MAMTA K. PAREKH, MUMBAI V. DCIT CEN CIR 40, MUMBAI

ITA 166/MUM/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9767 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2006-2007
• Appeal Filed On: 06-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR SINGH
• Assessee Lawyers: R S KHANDELWAL
• Keywords: Reopening of assessment; Business income; Opportunity of being heard
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE S/ SHRI B.R. BASKARAN (AM) & SANDEEP GOSAIN (JM) I.T.A. NO. 166 /MUM/20 17 (ASSESSMENT YEAR 20 06 - 07 ) MRS. MAMTA K. PAREKH 19 - B, ZAVERI MAHAL 3 RD FLOOR, MARINE LINES MUMBAI - 400 020. PAN : AACPP 7775R VS. DCIT CENTRAL CIRCLE - 40 MUMBAI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY S/ SHRI R.S. KHANDELWAL & NEELKANTH KHANDELWAL DEPARTMENT BY SHRI PRADEEP KUMAR SINGH DATE OF HEARING 16.5 . 201 7 DATE OF PRONOUNCEMENT 26 . 7 . 201 7 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15 - 12 - 2016 PASSED BY LD CIT(A) - 49, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2006 - 07. THE ASSESSEE IS CHALLENGING THE REOPENING OF ASSESSMENT AND ALSO ASSESS MENT OF LOAN WAIVER AMOUNT OF RS.85.98 LAKHS AS INCOME OF THE ASSESSEE. 2. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSMENT OF THE YEAR UNDER CONSIDERATION WAS ORIGINALLY COMPLETED U/S 143(3) OF THE ACT ON 07 - 11 - 2008. THE AO NOTICED FROM THE CASE RECORD THAT THE ASSESSEE HAS CREDITED A SUM OF RS.85,98,791/ - IN HER CAPITAL ACCOUNT ON ACCOUNT OF WAIVER OF LOAN TAKEN FROM BANK OF PUNJAB. THE AO TOOK THE VIEW THAT THIS AMOUNT REPRESENTS INTEREST ACCRUED ON THE LOAN. SINCE THE ASSESSEE HAD CL AIMED INTEREST EXPENDITURE IN EARLIER YEARS, THE AO TOOK THE VIEW THAT THE ASSESSEE SHOULD HAVE OFFERED IT AS INCOME. ACCORDINGLY HE ENTERTAINED THE BELIEF THAT THE INCOME HAS ESCAPED ASSESSMENT AND ACCORDINGLY REOPENED THE ASSESSMENT. MRS.MAMTA K. PAREKH 2 3. BEFORE THE A O, THE ASSESSEE CONTENDED THAT THE AMOUNT OF RS.85,98,791/ - REPRESENTS PRINCIPAL PORTION OF LOAN WAIVED BY THE BANK AND HENCE THE PROVISIONS OF SEC. 41(1) SHALL NOT APPLY. THE AO WAS NOT CONVINCED WITH THE SAID CONTENTIONS AND ACCORDINGLY HELD THAT THE AM OUNT SHOULD BE ASSESSED AS INCOME OF THE ASSESSEE U/S 41(1) OF THE ACT. ALTERNATIVELY, THE AO HELD THAT THE ABOVE SAID AMOUNT IS ASSESSABLE AS BUSINESS INCOME OF THE ASSESSEE U/S 28 OF THE ACT, AS THE ASSESSEE HAD TAKEN THE LOAN FOR BUSINESS PURPOSES. FO R THIS PURPOSE, THE AO PLACED HIS RELIANCE ON THE DECISION RENDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINER LTD VS. DCIT (308 ITR 417) AND ALSO UPON THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF CIT VS. T.V.SUNDARAM IYENGAR & SONS LTD (1996)(88 TAXMAN 429). 