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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Shri S.S. Godara, JM & Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-2, Kolkata [in short the ld CIT(A)] in Appeal No. 132/CIT(A)- 2/14-15 dated 01.05.2017 against the order passed by the DCIT, Circle-4, Kolkata [ in short the ld AO] under section 147 / 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 10.12.2012 for the Assessment Year 2008-09.
The only ground raised by the assessee is with regard to challenging the validity of re-opening proceedings u/s 147 of the Act and consequentially bringing to tax a sum of Rs. 34,58,000/- towards interest income on loan advanced to Six Sigma Gases Pvt. Ltd. on notional basis.
M/s Asiatic Oxygen Ltd. A.Yr. 2008-09 3. The brief facts of this issue are that the return of income for the assessment year 2008-09 was filed by the assessee company on 23.09.2008. The assessee was completed u/s 143(3) on 02.12.2010 determining total income at Rs. 62,10,223/-. Later the assessment was sought to be reopened by issuance of notice u/s 148 of the Act dated 27.04.2012. The reasons recorded by the ld. AO for reopening the assessment are as under:
“OFFICE OF THE JOINT COMMISSIONER OF INCOME TAX (OSD), CIRCLE-4 P- 7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, 8TH FLOOR, KOLKATA-700069. No. JCIT, OSD,Cir-4/Kol/Asiatic Oxy/2012-13 dated 07.04.2012 To, The Principal Officer M/s Asiatic Oxygen Ltd. 8, BBD Bag East, Kolkata-700001. Sir, Sub: Reasons recorded for taking action u/s 147 for the A.Y. 2008-09 in the case of M/s Asiatic Oxygen Ltd., PAN: AACCA 6748 G- Reg. Ref: Your Letter dated 21.05.2012. Please refer to the above. The reasons recorded by this office to take action u/s 147 for the assessment year 2008-09 in the case of your company is as under: “It was noticed that the assessee did not account for interest amounting Rs. 34.58 lacs on the amount of loan given to M/s Six Sigma Gases India Pvt. Ltd. on the ground that the above company had approached the assessee intimating its inability of pay interest due to their poor financial health. However, as the assessee followed mercantile system of accounting during the previous year relevant to the assessment year, the amount of interest was required to be credited to the profit & loss account. Omission to add back the same in course of assessment resulted in underassessment of income of Rs. 34.58 lacs resulting in short levy of tax of Rs. 10.68 lac. Although the assessee had made the advance out of capital and reserve and not out of borrowed capital, the assessee had charged interest on the advance during financial year 2005-06 and 2006-07 and only the poor financial health of the said 2
M/s Asiatic Oxygen Ltd. A.Yr. 2008-09 company could not be the reason for not charging the interest in the FY 2007-08 if the assessee had been following mercantile system of accounting. As per provision of the Act, writing off bad debt of an amount in the P/L account entitles an assessee to claim deduction in the computation of tax.” Yours Faithfully (P.B.Pramanik) JCIT, (OSD), Circle-4, Kolkata.
The assessee filed objections to the said reasons vide its letter dated 18.09.2012 wherein it was specifically brought to the notice of the ld. AO that in the course of original assessment proceedings u/s 143(3) of the Act, a specific query was raised as to why interest had not been charged on the amount advanced to M/s Six Sigma Gasses Pvt. Ltd. The assessee had submitted a detailed reply in that regard vide its letter dated 15.11.2010 wherein it was explained that the said company was incurring losses and even the interest credited in the accounts by the assessee in the earlier two years on accrual basis could not be realized. Further the said party had also requested the assessee for not charging any interest as they had become a victim of ongoing deep recession worldwide. It was submitted by the assessee that considering the poor financial health of the said company, the directors of the assessee company after taking a conscious decision, passed a resolution deciding therein, not to charge any interest on the amount advanced to the said company. A copy of the letter dated 15.11.2010 along with copy of Board Resolution dated 31.01.2008 along with proposal for not charging of interest which was filed before the ld. AO in the original assessment proceedings was again filed before the ld. AO in the reassessment proceedings. The assessee placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Balarampur Commercial Enterprises reported in 262 ITR 439 (Cal) and Hon’ble Allahabad High Court in the case of Giriraj Udyog reported in 273 ITR 495 (All) stating that no real income had in fact accrued/arose to the said company in respect of interest on amount advanced to Six Sigma Gasses Pvt. Ltd. It was specifically pointed out by the assessee while filing the objections to the reasons recorded in the reassessment 3
M/s Asiatic Oxygen Ltd. A.Yr. 2008-09 proceedings that since this issue was already examined by the ld. AO in the original assessment proceedings, reopening of the assessment on the same issue on which decision was already taken by the ld. AO after due application of mind, tantamount to change of opinion and accordingly it was contested that the reopening was not in accordance with law. The assessee placed reliance in support of this proposition on various decisions of Hon’ble Supreme Court and Hon’ble Jurisdictional High Court. It was also pointed out that there was no allegation that there was any malafide on the part of the assessee in postponing or shifting the income to subsequent years for the purpose of taxation. No new material or tangible material or other evidences has been brought on record by the ld. AO while recording the reasons to show that income by way of interest had in fact actually been accrued.
