Ita/219/2011 Of M/S I G Petrochemicals Ltd v. Dcit & Anr.’ 308 Itr 41 /The Assessee Thereupon Filed An Appeal Before The Tribunal. The Tribunal, By Order Dated O/7.03.2011

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 4TH DAY OF AUGUST 20271 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR.JUSTICE HEMANT CHANDANGOUDAR. ILT.A. NO.219 OF 2O11 BETWEEN: M/S. 1.G. PETROCHEMICALS LTD,D-4, JYOTHI COMPLEX|134/1, INFANTRY ROAD.BANGALORE-560001 REPRESENTED BY ITS CHAIRMANSRI. MADAN MOHAN DHANUKA|AGED ABOUT 63 YEARS.S/O SRI. HANUMAN PRASAD DHANUKA. — APPELLANT. (BY SMT.JINITHA CHATTERJEE, LEARNED COUNSEL|FOR SRI. S. PARTHASARATHI, ADV.) AND* THE ASST. COMMISSIONEROF INCOME TAXCIRCLE-11(4), BANGALORE-560001.. .., RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) THIS I.T.A. IS. FILED UNDER SECTION 260-A OFI.T.ACT, 1961 ARISING OUT OF ORDER DATED 07.03.2011PASSED IN ITA NOs.403 & 404/BANG/2011, FOR THEASSESSMENT YEAR 2005-06, & 2006-07 PRAYING TQ: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW|STATED THEREIN.. II]. ALLOW THE APPEAL AND SET ASIDE THE ORDERPASSED BY THE ITAT, IN ITA NQs.403 & 404/BANG/2011DATED.0O7.03.2011 (ANNEXURE-A), IN THE INTEREST OFJUSTICE AND EQUITY, THIS I.T.A. COMING ON FOR FINAL HEARING, THIS.DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260-A of the Income TaxAct, 1961 (hereinafter referred to as ‘the Act’, for short) has|been filed by the assessee. The subject matter of the appealpertains to the Assessment Years 2005-06 and 2006-07. Theappeal was admitted by a Bench of this Court on thefollowing substantial questions of law: a) Whether the Assessing Officer on careful|scrutiny of the entire material on record hasaccepted the submission of the assessee andpasseaq the assessment order wnich was inconformity with the law as declared as on thatday? b) Whether the Commissioner was Justifiedin interfering with the said finding on the basis of the Juagment rendered subsequent to the saidorder and the Tribunal was Justified in upholdingthe said order? 2. Facts leading to filing of this appeal briefly stated are.tnat the assessee is a public limited company engaged in thebusiness of manufacture and sale of petrochemicals. Theassessee filed tne returns of income for Assessment Year2005-06 and 2006-07 declaring a loss of Rs.413,49,60,160/-and Rs.225,06,40,/760/-, respectively. The assessee crediteda sum of Rs.58,64,92,119/- to the profit and loss accountbeing the total amount of principal amount of loan ofRs.28,69,99,/731/- and interest of Rs.29,94,92,388/- whichwas waived by tne Banks as per settlement schemes with|several Banks and the interest component of the waiverwnich was allowed as deduction in previous years wasoffered for assessment. Similarly, for the Assessment Year2006-07, the return was filed. The Assessing Officer passedan order of assessment for Assessment Years 2005-06 and2006-07 on 20.12.2007 and 20.12.2008 accepting the fact|tnat the loans waived were not income inciudible itn tneassessment for taxation. | 3 The Commissioner of Income Tax issued notices.under Section 263 of the Act on 30.09.2009 for both theAssessment Years proposing to revise the orders on theground that the Assessing Officer has not brougnt to tax thewaived principle amounts of loans / borrowings to the extent|of Rs.28.69 crores for Assessment Year 2005-06 and|Rs.144.727 crores for Assessment Year 2006-07. The|Commissioner of Income Tax was of the opinion. thatprinciple amounts of loans waived by various Banks /institutions were credited to the profit and loss account asincome of previous years relevant to the Assessment Years2005-06 and 2006-07 and the Assessing Officer did not makeany enquiry on this ground. The Commissioner of IncomeTax passed an order on 21.12.2009 and set aside theassessments and directed the Assessing Officer to considerthe law laid down by Supreme Court in"CIT Vsz.T.V.SUNDARAM IYENGAR AND SONS LTD. (1996) 222ITR 344 (SC)and decision of the Bombay High Court in‘SOLID CONTAINERS LTD. Vs. DCIT & ANR.’ 308 ITR41 /The assessee thereupon filed an appeal before theTribunal. The Tribunal, by order dated O/7.03.2011,| dismissed the appeal preferred by the assessee. In theaforesaid factual background, this appeal has been filed. 