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2016 (6) TMI 170 - ITAT MUMBAI

2016 (6) TMI 170 - ITAT MUMBAI - TMI - Reopening of assessment - reasons to believe - Held that:- As the audit objection cannot be considered as tangible material for the AO to reopen u/s 147/148 of the Act concluded assessment u/s 143(3) of the Act , unless the AO records his own satisfaction that income has escaped assessment . In the instant case there is no independent application of mind by the AO to the audit objection to come to the conclusion that income has escaped assessment. While in .....

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ey, Judicial Member And And Shri Ramit Kochar, Accountant Member For the Revenue : Shri Sunil Kumar Agarwal For the Assessee : Shri P.K. Parida & Ms. Sanjukta Chowdhury ORDER Per Ramit Kochar, Accountant Member This appeal, filed by the Revenue, being ITA No. 6965/Mum/2013, is directed against the appellate order dated 20-09-2013 passed by learned Commissioner of Income Tax (Appeals)- 6, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2006-07, the appellate proceedings befor .....

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e regular assessment made u/s.143(3) cannot be reopened u/s.147 merely on the basis of 'change of opinion' and accordingly erred in treating the proceedings initiated u/s.147 as invalid. 2. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in not following the judicial decisions in the cases viz. (1 )A.L.A. Firm Vs. CIT(Mad) 102 ITR 622. (2) Ess Kay Engineering Co. (P) Ltd. Vs. CIT(SC) 247 ITR 818. (3) Revathy C.P. Equipments Ltd. vs. DCIT .....

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(A) was justified in holding that the issue of taxability of ₹ 1,37,19,684/- was already discussed and deliberated by the A.O. at the time of original assessment proceedings uls.143(3) of the Act without appreciating the fact that the issue was not considered during the course of original assessment. 4. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not discussing the addition made on account of cessation of liability on merits but also has not adj .....

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39 of the Act with the Revenue for the assessment year 2006-07 on 29th November, 2006 declaring total income of Rs. Nil and book profit u/s. 115JB of the Act at ₹ 59,21,067/-. The assessment was completed by the AO on 24th November, 2008 u/s 143(3) of the Act accepting the returned income. 5. Thereafter, the A.O. has reasons to believe that income chargeable to tax has escaped assessment for the assessment year 2006-07 within the meaning of section 147 of the Act for the reasons recorded u .....

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25-04-2011 asked for reasons which were recorded by the AO for re-opening u/s 147/148 of the Act of the concluded assessment u/s 143(3) of the Act , which were supplied to the assessee company by the Revenue vide letter dated 24-05-2011 which are as follows:- The assessee company during the previous year had received relief amounting to ₹ 3,44,02,155/- on account of over draft and other facilities. Out of this amount ₹ 2,06,82,471/- was transferred to revenue receipt and an amount of .....

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der consideration u/s 41…… The assessee company submitted before the AO in the re-assessment proceedings that section 41 of the Act has no application on this issue as the cessation and remission is not on account of a trading liability, and the amount transferred to capital reserve is on capital account and the amount was never claimed as deduction while computing total income in any earlier previous year. The contentions of the assessee company were rejected by the A.O., as in it .....

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ny submitted that since as per the last bank statement of Bombay Mercantile Cooperative Bank Limited , the Non Performing account(NPA) in their books showed a balance of ₹ 1,37,19,684/- , the assessee company for the sake of simplicity , transferred the said amount of ₹ 1,37,19,684/- to the Capital Reserves Account which was not offered for taxation, and transferred the balance amount of ₹ 2,06,82,471/- to the Profit and Loss Account and offered the same for taxation. The A.O. .....

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ssessment orders dated 30.08.2011 passed u/s 143(3) read with Section 147 of the Act. Without prejudice to the above, it was held by the AO that as the money was received by the assessee company in the course of carrying on their business, even if the overdraft amount of ₹ 3,44,02,155/- received from the bank are considered as capital receipt of earlier previous years, even though it is not taxable in the year of receipt as being of the revenue character, the amount changes its character w .....

