TMI Blog2018 (8) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... loan was for general funding requirement. Now the assessee is making a U-turn and claiming that the said loan was utilized to pay off earlier financial institutions loans which in turn were used for acquisition of capital asset. In this regard, we note that firstly these submissions and documents were not before the authorities below. In our considered opinion, they need to be verified with reference to the original records as to whether the claim of the assessee as above is correct or not. It is only after that that it has to be considered as to whether the new claim of the assessee that the said ECB loan was used for capital purposes, can be entertained.Upon careful consideration, in the interest of justice, we remit the issue to the file of the Assessing Officer. The Assessing Officer shall consider the issue afresh after giving a factual finding regarding the veracity of the assessee’s new claim mentioned hereinabove. - Decided partly in favour of assessee for statistical purposes. - I.T.A. No. 6308/Mum/2011 - - - Dated:- 30-7-2018 - SHRI SHAMIM YAHYA, AM AND SHRI RAM LAL NEGI, JM For The Appellant : Shri Nitesh Joshi For The Respondent : Shri V. Justin ORDE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Ltd. is assessable to income tax income. The ratio of the supreme court judgement in the case of CIT vs. T. V. Sundaram Iyengar Songs Ltd. (222 ITR 344) applies to the case. The assessee did not admit the amount waived of ₹ 7,00,66,000/- as income for income tax purpose when it filed the return of income. hence, i have reason to believe that the income chargeable to tax has escaped assessment. The income which has escaped assessment is ₹ 7,00,66,000/- Accordingly, notice u/s. 148 was issued on 20.9.2006. 4. In the reassessment order on this issue, the Assessing Officer has referred to the provisions of section 41(1) of the Income Tax Act, 1961. Thereafter, he has noted that the assessee obtained loan from M/s.Doshin Hongkong Ltd., Hongkong for the purpose of working capital. That loan obtained was in the course of regular business and it is an ordinary trade transaction. Therefore, Assessing Officer opined that the transaction can be categorized as trading liabilities. Hence, the Assessing Officer held that when the loan was waived by the creditor, the same become the income of the assessee as the transaction took place out of ordinary trading transaction. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to such transfer or transaction even where there has been a complete disclosure of all relevant facts upon which a correct assessment could have been based . 4.4 In fact, the action taken by the AO for reopening the assessment-is based on sound reasons recorded by him and reproduced in the assessment order which is reproduced again hereunder for proper appreciation: The assesses took loan of US $ 3 million from M/s.Doshin Hongkong Ltd., Hongkong for working capital requirements. As on 31.03.2001, the loan amount outstanding was ₹ 10,79,70,000/-. The loan amount outstanding as on 31.03.2002 was ₹ 3,31,66,000/-. The difference was ₹ 7,48,04,000/-(10,79,70,000 - 3,31,66,000). Out of this amount of ₹ 7,48,04,000/-, the assessee repaid ₹ 47,38,000/-. The balance amount of ₹ 7,00,66,000 was waived by M/s. Dolphin Hong kong Ltd. The amount waived by M/s.Doshin Hongkong Ltd. is assessable to income tax as income. The ratio of the Supreme Court judgement in the case of CIT vs. T. V. Sundaram lyengar Sons Ltd. (222 ITR 344) applies to the case. The assessee did not admit the amount waived of ₹ 7,00,66,000/- as income for income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chuniial Patel: Vasant Chunilal Pare/ vs. ACIT 236 ITR 832,840, (Guj). 4.8 In view of the above observations, it is held that the objection of the appellant raised in Ground no.l has no force and, accordingly, the same is dismissed. 6. On merits, the ld. Commissioner of Income Tax (Appeals) confirmed the action of the Assessing Officer by holding as under: 6.3 I have carefully considered the issue. The fact of the matter is that the appellant took US $ 3 million from Doshin HongKong Limited (DHL) apparently for working capital requirements. M/s.DHL has finally written off an amount equivalent of ₹ 7,00,66,000/-in their books of accounts, thereby making the appellant ultimate beneficiary of this amount without any further encumbrances. The allegation of the AO that the appellant had a running account of transactions with DHL, has not been denied by the appellant. When a long standing financial relation subsists between two entities, there is a merger of capital and revenue accounts. In the given circumstances of the case, therefore, the Id.AO was correctly of the opinion that such write off by M/s.DHL and corresponding write off in the appellant's books are hit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) I say that in or around October, 1996, SPLPL arranged External Commercial Borrowings (ECB) from one Doshin Hongkong Limited (Doshin) amounting to approx. USD 3 Million; 6) I say that the amounts raised through such ECB were utilized mainly to repay the loan raised from financial institutions; 7) I say that the assessment for assessment year 2002-03 was re-opened and the reasons for re-opening stated that since loan waived off was used for working capital purpose, the same constitutes a trading liability and waiver of such liability constitutes income under provisions of section 41 of the Act; 8) I say that in submissions before the Assessing Officer as well as the Commissioner of Income-tax (Appeals), SPLPL has inadvertently stated that the loan was obtained for working capital requirement; 9) I say that the loan from financial institutions was used for the purpose of acquiring of capital assets and it was inadvertent error on the part of SPLPL to make the submission that the loan was utilized for working capital; 10) I say that the loan from financial institutions, was used for the purpose of acquisition of fixed assets only and ECB was utilized to repay the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1. -Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2. -For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- ( a ) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; ( b ) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; ( ba ) where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the present case on the touch stone of the above said decision. In the present case, the earlier assessment was completed u/s. 143(3). No case has been made out that this issue of waiver of loan was considered by the Assessing Officer. There is neither any discussion nor any query in this regard has been raised to the Assessing Officer. Hence, it cannot be said that the Assessing Officer has formed any opinion which he is changing. Furthermore, we note that the assessment in this case has been made within four years of the assessment u/s. 143(3) of the Act. We also found that the issue of waiver of working capital or general is not disclosed anywhere in the accounts or in the return of income. In this regard , Explanation 1 inserted by Finance Act, 2008 w.e.f. 01.04.2008 is relevant. The said explanation provides that the pproduction before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. We find that in this case nowhere it is emanating that the fact that the assessee is not treating a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Kelvinator of India Ltd. (supra) it can be clearly said that there is a tangible material for the Assessing Officer to come to the conclusion that there is an escapement of income from business. Hence, the reasons do have a live link with the formation of the belief. Furthermore, the case law from the Hon ble Gujarat High Court in the case of Praful Chuniial Patel (supra) is also germane. Accordingly, in the background of the aforesaid discussion and precedent, in our considered opinion, there is no infirmity in the order of the ld. Commissioner of Income Tax (Appeals) on the issue of reopening. Accordingly, we uphold the same. 19. As regards the merits of the case, we find that the assessee had raised additional evidences and additional ground. In an affidavit mentioned above, it has been said that the amount raised from ECB (External Commercial Borrowing) were utilized mainly to repay the loan from financial institutions. It has further been claimed that in the submissions before the Assessing Officer as well as ld. Commissioner of Income Tax (Appeals), it was inadvertently stated that the loan was obtained for working capital requirement. It has further bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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