Commissioner of Income Tax, vs. Agriculturel Market Committee,

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 4TH DAY OF AUGUST 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR.JUSTICE HEMANT CHANDANGOUDAR I.T.A. NO.219 OF 2011 BETWEEN: M/S. I.G. PETROCHEMICALS LTD, D-4, JYOTHI COMPLEX 134/1, INFANTRY ROAD BANGALORE-560001 REPRESENTED BY ITS CHAIRMAN SRI. MADAN MOHAN DHANUKA AGED ABOUT 63 YEARS S/O SRI. HANUMAN PRASAD DHANUKA.

... APPELLANT (BY SMT.JINITHA CHATTERJEE, LEARNED COUNSEL FOR SRI. S. PARTHASARATHI, ADV.) AND: THE ASST. COMMISSIONER OF INCOME TAX CIRCLE-11(4), BANGALORE-560001.

... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) - - -

2 THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 07.03.2011 PASSED IN ITA NOs.403 & 404/BANG/2011, FOR THE ASSESSMENT YEAR 2005-06, & 2006-07 PRAYING TO:

I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, IN ITA NOs.403 & 404/BANG/2011 DATED.07.03.2011 (ANNEXURE-A), IN THE INTEREST OF JUSTICE AND EQUITY. THIS I.T.A. COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been filed by the assessee. The subject matter of the appeal pertains to the Assessment Years 2005-06 and 2006-07. The appeal was admitted by a Bench of this Court on the following substantial questions of law: a) Whether the Assessing Officer on careful scrutiny of the entire material on record has accepted the submission of the assessee and passed the assessment order which was in conformity with the law as declared as on that day? b) Whether the Commissioner was justified in interfering with the said finding on the basis of

3 the judgment rendered subsequent to the said order and the Tribunal was justified in upholding the said order? 2. Facts leading to filing of this appeal briefly stated are that the assessee is a public limited company engaged in the business of manufacture and sale of petrochemicals. The assessee filed the returns of income for Assessment Year 2005-06 and 2006-07 declaring a loss of Rs.413,49,60,160/- and Rs.225,06,40,760/-, respectively. The assessee credited a sum of Rs.58,64,92,119/- to the profit and loss account being the total amount of principal amount of loan of Rs.28,69,99,731/- and interest of Rs.29,94,92,388/- which was waived by the Banks as per settlement schemes with several Banks and the interest component of the waiver which was allowed as deduction in previous years was offered for assessment. Similarly, for the Assessment Year 2006-07, the return was filed. The Assessing Officer passed an order of assessment for Assessment Years 2005-06 and 2006-07 on 20.12.2007 and 20.12.2008 accepting the fact that the loans waived were not income includible in the assessment for taxation.

4 3. The Commissioner of Income Tax issued notices under Section 263 of the Act on 30.09.2009 for both the Assessment Years proposing to revise the orders on the ground that the Assessing Officer has not brought to tax the waived principle amounts of loans / borrowings to the extent of Rs.28.69 crores for Assessment Year 2005-06 and Rs.144.22 crores for Assessment Year 2006-07. The Commissioner of Income Tax was of the opinion that principle amounts of loans waived by various Banks / institutions were credited to the profit and loss account as income of previous years relevant to the Assessment Years 2005-06 and 2006-07 and the Assessing Officer did not make any enquiry on this ground. The Commissioner of Income Tax passed an order on 21.12.2009 and set aside the assessments and directed the Assessing Officer to consider the law laid down by Supreme Court in 'CIT Vs. T.V.SUNDARAM IYENGAR AND SONS LTD.' (1996) 222 ITR 344 (SC) and decision of the Bombay High Court in 'SOLID CONTAINERS LTD. Vs. DCIT & ANR.' 308 ITR 417. The assessee thereupon filed an appeal before the Tribunal. The Tribunal, by order dated 07.03.2011,

5 dismissed the appeal preferred by the assessee. In the aforesaid factual background, this appeal has been filed. 4. Learned counsel for the assessee submitted that the Assessing Officer had examined the issue and made enquiries and had passed an order on the basis of material available on record and the order passed by the Assessing Officer could not be said to be suffering from the vice of non-application of mind. It is further submitted that the Tribunal ought to have appreciated that the order of assessment was passed on 28.12.2007 whereas the judgment in SOLID CONTAINERS LTD., supra was rendered by the Bombay High Court subsequently i.e. on 29.08.2008 which was not available when the order of assessment was passed. It is further submitted that the order of Assessing Officer cannot be said to be erroneous and therefore, the assumption of jurisdiction under Section 263 of the Act is not legally tenable. It is also urged that waiver of loan is not liable to be taxed either under Section 41(1) or under Section 28(iv) of the Act in view of decision of Supreme Court in 'CIT Vs. MAHINDRA & MAHINDRA LTD.' (2018) 404 ITR 0001

6 (SC). In support of aforesaid submission, reliance has been placed on the decisions in 'CIT Vs. CHETAN CHEMICALS (P) LTD.' (2004) 267 ITR 0770 (GUJ), 'CIT Vs. MODEST ENTERPRISES LTD' (1994) 207 ITR 0618 (CAL), T.V.SUNDARAM IYENGAR, supra, 'MALABAR INDUSTRIAL COMPANY Vs. CIT' 243 ITR 83, 'CIT Vs./ MAX INDIA LTD.' (2007) 295 ITR 0282 (SC), SOLID CONTAINERS LTD, supra, 'CHIEF CIT Vs. KESARIA TEA CO. LTD.' (2002) 254 ITR 0434 (SC), 'CIT Vs. CHEMSWORTH (P) LTD.' (2020) 275 TAXMAN 408 (KAR), 'CIT & ANR. Vs. AZTEC SOFTWARE TECHNOLOGY LTD.' (2020) 428 ITR 245 (KAR), 'PRL. CIT Vs. N.K.PROTEINS LTD.' (2020) 429 ITR 493 (GUJ), 'CIT & ANR. Vs. CYBER PARK DEVELOPMENT AND CONSTRUCTIONS LTD.' (2021) 430 ITR 55 (KAR), MAHINDRA AND MAHINDRA, supra, 'CIT & ANR. Vs. COMPAQ ELECTRIC LTD.' (2012) 249 CTR 0214 (KAR) AND 'CIT & ANR. Vs. COMPAQ ELECTRIC LTD. (2019) 261 TAXMAN 0071 (SC).

7 5. On the other hand, learned counsel for the revenue submitted that the Assessing Officer passed an order of assessment in contravention of the law laid down by the Supreme Court in 'CIT Vs. T.V.SUNDARAM IYENGAR AND SONS LTD.' supra and therefore, the order was passed in ignorance of law and an order passed in ignorance of law constitutes a ground for invocation of powers under Section 263 of the Act in view of judgment of the Supreme Court in 'MALABAR INDUSTRIAL COMPANY, supra. 6. We have considered the submissions made on both sides and have perused the record. Before proceeding further, it is apposite to take note of Section 263 of the Act which reads as under: 263. Revision of orders prejudicial to revenue (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass

8 such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 7. Thus, from close scrutiny of Section 263 it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under Section 263 of the Act. Firstly, the order of the Assessing Officer is erroneous and secondly, that it is prejudicial to the interest of the revenue on account of error in the order of assessment. 8. The aforesaid provision was considered by the Supreme Court in MALABAR INDUSTRIAL COMPANY, supra and it was held that powers under Section 263 of the Act cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it was held that it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the instant case, the issue which arises for our consideration is whether the order

9 passed by the Assessing Officer is erroneous as while passing the order there has been an incorrect application of law. The relevant extract of the order passed by the Commissioner of Income Tax dated 21.12.2009 reads as under: 9. The assessee's submissions had been carefully considered with reference to the facts of the case and the relevant provisions of the I.T. Act 1961. It is seen from the records that the Assessing Officer has not properly applied his mind to the taxability of the waived principal amount of loans of Rs.28.66 crores which was credited in the profit and loss account for the relevant previous year ended 31.03.2005, but, was excluded by the asseseee while computing the taxable income relying on the decision in the case of CIT vs. Chetan Chemicals Pvt. Ltd. reported in 139 taxman 301 (Guj). Though the Assessing Officer had called for the explanation of the assessee and the assessee had filed letters dated 27.08.2007 and 20.12.2007, there is no discussion in the relevant assessment order regarding the concerned issue and the applicability of the decision relied upon by the assessee to the facts of the assessee's case with reference to the provisions of Section 28(iv) of the I.T. Act,

10 1962. The records do not indicate that the Assessing Officer had examined the issue with reference to all the available judicial decisions on the issue at the relevant point of time. It is clear from the records that the Assessing Officer had accepted the assessee's claim without taking into consideration the decision of the Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar and Sons Ltd. Reported in 222 ITR 344 (SC) where, it was held, inter alia that unclaimed balances out of deposits received from customer, which were transferred to the profit and loss account, were assessable as income. In the decision in the case of Chetan Chemicals Pvt. Ltd., the Hon'ble Gujarat High Court had not taken into consideration the aforesaid judgment of the Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar and Sons Ltd. The facts of the case of CIT vs. Industrial Credit and Development Syndicate Ltd. Reported in 285 ITR 310 (KAR) concerning repurchasing of debentures from debenture holders by a nominee for a price below the face value, are distinguishable from the assessee's case. With regard to the assessee's submission that the above mentioned Supreme Court decision was

11 distinguished in the later decision of the Hon'ble Supreme Court in the case of Chief CIT vs. Kesaria Tea Co. Ltd reported in 254 ITR 434, it is necessary to mention that the Hon'ble Supreme Court had only observed that the earlier decision in the case of T.V. Sundaram Iyengar and Sons Ltd. was not relevant for deciding the case in view of the factual matrix of the case. The facts and the issue involved in the case of Kesaria Tea Co. Ltd., are different from that of the assessee's case. 10. In view of the above, I am of the opinion that the Assessing Officer's failure to consider the ratio of the decision of the Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar and Sons Ltd. Reported in 222 ITR 344 (SC) with reference to the facts of the assessee's case, makes the relevant assessment order erroneous and prejudicial to the interest of the revenue. The ratio of the decisions of the Hon'ble Supreme court in the case of Malabar Industrial Company Ltd. Vs. CIT reported in 243 ITR 83 and CIT vs. Max India Ltd. Reported in 295 ITR 282 (SC), are, therefore, not applicable to the facts of the assessee's case. In the case of CIT vs. Gokuldas Exports relied upon by the assessee,

12 the facts and circumstances under which the Hon'ble Karnataka High Court held that the CIT was not justified in invoking the provisions of section 263 were different from the facts and circumstances of the assessee's case. 9. Thus, the Commissioner of Income Tax has held that the Assessing Officer has failed to apply the decision of Supreme Court in T.V.SUNDARAM IYENGAR AND SONS, supra, to the case of the assessee wherein it was held that unclaimed balances out of deposits received from customers which were transferred to profit and loss account were assessable as income. Thus, the order of the Assessing Officer on account of incorrect application of the law, can be said to be erroneous in view of the law laid down by the Supreme Court in MALABAR INDUSTRIAL COMPANY, supra. Therefore, one of the conditions for invocation of Section 263 of the Act namely the order being erroneous is fulfilled in the fact situation of the case.

13 For the aforementioned reasons, the substantial questions of law are answered against the assessee and in favour of the revenue. In the result, the appeal fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE RV