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77; 2,06,82,471/- , and by the same treatment the amount of ₹ 1,37,19,684/- is also taxable as revenue receipts in the hands of the assessee company and hence the sum was added to the total income of the assessee company by the AO , vide assessment orders dated 30.08.2011 passed by the AO u/s. 143(3) read with Section 147 of the Act. 6. Aggrieved by the assessment orders dated 30.08.2011 passed by the A.O. u/s 143(3) read with Section 147 of the Act, the assessee company filed its first ap .....

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particulars with respect to the one time settlement reached with the Bank and the accounting treatment as adhered to by the assessee company in its books of account. The various details regarding one time settlement with the Bank were filed before the A.O. including , bank statements for the last six years from 1-4-2000 to 31-03- 2006 , letter from the Bank offering settlement dated 22.12.2005 and the Bank Certificate dated 28th March, 2006 settling the Bank account . The assessee company conten .....

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f the liability of ₹ 1,37,19,684/- was not on account of trading liability and hence the same was capital in nature. It was contended by the assessee company before the learned CIT(A) that after considering the assessee s company reply, the A.O. held that the amount of ₹ 1,37,19,684/- is taxable as revenue receipt in the hands of the assessee company u/s 41(1) of the Act on account of cessation of liability. It was submitted by the assessee company during the course of appellate proc .....

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scussed and deliberated by the A.O. on whose request the assessee company had furnished the entire particulars with regard to the settlement reached and the accounting treatment adhered to by the assessee company in its books of account. It was submitted that the detailed submissions were made before the A.O. vide reply dated 11th November, 2008 in original assessment proceedings u/s 143(3) read with Section 143(2) of the Act. The assessee company also filed bank statement for the last six years .....

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and ₹ 1,37,19,684/- to its capital reserve account. The AO after examining the various details and applying his mind on the materials and the submission made by the assessee company, had passed the original scrutiny assessment order u/s 143(3) of the Act on 24th November, 2008 , as nothing was withheld by the assessee company from the AO. No new tangible material has come into the possession of the A.O. which could indicate that income has escaped assessment. It was stated before the lear .....

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e formation of belief that the income has escaped assessment. The assessee company relied on the following decisions to support its proposition s:- (1) 294 ITR 32 (Bom) IL&Fs Investment Managers Ltd. v. ACIT (2) (2009)318 ITR 295 (Del) Carlton Overseas (P) Ltd. v. CIT (3) 65 DTR (Guj) 385 Cardila Healthcare Ltd. v. ACIT Thus, the assessee company requested the learned CIT(A) that the notice u/s 148 of the Act is defective and should be treated as invalid. It was also submitted that the notic .....

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the following decisions:- 1. (2010) 320 ITR 561 (SC), Kelvinator India Ltd. 2. (2012)254 CTR 221(SC), Simplex Concrete Piles India Ltd. 3. (2012) 252 CTR 78 (Bom. HC), Monitor India (P) Ltd. 4. (2012) 68 DTR 85 (Bom), NYK Line (India) Ltd. 5. (2011)349 ITR 150 (Bom), Direct Information P. Ltd. 6. (2010) 332 ITR 587 (Bom), IOT Infrastructure & Energy Services Ltd. 7. (2010) 331 ITR 236 (Bom), Jet Airways India Ltd. 8. (2010)329 ITR 257 (Bom), 3I Infotech Ltd. 9. (2010) 323 ITR 54 (Bom), Rall .....

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e AO. The said information with respect to the one time bank settlement and relief received by the assessee company had already been disclosed in the Audited Balance Sheet , Audited P&L account, Directors Report and Notes to accounts by the Statutory Auditor, hence, there was no suppression of the material facts. There was no failure on the part of the assessee company to fully and truly disclose the material facts necessary for the assessment , was the contention of the assessee company bef .....

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of the assessee company, the following case laws were relied upon:- 1. (2010)329 ITR 257 (Bom) 31 Infotech Ltd. v. Asst. CIT 2. (2009)314 ITR 275 (Bom) Cortini India Ltd. v. Addl. CIT The assessee company submitted that thus the reopening of the assessment based on change of opinion is not permissible. To support this contention, the assessee company relied upon the decision in the case of [2010] 321 ITR 431 (Del) CIT v. Goetze (India) Ltd. The assessee company also relied upon the decision in .....

