2017 (2) TMI 915 - AT - Income Tax

Reopening of assessment - treating the loan amount waived by the Bank as income u/s 41(1) read with section 28(iv) of the Income Tax Act - Held that - Assessment was reopened only based on the information which was already available on the records and no new tangible materials have come on record suggesting escaped of income in respect of waiver of loan on OTS by Banks which was claimed as deduction by the assessee. It is very apparent from the reassessment order that the assessing officer came to the conclusion that income had escaped assessment for the reason that assessee claimed deduction of ₹ 30.07 crores as waiver of loan on account of one time settlement with bank and NCD holders and this amount was credited to P&L account as income, but was claimed as deduction in the computation of income and therefore income had escaped assessment. It is not the case of the revenue that the assessee has not submitted any details in respect of the loan waived by the banks, but, it was the contention of the assessing officer that there is no change of opinion which in our considered view is not correct. The assessee has furnished all the information and a detailed submission along with case law in its support for its claim for deduction of waiver of loan by Banks on OTS. We also find that there is nothing on record to suggest that the revenue has got tangible material in its possession after completion of assessment suggesting escapement of income. Thus reopening of assessment u/s 147 is only on mere change of opinion by the assessing officer on some set of facts which were already available on record before him while completing the original assessment u/s 143(3) of the Act. Thus, following the decision of Hon ble Supreme Court in the case of Kelvinator India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA we hold that reassessment made u/s 143 r.w.s. 147 is bad in law. Hence we quash the reassessment order passed by the assessing officer. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the reassessment proceedings initiated under Section 147 read with Section 148 of the Income Tax Act.
2. Taxability of the loan amount waived by the bank under Section 41(1) read with Section 28(iv) of the Income Tax Act.

Detailed Analysis:

1. Legality of the Reassessment Proceedings:

The assessee challenged the order of the CIT (Appeals) confirming the action of the assessing officer in initiating reassessment proceedings and framing assessment by invoking the provisions of Section 147 read with Section 148 of the Income Tax Act. The assessee argued that the reopening of assessment under Section 147 was bad in law as all necessary details were furnished during the original assessment proceedings, and there were no new tangible materials suggesting escapement of income. The reassessment was claimed to be a mere change of opinion by the assessing officer.

The Tribunal noted that the original assessment was completed under Section 143(3) after considering the assessee's detailed submissions regarding the waiver of the principal loan amount by the bank. The reassessment was initiated based on the same set of facts already available on record, without any new information or tangible material. The Tribunal referred to several judicial precedents, including the Supreme Court's decision in CIT Vs. Kelvinator of India Ltd. [(2010) 320 ITR 561 (SC)], which held that reassessment based on a mere change of opinion is not permissible.

The Tribunal concluded that the reassessment proceedings were initiated merely due to a change of opinion by the assessing officer, which is not allowed under the law. Therefore, the reassessment made under Section 143(3) read with Section 147 was held to be bad in law, and the reassessment order was quashed.

2. Taxability of the Loan Amount Waived by the Bank:

On merits, the assessee challenged the addition made by the assessing officer in treating the loan amount of ?30,07,71,569/- waived by the bank as income under Section 41(1) read with Section 28(iv) of the Income Tax Act. The assessee argued that the principal amount waived by the bank on a one-time settlement was not taxable under these provisions.

The Tribunal noted that the assessee, engaged in the business of manufacturing HDPE pipes, fittings, and sprinkler systems, had incurred significant losses and was declared a sick company by the BIFR. The revival scheme approved by the BIFR included a one-time settlement with banks and debenture holders, where the principal amount was settled at a reduced value. The assessee offered the waived interest for tax under Section 41(1) but claimed that the principal amount waiver was not taxable.

The Tribunal observed that the loans were utilized for acquiring fixed assets, and courts have held that such amounts do not result in revenue receipts. The Tribunal referred to various judicial precedents supporting this view, including CIT v/s Tosha International Ltd. [176 taxman 187 (Del)] and Mahindra and Mahindra Ltd. v/s CIT [261 ITR 501 (Bom)].

However, since the Tribunal had already quashed the reassessment proceedings on the grounds of illegality, it did not delve into the merits of the case further, stating that it would be academic at this stage. The grounds on merit were kept open.

Conclusion:

The appeal of the assessee was partly allowed, with the reassessment order being quashed on the grounds of being bad in law due to a mere change of opinion by the assessing officer. The Tribunal did not address the merits of the case, leaving those grounds open for future consideration.