DCIT, Circle-2(1), Hyd, Hyderabad V. Keerthi Industries Limited, Hyd, Hyderabad

ITA 754/HYD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6107 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-12-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 03-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SITHARAM
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Reopening of assessment; Depreciation; Audit objection; Tangible material; Difference of opinion; Assessment record; Tax effect; Reason to believe; Change of opinion; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 147; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 754/HYD/2015 ASSESSMENT YEAR: 2006-07 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 2(1), HYDERABAD. VS. M/S KEERTHI INDUSTRIES LTD., HYDERABAD. PAN AAFCS 3938P (ASSESSEE) (RESPONDENT) REVENUE BY : SHRI SITHARAM ASSESSEE BY : SHRI V. SIVAKUMAR DATE OF HEARING 21-12-2015 DATE OF PRONOUNCEMENT 20 -01-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS)- 2, HYDERABAD DATED 13.03.2015 FOR AY 2006-07. 2. BRIEF FACTS OF THE CASE ARE, M/S HYDERABAD FLEXT ECH LTD. ENGAGED IN THE BUSINESS OF MANUFACTURING FLEXIBLE CIRCUIT BOARDS, FILED ITS RETURN OF INCOME FOR AY 2006-07 ON 30/11/ 2006 ADMITTING LOSS OF RS. 30,23,810/-. THIS COMPANY WAS AMALGAMATED W ITH THE ASSESSEE COMPANY WITH EFFECT FROM 01/04/2007. THE C ASE WAS SELECTED FOR SCRUTINY AND COMPLETED THE ASSESSMENT U/S 143(3) OF THE INCOME-TAX ACT, 1961 ( IN SHORT ACT) ON 27/11/200 8 ACCEPTING THE DECLARED LOSS OF RS. 30,23,810/-. SUBSEQUENTLY, NOT ICE U/S 148 WAS ISSUED ON 26/03/2013 AND THE REASSESSMENT WAS COMPL ETED U/S 2 ITA NO. 754 /HYD/2015 KEERTHI INDUSTRIES LTD. 143(3) R.W.S. 147. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). DURING THE COURSE OF APPE AL PROCEEDINGS, CIT(A) CALLED FOR THE ASSESSMENT RECORDS AND THE FO LLOWING POINTS WERE NOTICED: (I) THERE WAS AN AUDIT OBJECTION THAT THE PRINCIP AL LOAN WAS NOT BROUGHT TO TAX AS PER SECTION 41(1) OF THE IT ACT IN THE CASE OF THE APPELLANT. THIS WAS COMMUNICATED TO THE AO BY THE AUDIT VIDE HAND WRIT TEN NOTE DATED 25.11.2009. (II) SUBSEQUENTLY, THE AO'S REPLIED TO THE AUDIT A T HALF MARGIN STAGE VIDE LETTER DATED 19.02.2009 WHICH IS EXTRACTED BELOW: 'PROVISIONS OF SEC.41 OF THE ACT ARE APPLICABLE WH EN A LIABILITY WHICH WAS CLAIMED AS DEDUCTION CEASED OR WAIVED. AS THE PRIN CIPLE PORTION OF BANK LOAN WAIVED BY THE BANKS WAS NOT CLAIMED AS EXPEND ITURE IN EARLIER YEARS, THE QUESTION OF TREATING THE SAME AS INCOME U/S 41 OF THE ACT DOES NOT ARISE. THEREFORE THE OBJECTION IS NOT CORRECT AND MAY BE DROPPED.' (III) SUBSEQUENTLY, THE CIT-II, HYDERABAD VIDE