M/s Terra Agro Technologies Limited, Jalgaon V. ACIT, Coimbatore

ITA 1503/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4950 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 06-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 13-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR I VIJAYAKUMAR ITA NOS
• Keywords: Reopening of assessment; Capital asset; Depreciation; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 147; 148; 28; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C, CHENNAI B E F O R E DR. O.K.NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER .. I.T.A. NO.1503(MDS)/2010 ASSESSMENT YEAR: 2004-05 M/S.TERRA AGRO TECHNOLOGIES THE ASSIS TANT COMMISSIONER LTD.(NOW JAIN IRRIGATION SYSTEMS OF INCOM E-TAX, LTD.), JAIN PLASTIC PARK, JAIN VS. COMPA NY CIRCLE IV(1), FIELDS, P.O.BOX 72, COIMBATORE. JALGAON-425 001. PAN AAACT7125Q. (APPELLANT) (RESPONDENT) AND I.T.A. NO.1584(MDS)/2010 ASSESSMENT YEAR: 2004-05 THE ASSISTANT COMMISSIONER M/S.TERRA AGRO TECHNOLOGIES OF INCOME-TAX, VS. ( NOW JAIN IRRIGATION SYSTEMS COMPANY CIRCLE IV(1), LTD .), JALGAON, COIMBATORE. MAHARASHTRA. ASSESSEE BY : SHRI PERCY PARDIWAL A, SENIOR ADVOCATE FOR MR. JITEN DRA JAIN, ADVOCATE DEPARTMENT BY : DR. I.VIJAYAKUMAR ITA NOS.1 503 & 1584/2010 2 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THESE CROSS APPEALS ARE FILED BY THE ASSESSEE AND REVENUE RESPECTIVELY FOR THE ASSESSMENT YEAR 2004-0 5. THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMI SSIONER OF INCOME TAX (APPEALS)-I AT COIMBATORE DATED 14-7-201 0 AND ARISE OUT OF THE ASSESSMENT COMPLETED UNDER SECTION 143(3), R EAD WITH SECTION 147 OF THE INCOME-TAX ACT, 1961. 2. THE FIRST GROUND RAISED BY THE ASSESSEE IN ITS APPEAL IS TO CHALLENGE THE VALIDITY OF NOTICE ISSUED BY THE ASSE SSING AUTHORITY UNDER SECTION 148 TO REOPEN THE ASSESSMENT UNDER SE CTION 147. IT IS THE CASE OF THE ASSESSEE THAT THE WAIVER OF LOAN OF ` 7,60,76,157/- BY BANKS AND ` 6,00,00,000/- BY BODY CORPORATE WAS VERY MUCH REFLECTED IN THE STATEMENTS OF ACCOUNTS FILED BEFOR E THE ASSESSING AUTHORITY AND THE PARTICULARS OF THE WAIVER OF LOAN S HAVE BEEN PLACED BEFORE HIM. AT THE TIME OF ORIGINAL ASSESSMENT THE EXPLANATIONS AND PARTICULARS FURNISHED BY THE ASSESSEE HAVE BEEN ACC EPTED AND IT IS ONLY ON A CHANGE OF OPINION THAT THE ASSESSING AUTH ORITY HAS MADE THE SAME ISSUE A GROUND TO REOPEN THE ASSESSMENT. IT IS THE CASE OF THE ASSESSEE THAT THE SUPREME COURT DECISION, RELIE D ON BY THE ITA NOS.1 503 & 1584/2010 3 ASSESSING OFFICER, IN THE CASE OF T.V.SUNDARAM IYEN GAR & SONS LTD. VS. CIT, 222 ITR 