4. Learned counsel for the assessee submitted tnat tne|Assessing Officer had examined the issue and made enquiriesand nad passed an order on the basis of material available onrecord and the order passed by the Assessing Officer couldnot be said to be suffering from the vice of non-application ofmind. It is further submitted that the Tribunal ought tohave appreciated that the order of assessment was passedon28.17.7007|whereasthe.juagment.inSOLIDCONTAINERS LTD.,SUPIawas rendered by the BombayHign Court subsequently i.e. on 29.08.2008 whicn was notavailabie when the order of assessment was passed. It Isfurther submitted that the order of Assessing Officer cannotbe said to be erroneous and therefore, the assumption ofjurisdiction under Section 263 of the Act is not legallytenable. It is also urged that waiver of loan is not liable tobe taxed either under Section 41(1) or under Section 28(iv)of the Act in view of decision of Supreme Court in)"CIT Vs.MAHINDRA & MAHINDRA LTD. (2018) 404 ITR OOO1| (SC).In support of aforesaid submission, reliance has been.placed on the decisions in|"'CIT Vs. CHETAN CHEMICALS(P) LTD." (2004) 267 ITR 0770 (GUJ), 'CIT Vs. MODESTENTERPRISES LTD (1994) 207 ITR O618 (CAL),T.V.SUNDARADMIYENGAR,SUPFa,'MAIL_ABAINDUSTRIAL COMPANY Vs. CIT 243 ITR 83, CIT Vs./MAX INDIA LTD.’ (2007) 295 ITR O282 (SC), SOLIDCONTAINERS LTD,SUPFa,‘CHIEF CIT Vs. KESARIA TEACoO. LID. (2002) 254 ITR O434 (SC), CIT Vs.|CHEMSWORTH (P) LTD. (2020) 275 TAXMAN 408|(KAR),"CIT|ozAINR.Vs,AZTECSOFTWARETECHNOLOGY LTD. (2020) 428 ITR 245 (KAR), PRL.CIT Vs. N.K.PROTEINS LTD. (2020) 429 ITR 493(GUJ), CIT & ANR. Vs. CYBER PARK DEVELOPMENTAND CONSTRUCTIONS LTD. (2021) 430 ITR 55 (KAR),MAHINDRA AND MAHINDRA,|SUPId,‘CIT & ANR. Vs.COMPAQ ELECTRIC LTD. (2012) 249 CTR 0214 (KAR)|AND CIT & ANR. Vs. COMPAQ ELECTRIC LTD. (2019)|261 TAXMAN 0071 (SC). 5. On the other hand, learned counsel for the revenue)submitted that the Assessing Officer passed an order ofassessment in contravention of the law laid down by theSupreme Court In)‘CIT Vs. T.V.SUNDARAM IYENGAR AND SONS LTD.’SUPIaand therefore, the order was passed in.ignorance of law and an order passed in ignorance of lawconstitutes a ground for invocation of powers under Section263 of the Act in view of judgment of the Supreme Court in"MALABAR INDUSTRIAL COMPANY,SUPId 6. We nave considered the SUDMISSIONS made on potn sides and have perused the record. Before proceedingfurther, it is apposite to take note of Section 263 of the Act|which reads as under: 263. Revision of orders prejudicial to revenue 5. On the other hand, learned counsel for the revenue)submitted that the Assessing Officer passed an order ofassessment in contravention of the law laid down by theSupreme Court In)‘CIT Vs. T.V.SUNDARAM IYENGAR AND SONS LTD.’SUPIaand therefore, the order was passed in.ignorance of law and an order passed in ignorance of lawconstitutes a ground for invocation of powers under Section263 of the Act in view of judgment of the Supreme Court in"MALABAR INDUSTRIAL COMPANY,SUPId 6. We nave considered the SUDMISSIONS made on potn sides and have perused the record. Before proceedingfurther, it is apposite to take note of Section 263 of the Act|which reads as under: 263. Revision of orders prejudicial to revenue (1) The Commissioner may call for and examine.the record of any proceeding under tnis Act, and ifne considers that any order passed tnerein bythe Assessing Officer is erroneous in so far as It Isprejudicial to the interests of the revenue, he,may, after giving the assessee an opportunity ofbeing neard and after making or causing to bemade sucn inguiry as ne deems necessary, pass such order thereon as the circumstances of thecase Justify, including an order enhancing ormodifying the assessment, or cancelling the’assessment and airecting a fresh assessment. J.Thus, from close scrutiny of Section 263 it is)evident that twin conditions are required to be satisfied forexercise of revisional jurisdiction under Section 263 of theAct. Firstly, the order of the Assessing Officer is erroneousand secondly, that it is prejudicial to the interest of therevenue on account of error in tne order of assessment. 8. The aforesaid provision was considered by tne Supreme Court inMALABAR INDUSTRIAL COMPANY,|SUPIdand it was held that powers under Section 263 of the)Act cannot be invoked to correct eacn and every type ofmistake or error committed by the Assessing Officer and itwas held tnat it is only wnen an order is erroneous that thesection will be attracted. An incorrect assumption of facts oran incorrect application of law will satisfy the requirement oftne order being erroneous. In the instant case, the issuewhich arises for our consideration is whether the order passed by the Assessing Officer is erroneous as while passingthe order there has been an incorrect application of law. Therelevant extract of the order passed by the Commissioner ofIncome Tax dated 21.12.7009 reads as under: 9. The assesseeSs SUDMISSIONS Nad been|carefully considered with reference to the factsof the case and the relevant provisions of the.