REP LY DATED 05-01-2011 ON THE ABOVE AUDIT OBJECTION STATED AS UNDER: '01. THE RAP HAS RAISED THE FOLLOWING OBJECTION TH E GIST OF WHICH READS AS UNDER: 'IT WAS SEEN FROM THE INFORMATION ON (SETTLEMENT O F IDBI DUES) READ WITH IDBI'S LETTER DT.20.0B.2005 (ON OTS DUES) FILED BY THE ASSESSEE DURING SCRUTINY PROCEEDINGS, THAT IDBI HAS WAIVED PRINCIP AL LOAN AMOUNT OF RS.523,36,000/-. HOWEVER, THE SAME WAS NOT BROUGHT TO TAX U/S.41(1) OF THE IT ACT. THE ASSESSEE FOLLOWED ACCRUAL SYSTEM O F ACCOUNTING AND AS SUCH, THE INCOME WAS TO BE TAXED IN ASSESSMENT YEAR 2006-07. THE UNDERASSESSMENT OF INCOME WORKED OUT TO RS.5,23,36 ,000/- WITH CONSEQUENTIAL TAX EFFECT OF RS. 1,76,16,298/-' 02. THE OBJECTION RAISED BY THE AUDIT IS NOT ACCEP TABLE AS THE AMOUNT IS NOT LIABLE TO TAX IN THE A. Y. 2006-07. THIS IS BE CAUSE AS PER THE TERMS OF OTS VIDE IDBI LETTER DT.20.08.05, THE COMPANY HAS TO PAY THE BALANCE AMOUNT OF RS.4.25 CRORE AS UNDER: RS.106.50 LAKH BEFORE 30.09.2005 RS. 106. 17 LAKH BEFORE 31.03.2006 RS. 106. 17 LAKH BEFORE 30.06.2006 RS. 106. 16 LAKH BEFORE 30.09.2006 AS PER CLAUSE '3' OF IDBI LETTER WHICH IS EXTRACTE D BELOW THE WAIVER DEPENDS PAYMENT OF FULL AMOUNT AS PER ABOVE SCHEDU LE: 'IN THE EVENT OF DEFAULT IN PAYMENT OF THE OTS AMO UNT AS ENVISAGED, THE AMOUNTS PAID, IF ANY, SHALL STAND FORFEITED AND ID BI SHALL HAVE THE RIGHT TO REVERSE THE ENTIRE WAIVER OF DUES AS ENVISAGED HER EINABOVE AND RESTORE THE ORIGINAL LIABILITY AS PER THE TERMS OF THE LOA N AGREEMENT EXECUTED BY THE COMPANY' THUS IT COULD BE SEEN THAT AS PER TERMS OF WAIVER, IT IS ONLY AFTER PAYMENT OF ALL INSTALMENTS WHICH OCCURS IN THE PREVIOUS YE AR RELEVANT TO THE A. Y 2007-08 AS THE WAIVER CRYSTALLIZES IN THE F. Y 200 6-07 3 ITA NO. 754 /HYD/2015 KEERTHI INDUSTRIES LTD. 03. IN VIEW OF THE ABOVE, THE AUDIT IS REQUESTED T O KINDLY DROP THE OBJECTION RAISED AND TREAT THE SAME AS SETTLED.' (IV) FURTHER, THE ADDI.CIT, RANGE-2, HYDERABAD VID E LETTER DATED 13.03.2013 ADDRESSED TO CIT-II, HYDERABAD WHICH IS EXTRACTED BELOW: 'AUDIT HAS RAISED AN OBJECTION THAT THE OTS WAIVER OF PRINCIPAL AMOUNT OF RS.2,23,36,000/- BY LDBI IS TO BE BROUGHT TO TAX U /S.41(1) OF IT ACT. THIS OBJECTION BEING INCORRECT, THE SAME WAS NOT ACCEPT ED AND FINAL REPLY WAS SENT BY CIT TO AG(AUDIT) VIDE REFERENCE CITED ABO VE ON 11.01.2011. HOWEVER TILL DATE THERE IS NO REPLY FROM AG(AUDIT) . AS TIME LIMIT FOR REMEDIAL ACTION WOULD EXPIRE BY 31.03.2013, CIT IS REQUESTED TO KINDLY DIRECT DCIT-2(1) TO INITIATE REMEDIAL ACTION U/S.1 47 AFTER FOLLOWING DUE PROCEDURE OF LAW.' FROM THE ABOVE POINTS, CIT(A) OBSERVED THAT THE REA SONS RECORDED ON THE ORDER SHEET REFLECT THE VIEW POINT OF THE