344, WAS ALSO AVAILABLE AT THE TIM E OF ORIGINAL ASSESSMENT AND PLACING RELIANCE ON THE SAID DECISIO N FOR THE PURPOSE OF REOPENING OF THE ASSESSMENT AMOUNTS TO CHANGE OF OPINION. IT IS THE FURTHER CASE OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS NOT FURNISHED THE REASONS FOR REOPENING OF THE ASSESSME NT AND IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF G.K.N.DRIVESHAFTS(INDIA) LTD. VS, ITO, 259 ITR 19, THE REASSESSMENT PROCEEDINGS ARE BAD IN LAW. THE ASSESSEE HAS ALSO STATED THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCL OSE THE RELEVANT MATERIAL FACTS. 3. SHRI PERCY PARDIWALA, THE LEARNED SENIOR ADVOCA TE APPEARING FOR THE ASSESSEE, ALONGWITH SHRI JITEDRA JAIN, ADVOCATE, HIGHLIGHTED HIS POINTS OF ARGUMENTS ON THE VERY SAM E GROUND THAT THE REOPENING WAS BAD IN LAW, BUT ON A MODIFIED GROUND. ACCORDING TO THE LEARNED SENIOR COUNSEL, EVEN IF ALL THE PROCEDU RES ARE CONSIDERED TO BE CORRECTLY FOLLOWED BY THE ASSESSING OFFICER, SAY FOR THE SAKE OF ARGUMENT, STILL, A REOPENING MADE ON THE BASIS OF A REASON NOT SUSTAINABLE IN LAW IS ALWAYS BAD IN LAW. ITA NOS.1 503 & 1584/2010 4 4. THE LEARNED SENIOR COUNSEL INVITED OUR ATTENTIO N TO THE COMMUNICATION RECEIVED FROM THE ASSESSING AUTHORITY THROUGH A LETTER DATED 14-10-2009, WHEREIN THE ASSESSING OFFICER HAS RECORDED THE REASON FOR REOPENING THE ASSESSMENT, WHICH IS AS FO LLOWS:- DURING THE ASSESSMENT YEAR 2004-05, THE ASSESSEE SHOWN AN AMOUNT OF ` `` ` 13,53,70,050/- AS AN EXTRA ORDINARY INCOME IN P & L A/C. IT REPRESENTED ` `` ` 6,00,00,000/- AS UNSECURED LOAN FROM CORPORATE WRITTEN BACK AND ` `` ` 7,60,76,157/- BEING CONCESSION GIVEN BY BANKS TOWARDS WAIVER OF PRINCIPAL AMOUNT OF LOAN. IT IS OBSERVED THAT T HE WRITING OFF OF AMOUNTS DUE TO CREDITORS BY THE ASSESSEE, BY CREDIT TO PROFIT AND LOSS ACCOUNT CONSTITUTED A BENEFIT U/S 28(IV). 5. THE LEARNED SENIOR COUNSEL SUBMITTED THAT THE T WO AMOUNTS WRITTEN BACK BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT UPON WAIVER OF THOSE LIABILITIES WERE NOT IN THE NA TURE OF INCOME ASSESSABLE FOR TAXATION. THE LEARNED SENIOR COUNSE L INVITED OUR ITA NOS.1 503 & 1584/2010 5 ATTENTION TO THE DECISION OF THE HONBLE APEX COURT RENDERED IN THE CASE OF COMMISSIONER OF AGRICULTURAL INCOME-TAX VS. KERALA ESTATE MOORIAD CHALAPURAM, 161 ITR 155, WHERE THIS LEGAL Q UESTION WAS CONSIDERED BY THE COURT IN THE CONTEXT OF THE INDIA N INCOME-TAX ACT, 1922. THERE HAS BEEN SERIOUS CONTROVERSY THROUGH TH E YEARS ON THE QUESTION WHETHER AN AMOUNT REFUNDED OR REMITTED, CO NSTITUTES THE INCOME OF AN ASSESSEE. IN CIT VS.LAKSHMAMMA, 52 IT