ACIT, Cirlce-2(2), Hyd, Hyderabad V. Hemadri Cements Ltd., Jaggayapet Mandal, Krishna Dist.

CO 24/HYD/2016

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3884 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 06-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B K VISHNU PRIYA
• Assessee Lawyers: B S PURUSHOTHAM
• Keywords: Reopening of assessment; Capital asset; Audit objection; Tangible material; Difference of opinion; Assessment record; Capital receipt; Change of opinion
• Section: 43B; 143(3); 142(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B BENCH: HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA. NO.516/HYD/2015 ASSESSMENT YEAR:2008 - 2009 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 2(2), HYDERABAD. VS. M/S. HEMADRI CEMENTS LIMITED, R.NO. 509, 5 TH FLOOR, MODEL HOUSE, PANJAGUTTA, HYDERABAD. PAN: AAACH 4943 G (APPELLANT) (RESPONDENT) C.O. NO.24/HYD/2016 (ARISING OUT OF ITA. NO.516/HYD /2015) ASSESSMENT YEAR:2008 - 2009 M/S. HEMADRI CEMENTS LIMITED, R.NO. 509, 5 TH FLOOR, MODEL HOUSE, PANJAGUTTA, HYDERABAD. PAN: AAACH 4943 G VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 2(2), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI B.S. PURUSHOTHAM FOR REVENUE : SMT. B.K. VISHNUPRIYA, DR DATE OF HEARING : 05.06.2018 DATE OF PRONOUNCEMENT : 05.06.2018 ORDER PER D. MANMOHAN , VP. THIS IS AN APPEAL FILED AT THE INSTANCE OF REVENUE AND IT PERTAINS TO ASSESSMENT YEAR 2008 - 09. FO LLO WING GROUNDS WERE URGED BEFORE US: 1. THE CIT(A) ERRED ON FACTS AND IN LAW IN QUASHING THE RE - OPENING OF ASSESSMENT U/S.147 OF THE IT ACT. 2. THE CIT(A) OUGHT TO HAVE DECIDED THE CASE BASED ON THE MERITS OF THE CASE. 3. THE CIT(A) HAS FAILED TO TAKE INTO COGNIZANCE OF THE FACT THAT THE CASE WAS REOPENED WITHIN 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. IN SUCH 2 CIRCUMSTANCES, 1 S T PROVISO TO S.147 OF THE INCOME T AX ACT IS NOT APPLICABLE TO THE INSTANT CASE. 4. THE CIT(A) HAS ERRED IN QUASHING THE RE - OPENING OF ASSESSMENT U/S.147 OF THE IT ACT. THE CIT(A) HAS FAILED TO NOTE THAT EVEN DURING THE ORIGINAL ASSESSMENT PROCEEDINGS, THE AO VIDE NOTICE U/S.142(1) DT.02/02/201 0, ASKED THE ASSESSEE TO FURNISH THE REASON FOR NOT OFFERING THE TERM LOAN WAIVED AS INCOME. IN RESPONSE TO THE SAME, THE ASSESSEE VIDE LETTER DT.18/03/2010 HAS MERELY FURNISHED THE LEDGER ACCOUNT STATEMENT AND THE ASSESSEE HAS NOT EXPLAINED AS TO WHY THE WAIVER OF TERM LOAN OF RS.5,35,73,431/ - WAS NOT OFFERED AS INCOME. FROM THIS IT IS EVIDENT THAT THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE F U LLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT FOR A Y 2008 - 09 . 