It was also submitted that prior to issue of notice u/s 148 of the Act, the assessee company was served with a notice u/s 154 of the Act dated 30.11.2011 proposing to rectify the alleged mistake of the ld. AO for not assessing the notional interest on loan advanced to Six Sigma Gases Pvt. Ltd., treating the same as mistake apparent from record. The assessee had given a detailed reply for the same. When the said rectification proceedings were pending, the ld. AO reopened the assessment u/s 147 of the Act. Accordingly, it was argued that there was no tangible material or new evidence that had come to the notice of the ld. AO which would enable him to form a reasonable belief that income of the assessee had escaped assessment other than the issue originally mooted in the rectification proceedings u/s 154 of the Act. The ld. AO however did not agree to any of the contentions of the assessee detailed hereinabove. The ld. AO observed in this order that although the advance to Six Sigma Gases Pvt. Ltd. were made in the earlier years out of capital and reserves of the assessee company and not out of borrowed funds, the assessee had charged interest on the said advance during assessment years 2006-07 and 2007-08. Accordingly, he held that non-charging of 4
M/s Asiatic Oxygen Ltd. A.Yr. 2008-09 interest for assessment year 2008-09 represents income escaping assessment and hence the same is required to be brought to tax in the sum of Rs. 34.58 lacs. This action of the ld. AO was upheld by the ld. CIT(A). Aggrieved the assessee is in appeal before us.
We have heard rival submissions. At the outset, we find that the reopening of the assessment for the assessment year 2008-09 has been made within the four years from the end of the relevant previous year. Hence the applicability of that proviso to section 147 on the aspect of failure of the assessee to make full and true disclosure of the facts does not apply in the instant case. We find from the facts narrated above that the ld. AO had duly applied his mind in the original assessment proceedings by raising a specific query on non-charging of interest on amount advanced to M/s Six Sigma Gases Pvt. Ltd. The ld. AO on examining the reply given by the assessee in that regard had accepted the stand of the assessee of not charging the interest for the year under consideration duly taking into account the poor financial conditions of M/s Six Sigma Gases Pvt. Ltd. We find that the very same issue was the subject matter of the rectification proceedings u/s 154 of the Act for which assessee gave a detailed reply and both the ld. AR as well as ld. DR before us failed to bring evidence on record to prove the status of completion of such rectification proceedings. Be that as it may, the ld. AO had sought to reopen the assessment for adjudicating the same issue towards notional interest on loan advance to M/s Six Sigma Gases Pvt. Ltd. in the sum of Rs. 34,58,000/-. From the reasons recorded by the ld. AO as reproduced hereinabove, we find that the entire information was very much available on record and there was absolutely no tangible material or fresh material or new evidence that had come to the possession of the ld. AO post completion of assessment proceedings, having live link or live nexus with his formation of belief that income of the assessee had escaped assessment warranting the reopening u/s 147 of the Act. Hence this is a clear case of change of opinion on the part of the ld. AO. It is now well settled that section 147 of the 5
M/s Asiatic Oxygen Ltd. A.Yr. 2008-09 Act does not postulate conferment of power upon the ld. AO to initiate reassessment proceedings upon his mere change of opinion. If reason to believe of the ld. AO is founded on an information which might have been received by the ld. AO after completion of assessment, it might be a sound foundation for exercising the power u/s 147 of the Act. When a regular assessment u/s 143(3) has been made earlier, a presumption can be raised that such an order has been passed on due application of mind. It is well known that a presumption can also be raised to the effect that in terms of section 114(e) of the Indian Evidence Act and judicial and official acts have been regularly performed. The Hon’ble Supreme Court in the case of Kelvinator of India Ltd. reported in 320 ITR 561 (SC) had held in similar circumstance that if it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceedings without anything further, the same would amount to giving premium to an authority exercising quasi-judicial function to take benefit of its own wrong. The necessary ingredients of section 147 in the form of tangible material post completion of assessment proceedings are conspicuously absent. Hence the reopening of assessment does not survive.
We find even on merits, that the assessee was not able to realize interest income offered by it on amount advanced to Six Sigma Gases Pvt. Ltd. in the earlier two assessment years . During the year under consideration, the assessee had duly taken note of the poor financial condition of Six Sigma Gases Pvt. Ltd. and had taken a conscious call of not recognizing the interest income on accrual basis and had even further taken a call for not charging any interest on the said loan for which a separate Board Resolution had also been passed. The poor financial condition of Six Sigma Gases Pvt Ltd had not been disputed by the revenue. The poor financial condition of Six Sigma Gases Pvt Ltd had not been disputed by the revenue. In this scenario, it would not serve any purpose by the M/s Asiatic Oxygen Ltd. A.Yr. 2008-09 assessee having unnecessarily fastened with a tax liability on notional interest income which would never be realized and in future eventually result in claim of bad debt.
In view of the aforesaid observationS, we hereby quash the reassessment proceedings framed by the ld. AO both on law as well as on facts.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 07.09.2018