R 789, THE MYSORE HIGH COURT TOOK THE VIEW THAT A REFUND RECEI VED BY THE ASSESSEE IN RESPECT OF EXCISE FEES PAYABLE BY HIM A MOUNTED TO A REVENUE RECEIPT LIABLE TO TAX. IN THAT CASE, HOWEV ER, THE HIGH COURT SPECIFICALLY MADE A DISTINCTION BETWEEN CASES OF RE FUND AND CASES OF REMISSION, AND IT APPEARS TO HAVE TAKEN THE POSITIO N THAT AN AMOUNT RECEIVED AS REMISSION OF DUTY COULD NOT BE TREATED AS A REVENUE RECEIPT, WHILE AN AMOUNT RECEIVED BY WAY OF REFUND COULD BE. IN THE JUDGMENT OF THE KERALA HIGH COURT THE DECISION OF T HE MYSORE HIGH COURT WAS CONSIDERED AND AFTER EXHAUSTIVELY SURVEYI NG SEVERAL DECISIONS, CAME TO THE CONCLUSION THAT THE REMISSIO N IN THAT CASE COULD NOT AMOUNT TO AGRICULTURAL INCOME. WHAT WAS ALLOWED TO BE DEDUCTED FROM THE TOTAL AGRICULTURAL INCOME OF THE ASSESSEE WAS THE INTEREST. IT WAS A DEDUCTION MADE PERMISSIBLE BY T HE ACT. TO BE ITA NOS.1 503 & 1584/2010 6 REGARDED AS TAXABLE IN THE HANDS OF THE ASSESSEE, T HE AMOUNT WHICH WAS THE SUBJECT OF REMISSION MUST BE CAPABLE OF BEI NG DESCRIBED AS AGRICULTURAL INCOME. WHAT WAS RETURNED TO THE ASSE SSEE IN THAT CASE HAS NOTHING TO DO WITH THE ACTIVITIES OF THE ASSESS EE AND IT DOES NOT ARISE FROM BUSINESS OR FROM AGRICULTURAL OPERATIONS . 6. AFTER EXAMINING THE FACTUAL FRAMEWORK IN THE AB OVE MANNER, THE HONBLE SUPREME COURT FURTHER OBSERVED THAT NOW THE SITUATION HAS BEEN OVERCOME BY THE LEGISLATURE. THE HONBLE APEX COURT CONTINUED TO STATE THAT TO ELIMINATE SUCH A C ONTROVERSY IN CASES FALLING UNDER THE INCOME-TAX ACT, 1922, SUB-SECTION (2A) WAS ADDED IN SECTION 10 OF THAT ACT WHEREBY A RECEIPT SUCH AS TH IS WAS EXPRESSLY MADE LIABLE TO TAX BY LEGAL FICTION AS PROFITS AND GAINS OF BUSINESS, PROFESSION OR VOCATION. THE COURT HAS ALSO OBSERVED THAT THE SAID SECTION HAS NOW BEEN REPLACED BY A WIDER PROVISION AS SECTION 41(1) OF THE INCOME-TAX ACT, 1961. 7. THE LEARNED SENIOR COUNSEL APPEARING FOR THE AS SESSEE, PLACING HEAVY RELIANCE ON THE ABOVE JUDGMENT, SUBMI TTED THAT IN ALL SUCH CASES OF REMISSION OF LIABILITY IT IS SECTION 41(1) THAT WOULD APPLY AND NOT SECTION 28(IV), AS CONSTRUED BY THE ASSESSI NG AUTHORITY. HE APPEALED THAT THE AUTHORITIES CANNOT UNDO THIS BASI C INFIRMITY IN THE ITA NOS.1 503 & 1584/2010 7 REASONS RECORDED BY THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT. HE FURTHER EXPLAINED THAT IF AT ALL TO BRING THESE TWO ITEMS UNDER SECTION 41(1), THE ESSENTIAL CONDITION MUST BE SATISFIED. THE ESSENTIAL CONDITION IS THAT SUCH AMOUNT SHOULD HAVE BEEN CLAIMED BY THE ASSESSEE AS DEDUCTION IN THE PAST IN COMPUTING ITS TAXABLE INCOME. AS THESE TWO AMOUNTS WERE AVAILED AS LOANS, THE SAME WAS NEVER CLAIMED AS DEDUCTION IN COMPUTING TH E TAXABLE INCOME OF THE ASSESSEE IN THE PAST. HE EXPLAINED T HAT ALONGWITH THESE TWO LOAN AMOUNTS, THE INTEREST PORTION WAS AL SO WAIVED, WHICH HAS BEEN OFFERED BY THE ASSESSEE AS INCOME UNDER SE CTION 41(1). 