2016 (1) TMI 935 - AT - Income Tax

Reopening of assessment - Held that -The A.O. at the time of issuing notice u/s 148 of the Act, is not necessarily to establish the fact that there is escapement of income. But, what is necessary is that there must be some material evidence, on which the formation of opinion is arrived at by the A.O. In the instant case, the A.O. issued notice u/s 148, based on the information that the assessee has received arbitration amount which was not offered to tax, which constitute the valid reason for reopening the assessment. Therefore, we are of the view that the A.O. has rightly reopened the assessment. The CIT(A), after elaborate discussions rejected the assessee arguments and upheld the validity of reopening. Therefore, we upheld the reopening of the assessment and reject the grounds raised by the assessee. Taxability of interim amount received towards arbitration award - whether the interim amount received by the assessee is taxable on receipt basis for the year under consideration? - Held that - The interim amount received towards arbitration award after furnishing security and also on personal guarantee of the Directors of the company, cannot be treated as income of the assessee on receipt basis in the year of receipt. On going through the facts of the present case, we noticed that issue is not yet final. The Hon ble A.P. High court, finally dismissed the review petition filed by the DGNP on 18.6.2014 and upheld the arbitration award. Therefore, in our opinion, the assessee has got absolute right to receive the amount, when the Hon ble A.P. High Court finally upheld the arbitration award and not in the impugned assessment years. Under these circumstances, interim amount received by the assessee cannot be brought to tax as income of the assesse for the assessment years 2005-06 & 2008-09. - Decided in favour of assessee

Issues Involved:
1. Validity of reopening the assessment under Section 148.
2. Taxability of the interim amount received from arbitration awards.
3. Taxability of the waiver of bank loan.
4. Levy of interest under Sections 234A and 234B.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 148:

The assessing officer (A.O.) reopened the assessment based on the information that the assessee received Rs. 3 crores each in assessment years 2005-06 and 2008-09 as interim amounts from arbitration awards, which were not offered for taxation. The A.O. issued notices under Section 148 of the Income Tax Act, which were within the prescribed time limits. The A.O. had material evidence to form a belief that income chargeable to tax had escaped assessment. The primary requirement under Section 147 is the formation of belief by the A.O. with material evidence. The CIT(A) upheld the validity of reopening the assessment, and the tribunal agreed, rejecting the assessee's grounds against reopening.

2. Taxability of the Interim Amount Received from Arbitration Awards:

The assessee received interim amounts of Rs. 3 crores each in assessment years 2005-06 and 2008-09 based on the Andhra Pradesh High Court's orders, pending the final disposal of arbitration disputes. The A.O. taxed these amounts on a receipt basis, but the assessee contended that the arbitration award had not reached finality, and the amounts were contingent liabilities, not income. The tribunal noted that the arbitration proceedings were still under challenge, and the amounts were received against security and personal guarantees. The tribunal held that the amounts could not be considered income in the year of receipt but should be taxed either in the year the arbitration award was passed or when the proceedings were finally upheld by the court. The tribunal directed the A.O. to delete the additions for the assessment years 2005-06 and 2008-09.

3. Taxability of the Waiver of Bank Loan:

The assessee did not press the ground regarding the waiver of the bank loan amounting to Rs. 1,27,00,603/- during the hearing. Therefore, the tribunal dismissed this ground as not pressed.

4. Levy of Interest under Sections 234A and 234B:

The tribunal held that the levy of interest under Sections 234A and 234B is mandatory and consequential wherever there is a tax liability. The A.O. does not have discretionary power in this regard. Therefore, the tribunal dismissed the ground raised by the assessee on this issue.

Conclusion:

The tribunal partly allowed the appeal filed by the assessee, directing the deletion of additions for the interim amounts received in the assessment years 2005-06 and 2008-09 but upheld the validity of reopening the assessment and the mandatory levy of interest under Sections 234A and 234B. The order was pronounced in the open court on 4.12.15.

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