AUDIT . THE REASONS ARE NOT BASED ON AOS APPLICATION OF MIND AS REQUIRED O F QUASI-JUDICIAL AUTHORITY. FURTHER, HE OBSERVED THAT THE REASONS FO R REOPENING AN ASSESSMENT NEED TO BE BASED ON TANGIBLE MATERIAL WH ICH HAS A LIVE- LINK WITH THE FORMATION OF THE BELIEF THAT THERE WA S AN ESCAPEMENT OF INCOME. FOR THIS PROPOSITION, HE RELIED ON THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD., 320 ITR 561. 3. THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BY RELYING ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: 1. S. RANJITH REDDY VS. DCIT [2013] 35 TAXMANN.COM 415 (HYD.TRIB.) 2. DCIT VS. LEE PHARMA (P) LTD. [2012] 20 ITR (T) 499 (HYD TRIB) 3. ITO VS. OBJECT CONNECT INDIA (P.) LTD. [2014] 2 9 ITR (T) 518 (HYD. TRIB) THE CIT(A) ALLOWED THE GROUNDS 1 & 2 RAISED BY ASSE SSEE ON THE REOPENING OF ASSESSMENTS WHICH WAS BASED ON CHANGE OF OPINION AND AUDIT OBJECTION. THE OTHER GROUNDS WERE CONSIDERED AS ACADEMIC CONSIDERING THE FACT THAT THE REOPENING OF ASSESSME NT WAS QUASHED. 4. AGGRIEVED WITH THE ABOVE, REVENUE FILED THE APPE AL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 4 ITA NO. 754 /HYD/2015 KEERTHI INDUSTRIES LTD. 1) THE CIT(A) ERRED ON FACTS AND IN LAW IN GRANTI NG RELIEF TO THE ASSESSEE. 2) IN THE CASE LAWS RELIED UPON BY LD CIT(A)-2, HY DERABAD THE DECISIONS ARE WITH REGARD TO OPINION OF AUDIT PART Y REGARDING APPLICATION OR INTERPRETATION OF LAW DID NOT AMOUN T TO INFORMATION, THEREFORE, REASSESSMENT BASED ON OPIN ION OF AUDIT PARTY WAS HELD AS NOT VALID. IN THE INSTANT CASE, THE SITUATION IS DIFFERENT. THE AUDIT PARTY HAS POINTED OUT A FACT THAT WAIVER OF PRINCIPLE WAS NOT TREATED AS INCOME. THE AUDIT PAR TY HAS MERELY POINTED OUT A FACT WHICH WAS OVERLOOKED BY THE ASS ESSING OFFICER. REOPENING OF THE ASSESSMENT IS PERMISSIBL E ON THE BASIS OF A FACTUAL ERROR POINTED OUT BY THE AUDIT PARTY AS HELD BY HONBLS SUPREME COURT IN THE CASE OF CIT VS PVS BEE DIES PVT LTD [237 ITR 13] (SC). 5. LD. DR SUBMITTED THAT THE AUDIT PARTY HAS POINTE D OUT A FACT THAT THE WAIVER OF PRINCIPAL AMOUNT WAS NOT TREATED AS I NCOME. THE AUDIT PARTY HAS MERELY POINTED OUT A FACT WHICH WAS OVERL OOKED BY THE AO. MOREOVER, THE ASSESSEE HAD NOT BROUGHT ON RECORD TH E NATURE OF THE LOAN TAKEN FROM IDBI. THIS WAS NOT PROPERLY ASSESSE D BY THE AO. HENCE, REOPENING OF THE ASSESSMENT IS PERMISSIBLE O N THE BASIS OF FACTUAL ERROR POINTED OUT BY THE AUDIT PARTY AS HEL D BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. PVS BEEDIES PV T. LTD., 237 ITR 13 (SC). 