8. THE LEARNED SENIOR COUNSEL, THEREFORE, SUBMITTE D THAT AS THE CONDITIONS HAVE NOT BEEN FULFILLED, THE REMISSI ON OF LIABILITY IN THIS CASE CANNOT BE BROUGHT TO TAX UNDER SECTION 28(IV) AS SECTION 41(1) IS THE ONLY SPECIFIC PROVISION AVAILABLE IN THE INCOME -TAX ACT TO DEAL WITH THE TAXATION OF SUCH REMISSION. 9. THEREAFTER THE LEARNED SENIOR COUNSEL SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. COMMISSIONER OF INCOME-TAX, 261 ITR 501, HAS HE LD THAT THE INCOME WHICH CAN BE TAXED UNDER SECTION 28(IV) MUST NOT ONLY BE REFERABLE TO A BENEFIT OR PERQUISITE, BUT IT MUST B E ARISING FROM ITA NOS.1 503 & 1584/2010 8 BUSINESS. THE COURT HAS SPECIFICALLY OBSERVED THAT SECTION 28(IV) DOES NOT APPLY TO BENEFITS IN CASH OR MONEY. HERE WHAT HAS BEEN REMITTED IS MONETARY LIABILITY. THEREFORE, THE REM ISSION OF THAT LIABILITY CANNOT BE BROUGHT UNDER THE JURISDICTION OF SECTION 28(IV). 10. THE LEARNED SENIOR COUNSEL FURTHER INVITED OUR ATTENTION TO THE SCHEME OF SECTION 28 PROVIDED IN PART-D OF CHAP TER IV OF THE INCOME-TAX ACT, 1961, LISTING DOWN THE VARIOUS CATE GORIES OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. HE STATED THA T EVERY SUCH ITEM IN THE NATURE OF PROFITS AND GAINS OF BUSINESS OR P ROFESSION AS HAS BEEN PROVIDED UNDER SECTION 28, IS IN THE NATURE OF A POSITIVE RECEIPT IN THE HANDS OF THE ASSESSEE. SECTION 28(I) DEALS W ITH PROFITS AND GAINS OF BUSINESS EARNED BY AN ASSESSEE DURING THE PREVIOUS YEAR. THE NEXT CLAUSE(II) PROVIDES FOR COMPENSATION OR OT HER PAYMENTS RECEIVED BY AN ASSESSEE. CLAUSE(III) PROVIDES FOR INCOME DERIVED BY AN ASSOCIATION. CLAUSE(IIIA) PROVIDES FOR PROFITS ON SALE OF A LICENCE. THE NEXT CLAUSE(IIIB) RELATES TO CASH ASSISTANCE RE CEIVED. LIKEWISE CLAUSE(IIIC) RELATES TO RECEIPT OF DUTY DRAW BACK. IN CLAUSE(IV) IT IS AGAIN THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETH ER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION TO THE ASSESSEE. ALL THE ITEMS ARRANGED UNDER SECTION 28 ARE IN THE ITA NOS.1 503 & 1584/2010 9 NATURE OF POSITIVE RECEIPTS OR BENEFITS ACCOUNTABLE IN THE HANDS OF AN ASSESSEE. REMISSION OF LIABILITY IS NOT IN THE NAT URE OF SUCH A POSITIVE RECEIPT. IT IS ONLY AN EVAPORATION OF A NEGATIVE I NCOME/LIABILITY AND NOT IN THE NATURE OF ANY POSITIVE RECEIPT. THEREFORE I T IS TO BE SEEN THAT SECTION 28(IV) DOES NOT INVOLVE ANY LIABILITY REMIS SION, BUT ONLY POSITIVE RECEIPTS. 