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TMI Blog2016 (6) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... l For the Assessee : Shri P.K. Parida Ms. Sanjukta Chowdhury ORDER Per Ramit Kochar, Accountant Member This appeal, filed by the Revenue, being ITA No. 6965/Mum/2013, is directed against the appellate order dated 20-09-2013 passed by learned Commissioner of Income Tax (Appeals)- 6, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2006-07, the appellate proceedings before the learned CIT(A) arising from the order dated 30-8-2011 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) r.w.s. 147 of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) reads as under 1. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) was justified in holding that the regular assessment made u/s.143(3) cannot be reopened u/s.147 merely on the basis of 'change of opinion' and accordingly erred in treating the proceedings initiated u/s.147 as invalid. 2. Whether on the facts and in the circumstances of the case and in law, the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of four years from the end of the assessment year. The assessee company vide letter dated 25th April, 2011 requested the AO that the return of income filed by the assessee company originally u/s 139 of the Act on 29th November, 2006 may be treated as filed in compliance to notice u/s 148 of the Act. The assessee company vide letter dated 25-04-2011 asked for reasons which were recorded by the AO for re-opening u/s 147/148 of the Act of the concluded assessment u/s 143(3) of the Act , which were supplied to the assessee company by the Revenue vide letter dated 24-05-2011 which are as follows:- The assessee company during the previous year had received relief amounting to ₹ 3,44,02,155/- on account of over draft and other facilities. Out of this amount ₹ 2,06,82,471/- was transferred to revenue receipt and an amount of ₹ 1,37,19,684/- was transferred to capital reserve. The amount of ₹ 1,37,19,684/- is not offered by the assessee company considering it as capital receipt, neither it is brought under taxation in course of the assessment. As the money was received by the assessee company in the course of carrying on his business the same has become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness, even if the overdraft amount of ₹ 3,44,02,155/- received from the bank are considered as capital receipt of earlier previous years, even though it is not taxable in the year of receipt as being of the revenue character, the amount changes its character when the amount becomes assessee company s own money because of the settlement with the bankers. Thus, the AO held that the amount should be treated as revenue receipt in the hands of the assessee company. To support, reliance was placed on the decision of Hon ble Supreme Court in the case of CIT v. T.V. Sundaram Iyengar Sons Ltd., (1996)222 ITR 344 [SC]. The AO held that the assessee company has offered for taxation as revenue receipt on the relief allowed by the Bank on the amount of ₹ 2,06,82,471/- , and by the same treatment the amount of ₹ 1,37,19,684/- is also taxable as revenue receipts in the hands of the assessee company and hence the sum was added to the total income of the assessee company by the AO , vide assessment orders dated 30.08.2011 passed by the AO u/s. 143(3) read with Section 147 of the Act. 6. Aggrieved by the assessment orders dated 30.08.2011 passed by the A.O. u/s 143(3) read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of scrutiny assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the issue of bank settlement and consequential relief granted by the bank was discussed and deliberated by the A.O. on whose request the assessee company had furnished the entire particulars with regard to the settlement reached and the accounting treatment adhered to by the assessee company in its books of account. It was submitted that the detailed submissions were made before the A.O. vide reply dated 11th November, 2008 in original assessment proceedings u/s 143(3) read with Section 143(2) of the Act. The assessee company also filed bank statement for the last six years from 1st April, 2000 to 31st March, 2006. The assessee company submitted that it filed before the AO a letter received from the bank offering the settlement dated 22nd December, 2005 and the bank certificate dated 28th March, 2006 confirming the settling of the bank account. The assessee company has shown capital receipt of ₹ 1,37,19,684 which was specifically made known to the A.O. . On the reliefs granted, the assessee company had transferred ₹ 2,06,82,471/- to its P L account and ₹ 1,37,19,684/- to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ways India Ltd. 8. (2010)329 ITR 257 (Bom), 3I Infotech Ltd. 9. (2010) 323 ITR 54 (Bom), Rallis India Ltd. 10. (2009) 314 ITR 275 (Bom) Cartini India Ltd. v. Addl. CIT 11. {2007) 295 ITR 333 (Bom) Siemens Information System Ltd..v. ACIT The assessee company submitted that it had truly and fully disclosed all the materials while filing its return of income and during the original assessment proceedings u/s 143(3) read with Section 143(2) of the Act, which material had been duly considered by the A.O. while framing the original assessment order dated 24.11.2008 u/s 143(3) of the Act by the AO. The said information with respect to the one time bank settlement and relief received by the assessee company had already been disclosed in the Audited Balance Sheet , Audited P L account, Directors Report and Notes to accounts by the Statutory Auditor, hence, there was no suppression of the material facts. There