6. LD. DR ALSO SUBMITTED THAT THE CIT(A) WHILE PASS ING THE ORDER HAD GONE INTO ISSUE OF THE VALIDITY OF THE REASSE SSMENT, EVEN THOUGH, IT WAS NOT AGITATED BY THE ASSESSEE, ON THE PREMISE THAT THE REASSESSMENT HAD BEEN DONE AT THE BEHEST OF THE AUD IT AFTER THE MISTAKE WAS POINTED OUT BY THEM. SINCE, THE SAME WA S NOT RAISED BY THE ASSESSEE IN THE GROUNDS OF APPEAL, THE CIT(A) W AS NOT JUSTIFIED TO GO INTO SUCH REASONS. THE CIT(A) SHOULD NOT HAVE FO RMED OPINION SUO MOTO WITHOUT GIVING AN OPPORTUNITY TO AO. HE ALSO S UBMITTED THAT CIT(A) SHOULD HAVE GONE INTO THE MERITS OF THE CASE BEFORE COMING TO THE CONCLUSION THAT THE ASSESSMENT WAS DONE AT THE BEHEST OF THE PRINCIPAL COMMISSIONER OF INCOME-TAX AND REVENUE AU DIT PARTY. 5 ITA NO. 754 /HYD/2015 KEERTHI INDUSTRIES LTD. 6.1 IT IS SUBMITTED THAT IT IS THE ASSESSEE'S PRIM ARY DUTY TO DISCLOSE THE MATERIAL FACTS. EXCEPT FOR STATING THAT THE LOA N HAS BEEN REMITTED BY THE BANK, EVEN AS ON DATE, THE ASSESSEE HAS NOT DISCLOSED THE PURPOSE FOR WHICH THE LOANS HAVE BEEN OBTAINED FROM THE CONCERNED BANK. EVEN THE LETTER FROM THE BANK AUTHORITIES, FU RNISHED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS, DOES NO T STATE THE REASONS FOR WHICH THE LOANS WERE DISBURSED EXCEPT S TATING THAT THEY ARE TERM LOANS. THE ASSESSEE HAS BEEN MERELY ASSERT ING ALL THROUGH THE PROCEEDINGS THAT THE PRINCIPAL LOAN WAIVER CANN OT BE BROUGHT TO TAX U/S 41(1). UNLESS IT IS SHOWN BY COGENT EVIDENC E, THAT THE PRINCIPAL LOAN AMOUNT HAS NOT BEEN CLAIMED AS A DED UCTION IN THE EARLIER, BY PRODUCING PROOF OF ITS ACTUAL UTILIZATI ON, IT CANNOT BE CONCLUDED THAT THE WAIVER OF THE SAME IS NOT HIT BY THE PROVISIONS OF SECTION 41(1) 6.2 LD. DR SUBMITTED THAT THE HON'BLE SUPREME COURT IN CALCUTTA DISCOUNT CO LTD VS ITO 41 ITR 191 POINTED OUT THAT THERE ARE THREE STAGES INVOLVED IN EVERY ASSESSMENT; (I) THE DISCLO SURE OF ALL PRIMARY FACTS;(II) INFERENCES OF FACTS TO BE DRAWN FROM THE PRIMARY FACTS DISCLOSED ; AND (III) LEGAL INFERENCES TO BE DRAWN FROM THE PRIMARY FACTS DISCLOSED AND INFERENCES OF FACTS DRAWN THERE FROM. THE FIRST PART, VIZ., THE DISCLOSURE OF THE PRIMARY FACTS ALO NE IS THE DUTY OF THE ASSESSEE. HOWEVER, IN THIS CONTEXT, IT IS, HOWEVER, NECESSARY TO BEAR IN MIND ONE IMPORTANT ASPECT TOUCHED UPON BY HIDAYA THULLAH, J (AS HIS LORDSHIP THEN WAS) IN HIS DISSENTING JUDGMENT. HE OBSERVED THAT THE MERE PRODUCTION OF EVIDENCE BEFORE THE ASSESSIN G OFFICER WAS NOT ENOUGH. THIS, IN FACT, IS EXPLICITLY SO STATED BY E XPLANATION I TO THE SECTION, THE SCOPE OF WHICH IS ELUCIDATED LATER. TH ERE MIGHT BE AN OMISSION OR FAILURE TO MAKE A FULL AND TRUE DISCLOS URE IF SOME MATERIAL FOR THE ASSESSMENT LAY EMBEDDED IN THAT EVIDENCE WH ICH THE ASSESSEE COULD UNCOVER BUT DID NOT. IF THERE WAS SU CH A FACT IT WAS THE DUTY OF THE ASSESSEE TO DISCLOSE THAT TOO. (IND O-ADEN SALT MFG & TRADING CO PVT LTD(1986); 159 ITR 624(SC); RAYMOND WOOLLEN MILLS 6 ITA NO. 754 /HYD/2015 KEERTHI INDUSTRIES LTD. LTD VS ITO 207 ITR 929(BOM); PALA MARKETING COOPERA TIVE SOCIETY LTD VS STATE OF KERALA 236 ITR 604 (KER). 