2018 (8) TMI 124 - AT - Income Tax

Reopening of assessment - addition invoking the provisions of section 41(1) - Held that - Here we find that in the reasons recorded it has been clearly mentioned that there has been a waiver of loan amounting to ₹ 7,00,66,000/- and the same is assessable as income which has not been assessed as such. Hence on the touch stone of Hon ble Apex Court decision in the case of Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA) it can be clearly said that there is a tangible material for the Assessing Officer to come to the conclusion that there is an escapement of income from business. Hence, the reasons do have a live link with the formation of the belief. As regards the merits of the case, we find that the assessee had raised additional evidences and additional ground. In an affidavit mentioned above, it has been said that the amount raised from ECB (External Commercial Borrowing) were utilized mainly to repay the loan from financial institutions. The loan agreement itself mentions that the ECB loan was for general funding requirement. Now the assessee is making a U-turn and claiming that the said loan was utilized to pay off earlier financial institutions loans which in turn were used for acquisition of capital asset. In this regard, we note that firstly these submissions and documents were not before the authorities below. In our considered opinion, they need to be verified with reference to the original records as to whether the claim of the assessee as above is correct or not. It is only after that that it has to be considered as to whether the new claim of the assessee that the said ECB loan was used for capital purposes, can be entertained.Upon careful consideration, in the interest of justice, we remit the issue to the file of the Assessing Officer. The Assessing Officer shall consider the issue afresh after giving a factual finding regarding the veracity of the assessee s new claim mentioned hereinabove. - Decided partly in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Validity of reopening the assessment under section 147 of the Income Tax Act.
2. Treatment of loan waiver as income under section 41(1) of the Income Tax Act.
3. Levy of interest under section 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The appellant contended that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in upholding the reopening of the assessment under section 147. The appellant argued that the reopening was without fresh material and that all facts were disclosed during the original assessment. The CIT(A) upheld the reopening, citing that there was proper and valid material before the Assessing Officer (AO), who recorded reasons for issuing the notice under section 148. The CIT(A) referred to the case of Praful Chunilal Patel, which supports the AO's actions even if there was a complete disclosure of all relevant facts initially. The Tribunal noted that the AO had tangible material to believe that income had escaped assessment and that there was no power of review, only a power to reassess based on new tangible material. The Tribunal upheld the reopening of the assessment, finding no infirmity in the CIT(A)'s order.

2. Treatment of Loan Waiver as Income under Section 41(1):
The AO treated the waiver of a loan amounting to ?7,00,66,000 as income under section 41(1), considering it a trading liability. The CIT(A) upheld this treatment, stating that the waiver benefited the appellant and was thus taxable. The appellant argued that the loan was used for acquiring fixed assets, not for working capital, and hence should not be treated as income. The appellant submitted an affidavit and additional evidence, claiming an inadvertent error in earlier submissions stating the loan was for working capital. The Tribunal found these new claims contrary to earlier statements and noted that the loan agreement mentioned the loan was for general funding. The Tribunal remitted the issue back to the AO for verification of the appellant's new claims and a fresh consideration of whether the loan waiver should be treated as income.

3. Levy of Interest under Section 234B:
The appellant contested the levy of interest under section 234B amounting to ?78,81,595. The Tribunal noted that the issue of interest under section 234B is consequential and dependent on the outcome of the main issues regarding the reopening of the assessment and the treatment of the loan waiver as income.

Conclusion:
The Tribunal upheld the reopening of the assessment under section 147, finding that the AO had tangible material to justify the belief that income had escaped assessment. The Tribunal remitted the issue of treating the loan waiver as income back to the AO for verification of the appellant's new claims and a fresh decision. The issue of interest under section 234B was deemed consequential. The appellant's appeal was partly allowed for statistical purposes.