5. THE CIT(A) HAS ERRED IN QUASHING THE RE - OPENED ASSESSMENT ON THE BASIS THAT THE RE - OPENING WAS DONE BASED ON THE AUDIT OBJECTION. THE CIT (A) HAS FAILED TO NOTE THAT HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME VS. PVS BEEDIES PVT. LTD. 237 ITR 13, HELD THAT THE RE - OPENING OF THE CASE ON THE BASIS OF FACTUAL I NFORMATION GIVEN BY THE AUDIT PARTY IS VALID IN LAW. 6. ANY OTHER GROUND THAT MAY BE TAKEN UP AT THE TIME OF HEARING. 2. IT IS NOT OUT OF PLACE TO MENTION THAT THE ASSESSEE FILED CROSS OBJECTION, NOT ONLY TO SUPPORT THE ORDER PASSED BY THE LD. CIT(A) BUT ALSO ON THE ISSUE WHICH WAS NOT CONSIDERED BY THE LD. CIT(A) BY HOLDING THAT THE ISSUE ON MERITS IS OF ACADEMIC IMPORTANCE. SINCE THEY ARE INTER - CONNECTED, WE PROCEED TO DISPOSE OF THESE APPEALS BY A COMBINED ORDER, FOR THE SAKE OF CONVENIENCE. 3. ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF CEMENT. FOR THE YEAR UNDER CONSIDERATION IT DECLARED NIL INCOME, WHICH WAS ACCEPTED BY THE A.O. IN AN ORDER PASSED U/S 143(3) OF THE ACT. LATER - ON, A.O. SOUGHT TO REOPEN THE ASSESSMENT ON ACCOUNT O F AUDIT OBJECTION. NOTICE U/S 148 OF THE ACT WAS ISSUED ON 21.01.2013. IN THE NOTICE U/S 142(1) OF THE ACT, ASSESSING OFFICER CALL ED FOR REASONS FOR WAIVER OF LOAN AND NOT OFFERING TO TAX THE SAID AMOUNT. 4. IT MAY BE NOTICED THAT THE ASSESSEE COMPANYS TERM LOAN OF RS. 5,35,73,431/ - WAS WAIVED UNDER ONE - TIME SETTLEMENT WITH IDBI. IN THE OPINION OF THE ASSESSING OFFICER, THE LOAN WAIVER AMOUNTS TO A BENEFIT TO THE ASSESSEE AND TAXABLE EITHER U/S 41(1) OR 28(IV) OF THE ACT. IN REPLY THERETO, THE ASSESSE E CONTENDED THAT IT WAS A WAIVER OF PRINCIPLE AMOUNT OF LOAN. THE ASSESSEE ENTERED INTO ONE - TIME SETTLEMENT SCHEME IN 3 RESPECT OF THE LOAN TAKEN FOR ACQUIRING CAPITAL ASSETS. THE ASSESSEE HAS GOT A TOTAL WAIVER AMOUNTING TO RS. 51.39 CRS , SPLIT INTO TWO COMPONENTS I.E., PRINCIPLE AND INTEREST PORTIONS. THESE AMOUNTS WERE CREDITED TO THE P & L ACCOUNT AS EXTRAORDINARY INCOME. HOWEVER, INTEREST WAIVER WAS NOT OFFERED TO TAX SINCE IT WAS ALREADY DISALLOWED IN THE RESPECTIVE YEARS U/S 43B OF THE ACT. AS REGARDS THE PRINCIPLE PORTION, IT WAS CONTENDED THAT IT IS A CAPITAL RECEIPT, WHICH IS NEITHER ASSESSABLE TO TAX U/S 28(IV) NOR U/S 41(1) OF THE ACT. 5. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE. HE OBSERVED THAT SINCE T HERE IS NO DISCU SSION IN THE ASSESSMENT ORDER WITH REGARD TO THE ISSUE UNDER CONSIDERATION, HE IS EMPOWERED TO REOPEN THE ASSESSMENT U/S 147 OF THE ACT WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, EVEN THOUGH THERE IS COMPLETE DISCLOSURE OF ALL RELEVANT FACTS. ON MERITS ALSO, HE OBSERVED THAT IT IS TAXABLE U/S 41(1) READ WITH SECTION 28(IV) OF THE ACT. 6. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE LD. CIT(A) THAT RE - ASSESSMENT PROCEEDINGS ARE BAD IN LAW AND EVEN ON MERITS, IT IS NOT A FIT CASE FOR BRINGING TO TAX THE AMOUNT WAIVED UNDER ONE - TIME SETTLEMENT. 