6.3 THE LD. DR SUBMITTED THAT THE REOPENING OF ASSE SSMENT IS NOT BAD IN LAW BECAUSE, THE MATERIAL INFORMATION RELATI NG TO THE WAIVER OF BANK LOAN HAS NOT BEEN FURNISHED IN THE ORIGINAL PR OCEEDINGS OF ASSESSMENT OR EVEN PRIOR TO THE ISSUE OF NOTICE U/S 148. 6.4 IT IS SUBMITTED THOUGH, THE AUDIT'S OBJECTION H AS NOT BEEN ACCEPTED BY THE ASSESSING OFFICER, AFTER RECEIPT OF COMMUNICATION BY AUDIT THAT THE REPLY IS NOT ACCEPTABLE, IT IS PERFE CTLY PROPER ON THE PART OF THE ASSESSING OFFICER TO RETHINK THE WHOLE ISSUE , ON THE BASIS OF MATERIAL AVAILABLE AND FORM AN OPINION THAT THERE I S REASON TO BELIEVE THAT THERE IS ESCAPEMENT OF INCOME AS THE TANGIBLE MATERIAL INFORMATION RELATING TO WAIVER IS MISSING, EVEN AS ON TODAY. 6.5 IT IS SUBMITTED THAT THOUGH THE NOTICE CANNOT BE ISSUED SOLELY ON THE BASIS OF AUDIT'S OPINION, STILL IT CAN FORM AN INFORMATION WHICH CAN BE TAKEN INTO CONSIDERATION, IN THE PROCESS OF ARRIVING AT THE 'REASON TO BELIEVE' ESCAPEMENT OF INCOME. 6.6 LT IS SUBMITTED THAT THE ASSESSING OFFICER HAS NOWHERE REFERRED TO THE AUDIT OBJECTION WHILE RECORDING HIS SATISFAC TION AS CAN BE OBSERVED FROM THE REASONS SUPPLIED TO THE ASSESSEE DURING THE REASSESSMENT PROCEEDINGS. NEITHER THE APPELLANT POI NTED OUT THAT THE ASSESSMENT HAS BEEN SOLELY BASED ON THE AUDIT'S VIE WPOINT. 6.7 IT IS SUBMITTED THAT THE DISCLOSURE OF INFORMA TION AND MATERIAL FACTS SHOULD NOT ONLY BE FULL, BUT ALSO BE TRUE. IT IS NOT ENOUGH IF IT IS TRUE, IF EQUALLY, IT IS NOT FULL. IN THIS BEHALF BO TH THE ELEMENTS PRESCRIBED BY THE STATUTE, NAMELY, THE FULLNESS AND TRUTHFULNESS OF THE MATERIALS SHOULD INVARIABLY BE PRESENT. THEN ONLY I S THE OFFICER PREVENTED FROM ACTING UNDER CLAUSE (A). EVEN WHEN F ULL DISCLOSURE IS MADE, IF A TAXABLE ITEM IS OMITTED IN THE FINAL COM PUTATION OF INCOME, THE OFFICER HAS A DUTY TO INVOKE SECTION 147 [PRAFU L CHANDRA PATEL VERSUS ACIT 236 ITR 832 (GUJ)] 7 ITA NO. 754 /HYD/2015 KEERTHI INDUSTRIES LTD. 6.8 IT IS SUBMITTED THAT THE CIT(A) HAS REFERRED T O THE INTERNAL CORRESPONDENCE OF THE DEPARTMENT BETWEEN THE AO, AN D HIS SUPERIOR OFFICERS, WHICH IS AN INTERNAL MATTER. THERE IS NOT HING UNUSUAL TO INFER FORMATION OF BELIEF BY THE ASSESSING OFFICER, AS TH E OBJECTION WAS NEGATIVED INITIALLY BY HIM . THE REOPENING HAS NOT BEEN MADE JUST ON THE BASIS OF AUDIT OBJECTION. ALL THE CORRESPONDENC ES BETWEEN THE A.O AND THE CIT AND AUDIT, HELPED THE AO IN COMING TO A