[.T. Act 1961. It is seen from the records thet|the Assessing Officer has not properly appliedhis mind to the taxability of the waived.principal amount of toans of Rs.28.66 croreswhich was credited in the profit and lossaccount for the relevant previous year ended31.03.2005, but, was excluded by the asseseeewhile computing the taxabie income relying onthe decision in the case of CIT vs. ChetanChemicals Pvt. Ltd. reported in 139 taxman301 (Guj). Though the Assessing Officer hadcalled for the explanation of the assessee andthe assessee had filed letters dated 77.08.7007and 20.12.2007, there is no discussion in therelevantassessmentorderregardingtheconcerned issue and the applicability of thedecision relied upon by the assessee to thefacts of the assessees case with reference totne provisions of Section 28(iv) of tne I.T. Act, 1967. Tne records do not Indicate that theAssessing Officer had examined the issue withreference to all the available judicial decisionson tne issue at the relevant point of time. It isclear from tne recoras tnat tne Assessing|Officer had accepted the assessee's claimwitnout taking into consideration the decisionof the Hon'ble Supreme Court in tne case ofT.V. Sundaram Iyengar and Sons Ltd. ReportedIn 22? ITR 344 (SC) wnere, it was nelid, interalia that unclaimed balances out of depositsreceived fromcustomer, which>weretransferred to the profit and loss account, wereassessable as Income. I[n tne decision In thecase of Chetan Chemicals Pvt. Ltd., the Hon'bleGujaratHighCourthadnottakenInto consideration the aforesaid Judgment of theHon'ble Supreme Court in the case of T.V.Sundaram Iyengar and Sons Ltd. The facts of.the case of CIT vs. Industrial Credit andDevelopment Synaicate Ltd. Reported in 285ITR 310 (KAR) concerning repurchasing of.debentures from debenture holders by anominee for a price below the face value, aredistinguishable from the assessee’'s case. Withregard to the assessees submission that theabove mentioned Supreme Court decision was distinguished in the later decision of theHon'ble Supreme Court in the case of Chief CITvs. Kesaria Tea Co. Ltda reported in 254 ITR4534, it is necessary to mention that the Hon bilSupreme Court had only observed that theearlier decision in the case of T.V. SundaramIyengar and Sons Ltd. was not relevant for.deciding the case in view of the factual matrixof the case. The facts and tne [issue involved inthe case of Kesaria Tea Co. Ltd., are different.from thet of the assessee's case. 10.In view of the above, I am of the|opinion that the Assessing Officer's failure toconsider the ratio of the decision of the Hon'bleSupreme Court in the case of 7T.V. SundaramIyengar and Sons Ltd. Reported in 222 ITR 344(SC) with reference to the facts of theassessee'scase,makestherelevantassessment order erroneous and prejudicial tothe interest of the revenue. [he ratio of the|decisions of the Hon'ble Supreme court in tnecase Of Malabar Industrial Company Ltd. Vs.CIT reported in 243 ITR 83 and CIT vs. MaxIndia Ltd. Reported in 295 ITR 282 (SC), are,therefore, not applicable to the facts of theassessee's case. In the case of CIT vs.|Gokuldas Exports relied upon by the assessee, the facts and circumstances under which theHon'ble Karnataka High Court held that the CITwas not Justified in invoking the provisions ofsection 7263 were different from tne facts andcircumstances of the assessee’'sS Case 9. Tnus, the Commissioner of Income Tax nas neld that|the Assessing Officer has failed to apply the decision ofSupreme Court in.T.V.SUNDARAM IYENGAR AND SONS, SUPId,to tne case of tne assessee wherein it was held tnat.unclaimed balances out of deposits received from customerswhich were transferred to profit and loss account wereassessable as income. Thus, tne order of the AssessingOfficer on account of incorrect application of the law, can beSaid to be erroneous in view of the law laid down py tneSupreme Court inMALABAR INDUSTRIAL COMPANY,|SUPId. Therefore, one of the conditions for invocation ofSection 263 of the Act namely the order being erroneous isfulfilled in the fact situation of the case. For the aforementioned reasons, the substantialquestions of law are answered against the assessee and infavour of the revenue. In the result, the appeal fails and is nereby dismissed. Sd/-JUDGE Sd/-.JUDGE RV