was no failure on the part of the assessee company to fully and truly disclose the material facts necessary for the assessment , was the contention of the assessee company before the learned CIT(A). The assessee company relied upon the following decisions:- 1. [2012] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon by the assessee company as stated above. The assessee company submitted that it is an undisputed and admitted position that the money out of the Bank overdraft amount was utilized for making advance payment for plant and machinery and factory building construction for the manufacturing unit of the assessee company . The learned CIT(A) after considering the afore-stated submissions of the assessee company and the facts of the case observed that a scrutiny assessment order u/s 143(3) of the Act was passed by the A.O. on 24th November, 2008 and during the course of scrutiny assessment proceedings, the issue of bank settlement and consequential relief granted by the bank was discussed and deliberated upon by the A.O. The A.O. had specifically made enquiries from the assessee company regarding the one time bank settlement and the assessee company had furnished the particulars with respect to the onetime settlement reached with the bankers. The accounting treatment as adhered by the assessee company in the books of account was also disclosed and the detailed submissions were made by the assessee company to the A.O. on 11th November, 2008 with respect to the relevant issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o giving the A.O. s power to review his own faulty decision which cannot be permitted under law. Such cases are nothing but change of opinion. Only when fresh tangible material or information is available with the A.O. and the A.O. has reason to believe that the income has escaped assessment, then the assessment can be reopened u/s 147 of the Act within 4 years from the end of the relevant assessment year. In the instant case, no such fresh tangible material is available with the AO for which the assessment can be reopened and in fact during the original assessment proceedings , the very same amount of ₹ 1,37,19,684/- declared as capital receipt was considered by the A.O. and the explanation of the assessee company was accepted. Thus, it could not be held that the A.O. had any fresh material or information in his possession on the basis of which he could believe that the income has escaped assessment. There was no failure on the part of the assessee company to disclose all materials facts. The assessment has been reopened only on the basis of change of opinion and thus the proceeding was held to be invalid by the learned CIT(A) vide appellate orders dated 20-09-2013 and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation of a belief that income has escaped assessment. The ld. Counsel drew our attention to paper book page 59 B and contended that there was audit objection raised by the Revenue audit team vide letter dated 24/09/2010 whereby it was submitted by the Senior Audit Officer, that there was onetime settlement with the bank whereby the assessee company has got the relief of ₹ 3.44 crores out of which ₹ 2.07 crores was transferred to revenue receipt which was offered for taxation , and ₹ 1.37 crores was transferred to capital reserve account which was not offered for taxation by the assessee company and since there is a cessation of liability u/s 41 of the Act as the said amount of ₹ 1.37 crores has become assessee company s own money, the same should be treated as cessation of liability and treated as income of the previous year u/s 41 of the Act . Thus the ld. Counsel submitted that assessee company was asked a query by the A.O. during the assessment proceedings whereby assessee company replied vide submission dated 11th November, 2008 and complete details regarding the onetime settlement and relief received from the bank were explained, the same are placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel submitted vide paper book page 31, there was under head Reserves and Surplus credit to the capital reserves of ₹ 1.37 crores, which is the amount remaining outstanding on 31-03-2006 in the overdraft bank account as per the bank books of accounts, which was evidenced by the bank statement placed at paper book page 45A. Thus, in nutshell, the ld. counsel submitted that the reopening of the concluded assessment has been done based on change of opinion which is based upon the audit objections, which is not permissible under law whereas all the details were furnished before the A.O. vide letter dated 11th November, 2008 which is placed in the paper book page 45 during the course of original assessment proceedings u/s 143(3) read with Section 143(2) of the Act which culminated into an assessment orders dated 24.11.2008 passed u/s 143(3) of the Act. 11. The ld. D.R. in the rejoinder, submitted that there were no change of opinion by the A.O. as no opinion was formed at the time of original assessment u/s 143(3) of the Act vide orders dated 24.11.2008. The provisions of section 147 of the Act clearly stipulates that merely production before the A.O. of the books of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . First Leasing Company of India Limited (2001) 241 ITR 248(Mad.) and submitted that the assessment order is a dumb document, there is no application of mind by the AO while framing the original assessment order dated 24.11.2008 u/s 143(3) of the Act and hence there is no change of opinion by the AO while re-opening of the assessment u/s 147/148 of the Act and he concluded that the assessment was rightly reopened by the Revenue. 