Appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal
3. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered.”
4. The additional grounds raised vide application dated 28.10.2017 relate to the non-disposal of the objections raised by the assessee against the reopening of the assessment by the AO. Having carefully examined the orders of the lower authorities, we find that the assessee has never raised any objection in writing before the AO which requires proper adjudication. In the absence of any specific objection in writing, the AO is not required to adjudicate any such type of objection, if raised orally. More over, admission of these grounds requires verification of facts. This ground was not raised either before the CIT(Appeals) or before the Tribunal while filing the appeal. Under these circumstances, we find no merit in the admission of this additional ground.
5. So far as additional ground raised through application dated 15.12.2017 is concerned, we find that the ground raised in this application was also never raised either before the AO or before the CIT(Appeals). Adjudication of this ground also requires verification of facts, therefore, at this stage verification of new facts is not possible as it was not subject matter of dispute before the AO. Accordingly, we reject admission of this application for admission of additional ground.
6. Now we are left with only grounds raised and grounds No.1 & 3 are general in nature and needs no independent adjudication.
7. Ground Nos.4 & 5 relate to the validity of assessment framed u/s. 147 of the Act. The ld. Counsel for the assessee has contended that since the mandatory condition as envisaged in the Act to assume jurisdiction under the Act did not exist or having not been complied with, reassessment framed is not sustainable in the eyes of law.
8. We have carefully examined the orders of the authorities below in this regard and we find that assessment was initially framed u/s. 143(1) of the Act. Later on the AO noticed that assessee has shown a credit balance of Rs.1,86,14,426 in the name of M/s. Mahindra & Mahindra in his books of account as reflected in the balance sheet and its annexure. It has surfaced during the course of scrutiny proceedings for the AY 2012-13 in the books of M/s. Mahindra & Mahindra that debtor has written off the corresponding debit balance in its books of account as on 31.3.2011 itself. Therefore, on the basis of these facts, the AO has properly formed a belief that income chargeable to tax has escaped assessment. In the light of these facts, we do not agree with the contentions of the assessee that no material was available before the AO to form a belief that income chargeable to tax has escaped assessment. More over, no regular assessment was framed u/s. 143(3) of the Act. Therefore, there is no proper application of mind of the AO as the return filed was processed u/s. 143(1) of the Act. Therefore, we find no merit in these grounds of the assessee and accordingly we reject the same.
9. So far as ground Nos. 6 to 10 are concerned, we find that these grounds relate to the issue of cessation of liability u/s. 41(1) of the Act. The facts borne out from the record are that assessee has shown an amount of Rs.1,86,14,426 as credit balance in the account of M/s. Mahindra & Mahindra as on 31.3.2011. It was not disputed that the amount represented trading liability which was allowed as expenditure in the earlier years. It was also not disputed that the creditor M/s. Mahindra & Mahindra had written off the corresponding debit balance in its books of account as on 31.3.2011. The assessee’s contention that unilateral writing off of debt by M/s. Mahindra & Mahindra does not warrant treating the same as income u/s. 41(1) of the Act. In support of his contention, reliance was placed upon the judgment of the Hon’ble Apex court in the case of CIT v. Sugauli Sugar Works (P) Ltd. (236 ITR 518)(SC) and CIT v. Shri Vardhman Overseas Ltd. [2011] 116 taxman.com 353 (Del). Being not convinced with the contentions of the assessee, the AO has held that on account of writing off the liability in the books of account of M/s. Mahindra & Mahindra, the liability in the books of the assessee ceased to exist. Accordingly the AO assessed it as income of the assessee u/s. 41(1) of the Act.
10. The assessee preferred appeal before the CIT(Appeals) and reiterated its contentions. The ld. Counsel for the assessee has contended that if any credit is written off in the books of account of the creditor unilaterally and the debtor is not informed of the same, can it be claimed as income in the hands of the debtor u/s. 41(1) of the Act. It was further contended that revenue has not placed any evidence on record to establish that assessee was duly informed about the writing off of the debt in the books of accounts of the creditor.
The ld. DR, on the other hand, has contended that the AO was informed by M/s. Mahindra & Mahindra vide its letter dated 24.03.2015 that they have written off the entire outstanding balance of Rs.3,08,03,419.13 in the books of account during the year ended 31.3.2011. But there is no movement of corresponding entries in the books of account of the assessee. The ld. DR further invited our attention that there was dispute between the assessee and M/s. Mahindra & Mahindra with regard to credit balance payable to M/s. Mahindra & Mahindra. The ld. DR also invited our attention to the reply to the legal notice dated 31.12.2008 by the assessee which is available at pages 41 to 46 of the compilation and one more reply by the assessee to the notice dated 24.02.2009 in which the assessee has disputed the liability raised by M/s. Mahindra & Mahindra. All of a sudden when the entire amount was written off, some negotiation or understanding must have been developed between the assessee and M/s. Mahindra & Mahindra on the basis of which the entire amount was written off. In this situation, the assessee cannot claim that he was not aware of the writing off of the entire liability in the books of account of M/s. Mahindra & Mahindra. Therefore, the CIT(Appeals) has rightly adjudicated the issue in the light of the above facts and circumstances of the case.
Having heard the rival submissions and from a careful perusal of the record, we find that undisputedly M/s. Mahindra & Mahindra has written off the corresponding debit balance in its books of account. In the reply dated 24.03.2015 of M/s. Mahindra & Mahindra, it is clearly stated that outstanding balance of Rs.3,08,03,419.13 has been written off in their books of account during the period ended 31.3.2011. Therefore, there is no movement in the party’s account during the FY 2011-12 relevant to AY 2012-13. Along with this letter, a statement was also filed by M/s. Mahindra & Mahindra. From a careful perusal of this correspondence exchanged between M/s. Mahindra & Mahindra and the assessee available at pages 41 to 49, we find that there was dispute between both the parties with regard to the outstanding liability. Thereafter, an outstanding liability of Rs.3,08,03,419.13 was written off in the books of account. Though there was dispute with regard to the outstanding liability as legal notice was exchanged between them, but no evidence is placed by the Revenue that the assessee was informed about the writing off the debt in the books of account of M/s. Mahindra & Mahindra. In any case, where the assessee has denied the knowledge of writing off of such huge amount of bad debt, it was incumbent upon the AO to dig out the truth by making necessary enquiries from M/s. Mahindra & Mahindra, but it was not done and without doing so, the AO has made the addition of the same in the hands of the assessee, having invoked the provisions of section 41(1) of the Act. We are therefore of the view that in the absence of complete information, the conclusion drawn by the AO is not proper. Therefore, it requires further enquiry and investigation from M/s. Mahindra & Mahindra with regard to any settlement undertaken between the parties under which M/s. Mahindra & Mahindra has written off huge amount of Rs.3,08,03,419.13. Accordingly, we set aside the order of the CIT(Appeals) in this regard and restore the matter to the AO with a direction to make necessary enquiry from M/s. Mahindra & Mahindra and from the assessee also with regard to any settlement under which 3,08,03,419.13 has been written off by M/s. Mahindra & Mahindra. If it is established that assessee was party to the settlement or assessee was in the knowledge of writing off of such a huge amount, the liability will be ceased, otherwise it can not be taxed in the hands of the assessee on unilateral writing off in the books of M/s. Mahindra & Mahindra.
The other grounds relate to chargeability of interest u/s. 234B & 234C. Since it is consequential in nature, it needs no independent adjudication.
In the result, the appeal of the assessee is allowed for statistical purposes.
Pronounced in the open court on this 6th day of April, 2018.