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was asked by the A.O. to produce the details with regard to bank settlement and how it had treated the benefit derived proportionately into its P&L account and into its Capital Reserve account for which the assessee company submitted written submission dated 11th November, 2008.The assessee company also submitted the bank statement of the Bank overdraft account to demonstrate and prove that the proceeds of the bank overdraft account were utilized for the purposes of acquisition of Plant and .....

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e assessee company as stated above. The assessee company submitted that it is an undisputed and admitted position that the money out of the Bank overdraft amount was utilized for making advance payment for plant and machinery and factory building construction for the manufacturing unit of the assessee company . The learned CIT(A) after considering the afore-stated submissions of the assessee company and the facts of the case observed that a scrutiny assessment order u/s 143(3) of the Act was pas .....

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any in the books of account was also disclosed and the detailed submissions were made by the assessee company to the A.O. on 11th November, 2008 with respect to the relevant issue under consideration. The assessee company during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act duly filed the bank statements for the last 6 years from 1st April 2000 to 31st March, 2006 , a letter from the bank showing the settlement dated 22nd December, 2005 and the bank certific .....

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e assessment order was passed on 24th November, 2008. Thus, the learned CIT(A) held that it is evident that this is a case of change of opinion on the basis of which the assessment has been reopened and it is a settled law that the assessment cannot be reopened merely on the basis of change of opinion. The learned CIT(A) discussed the following case laws:- 1. CIT v. Kelvinator of India (2010)320 ITR 561(SC) 2. Purity Techtextile Private Limited, 2010-TIOL-211-HC-Mum. 3. Carlton Overseas (P) Ltd. .....

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(Bom) Based upon the above discussions and case laws, the learned CIT(A) observed that it is clear that if the issue has already been considered by the A.O. during the original assessment proceedings, the assessment cannot be reopened u/s 147 of the Act on the basis of change of opinion because if the issue has been considered during the original assessment proceedings, it has to be presumed that all aspects pertaining to the said issue have been considered, hence, the decision on the said issu .....

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material is available with the AO for which the assessment can be reopened and in fact during the original assessment proceedings , the very same amount of ₹ 1,37,19,684/- declared as capital receipt was considered by the A.O. and the explanation of the assessee company was accepted. Thus, it could not be held that the A.O. had any fresh material or information in his possession on the basis of which he could believe that the income has escaped assessment. There was no failure on the part .....

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tailed arguments on merit before the learned CIT(A), which are detailed by the learned CIT(A) in his appellate orders dated 20-09-2013. The learned CIT(A) considered the arguments of the assessee company on merit, however, since the reopening was held to be invalid and the reassessment order was annulled by the learned CIT(A), thus, the learned CIT(A) held that the ground of appeals on merits has become academic, hence, the learned CIT(A) considered it not necessary to adjudicate the said ground .....

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143(3) read with Section 147 of the Act and submitted that the assessee company has got onetime settlement relief of ₹ 3.44 crores , out of which ₹ 2.07 crores was offered for taxation as revenue receipt and ₹ 1.37 crores was transferred to capital reserve and was not offered for taxation by the assessee company. No proper basis for transfer of the amount of ₹ 1.37 crores to the capital reserve has been furnished by the assessee company . There is no finding in the assess .....

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has been done. No new tangible material has come into the possession of the A.O. which could have live link and close nexus with the formation of a belief that income has escaped assessment. The ld. Counsel drew our attention to paper book page 59 B and contended that there was audit objection raised by the Revenue audit team vide letter dated 24/09/2010 whereby it was submitted by the Senior Audit Officer, that there was onetime settlement with the bank whereby the assessee company has got the .....

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/s 41 of the Act . Thus the ld. Counsel submitted that assessee company was asked a query by the A.O. during the assessment proceedings whereby assessee company replied vide submission dated 11th November, 2008 and complete details regarding the onetime settlement and relief received from the bank were explained, the same are placed in paper book page 45-45C. The ld counsel pointed to the audit objection dated 24.09.2010(page 59B/paper book) whereby there is a mention of the letter dated 11.11.2 .....