12. We have considered the rival contentions and also perused the material available on record including the case laws cited by both the parties. We have observed that the assessment in the instant case of the assessee company was originally completed u/s. 143(3) of the Act by the Revenue vide assessment orders dated 24th November, 2008. The concluded assessment u/s. 143(3) of the Act has been sought to be re-opened u/s 147/148 of the Act in the instant case by the Revenue within four years from the end of the relevant assessment year by issuance and serving of the notice u/s 148(1) of the Act dated 28-03-2011, after recording of the reasons u/s 148(2) of the Act for re-opening of the assessment u/s 147/148 of the Act. The said reasons recorded for re-op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany has duly explained that the capital relief / waiver of ₹ 1.37 crores has been granted by the Bank which is transferred to the Capital Reserve account , while ₹ 2.07 crores has been transferred to the revenue receipt, which was supported by the Audited Financial Statements and the return of income filed by the assessee company with the Revenue. Thus, there was a true and full disclosure by the assessee company before the AO in the original assessment proceedings u/s 143(3) read with Section 143(2) with respect to the waiver/relief s obtained by the assessee company under one time settlement with the bankers of ₹ 3.44 crores with respect to its NPA loan liability which was also subject matter of litigation with Debt Recovery Tribunal and BIFR. The factum of this letter dated 11-11-2008 submitted by the assessee company before the AO did find mention in the audit objection letter dated 24-09-2010 issued by Senior Audit Officer/LAP-IX, which was the basis for re-opening of the concluded assessment . Thus , the contentions of the revenue that no such query relating to one time settlement with the banker and consequent relief / waiver obtained by the assessee com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the tax-payer and the Revenue warranting addition to the disclosed income by the tax-payer in the return of income filed with the Revenue, and the issues where there is a consensus between the Revenue and tax-payer and consequentially no additions are warranted to the disclosed income of the tax-payer are not included in the assessment orders. Thus, the A.O. has duly applied his mind and accepted the contentions of the assessee company that the capital relief of loan outstanding to be payable as per the books of accounts of the Bank reflected in the bank statement of ₹ 1.37 crores which was credited by the assessee company to capital reserve and not offered to tax, is on a capital field and waiver thereof does not result into income exigible to tax and hence no additions were made while framing assessment orders dated 24.11.2008 framed by the AO u/s 143(3) of the Act. Thus, the opinion was clearly formed by the A.O. as per the facts emerging from the records that the said amount of capital relief of ₹ 1.37 crores is not exigible to tax , while the AO also accepted the contentions of the assessee company that ₹ 2.07 crores is exigible to tax as revenue receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited notes to accounts as well reply/submissions dated 11-11-2008 in response to the query of the AO , the said reply dated 11-11-2008 was submitted by the assessee company along with necessary enclosures of bank statements and certificates as set out above, which culminated into an assessment orders dated 24.11.2008 passed by the AO u/s 143(3) of the Act whereby the AO accepted the contentions of the assessee company that the waiver/relief of the balance outstanding amount of ₹ 1.37 crores payable as per bank statement in the NPA overdraft account is not taxable as it is a capital relief on capital account. Thus, it is proved beyond doubt that the AO did formed an opinion while allowing the relief of ₹ 1.37 crores waiver by the bank as not exigible to tax based on full and complete disclosure by the assessee company as set out above. The assessment has been re-opened u/s 147/148 of the Act within four years from the end of the assessment year which can no doubt be re-opened if it could be shown either that there was failure or omission on the part of the assessee company in full and complete disclosure before the AO to show that the opinion is formed by the AO based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax( the CIT ) is empowered to set aside faulty decisions of the AO if the same are found to be erroneous and prejudicial to the interest of the Revenue. This power is always available with the CIT u/s 263 of the Act to set aside faulty decisions of the AO , but certainly not the powers u/s 147/148 of the Act can be invoked to review all kind of faulty decisions of the AO. Thus, in our considered view, the reopening in the instant case is clearly based upon the change of opinion and based upon the audit objections dated 24-09-2010 which is based on different interpretation of law with respect to Section 41 of the Act of the material and facts which were already available on records before the AO while framing original assessment order dated 24.11.2008 u/s 143(3) of the Act and the same is not sustainable as the power u/s 147/148 is to assess or re-assess the income which has escaped assessment , but not to review the assessment s based on the change of opinion by the AO . The audit team undertake the audit functions which are not judicial functions and the audit team certainly has powers to furnish the information