7. ASSESSEE RELIED UPO N VARIOUS DECISIONS IN SUPPORT OF HIS CONTENTION THAT RE - ASSESSMENT PROCEEDINGS ARE BAD IN LAW SINCE IT IS MERELY BASED UPON AN AUDIT OBJECTION AND THERE IS NO FR ESH AND TANGIBLE MATERIAL THAT HAS COME IN THE POSSESSION OF THE ASSESSING OFFICER TO ENABLE HIM TO REOPEN THE ASSESSMENT. IT WAS ALSO CONTENDED THAT THERE WAS NO MENTION OF ANY AUDIT OBJECTION IN THE ORDER SHEET MAINTAINED IN THE ASSESSMENT RECORD AND IN FACT THE ASSESSING OFFICER HAS APPLIED HIS MIND AND ANALYSED THE ISSUE OF APPLICABILITY OF SECTION 41(1) R.W.S 28(IV) OF THE ACT BEFORE ARRIVING AT A CONCLUSION , DURING THE ORIGINAL 4 ASSESSMENT PROCEEDINGS , AND HENCE IT CANNOT BE SAID THAT THERE IS NO APPLI CATION OF MIND BY THE ASSESSING OFFICER. ON MERITS, IT WAS CONTENDED THAT THERE ARE FAVO URABLE DECISIONS IN RESPECT OF THE ISSUE OF NON TAXING THE RECEIPT UNDER ONE - TIME SETTLEMENT. 8. LD. CIT(A) CALLED FOR THE ASSESSMENT RECORD AND NOTED THAT AUDIT PARTY RAISED AN OBJECTION ON 23.09.2011 WITH REFERENCE TO TERM LOAN, BROUGHT FORWARD L OSS ES AND IN REPLY THERETO, THE ACIT, CIRCLE - 2(2) WROTE TO THE ADDITIONAL COMMISSIONER OF INCOME TAX WHEREIN IT WAS STATED THAT THE WAIVER OF PRINCIPLE AMOUNT CONSTITUTES A PRI NCIPLE AMOUNT IN THE HANDS OF THE ASSESSEE AND AS SUCH NEED NOT BE BROUGHT TO TAX WHEREAS THE INTEREST COMPONENT STANDS ON A DIFFERENT FOOTING. IN FACT THE INTEREST COMPONENT WAS DISALLOWED IN THE PREVIOUS YEARS, U/S 43B OF THE ACT , WHICH IS EVIDENT FROM THE COMPUTATION MEMOS OF THE RESPECTIVE YEARS IN WHICH EVENT IT CANNOT BE BROUGHT TO TAX IN THIS YEAR. HE HAS EXTRACTED A DETAILED REPLY GIVEN BY THE ACIT TO HIGHLIGHT THAT DESPITE THESE STRONG OBJECTION S TO THE AUDIT QUERIES, RE - ASSESSMENT PROCEEDINGS WERE INITIATED , WITHOUT TAKING ANY INDEPENDENT VIEW ON THE MATTER AND WITHOUT ANY TANGIBLE MATERIAL ON RECORD AND HENCE RE - ASSESSMENT PROCEEDINGS ARE HELD TO BE BAD IN LAW. APART FROM SEVERAL DECISIONS, LD. CIT(A) RELIED UPON A RULING OF THE APEX COURT IN THE CASE OF INDIAN AND EASTERN NEWSPAPER SOCIETY VS. CIT (119 ITR 996) WHEREIN THE COURT OBSERVED THAT THE AUDIT BY THE COMPTROLLER AND AUDITOR GENERAL IS PRINCIPALLY INTENDED FOR THE PURPOSES OF SATISFYING ITSELF WITH REGARD TO THE SUFFICIE NCY OF THE RULES AND PROCEDURES PRESCRIBED FOR THE PURPOSE OF SECURING AN EFFECTIVE CHECK ON THE ASSESSMENT AND IF ONCE THE RULES ARE FOLLOWED SCRUPULOUSLY, THE AUDIT DEPARTMENT SHOULD NOT , IN ANY W AY , SUBSTITUTE ITSELF FOR THE REVENUE AUTHORITIES IN THE PERFORMANCE OF THEIR STATUTORY DUTIES. IN OTHERWORDS, REOPENING MERELY BASED ON AUDIT OBJECTION WOULD AMOUNT TO CHANGE OF OPINION BY THE ASSESSING OFFICER AND HENCE THE RE - ASSESSMENT PROCEEDINGS INI TIATED 5 THEREUNDER ARE LIABLE TO BE QUASHED. LD. CIT(A) ACCORDINGLY QUASHED THE RE - ASSESSMENT PROCEEDINGS AND DID NOT ADJUDICATE OTHER GROUNDS ON MERITS. 