TMI Blog2002 (7) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings did not indicate that income chargeable to tax had escaped assessment." 3. The brief facts of the case are that the assessee-company was one of the contenders before the Board for Industrial and Financial Reconstruction (BIFR) who, vide its order dt. 15th May, 1990, approved the controlling interest and management of the sick industry, namely, M/s Mewar Sugar Mills Ltd., in favour of the assessee-company with a condition that the assessee-company should provide equity share capital/interest-free loan of Rs. 118 lacs towards financing the requirement of funds under the rehabilitation scheme. Consequently, for taking the controlling interest and management in M/s Mewar Sugar Mills Ltd., the assessee-company has taken a loan from ANZ Grindlays Bank Plc., Bombay, for Rs. 1,14,00,000 on 26th June, 1990 and out of it, a sum of Rs. 1,08,00,000 was directly transferred by ANZ Grindlays Bank Plc., Bombay to M/s Mewar Sugar Mills Ltd. Rs. 5,42,868 was the amount of interest chargeable by the said bank and balance Rs. 57,132 was deposited by the assessee-company in The Bank of Rajasthan Ltd., Bombay. Later on, for repayment of the said loan to ANZ Grindlays Bank Plc., Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment at a total loss of Rs. 1,286 vide order dt. 11th Dec., 1996, passed under s. 147/143(3). 7. Against the above assessment, the assessee has preferred appeal before the CIT(A) objecting the reopening of assessment under s. 148. The CIT(A), vide his order dt. 24th June, 1997, has allowed the assessee s appeal by cancelling the assessment order. His findings recorded at para 2.3 are reproduced as below: "The claim of the appellant is acceptable. The Asstt. CIT did not appreciate the facts of the case correctly. Firstly, the appellant did not disclose any interest income by way of providing finance to sick units. Further, the assessment should not have been reopened to charge tax on the income which was neither earned nor received by the appellant. There is no provision of law which empowers the AO to tax notional interest income where a taxpayer has advanced interest-free loans. The Asstt. CIT did not bring any material on record to show that the appellant, after charging the interest, did not declare it in the return of income. The reasons recorded by the Asstt. CIT do not indicate that income chargeable to tax had escaped assessment. In these circumstances, the reass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uj) 281 : (1996) 217 ITR 1 (Guj) and the commentary of Chaturvedi Pithisaria s Income-tax Law, Fifth Edition, Vol. 3, pp. 5102 and 5195-6. 11. The learned authorised representative further submits that the factual back ground of the case was very well known to the AO that the assessee-company was a contender before the Board of Industrial Finance and Reconstruction (BIFR for short) which decided vide their order dt. 15th May, 1990, that the controlling interest and management of the one sick industry, namely, M/s Mewar Sugar Mills Ltd., should be taken over by the assessee and a condition was put that the assessee should provide an interest-free sum of Rs. 1.18 crores to the said company. The fact of taking over of controlling interest and management in the sugar mill is apparent from the director s report of the assessee-company. The assessee is a private limited company being governed by the provisions of the Companies Act, 1956. It had to follow accrual system of accounting necessarily. Despite this, in its audited P L a/c, no interest income has been shown from the said company. The statutory auditor, an independent authority appointed under the Companies Act, 1956, has exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany". The question which arises is whether from the reasons so recorded it can be said that the reasons to believe recorded were to the effect that (a) any income chargeable to tax (b) escaped assessment. It is a settled law that income-tax is a tax on real income and not on the notional income as was held by Hon ble Supreme Court at the earliest in the case of CIT vs. Shoorji Vallabh Das Co. (1962) 46 ITR 144 (SC) and followed by various other judgments and in a recent judgment in the case of Godhara Electricals vs. CIT (1997) 139 CTR (SC) 564 : (1997) 225 ITR 746 (SC). Admittedly, no interest has been charged nor the AO has shown that it was really charged but not disclosed. In fact, he himself recorded a finding clearly in the reasons itself that no interest was charged. Keeping the legal and factual position in view the AO could not have had a reason to say that some chargeable income was there. As a matter of fact no income chargeable to tax was there. Secondly, once there was no income chargeable to tax there was no question of escaping the assessment. The escapement can be there only and only when income chargeable to tax has not been assessed or remained to be assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was also paid back during the year itself, therefore, it was not appearing in the balance sheet. He, therefore, submits that keeping in view his earlier pleas, the addition is un-called for. He further states that the other part of the ground that the utilisation of the funds was not established, is purely contrary on the face of the record itself, inasmuch as the AO himself mentioned at p. 1, para 2 that the company provided finance to M/s Mewar Sugar Mills Ltd. of Rs. 1.08 crore. Otherwise also, this was not at all a basis for disallowance by AO. She was never of the view that the funds were not utilised for business purpose. This is further evidenced by AO s findings in the reassessment order. Again, it is pertinent to note that the AO himself made the position clear in the reassessment on this issue. The Revenue, therefore, has totally made out a new case in their appeal now, which does not arise out of the order of the AO or the CIT(A) and cannot be permitted now to be raised. The reliance was placed on the cases cited as Indian Steel Wire Products Ltd. vs. CIT (1994) 208 ITR 740 (Cal) and Aravali Arts in ITA Nos. 2259 2260/Jd/1994 dt. 16th April, 2001 (Jodhpur Bench). A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile making the original assessment. No new material has come on record, no information has been received and there is no change of law. The AO has initiated reassessment proceedings by merely saying that the assessee-company advanced an interest-free loan to M/s Mewar Sugar Mills Ltd. and, therefore, the amount of interest calculated @ 18 per cent per annum of Rs. 19,44,000 has escaped assessment without disclosing the reasons which led the AO to hold such belief. The law does not confer jurisdiction on the AO to take such as an action under s. 147/148. The reviewing of the earlier order suo moto irrespective of there being any material to come to a different conclusion apart from just having second thought about the inferences drawn earlier is not permissible under the scheme of s. 147/148. This view finds support from the decision of Hon ble Delhi High Court in the case of Jindal Photo Films Ltd. vs. Dy. CIT, relying on CIT vs. Rao Thakur Narayan Singh (1965) 56 ITR 234, 239 (SC). It is not the case of the Revenue that the interest had actually been collected and the collection of such interest was not reflected in the accounts. The finding of the AO that the interest should hav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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