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ete note given in the Audited Balance Sheet, Audited P&L account , notes to the accounts and in the Director s report regarding the relief received by the assessee company which is placed in paper book pages 4 to 44 filed with the Tribunal. The ld. Counsel for the assessee company submitted that the reopening u/s 147/148 of the Act of the concluded assessment u/s 143(3) of the Act has been done which is based upon the audit objection of the Revenue audit team which is not permissible under l .....

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isted Yarn manufacturing unit. There was an outstanding default with the bank whereby loans had become NPA. The matter went upto the DRT and BIFR. The onetime settlement was entered into with the bankers whereby total relief of ₹ 3.44 crores was granted, of which ₹ 2.07 crores was transferred to revenue account and offered for taxation, while ₹ 1.37 crores was transferred to capital reserves being the amount outstanding in the overdraft account as per bank as on 31-03-2006 . Th .....

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hich was evidenced by the bank statement placed at paper book page 45A. Thus, in nutshell, the ld. counsel submitted that the reopening of the concluded assessment has been done based on change of opinion which is based upon the audit objections, which is not permissible under law whereas all the details were furnished before the A.O. vide letter dated 11th November, 2008 which is placed in the paper book page 45 during the course of original assessment proceedings u/s 143(3) read with Section 1 .....

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ufficient . No information was called by the A.O. as nothing has been come in the assessment order that the AO called for this information and formed any opinion thereof. There is no discussion in the assessment order with respect to the relief s received by the assessee company with respect to one time settlement with the Bank. Thus, the A.O. has not considered the plea of the assessee company before finalizing the assessment order. The ld. D.R. relied upon the decision of the ITAT,Mumbai in th .....

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ere is no necessity that the information which is received by the A.O. should be an external information for reopening of concluded assessments u/s 147/1148 of the Act .The ld. DR relied upon the decision of Hon ble Supreme Court in the case of Kalyanji Mavji & Company v. CIT (1976)102 ITR 287(SC). The Ld DR relied upon the decision of Hon ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Private Limited (2007) 161 Taxman 316(SC) . It was submitted by ld DR that the infor .....

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urther relied upon the decision of the Hon ble Supreme Court in the case of Indian and Eastern Newspaper Society v. CIT (1979)119 ITR 996(SC) and that the audit team has not interpreted law but merely provided information as to the escapement of income relying upon the decision in the case of Hon ble Madras High Court in the case of CIT v. First Leasing Company of India Limited (2001) 241 ITR 248(Mad.) and submitted that the assessment order is a dumb document, there is no application of mind by .....

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was originally completed u/s. 143(3) of the Act by the Revenue vide assessment orders dated 24th November, 2008. The concluded assessment u/s. 143(3) of the Act has been sought to be re-opened u/s 147/148 of the Act in the instant case by the Revenue within four years from the end of the relevant assessment year by issuance and serving of the notice u/s 148(1) of the Act dated 28-03-2011, after recording of the reasons u/s 148(2) of the Act for re-opening of the assessment u/s 147/148 of the Act .....

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he Bank on one time settlement of loan liabilities, the assessee company transferred ₹ 2.07 crores to the Profit and Loss account and offered the same for taxation , while the balance amount of the relief being ₹ 1.37 crores loan liability waiver by the Bank was the amount outstanding to be payable of ₹ 1.37 crores as on 31-03-2006 by the assessee company as per the books of accounts of the Bank vide bank statement of the overdraft account of the bank being part of the NPA amou .....

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efore the original assessment stood concluded vide assessment orders u/s. 143(3) dated 24.11.2008. The A.O. during the course of the original assessment proceedings u/s 143(3) read with Section 143(2) of the Act duly enquired about the onetime settlement entered into by the assessee company with the Bank and the details thereof including the relief/waiver obtained by the assessee company from the Bank. The assessee company vide its reply/submissions dated 11th November, 2008 during the course of .....