4. IN THE APPELLATE PROCEEDINGS, THE ASSESSEE SUBMITTED THAT REPAYMENT MADE BY THE ASSESSEE SHALL FIRST BE ADJUSTED BY THE BANK TOWARDS INTEREST LIABILITY AND HENCE WHAT WAS WAIVED REPRESENTS ONLY PRINCIPAL POR TION OF LOAN. IN THIS REGARD, THE ASSESSEE TOOK SUPPORT FROM THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF MEGHRAJ AND OTHERS (AIR 1970 SC 161). THE LD CIT(A) WAS CONVINCED WITH THIS CONTENTION OF THE ASSESSEE AND HELD THAT THE PROVISIONS OF SEC. 41(1) SHALL NOT APPLY TO THE IMPUGNED DISALLOWANCE. SINCE THE REVENUE HAS NOT CHALLENGED THIS VIEW OF THE LD CIT(A), IT HAS ATTAINED FINALITY. 5. HOWEVER, THE LD CIT(A) HELD THAT THE PROVISIONS OF SEC. 28 SHALL APPLY TO THE AMOUNT WAIVED BY THE BANK, SINCE THE ASSESSEE HAD TAKEN THE LOAN FOR BUSINESS AND TRADING PURPOSES. IN THIS REGARD, THE LD CIT(A) TOOK SUPPORT FROM THE DECISION RENDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD (SUPRA) AND ALSO UPON THE DECISIO N RENDERED BY HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ARIES ADVERTISING P LTD (2002)(255 ITR 510). MRS.MAMTA K. PAREKH 3 6. THE LD A.R SUBMITTED THAT THE ASSESSEE, ALONG WITH TWO OTHERS, TOOK A LOAN OF RS.7.00 CRORES FROM BANK OF PUNJAB (NOW MERGED WITH CENTURION BANK OF PUNJAB). THUS, THE ASSESSEE HAD 1/3 RD SHARE IN THE LOAN SO TAKEN. SINCE THEY DID NOT REPAY THE LOAN, THE BANK FILED SUIT IN MUMBAI DEBIT RECOVERY TRIBUNAL FOR RECOVERY OF RS.11.31 CRORES ALONG WITH FURTHER INTEREST OF 20% P.A.. HOWEVER, A SETTLE MENT WAS REACHED BETWEEN THE PARTIES AND THE BANK, UNDER WHICH THE BANK AGREED TO CLOSE THE ACCOUNT BY RECEIVING A SUM OF RS.5.00 CRORES FROM THE PARTIES. ACCORDINGLY THE LOAN WAS SETTLED BY PAYING THE SETTLED AMOUNT. 7. THE LD A.R SUBMITTED THAT THE ABOVE SAID LOAN WAS OBTAINED BY ASSESSEE AND OTHERS AND IT HAS BEEN INVESTED IN CLASSIC CREDIT LTD. HE SUBMITTED THAT THE ASSESSEE RECEIVED SHARES AGAINST THE AMOUNT SO INVESTED IN SUBSEQUENT YEARS. ACCORDINGLY HE SUBMITTED THAT THE LOAN HAS BEEN USED F OR MAKING INVESTMENTS AND NOT FOR THE BUSINESS PURPOSES OF THE ASSESSEE. SINCE THE LOAN HAS NOT BEEN USED FOR BUSINESS PURPOSES, THE PROVISIONS OF SEC. 28 SHALL NOT APPLY. THE LD A.R SUBMITTED THAT THE DETAILS OF LOAN ACCOUNT WAS GIVEN TO LD CIT(A). 8. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS TAKEN THE LOAN FOR BUSINESS PURPOSES AND HENCE THE PROVISIONS OF SEC. 28 SHALL APPLY. 9. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICED EARLIER THAT THE AO HAS INVOK ED THE PROVISIONS OF SEC. 41(1) AND ALTERNATIVELY SEC. 28 OF THE ACT IN ORDER TO HOLD THAT THE IMPUGNED AMOUNT OF RS.85.98 LAKHS IS ASSESSABLE IN THE HANDS OF THE ASSESSEE. THE LD CIT(A) HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE THAT THE PROVISIONS OF SEC. 41(1) ARE NOT APPLICABLE, SINCE THE AMOUNT WAIVED BY THE BANK REPRESENTS PRINCIPAL PORTION OF LOAN. HOWEVER HE HAS HELD THAT THE ABOVE SAID AMOUNT IS ASSESSABLE U/S 28 OF THE ACT. MRS.MAMTA K. PAREKH 4 10. IT IS THE CONTENTION OF THE ASSESSEE THAT THE PROVISIONS OF SE C. 28 SHALL ALSO NOT APPLY TO THE FACTS OF THE PRESENT CASE, SINCE THE BORROWED AMOUNT HAS BEEN INVESTED IN M/S CLASSIC CREDITS LTD AND THE ASSESSEE HAS RECEIVED SHARES AGAINST THE AMOUNT SO INVESTED IN THE SUBSEQUENT YEARS. THE LD A.R SUBMITTED THAT THE RELEVANT DETAILS WERE SUBMITTED TO LD CIT(A). THUS, IT IS THE CONTENTION OF THE ASSESSEE THAT THE LOAN TAKEN FROM BANK OF PUNJAB HAS NOT BEEN USED FOR THE PURPOSE OF BUSINESS AND HENCE THE PROVISIONS OF SEC. 28 SHOULD NOT BE INVOKED. 11. WE FIND MERI T IN THE SAID CONTENTIONS OF THE ASSESSEE. FROM THE COPIES OF RETURNS OF INCOME FILED BY THE ASSESSEE, WE NOTICE THAT THE ASSESSEE IS ENGAGED IN SPECULATION BUSINESS IN SHARES. THE PROVISIONS OF SEC. 28 SHALL APPLY IF THE IMPUGNED LOAN WAS USED FOR THE P URPOSE OF BUSINESS. THE CASE OF THE ASSESSEE IS THAT THE LOAN OF RS.7.00 CRORES TAKEN FROM BANK OF PUNJAB HAS BEEN USED TO MAKE INVESTMENTS IN CLASSIC CREDIT LTD AND THE ASSESSEE HAS RECEIVED SHARES SUBSEQUENTLY AGAINST THE SAID INVESTMENT. IN THAT CASE, IN OUR VIEW, THE IMPUGNED AMOUNT OF RS.85.98 LAKHS CANNOT BE ASSESSED U/S 28 OF THE ACT, SINCE THE LOAN TRANSACTION ITSELF IS NOT RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE. 12. HOWEVER, WE ARE OF THE VIEW THAT THE TAX AUTHORITIES HAVE NOT E XAMINED THE ABOVE SAID SUBMISSION OF THE ASSESSEE. THE VERIFICATION OF BOOKS OF ACCOUNTS OF THE EARLIER YEARS SHALL CLARIFY THE SUBMISSIONS MADE BY THE ASSESSEE. ACCORDINGLY WE ARE OF THE VIEW THAT THE ABOVE SAID CLAIM OF THE ASSESSEE REQUIRES VERIFICATIO N AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE AND IF IT IS FOUND THAT THE LOAN TAKEN FROM BANK OF PUNJAB IS FOUND INVESTED IN CLASSIC CREDIT LTD OR FOR ANY OTHER NON - BUSINESS PURPOSES, THEN NOT TO MAKE ANY ADDITION U/S 28 OF THE ACT. IF IT IS FOUND OTHERWISE, THE AO MAY TAKE APPROPRIATE MRS.MAMTA K. PAREKH 5 DECISION IN ACCORDANCE WITH THE LAW, AFTER AFF ORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BE E N PRONOUNCED IN THE COURT ON 26 .7 .201 7. SD/ - SD/ - (SANDEEP GOSAIN ) (B.R.BAS KARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 26 / 7 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CI T 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI