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2015 (5) TMI 552 - HC - Income TaxReopening of assessment - Held that - As far as the assessee s complaint of not being made aware of the reasons to believe or opinion for reassessment is concerned, the argument proceeds on a misconception. The Act does not stipulate furnishing of reasons to the assessee; this condition was superadded, when the assessee, seeks such opinion and wishes to represent against it, after furnishing his/her returns upon the receipt of notice, by virtue of the order of the Supreme Court in GKN Driveshafts (India) Limited v. Income Tax Officer and Others (2002 (11) TMI 7 - SUPREME Court). In the facts of the present case, such condition did not exist nor was sought for when the reassessment notice was issued to the assesse in 2001. Thus, we are of the opinion that the assessee s arugments with respect to justification for re-opening of assessemnt in this case are unmerited. The question of law argued by it in that context is answered against it. - Decided against assessee. Addition to loan - ITAT made addition in the hands of the assessee and not a trade advance and consequently its forfeiture did not constitute income chargeable to tax - Held that - In the present case, the facts reveal that the assessee no doubt was able to secure the clearances of the Department of Economic Affairs as well as the Reserve Bank of India (RBI) towards its software technology project. These were based upon its assertion that Russian joint venture partners were involved. Likewise, the Department of Economic Affairs appear to have approved the setting-up of the project. Nevertheless, such clearances did not in any way undermine or displace the onus which it continued to labour under, to primarily satisfy the revenue that the amounts came from a genuine party. There were no particulars with respect to SFT or COPL, the documents incorporating these entities or even describing their identities (especially important since the assessee argued that SFT was a Govt. of USSR enterprise) was ever revealed. Those two companies shareholding pattern, trading or manufacturing activities, decision of Board of Directors was kept in the dark. In short, the assessee made no attempt to reveal the true identity of these two concerns. Furthermore, the credibility of these transactions too stood undermined from the very beginning considering that COPL s role vis-a-vis SFT was never explained. It was not SFT which gave the money to the assessee. Therefore, the onus to prove that the amounts came from credible sources and creditworthiness of the entity or the source, was never discharged.In view of the above reasons, this Court is of the opinion that the findings recorded by the AO and the CIT(A) were sound and based upon a correct appraisal of the entirety of the circumstances. The ITAT fell into error in not following the established principles governing the law of Section 68 of the Act. The findings in the impugned order are accordingly set-aside. - Decided in favour of revenue. Mere change of character of the amounts in the books of the assessee is undeterminative as to whether it can be brought to tax under Section 41(1)? - Held that - By no stretch of imagination could the initial amount of ₹ 10.65 crores have been treated as loss, expenditure or trade liability incurred during the previous year. No doubt, the circumstances whereby the assessee forfeited the amounts raised certain suspicions. As explained earlier, those suspicions led to the reopening of the previous year s assessment and completion of reassessment by adding those amounts under Section 68. Both T.V. Sundaram (1996 (9) TMI 1 - SUPREME Court) and Punjab Distilling Industries v. CIT 1958 (11) TMI 4 - SUPREME Court rely upon the decision in Morley v. Tattersall 1938 (5) TMI 10 - COURT OF APPEAL . The Supreme Court however, held that once amounts are shown as trading receipts, they contain a profit making element within them. The subsequent treatment, therefore, could well attract compulsion dictated by law, i.e. their inclusion for the later year. In the present case, the amounts were never treated as trading receipts but as unsecured loans - no doubt for the purpose of establishing or furthering a business, yet they were loans and not trading receipts or loss from expenditure - the other instances attracting Section 41(1). 31. For AY 1996-97, independent of the findings with respect to treatment for earlier year as unaccounted receipt under Section 68, given the phraseology and wording of Section 41(1), the Revenue s arguments for the latter s applicability are without substance and merit. - Decided against revenue.
Issues Involved:
1. Whether the Income Tax Appellate Tribunal (ITAT) was correct in upholding the assumption of jurisdiction by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961. 2. Whether the ITAT was correct in deleting the addition of Rs. 10.65 crores made under Section 68 of the Income Tax Act, 1961. 3. Whether the ITAT was correct in concluding that the amount of Rs. 10.65 crores was a loan and not a trade advance, and its forfeiture did not constitute income chargeable to tax under the Income Tax Act, 1961. Detailed Analysis: 1. Assumption of Jurisdiction by AO under Section 147: The court addressed the validity of the AO's assumption of jurisdiction under Section 147 for reassessment. The AO had originally assessed the amount based on the information provided by the assessee. However, during the later assessment year (AY 1996-97), new information came to light regarding the forfeiture of the loan, which led the AO to reassess the earlier year (AY 1993-94). The court cited the ruling in *Phool Chand Bajrang Lal v Commissioner of Income Tax*, which allows reassessment based on fresh, specific, and reliable information exposing the falsity of the original statements made by the assessee. The court concluded that the AO had valid reasons to believe that reassessment was necessary, thus upholding the reopening of the assessment. 2. Deletion of Addition under Section 68: The revenue argued that the Rs. 10.65 crores received by the assessee was not a genuine loan but an unexplained cash credit, which should be taxed under Section 68. The court noted that the assessee had failed to provide satisfactory details about the identity and creditworthiness of the Russian company (SFT) and the Indian company (COPL) involved in the transaction. The court emphasized that the assessee did not furnish adequate evidence to prove the genuineness of the transaction or the creditworthiness of the entities. Consequently, the court found that the ITAT erred in deleting the addition and upheld the AO's decision to tax the amount under Section 68. 3. Forfeiture of Loan and Its Taxability: The court examined whether the forfeiture of the Rs. 10.65 crores loan constituted taxable income. The ITAT had concluded that the amount was a capital receipt and not a trade advance, thus not chargeable to tax. The court, however, found that the original intent of the loan was not fulfilled, and the money was not used for the intended purpose of setting up a software development facility. The court held that the forfeiture of the loan amount was not related to any trading transaction or ordinary business activity of the assessee. Therefore, the forfeiture did not constitute income chargeable to tax under Section 41(1) of the Income Tax Act. Conclusion: - The court upheld the AO's assumption of jurisdiction for reassessment under Section 147. - The court reversed the ITAT's decision to delete the addition of Rs. 10.65 crores under Section 68, holding that the amount was taxable as unexplained cash credit. - The court agreed with the ITAT that the forfeiture of the loan did not constitute taxable income under Section 41(1). Judgment: - ITA 983/2006 (Revenue's appeal on deletion of addition under Section 68) was allowed. - ITA 1406/2006 (Assessee's appeal on the reopening of assessment) was dismissed. - ITA 1342/2009 (Revenue's appeal on the taxability of forfeited loan) was dismissed.
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