2018 (4) TMI 452 - AT - Income Tax

Validity of assessment framed u/s. 147 - credit balance in the name of M/s. Mahindra & Mahindra - Held that - The name of M/s. Mahindra & Mahindra in his books of account as reflected in the balance sheet and its annexure. It has surfaced during the course of scrutiny proceedings for the AY 2012-13 in the books of M/s. Mahindra & Mahindra that debtor has written off the corresponding debit balance in its books of account as on 31.3.2011 itself. Therefore, on the basis of these facts, the AO has properly formed a belief that income chargeable to tax has escaped assessment. In the light of these facts, we do not agree with the contentions of the assessee that no material was available before the AO to form a belief that income chargeable to tax has escaped assessment. More over, no regular assessment was framed u/s. 143(3) of the Act. Cessation of liability u/s. 41(1) - In any case, where the assessee has denied the knowledge of writing off of such huge amount of bad debt, it was incumbent upon the AO to dig out the truth by making necessary enquiries from M/s. Mahindra & Mahindra, but it was not done and without doing so, the AO has made the addition of the same in the hands of the assessee, having invoked the provisions of section 41(1) of the Act. We are therefore of the view that in the absence of complete information, the conclusion drawn by the AO is not proper. Therefore, it requires further enquiry and investigation from M/s. Mahindra & Mahindra with regard to any settlement undertaken between the parties under which M/s. Mahindra & Mahindra has written off huge amount of ₹ 3,08,03,419.13. Accordingly, we set aside the order of the CIT(Appeals) in this regard and restore the matter to the AO with a direction to make necessary enquiry from M/s. Mahindra & Mahindra and from the assessee also with regard to any settlement under which 3,08,03,419.13 has been written off by M/s. Mahindra & Mahindra.

Summary

Issues involved:
1. Validity of assessment under section 147 of the Act
2. Cessation of liability under section 41(1) of the Act
3. Chargeability of interest under sections 234B & 234C

Validity of assessment under section 147 of the Act:
The appellant challenged the assessment under section 147 of the Act, arguing that the mandatory conditions for assuming jurisdiction were not met. The AO initially framed the assessment under section 143(1) of the Act but later observed a credit balance in the appellant's books, leading to a belief that income had escaped assessment. The Tribunal found that the AO had sufficient grounds to reassess, as the appellant had not raised any specific objections in writing. Since no regular assessment was conducted under section 143(3) of the Act, the Tribunal upheld the reassessment under section 147, rejecting the appellant's contentions.

Cessation of liability under section 41(1) of the Act:
The dispute centered on the treatment of a credit balance in the appellant's account with M/s. Mahindra & Mahindra as income under section 41(1) of the Act. The AO assessed the amount as income, citing the unilateral writing off of the liability by M/s. Mahindra & Mahindra. The appellant contended that without proper notification, the liability should not be treated as income. The Tribunal noted that while M/s. Mahindra & Mahindra had indeed written off the debt, there was a lack of evidence that the appellant was informed. Given the absence of complete information, the Tribunal directed the AO to conduct further inquiries to ascertain if the appellant was aware of the debt write-off, emphasizing the need for clarity before taxing the amount as income.

Chargeability of interest under sections 234B & 234C:
The Tribunal considered the issue of interest under sections 234B & 234C as consequential and requiring no independent adjudication, thus not delving into this matter separately.

In conclusion, the Tribunal allowed the appeal for statistical purposes, highlighting the need for additional inquiries regarding the cessation of liability under section 41(1) of the Act. The judgment emphasized the importance of establishing the appellant's awareness of the debt write-off before taxing it as income, underscoring the necessity of complete information and proper investigation in such cases.