9. REVENUE NOW PREFERRED AN APPEAL CHALLENGING THE ORDER PASSED BY THE LD. CIT(A) BY CONTENDING THAT THE REOPENING OF ASSESSMENT IS NOT BAD IN LAW. ONE OF THE PLEAS OF LEARNED DEPARTMENTAL REPRESENTATIVE IS THAT THERE IS AN AUDIT OBJECTION BUT IF THE AUDIT PARTY BRING S OUT A FACTUAL ERROR IN THE ASSESSMENT, THE A.O. IS COMPETENT TO REOPEN THE ASSESSMENT U/S 147(B) OF THE ACT. 10. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE FILED A BRIEF NOTE TO CONTEND THAT DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS THE ASSESSEE - COMPANY, ON A SPECIFIC QUERY BY THE ASSESSING OFFICER, SUBMITTED DETAILS RE LEVANT TO WAIVER OF LOAN BY THE BANK AND HENCE IT CANNOT BE TREATED AS A FACTUAL ERROR COMMITTED BY THE ASSESSING OFFICER. HE HAS ALSO REFERRED TO THE REASONS FOR REOPENING AS WELL AS THE WRITTEN SUBMISSIONS FILED BEFORE THE LD. CIT(A). IT WAS STRONGLY C ONTENDED THAT THE REOPENING OF ASSESSMENT IS BAD IN LAW AND ADDITION CANNOT BE MADE EITHER U/S 28(IV) OR U/S 41(1) OF THE ACT. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE MAIN CASE OF THE ASSESSEE IS THAT THERE IS NO LIVE NEXUS OR LINK BETWEEN FORMATION OF REASONS TO BELIEVE AND FOR REOPENING OF ASSESSMENT AND ASSESSMENT WAS BASED ON AN AUDIT OB JECTION, WHICH IS NOT PERMISSIBLE IN LAW. LD. CIT(A) HAS ELABORATELY CONSIDERED THE ISSUE WHILE COMING TO THE CONCLUSION THAT THE ASSESSING OFFICER HAS APPLIED HIS MIND INDEPENDENTLY DURING THE ORIGINAL ASSESSMENT PROCEEDINGS AND THEREFORE, REOPENING OF A SSESSMENT ON THE SAME ISSUE WOULD AMOUNT TO CHANGE OF OPINION. LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT THE FINDINGS OF THE LD. CIT(A). UNDER THESE CIRCUMSTANCES, 6 WE ARE OF THE VIEW THAT THE ORDER PASSED BY THE LD. CIT(A) DESERVES TO BE U PHELD. ACCORDINGLY, WE DISMISS THE APPEAL FILED BY THE REVENUE. 12. EVEN WITH REGARD TO THE CROSS OBJECTION, WE HAVE NOTICED THAT THE HONBLE SUPREME COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD IN CIVIL APPEAL NOS. 6949 - 6950 OF 2004 , DATED 24 TH APRIL, 2 018 HELD THAT SECTION 41(1) AS WELL AS 28(IV) DO NOT APPLY WHEN IT IS CONCERNED WITH THE LOAN WAIVER. THUS EVEN ON MERITS, THE ORIGINAL ORDER PASSED BY THE ASSESSING OFFICER DO NOT CALL FOR ANY INTERFERENCE AND THEREFORE, THE RE - ASSESSMENT PROCEEDINGS , BE ING ATTRIBUTABLE TO THE AUDIT OBJECTION THAT TOO WITHOUT APPLICATION OF MIND AND WITHOUT ANY FRESH MATERIAL ON RECORD ARE LIABLE TO BE QUASHED . WE THEREFORE DISMISS THE APPEAL FILED BY THE REVENUE AND ALLOW THE CROSS OBJECTION FILED BY THE ASSESSEE. PRON OUNCED ACCORDINGLY IN THE OPEN COURT ON 05 TH JUNE, 2018. SD/ - SD/ - (B. RAMAKOTAIAH) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD, DATED: 05 TH JUNE, 2018. OKK, SR.PS COPY TO 1. M/S. HEMADRI CEMENTS LIMITED, R.NO.509, 5 TH FLOOR, MODEL HOUSE, PANJAGUTTA, HYDERABAD. 2. DCIT, CIRCLE - 2(2), R.NO.513, 5 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD. 3. CIT (A) - 2, HYDERABAD. 4. PR. CIT - 2, HYDERABAD. 5. DR, ITAT, HYDERABAD. 6. GUARD FILE