REASONED UNDERSTANDING OF THE ISSUE, BEFORE ISSUING NOTICE, DULY FOLLOWING THE PROCEDURES AS PER SECTION 151 OF I.T ACT, 1961. IN FACT, WHILE GRANTING APPROVAL FOR REOPENING OF THE CASE, THE HON'BLE COM MISSIONER HAS CATEGORICALLY DIRECTED TO FOLLOW THE PROCEDURE AS P ER LAW. IN FACT, THE HONOURABLE APEX COURT IN THE CASE OF PVS BEEDIES PV T LTD(237 ITR 13)) HAS HELD IN 1997, THAT REOPENING OF CASE UNDER 147(B) ON BASIS OF FACTUAL INFORMATION GIVEN BY INTERNAL AUDIT PARTY W AS VALID IN LAW. 6.9 IT IS SUBMITTED THAT SINCE THE ASSESSING OFFIC ER INDEPENDENTLY EXAMINED THE MATERIAL COLLECTED BY AUDIT PARTY IN I TS REPORT AND CAME TO AN INDEPENDENT CONCLUSION THAT THERE WAS ESCAPEM ENT OF INCOME, REOPENING OF ASSESSMENT U/S 147(B) WAS TO BE UPHELD - NEW LIGHT TRADING CO. VS. CIT(H.C DELHI) (04-01-2001). 6.10 IT IS SUBMITTED THAT WHERE ASSESSING OFFICER WAS CONVINCED THAT DEPRECIATION WAS WRONGLY CLAIMED AT FULL RATE, REAS SESSMENT NOTICE COULD NOT BE QUASHED MERELY ON THE GROUND THAT SHE FORMED OPINION ON THE BASIS OF AUDIT OBJECTION- (49 TAXMAN.COM) (H .C DELHI) (N K INDUSTRIES VS. ITO) (11-03-2014). 6.11 IT IS SUBMITTED THAT, IN FACT, THE DECISION C ITED BY CIT (A) IN THE CASE OF USHA INTERNATIONAL LTD VS. DCLT CIRCLE-18(1 ) NEW DELHI (56 TAXMANN.COM 157)(DEL-TRIB) IS IN FAVOUR OF THE DEPA RTMENT. IN THAT CASE, IT WAS HELD THAT, IF THE AO FAILS TO EXAMINE AN ISSUE DURING ASSESSMENT PROCEEDINGS AND LATER DEVELOPMENTS WARRA NT ITS EXAMINATION, IT WOULD NOT BE A CASE OF 'CHANGE OF O PINION' AT THE TIME OF INITIATION OF REASSESSMENT. WHERE THE AO HA S GIVEN COGENT REASONS, IN HIS SPEAKING ORDER WHILE REJECTING OBJE CTIONS RAISED BY THE 8 ITA NO. 754 /HYD/2015 KEERTHI INDUSTRIES LTD. ASSESSE AGAINST REOPENING OF ASSESSMENT IT COULD NO T BE SAID THAT THE AO HAD NOT APPLIED HIS MIND AND REOPENED THE ASSESS MENT SOLELY BASED ON AUDIT PARTY. (HC OF MADRAS- PVP VENTURES L TD VS ACIT, CHENNAI ) 61 TAXMANN.COM 232 (MAD). 6.12 IT IS SUBMITTED THE AO HAS ALSO BROUGHT OUT I N HIS ORDER THAT THE PRINCIPAL AMOUNT OF LOAN EVEN IF UTILIZED FOR ACQUI SITION OF AN ASSET, THE DEPRECIATION ALLOWED ON THE COST OF SUCH AN ASS ET, WHICH IS RELATABLE TO THE AMOUNT OF PRINCIPAL WAIVED, IS LIA BLE TO BE DISALLOWED. THIS PRINCIPLE IN THE MATTER OF DISALLOWANCE IS AN UNASSAILABLE ONE. THE HONORABLE HYDERABAD TRIBUNAL HAS IN THE CASE OF BINJRAJKA STEEL TUBES LTD VERSUS ACIT 130 LTD 46 HAS TAKEN A VIEW T HAT THE ASSESSEE HAS OBTAINED BENEFIT OF TAX TO THE EXTENT OF DEPRECIATION ALLOWANCE AND BROUGHT SUCH DEPRECIATION TO TAX. IN THE EVENT OF THE UTILIZATION OF LOAN AS WORKING CAPITAL IN THE DAY T O DAY BUSINESS AFFAIRS OF THE ASSESSEE AS REVENUE