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2016 (4) TMI 1100 - AT - Income TaxReopening of assessment - waiver of loan as income u/s 41 - reasons to believe - Held that:- AO had reopened the assessment on the ground that the waiver of loan by the bank has escaped assessment. The same was pointed out in the audit objection. We have perused the audit objection and the reasons recorded by the AO for reopening the assessment. No doubt, on record the reasons recorded by the AO are based on his own reasons of view, but, the same was indulged on findings of the audit objection raised by the audit party as it can be considered as it will fall in the similar situation as held in the case of CIT Vs. PVS Beedies (1997 (10) TMI 5 - SUPREME Court ). But as the findings recorded by CIT, the timings of the correspondence of Addl. CIT, which is dated 13/03/2013 and timings of the notice u/s 148, which was issued on 26/03/2013 clearly shows that the reopening was done on the behest of the Addl. CIT. It clearly shows that the AO had not applied his mind independently even though the reasons recorded on the basis of the factual error pointed out by the audit party. The reasons for reopening an assessment need to be based on tangible material which has a live-link with the formation of the belief that there was an escapement of income. Therefore, we do not find any infirmity in the order of CIT(A) in quashing the reopening of assessment made by the AO u/s 147 of the Act. Two instalments had to be paid in AY 2007-08. Even though, the assessee was following mercantile system, it cannot recognize the waiver of loan as income u/s 41 of the Act, since, as per the pre-condition for OTS, all the balance amount had to be settled, then only, the assessee can enjoy the benefit of loan waiver. In this case, it was clear that the assessee can only recognize the waiver of loan as income only when it pays the final instalment of waiver as per OTS conditions. Hence, the assessee was not in a position to recognize the above waiver as income u/s 41, on the contrary, the AO had not brought anything on record that the waiver of loan was relating to trading liability or any revenue expenditure was allowed against the above waiver. Hence, in our considered view, the above waiver of loan cannot be brought into tax net considering the fact that the waiver condition was not fulfilled during this AY and cannot be recognized as income u/s 41 during this assessment year - Decided in favour of assessee
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