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#8377; 1.37 crores has been granted by the Bank which is transferred to the Capital Reserve account , while ₹ 2.07 crores has been transferred to the revenue receipt, which was supported by the Audited Financial Statements and the return of income filed by the assessee company with the Revenue. Thus, there was a true and full disclosure by the assessee company before the AO in the original assessment proceedings u/s 143(3) read with Section 143(2) with respect to the waiver/relief s obtain .....

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he revenue that no such query relating to one time settlement with the banker and consequent relief / waiver obtained by the assessee company , was ever raised by the AO during the original assessment proceedings u/s. 143(3) read with Section 143(2) of the Act and no such reply dated 11.11.2008 was ever given by the assessee company during the original assessment proceedings u/s 143(3) read with Section 143(2) of the Act because nothing has been discussed by the AO about this one time settlement .....

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ntentions of the assessee company that there was complete and true disclosures of all the facts relating to the one time settlement arrived at with the bankers and relief obtained by the assessee company under the settlement with the bankers, which were submitted by the assessee company vide letter dated 11-11-2008 and also vide audited financial statements , Directors Report and notes to the accounts filed with the Revenue . The A.O. was having all the documents vide letter dated 11th November, .....

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bank correspondence, bank certificates and disclosures in the audited financial statements as set out above with respect to the one time settlement with the bankers and relief / waivers allowed by the bankers to the assessee company, framed the impugned assessment order u/s 143(3) of the Act on 24-11-2008 accepting the contentions of the asssessee company. Normally , when the assessment orders are framed by the Revenue u/s 143(3) of the Act, it normally contains discussions with respect to whic .....

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lief of loan outstanding to be payable as per the books of accounts of the Bank reflected in the bank statement of ₹ 1.37 crores which was credited by the assessee company to capital reserve and not offered to tax, is on a capital field and waiver thereof does not result into income exigible to tax and hence no additions were made while framing assessment orders dated 24.11.2008 framed by the AO u/s 143(3) of the Act. Thus, the opinion was clearly formed by the A.O. as per the facts emergi .....

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assessee company has not offered to tax ₹ 1.37 crores being relief received by the assessee company on one time settlement with the bankers which is exigible to tax as the amount was received by the assessee company in the course of carrying on its business , the same amount became the assessee company money , the same should be treated as cessation of the liability and be exigible to tax u/s 41 of the Act , vide audit objection dated 24-09-2010. On merits also it is the say of the assess .....

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e assessee company for claiming the deductions as an expenditure or trading liability under the provisions of the Act since the availment of the said bank overdraft by the assessee company and hence relief/waiver thereof the balance outstanding to be payable of ₹ 1.37 crores as included in the NPA amount cannot be exigible to tax u/s.41 of the Act as the same is not the cessation of the trading liability as the same were never being claimed or allowed as deduction as an trading expenditure .....

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y for which full and complete disclosures were made by the assessee company in its Directors Report, Audited Financial Statements and audited notes to accounts as well reply/submissions dated 11-11-2008 in response to the query of the AO , the said reply dated 11-11-2008 was submitted by the assessee company along with necessary enclosures of bank statements and certificates as set out above, which culminated into an assessment orders dated 24.11.2008 passed by the AO u/s 143(3) of the Act where .....

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assessment has been re-opened u/s 147/148 of the Act within four years from the end of the assessment year which can no doubt be re-opened if it could be shown either that there was failure or omission on the part of the assessee company in full and complete disclosure before the AO to show that the opinion is formed by the AO based on the facts which were not correctly stated or placed by the assessee company before the AO and hence opinion formed by the AO on the appreciation of wrong facts pr .....

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same is chargeable to tax u/s 41 of the Act as waiver money has become asssessee company s own money and is a cessation of liability exigible to tax. Secondly, the assessment can be re-opened by the Revenue within four years from the end of the assessment if there is a new and tangible incriminating material coming into possession of the Revenue which has a live link and close nexus with the formation of a belief by the AO that income has escaped assessment. Again, we failed to understand which .....

