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TMI Blog2009 (6) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... irections of the CIT(A) in the first round. We find it convenient to dispose of all the four appeals together by this combined order. The appeal of the department in ITA No. 446/Hyd./01 is taken up first for consideration. I. ITA No. 446/Hyd./01 (Assessment Year : 1997-98) 2. The only grievance of the department in this appeal is against the deletion of Rs. 1,00,06,785 made on account of sale of asset treated by the Assessing Officer as revenue income. The assessee-company has two manufacturing divisions, viz., textile and paper divisions. It declared business loss of Rs. 5,12,400 for the year under consideration. The profit & loss account was found to be debited by a sum of Rs. 1,37,94,778 as lease rent. The break-up of this amount showed that lease rent of Rs. 11,55,785 was payable to Biological E. Ltd. ('BEL' for short) in respect of a boiler leased to the assessee by BEL. Enquiries by the Assessing Officer revealed that the said boiler was actually sold by the assessee to BEL for Rs. 1,00,06,785 and had taken back on lease from BEL. Enquiries further revealed that actually the assessee had acquired the same boiler on lease in March, 1994 from ITC Agro Tech Finance & Investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the lease agreement with ITC to point out that ITC was the absolute owner of the asset and that the assessee as the lessee had no authority to create any charge on the asset. Thus, he supported the order of the Assessing Officer. 5. The submission of the learned counsel was that the assessee was the original owner of the asset and sold it to ITC who leased it back to the assessee. It was pointed out that assessee was to become the owner of the asset only on payment of sixty instalments to ITC. It was submitted that second sale by the assessee may be illegal but since the asset did not belong to the assessee, no income could arise to the assessee. As such, it was contended, there was nothing illegal or fraudulent about the transaction. Finally, it was submitted that in assessment year 1999-2000, the assessee had declared short-term capital gain on sale of the said asset. Hence, if the addition is sustained here, then direction may be given to delete the income from assessment year 1999-2000. 6. We have duly considered the rival contentions and the material on record. The facts as mentioned above are not in dispute. It is a fact that the asset was already on lease with the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther places, a paper manufacturing unit at Jogighopha in Assam. The said unit had turned sick and hence was taken over by the Government of Assam under The Jogighopha (Assam) Unit of Ashok Paper Mills Limited, Calcutta (Acquisition and Transfer of Undertaking) Act, 1990. The entire unit was then transferred to Ashok Paper Mills (Assam) Ltd. ('APA' for short), an undertaking of the Assam Government, with all its assets, rights, title and interest. APA having acquired the said unit, in turn, leased it to the assessee for a period of twenty five years with the condition to revive it and then run it on commercially viable lines. As per the Memorandum of Understanding (MOU) and the lease agreement entered into between the lessor (APA) and the assessee (lessee), the former was to provide to the latter the following amounts for the revival of the unit: (a) Rs. 4.60 crores as promoters' contribution, (b) Rs. 2.30 crores towards margin money for working capital and (c) Rs. 10.04 crores towards cash loss in the first two years of operation. The Assessing Officer was of the view that the sum of Rs. 4.60 crores was a revenue receipt in the hands of the assessee and hence taxable as such. The e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had described the amount as grant. The learned Departmental Representative then took us through the remand report submitted by the Assessing Officer to the CIT(A). The emphasis on this report was to show that several amounts received by the assessee were transferred to the assessee's account at Jogighopha and hence there were all possibilities of the funds being diverted. It was also pointed out that unless the assessee furnished the utilization of the funds entry-wise, there was a possibility to infer that the funds may have been utilised for revenue expenditure. Thus the learned Departmental Representative supported the order of the Assessing Officer. 