11. AFTER EXPLAINING THE ABOVE LEGAL FRAMEWORK, TH E LEARNED SENIOR COUNSEL FURTHER RELIED ON THE JUDGMENT OF TH E HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. COMMISSIONER OF INCOME-TAX, 261 ITR 501, WHERE THE COURT HAS HELD THAT THE WAIVER OF A LOAN UTILIZED IN THE CAPITAL A CCOUNT OF THE ASSESSEE CANNOT BE TREATED AS TAXABLE INCOME ON ITS REMISSION. 12. HE THEREAFTER REFERRED TO THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF I SKRAEMECO REGENT LTD. VS. COMMISSIONER OF INCOME-TAX-I,196 TAXMAN 10 3. THE LEARNED SENIOR COUNSEL EXPLAINED THAT IN THAT CASE THE ASSE SSEE HAD OBTAINED A BANK LOAN FOR ACQUIRING CAPITAL ASSETS. IT HAD P AID A PART OF PRINCIPAL AMOUNT IN EARLIER YEARS. IN THE RELEVANT ASSESSMEN T YEAR A ONE-TIME SETTLEMENT WAS ARRIVED AT BETWEEN THE ASSESSEE AND THE BANK, IN TERMS OF WHICH THE BANK WAIVED OUTSTANDING DUE OF P RINCIPAL AMOUNT ITA NOS.1 503 & 1584/2010 10 AND INTEREST AND THE ASSESSEE CREDITED WAIVER OF PR INCIPAL AMOUNT TO CAPITAL RESERVE ACCOUNT IN BALANCE SHEET TREATING I T AS CAPITAL IN NATURE. THE COURT HELD THAT SUCH A LOAN TRANSACTIO N WOULD NOT BE AFFECTED BY SECTION 28(IV) AND, THEREFORE, THE REMI SSION CANNOT BE TREATED AS INCOME UNDER SECTION 2(24) OF THE INCOME -TAX ACT, 1961. 13. DR. I.VIJAYAKUMAR, THE LEARNED COMMISSIONER OF INCOME- TAX, APPEARING FOR THE REVENUE, ON THE OTHER HAND, RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F T.V.SUNDARAM IYENGAR & CONS VS. CIT, 222 ITR 344 AND THE DECISIO N OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS V S. DCIT, 308 ITR 417 TO SUPPORT THE ORDERS OF THE LOWER AUTHORITIES IN THIS REGARD. HE EXPLAINED THAT THE LOANS AVAILED BY THE ASSESSEE WE RE IN FACT UTILIZED FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS AND THEREFORE ANY BENEFIT ARISING TO THE ASSESSEE IN THAT COURSE IS D EFINITELY IN THE NATURE OF GAINS IN THE NATURE OF INCOME AND THEREFORE THE ASSESSING OFFICER HAS RIGHTLY INVOKED SECTION 24(IV) OF THE INCOME-TA X ACT, 1961. 14. THE LEARNED COMMISSIONER OF INCOME-TAX FURTHER ARGUED THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON ITS A SSETS IN THE PAST AND THEREFORE THERE IS NO FORCE IN THE ARGUMENT OF THE LEARNED SENIOR ITA NOS.1 503 & 1584/2010 11 COUNSEL APPEARING FOR THE ASSESSEE THAT NO ELEMENT OF REVENUE EXPENSE IS INVOLVED IN THE APPLICATION OF THE FUNDS . 