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also available before the AO while framing the original assessment orders dated 24.11.2008 u/s 143(3) of the Act. The Powers u/s 147/148 of the Act are powers to assess or re-assess the income , while there is no license granted to the authorities below to review their own faulty decisions or to make fresh roving or investigating enquiries to bring to tax income which could not be brought to tax in the original assessment proceedings. If that be allowed then there will be no end to litigation an .....

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e AO , but certainly not the powers u/s 147/148 of the Act can be invoked to review all kind of faulty decisions of the AO. Thus, in our considered view, the reopening in the instant case is clearly based upon the change of opinion and based upon the audit objections dated 24-09-2010 which is based on different interpretation of law with respect to Section 41 of the Act of the material and facts which were already available on records before the AO while framing original assessment order dated 2 .....

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clusions that income has escaped assessment based on a different interpretation of the law on the same set of facts and material as are available before the AO while framing original assessment and then make the recommendations to the AO for re-opening of the assessment based on their different interpretation of law on the same set of facts and material which was already with the AO as the audit team does not discharge judicial functions to oversee the functioning and working of the AO unless th .....

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on the same set of facts and material as were available before the AO, it requires independent satisfaction of the AO after due application of mind to come to the conclusion that income has escaped assessment. It clearly appears from the facts emerging from the records that the A.O. in the instant case has not applied any mind to come to the conclusion that income has escaped assessment before accepting the audit objections of the audit team to arrive at his independent satisfaction before re-op .....

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and issuing notice u/s 148(1) of the Act, without recording his own independent satisfaction to re-open the otherwise concluded assessment u/s 143(3) of the Act. Hon ble Supreme Court in the case of Indian and Eastern Newspaper Society v. CIT (1979)119 ITR 996(SC) has held that whether it is the internal audit party of the Income-tax Department or an audit party of the Comptroller and Auditor General, they perform essentially administrative or executive functions and cannot be attributed the po .....

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ounce on the law, and that such pronouncement amounts to "information" within the meaning of section 147(b) . In every case, the ITO must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether, in consequence of the law which has now come to his notice, he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in rega .....

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already considered by him. An error discovered on a reconsideration of the same material does not empower the ITO to reopen the assessment under section 147(b). Plainly, the statutory provision envisages that the ITO must have information in his possession, and then, in consequence of such information, he must have reason to believe that income has escaped assessment. The realisation that income has escaped assessment is covered by the words reason to believe, and it follows from the "infor .....

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w cannot be regarded as "information" within the meaning of section 147(b) . In this instant case based on the facts as emerging from the records, the AO has certainly applied his mind and formed an opinion while framing the original assessment orders dated 24.11.2008 passed u/s 143(3) of the Act that the relief /waiver on account of the balance amount of ₹ 1.37 crores payable on the bank loan liability account as part of the amount payable on the date of NPA is not taxable as it .....

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mation of an opinion which is vitiated by appreciation of the AO of the wrong material facts disclosed before him or concealment of the material facts by the assessee company which otherwise was essential to formation of an opinion to come to the conclusion which in the absence of the said material facts being disclosed got vitiated entitling the Revenue to re-open u/s 147/148 of the Act the concluded assessment u/s 143(3) of the Act. It clearly appears from the facts emerging from the records t .....

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ithout any application of mind and proceeded to reopen the concluded assessment u/s 143(3) of the Act by recording the same reasons as were suggested by the audit team on a stereo typed mechanical manner based on audit objections and issuing notice u/s 148(1) of the Act, without recording his own independent satisfaction to re-open the otherwise concluded assessment u/s 143(3) of the Act.Thus, in our considered view and based on the factual matrix of the case as set out above , this act of an AO .....

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ed. We did not find any infirmity in the well reasoned and detailed orders of the learned CIT(A) dated 20-09-2013 which we affirm. While coming to the above conclusions ,we have duly considered the decision relied upon by the ld. Counsel for the assessee company of the Hon ble Delhi High Court Full Bench in the case [2012] 348 ITR 485 (Del) CIT v. Usha International Ltd. anddecision of the Ahmedabad Benches of the ITAT in the case of Sweta Organisors Private Limited v. ACIT (2008)118 TTJ 426(Ahd .....