EXPENDITURE, THEN THE SA ME ALSO IS HIT BY THE PROVISIONS OF SECTION 41(1). IN ROLLATAINERS LT D VS CIT (339 ITR 54 DELHI) , THE COURT HELD THAT WHEN THE MONEY/LOAN WA S RECEIVED IN THE COURSE OF CARRYING ON BUSINESS AND TREATED AS LOAN AT THE TIME OF RECEIPT WHICH WAS OF CAPITAL NATURE, ON WAIVER IT H AD BECOME ASSESSEE'S OWN MONEY WHICH WAS EVEN TAKEN TO P&L A/ C. THIS BENEFIT WAS THEREFORE IN THE REVENUE FIELD AS THE M ONEY HAD BEEN BORROWED FOR DAY TO DAY AFFAIRS AND NOT FOR PURCHAS E OF MACHINERY. THEREFORE, IN THE ABSENCE OF FULL AND TRUE DISCLOSU RE OF INFORMATION BY THE ASSESSEE AT ANY TIME OF THE PROCEEDINGS, THE FO RMATION OF BELIEF IS AFTER DUE APPLICATION OF MIND, THOROUGHLY, TO THE F ACTS OF THE CASE. 6.13 IN VIEW OF THE ABOVE SUBMISSIONS, THE LD. DR S UBMITTED THAT THE ACTION OF THE AO IS NOT UNDER ANY COMPULSION OF AUD IT PARTY AND THEREFORE AFTER DUE APPLICATION OF MIND, HENCE, THE ORDER OF CIT(A) MAY BE SET ASIDE AND THAT OF THE AO BE RESTORED. 7. LD. AR SUBMITTED THAT THE REASSESSMENT WAS DONE ON THE BEHEST OF PRINCIPAL CIT AND AUDIT OBJECTION. HE REL IED ON THE EXTRACTS OF THE ASSESSMENT RECORDS AS RECORDED BY THE CIT(A) IN HIS ORDER IN 9 ITA NO. 754 /HYD/2015 KEERTHI INDUSTRIES LTD. PARA 4.5 AT PAGE 6. HE SUBMITTED THAT THE EXTRACTS CLEARLY SHOWS THAT THE VIEW POINT OF THE AUDIT OBJECTION AND NOT THE CLEAR APPLICATION OF MIND OF THE AO AS REQUIRED U/S 147 OF THE ACT. HE A LSO RELIED ON THE CIT(A)S ORDER AND RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: 1. CIT VS. PVS BEEDIS (P) LTD., 222 ITR 344 SC 2. JAGAT JAYANTILAL PARIKH VS. DCIT, 355 ITR 400 ( GUJ.) 3. VODAFONE WEST LTD. VS. ACIT, 37 TAXMANN.COM 158 (GUJ.) 4. CIT VS. T.V. SUNDARAM IYENGAR & SONS LTD., 222 ITR 344 SC 5. ISKRAEMECO REGENT LD VS. CIT, 355 ITR 317 (MAD. ) 8. CONSIDERING THE SUBMISSIONS OF BOTH THE COUNSELS AND MATERIAL FACTS ON RECORD, WE FIND THAT THE AO HAD REOPENED T HE ASSESSMENT ON THE GROUND THAT THE WAIVER OF LOAN BY THE BANK HAS ESCAPED ASSESSMENT. THE SAME WAS POINTED OUT IN THE AUDIT O BJECTION. WE HAVE PERUSED THE AUDIT OBJECTION AND THE REASONS RE CORDED BY THE AO FOR REOPENING THE ASSESSMENT. NO DOUBT, ON RECORD T HE REASONS RECORDED BY THE AO ARE BASED ON HIS OWN REASONS OF VIEW, BUT, THE SAME WAS INDULGED ON FINDINGS OF THE AUDIT OBJECTIO N RAISED BY THE AUDIT PARTY AS IT CAN BE CONSIDERED AS IT WILL FALL IN THE SIMILAR SITUATION AS HELD IN THE CASE OF CIT VS. PVS BEEDIES (SUPRA). BUT AS THE FINDINGS RECORDED BY CIT, THE TIMINGS OF THE CORRES PONDENCE OF ADDL. CIT, WHICH IS DATED 13/03/2013 AND TIMINGS OF THE N OTICE U/S 148, WHICH WAS ISSUED ON 26/03/2013 CLEARLY SHOWS THAT T HE REOPENING WAS DONE ON THE BEHEST