15. WE CONSIDERED THE ISSUE IN DETAIL AFTER HEARIN G BOTH SIDES. AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER OF AGRICULTURAL INCOME-TAX VS. KERALA ESTATE MOORIA D CHALAPURAM, 161 ITR 155, THE INTRODUCTION OF SECTION 41(1) IN T HE INCOME-TAX ACT, 1961 TAKES CARE OF THE NATURE OF THE REMISSION OF L IABILITIES EXPLAINED IN TERMS OF MONEY. AS RIGHTLY POINTED OUT BY THE L EARNED SENIOR COUNSEL APPEARING FOR THE ASSESSEE, THE ISSUES INVO LVED IN THE PRESENT CASE ARE NOT COVERED BY SECTION 41(1) FOR W ANT OF SATISFACTION OF OTHER CONDITIONS. WE HAVE TO FURTHER SEE THAT SE CTION 41(1) IS A SPECIFIC PROVISION WHICH DEALS WITH SUCH REMISSION OF LIABILITIES IN TERMS OF MONEY. THEREFORE BY SCHEME OF LAW OR BY VI RTUE OF THE FACTS OF THE CASE, THE REMISSION OF LIABILITIES IN THIS C ASE DOES NOT COME UNDER SECTION 41(1). IT IS TO BE FURTHER NOTICED T HAT THE ELEMENT OF INTEREST THAT HAS BEEN REMITTED IN THE PRESENT CASE HAS ALREADY BEEN OFFERED FOR TAXATION BY THE ASSESSEE. 16. NOW COMING TO THE APPLICATION OF SECTION 28(IV ), WE FIND THAT THE DECISION OF THE HONBLE JURISDICTIONAL HIG H COURT IN THE CASE OF ISKRAEMECO REGENT LTD. VS. CIT, 196 TAXMAN 103,IS D IRECTLY ITA NOS.1 503 & 1584/2010 12 APPLICABLE TO THE PRESENT CASE. THE FACTS OF THE P RESENT CASE AND THAT OF THE CASE CONSIDERED BY THE HONBLE JURISDIC TIONAL HIGH COURT ARE ANALOGOUS AND SIMILAR EXCEPT THE MODE OF PASSIN G THE ACCOUNTING ENTRIES. IN THE CASE CONSIDERED BY THE HONBLE HIG H COURT THE REMISSION BENEFIT WAS CREDITED BY THE ASSESSEE DIRE CTLY TO ITS CAPITAL RESERVE ACCOUNT, WHEREAS IN THE PRESENT CASE THE AS SESSEE HAS CREDITED THE AMOUNTS AS EXTRA ORDINARY ITEMS IN ITS PROFIT AND LOSS ACCOUNT, WHICH ULTIMATELY GOES TO CAPITAL RESERVE O R GENERAL RESERVE OF THE ASSESSEE COMPANY. BOTH THE MODES ARE PERMIS SIBLE IN ACCOUNTING PRACTICES. THE CREDIT COULD DIRECTLY GO TO THE RESERVE ACCOUNT OR IT CAN GO TO THE RESERVE ACCOUNT AFTER T RAVELLING THROUGH THE PROFIT AND LOSS ACCOUNT. IT DEPENDS UPON THE DISCL OSURE REQUIREMENTS TO BE FOLLOWED BY THE ASSESSEE UNDER CORPORATE LAWS AND PROCLAMATION OF REGULATORY BODIES. 17. AS THE REMISSION OF UNSECURED LOANS FROM THE C ORPORATE AND REMISSION OF LOAN BY THE BANK WERE IN FACT LIAB ILITIES UTILIZED BY THE ASSESSEE IN ITS CAPITAL ACCOUNT, THE REMISSION OF T HOSE LIABILITIES CANNOT BE TREATED AS INCOME. IN FACT THIS POSITION WAS CLEARLY EXPLAINED BY THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF MAHINDRA & MAHINDRA LTD. VS. COMMISSIONER OF INCOME-TAX, 261 ITR 501. THE ITA NOS.1 503 & 1584/2010 13 COURT HAS HELD THAT IF THE REMISSION REPRESENTED LO ANS AND LIABILITIES, SUCH REMISSION CANNOT TAKE THE CHARACTER OF INCOME IRRESPECTIVE OF THE PURPOSE FOR WHICH THE LOANS WERE APPLIED. LOAN S COULD HAVE BEEN APPLIED FOR CAPITAL PURPOSES OR FOR REVENUE PU RPOSES IN RUNNING THE BUSINESS. DE HORS THE NATURE OF APPLICATION, I F LOANS ARE REMITTED, SUCH REMISSION IS ALWAYS REMISSION OF LIABILITIES A ND THEREFORE NOT LIABLE TO BE TREATED AS INCOME. THIS POSITION WAS DEVIATED BY THE SAME HONBLE HIGH COURT IN THE CASE OF SOLID CONTAI NERS LTD VS. DCIT, 308 ITR 417, WHERE THE HONBLE COURT HELD THA T APPLICATION OF THE FUNDS WOULD DECIDE THE NATURE OF TREATMENT TO B E GIVEN TO THE REMISSION OF LIABILITIES. THE COURT HELD THAT IF T HE LOANS WERE UTILIZED FOR TRADING PURPOSES, REMISSION OF SUCH LIABILITIES WOULD BE IN THE NATURE OF INCOME, WHEREAS IF THE LOANS WERE UTILIZE D FOR CAPITAL PURPOSES, THE REMISSION OF THE LOAN COULD NOT BE TR EATED AS INCOME. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHIND RA & MAHINDRA LTD. VS. COMMISSIONER OF INCOME-TAX, 261 ITR 501HAS NOT MADE ANY SUCH DISTINCTION IN RESPECT OF APPLICATION OF FUNDS . 18. BUT THE HONBLE JURISDICTIONAL HIGH COURT IN T HE CASE OF ISKRAEMECO REGENT LTD. VS. COMMISSIONER OF INCOME-T AX, 196 TAXMAN 103, HAS CONSIDERED NOT ONLY THE DECISION OF THE BOMBAY ITA NOS.1 503 & 1584/2010 14 HIGH COURT IN MAHINDRA & MAHINDRA LTD. VS. COMMISSI ONER OF INCOME- TAX, 261 ITR 501, BUT ALSO THE DECISION OF THE SAME HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD. VS. DCIT, 308 ITR 417 . THE COURT HAS ALSO DISTINGUISHED THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF CIT VS.T.V.SUNDARAM IYENGAR & SONS LTD., 22 2 ITR 344. 19. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF T HE CASE AND IN THE LIGHT OF THE LAW LAID DOWN BY THE HONBLE JU RISDICTIONAL HIGH COURT, WE ARE OF THE VIEW THAT THESE TWO ITEMS COUL D NOT HAVE BEEN TREATED AS INCOME IN THE HANDS OF THE ASSESSEE BY I NVOKING SECTION 28(IV). THEREFORE, WE FIND THAT THE WHOLE PROCEEDIN GS OF THE REOPENING OF ASSESSMENT HAVE BECOME FUTILE AND UNSUSTAINABLE IN LAW. THEREFORE THE IMPUGNED REASSESSMENT IS VACATED FOR THE COMPREHENSIVE REASON DISCUSSED ABOVE BOTH ON THE ME RITS OF THE ISSUE AS WELL AS ON THE CORRECTNESS OF THE REASON R ECORDED BY THE ASSESSING AUTHORITY. AS THE ASSESSMENT HAS BEEN VA CATED, THE OTHER GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL AS WEL L AS THE GROUNDS IN THE CROSS APPEAL FILED BY THE REVENUE BECOME INF RUCTUOUS. 20. IN RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NOS.1 503 & 1584/2010 15 ORDER PRONOUNCED ON THURSDAY, THE 9 TH DAY OF JUNE, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 9 TH JUNE, 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.