11. The learned counsel took us through the various clauses of the MOU and the lease agreement to show that the primary purpose of handing over the sick unit to the assessee was to revive the unit. Therefore, while deciding upon the amounts to be given to the assessee, the lessor had taken care to specify as to how much was for the carrying out the operations and how much was for reviving the unit. The amount to recoup the loss was separately set out and hence the amount of Rs. 4.60 crores which was the promoters' contribution was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has not earned any income in the form of Rs. 4.60 crores but it is for taking over a potential source of income which may prove to be profitable in future. It is only a milch cow which is taken over. Actual milk has not flowed to the assessee. It is absurd to say that an amount can be a capital receipt only if it is reduced from the cost of the assets. It is only a form of accounting which may be relevant in certain situations. Thirdly, though it is not exactly a loan, yet, as per clause 35 of the lease deed, the assessee is bound to return the full amount received by it if it fails to revive the unit within one year from the date of take over. In fact, the assessee failed in its endeavour and was called upon to refund the amount. Fourthly, so far as working capital is concerned, the assessee is expected to finance the same partly from its own resources and partly to raise the funds from financial institutions. Therefore, the assessee is granted Rs. 2.30 crores separately as margin money for working capital and Rs. 10.04 crores towards cash loss in the first two years. Therefore, in our considered opinion, there is not a specter of revenue nature in the receipt of Rs. 4.60 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the court. 16. Subsequently, the assessee filed a revised return on 21-3-2001 as against 31-3-2001 being the last day to file such a return. In the revised return, the assessee disclosed capital gains of Rs. 1,00,06,785 and also claimed loss of paper division amounting to Rs. 9.13 crores as mentioned in paragraph 15 above. The Assessing Officer did not take cognizance of the revised return for two reasons. Firstly, he found the revised return to be defective. He did think that the defects could be removed under section 139(9) but decided against it on the ground that it was filed only nine days before the due date and hence no sufficient time was left to remove the defects. Secondly, according to the Assessing Officer, the revised return was not bona fide insofar as that the omission to include capital gains and loss of paper division in the original return was not explained. Further, the paper division loss was not a part of the audited accounts and for the purpose of book profit under section 115JA only the profit of Rs. 54.83 lakhs was to be considered as depicted by the audited profit & loss account of the assessee. In the course of assessment proceedings the assessee did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit report for paper division, an opportunity should have been given to the assessee to make good the deficiency. But instead, he treated the revised return invalid. According to the learned counsel, the revised return was valid and the same should now be upheld by the Tribunal. 19. The learned Departmental Representative referred to the assessment made for assessment year 1998-99 over the revised return and submitted that each assessment year was different and hence that assessment cannot have a bearing on the present assessment year. It was the duty of the assessee to furnish the audited accounts and the audit report of the paper division. The tax audit report submitted was also only for the textile division and the loss of paper division was not shown. The learned Departmental Representative reiterated the lack of time and opportunity given by the assessee to enable the Assessing Officer to issue notice under section 139(9). He also reiterated the reasons mentioned by the Assessing Officer and the CIT(A) to the effect that the revised return was otherwise also not valid under section 139 (5) of the Act. Thus, he supported the order of the lower authorities. 20. We have duly co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to file a revised return. The third important aspect to be noted is, indeed there is discretion with the Assessing Officer whether a notice should be issued or not asking the assessee to remove the defect. But such discretion cannot be used to the detriment of the assessee. At times, despite the discrepancy, the Assessing Officer may feel that he can make the assessment and in that case he may use his discretion not to issue notice under section 139(9). The discretion given in section 139(9) is for this purpose and not to treat the return as invalid without giving an opportunity to the assessee to remove the defect. Therefore, to this extent the Assessing Officer was not justified in treating the revised return as invalid. 22. However, section 139(5) contemplates that the omission or wrong statement in the original return should be a bona fide mistake on the part of the assessee. In the instant case, firstly, the loss of the paper division is not accounted for in the profit & loss account. It is shown or presented in the profit & loss account merely as a piece of information, or, as the Assessing Officer rightly uses the expression, 'exhibited'. The loss of the paper d ..... 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