OF THE ADDL. CIT. IT CLEARLY SHO WS THAT THE AO HAD NOT APPLIED HIS MIND INDEPENDENTLY EVEN THOUGH THE REASONS RECORDED ON THE BASIS OF THE FACTUAL ERROR POINTED OUT BY TH E AUDIT PARTY. THE REASONS FOR REOPENING AN ASSESSMENT NEED TO BE BASE D ON TANGIBLE MATERIAL WHICH HAS A LIVE-LINK WITH THE FORMATION O F THE BELIEF THAT THERE WAS AN ESCAPEMENT OF INCOME. FOR THIS PROPOSI TION, CIT RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD., 320 ITR 561. THEREFORE, W E DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) IN QUASHING THE RE OPENING OF ASSESSMENT MADE BY THE AO U/S 147 OF THE ACT. ACCOR DINGLY, GROUND NO. 2 IS DISMISSED. 10 ITA NO. 754 /HYD/2015 KEERTHI INDUSTRIES LTD. 9. COMING TO THE MERITS OF THE CASE, AS CONFIRMED B Y THE CIT-II, ITS LETTER DATED 05/01/2011 TO AUDIT OBJECTION (REFER P ARA 4.3 OF CIT(A)S ORDER), AS PER THE TERMS OF OTS VIDE IDBI LETTER DA TED 20/08/2005, THE ASSESSEE HAS TO PAY THE BALANCE AMOUNT OF RS. 4.25 CRORE, AS UNDER: RS. 106.50 LAKHS BEFORE 30/09/2005 RS. 106.17 LAKH BEFORE 31/03/2006 RS. 106.17 LAKH BEFORE 30/06/2006 RS. 106.16 LAKH BEFORE 30/09/2006 FROM THE ABOVE, TWO INSTALMENTS HAD TO BE PAID IN A Y 2007-08. EVEN THOUGH, THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTE M, IT CANNOT RECOGNIZE THE WAIVER OF LOAN AS INCOME U/S 41 OF TH E ACT, SINCE, AS PER THE PRE-CONDITION FOR OTS, ALL THE BALANCE AMOU NT HAD TO BE SETTLED, THEN ONLY, THE ASSESSEE CAN ENJOY THE BENE FIT OF LOAN WAIVER. IN THIS CASE, IT WAS CLEAR THAT THE ASSESSEE CAN ON LY RECOGNIZE THE WAIVER OF LOAN AS INCOME ONLY WHEN IT PAYS THE FINA L INSTALMENT OF WAIVER AS PER OTS CONDITIONS. HENCE, THE ASSESSEE W AS NOT IN A POSITION TO RECOGNIZE THE ABOVE WAIVER AS INCOME U/ S 41, ON THE CONTRARY, THE AO HAD NOT BROUGHT ANYTHING ON RECOR D THAT THE WAIVER OF LOAN WAS RELATING TO TRADING LIABILITY OR ANY RE VENUE EXPENDITURE WAS ALLOWED AGAINST THE ABOVE WAIVER. HENCE, IN OUR CONSIDERED VIEW, THE ABOVE WAIVER OF LOAN CANNOT BE BROUGHT INTO TAX NET CONSIDERING THE FACT THAT THE WAIVER CONDITION WAS NOT FULFILLE D DURING THIS AY AND CANNOT BE RECOGNIZED AS INCOME U/S 41 DURING THIS A SSESSMENT YEAR. HENCE, GROUND NO. 1 OF THE REVENUE IS DISMISSED. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 20 TH JANUARY, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 20 TH JANUARY, 2016 11 ITA NO. 754 /HYD/2015 KEERTHI INDUSTRIES LTD. KV COPY TO:- 1) DCIT, CIRCLE 2(1), 8 TH FLOOR, B BLOCK, ROOM NO. 825, IT TOWERS, AC GUARDS, HYDERABAD. 2) M/S KEERTHI INDUSTRIES LTD., PLOT NO. 40, IDA, B ALANAGAR, HYDERABAD 500 037 3 CIT(A)-2, HYDERABAD 4) PR. CIT-2 HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.