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able as in the present case, the AO duly enquired about one time settlement entered into by the assessee company and asked for details which were duly submitted along with evidences by the assessee company as set out above with respect to one time settlement arrived at by the assessee company and relief/waiver obtained by the assessee company. The AO formed an opinion and accepted the contentions of the assessee company after examining the claim of the assessee company . Thus, it could not be sa .....

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which is not permissible within the ambit of Section 147/148 of the Act. b) Hon ble Supreme Court decision in the case of Ess Ess Kay Engineering Company Private Limited v. CIT (2002) 247 ITR 818 (SC) - In this case, the Hon ble Supreme Court dealt with power of the AO to re-open assessment u/s 147/148 of the Act when there is a new and tangible material in possession of the AO leading to the conclusion that income has escaped assessment while in the instant case there was no fresh tangible mate .....

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d.) - In this case , the Hon ble Madras High Court has upheld that re-assessment is not possible based on change of opinion but if no opinion is formed in the original assessment proceedings, then re-assessment is justified based on tangible material which may come to the notice of the AO after the conclusion of the original assessment, in the instant case under appeal we have based on the appreciation of facts concluded that the AO did form an opinion while framing original assessment orders u/ .....

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e instant appeal all the facts relating to one time settlement entered into by the assessee company with the Bank were placed before the AO vide letter dated 11-11-2008 and also in audited financial statements, Directors Report and notes to accounts as set out above and the AO considered the same before allowing relief to the assessee company.However, with utmost respect , this decision is reversed by Hon ble Madras High Court in Revathy CP Equipment Limited v. DCIT,(2010) 321 ITR 384(Mad.) e) S .....

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anted relief has become the assessee company s own money , the same should be treated as cessation of liability and income of the assessee company of the previous year u/s 41 of the Act, while the AO has taken one of the possible view that waiver of capital relief by way of outstanding payable as per the books of accounts reflected in the bank statement being part of NPA account is on capital account not exigible to tax based on all the facts and material placed before the AO by the assessee com .....

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of income, rather based on the same facts and material on record , the audit team has interpreted that waiver/relief of the bank loan under one time settlement with the Bank to have become the assessee company s own money and is a cessation of liability chargeable to tax u/s 41 of the Act, while the AO has already on the basis of same facts and material before him formed an opinion that the said capital relief is not exigible to tax.The assessee comapny has also fully and truly disclosed all mat .....

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assessment. Section 147 authorises and permits the AO to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. Thus, again it could be seen that Hon ble Supreme Court held that the AO has power to assess or reassess the income and the AO does not have powers to review the assessment which was made by the AO based on opinion formed during the assessment proceedings. Thus, change of opinion is not permitted to enable th .....

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is interpreting the law with respect to the provisions of Section 41 of the Act to conclude that the loan was taken by the assessee company in the course of business and there is a waiver of loan and hence the money has become assessee company s own money and the same should be treated as income of the assessee company for the previous year u/s 41 of the Act. i) Hon ble Supreme Court in the case of Indian and Eastern Newspaper Society v. CIT (1979)119 ITR 996(SC) - It was held that by Hon ble Su .....

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h are specifically authorised to exercise adjudicatory functions . The Comptroller and Auditor-General's ( Duties, Powers & Condition) Act does not also envisage such a power. Neither statute supports the conclusion that an audit party can pronounce on the law, and that such pronouncement amounts to "information" within the meaning of section 147(b) . In every case, the ITO must determine for himself what is the effect and consequence of the law mentioned in the audit note and .....

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spaper Society(supra), the ITO had, when he made the original assessment, considered the provisions of sections 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. An error discovered on a reconsideration of the same material does not empower the ITO to reopen the assessment under section 147(b). Plainly, the statutory provision envisages that the ITO must have information in his po .....

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e Income-tax Department are co-extensive with that of receipt audit or on the basis of the provisions specifically detailing its functions in the Internal Audit Manual, the opinion of an internal audit party of the Income-tax Department on a point of law cannot be regarded as "information" within the meaning of section 147(b) . Thus, in the case under instant appeal , the audit objection cannot be considered as tangible material for the AO to reopen u/s 147/148 of the Act concluded ass .....

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