to bring to the notice of the A.O. with respect to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Department or an audit party of the Comptroller and Auditor General, they perform essentially administrative or executive functions and cannot be attributed the power of judicial supervision over the quasi-judicial acts of income-tax authorities. The Income-tax Act does not contemplate such power in any internal audit organisation of the Income-tax Department; it recognises power in those authorities only which are specifically authorised to exercise adjudicatory functions The Comptroller and Auditor-General's ( Duties, Powers Condition) Act does not also envisage such a power. Neither statute supports the conclusion that an audit party can pronounce on the law, and that such pronouncement amounts to information within the meaning of section 147(b) . In every case, the ITO must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether, in consequence of the law which has now come to his notice, he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts before the AO which led to formation of an opinion which is vitiated by appreciation of the AO of the wrong material facts disclosed before him or concealment of the material facts by the assessee company which otherwise was essential to formation of an opinion to come to the conclusion which in the absence of the said material facts being disclosed got vitiated entitling the Revenue to re-open u/s 147/148 of the Act the concluded assessment u/s 143(3) of the Act. It clearly appears from the facts emerging from the records that the A.O. in the instant case has not applied any mind to come to the conclusion that income has escaped assessment before accepting the audit objections of the audit team to arrive at his independent satisfaction before re-opening of the assessment u/s 147/148 of the Act the otherwise concluded assessment u/s 143(3) of the Act , as per the facts emerging from the records placed before us . The AO has in an stereo typed mechanical manner merely accepted the recommendations of the audit team without any application of mind and proceeded to reopen the concluded assessment u/s 143(3) of the Act by recording the same reasons as were suggested by the audit te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an summary manner as contemplated u/s 143(1) of the Act. Moreover 101 ITD 495 was dealing with powers of the CIT u/s 263 of the Act and we have also held that powers u/s 263 of the Act can be invoked to set aside the faulty orders of the AO , while in the instant case we are dealing with powers of the AO u/s 147/148 of the Act to assess or re-assess the income in contradistinction to the power of the AO to review its own faulty decisions which is not permissible within the ambit of Section 147/148 of the Act. b) Hon ble Supreme Court decision in the case of Ess Ess Kay Engineering Company Private Limited v. CIT (2002) 247 ITR 818 (SC) - In this case, the Hon ble Supreme Court dealt with power of the AO to re-open assessment u/s 147/148 of the Act when there is a new and tangible material in possession of the AO leading to the conclusion that income has escaped assessment while in the instant case there was no fresh tangible material before the AO leading to the conclusion that income has escaped assessment rather it is the audit objection which is on interpretation of law with respect to Section 41 of the Act on the same set of facts and material which were before the AO, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he previous year u/s 41 of the Act, while the AO has taken one of the possible view that waiver of capital relief by way of outstanding payable as per the books of accounts reflected in the bank statement being part of NPA account is on capital account not exigible to tax based on all the facts and material placed before the AO by the assessee company before arriving at an opinion by the AO that the said sum is not exigible to tax. f) Kalyanji Mavji Company v. CIT (1976)102 ITR 287(SC)-This case also , new and tangible information has come to the possession of the AO after completion of the assessment that the deduction was wrongly allowed and income has escaped assessment, while in the instant case under appeal no new tangible material has come into possession of the AO after the conclusion of the assessment indicating escapement of income, rather based on the same facts and material on record , the audit team has interpreted that waiver/relief of the bank loan under one time settlement with the Bank to have become the assessee company s own money and is a cessation of liability chargeable to tax u/s 41 of the Act, while the AO has already on the basis of same facts and mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power of judicial supervision over the quasi-judicial acts of income-tax authorities. The Income-tax Act does not contemplate such power in any internal audit organisation of the Income-tax Department; it recognises power in those authorities only which are specifically authorised to exercise adjudicatory functions . The Comptroller and Auditor-General's ( Duties, Powers Condition) Act does not also envisage such a power. Neither statute supports the conclusion that an audit party can pronounce on the law, and that such pronouncement amounts to information within the meaning of section 147(b) . In every case, the ITO must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether, in consequence of the law which has now come to his notice, he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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