M/S.thambi Modern Spinning Millsltd., Rep.by Its Managing Director v. The Commissioner Of Income Tax, Income Tax Department

In the High Court of Judicature at Madras Dated : 02.9.2021 Coram The Honourable Mr.Justice T.S.SIVAGNANAMandThe Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP Writ Appeal No.2174 of 2021 & CMP.No.13747 of 2021 M/s.Thambi Modern Spinning MillsLtd., rep.by its Managing Director ...Appellant Vs 1.The Commissioner of Income Tax, Income Tax Department, No.3 Gandhi Road, Salem-7. Income Tax Department, No.3 Gandhi Road, Salem-7. 2.The Assistant Commissioner of Income Tax, Circle-2, Income Tax Department, No.3, Gandhi Road, Salem-7. Income Tax, Circle-2, Income Tax Department, No.3, Gandhi Road, Salem-7. 3.The Deputy Commissioner of Income Tax, Circle (1), Income Tax Department, No.3, Gandhi Road, Salem-7. ...Respondents Income Tax, Circle (1), Income Tax Department, No.3, Gandhi Road, Salem-7. ...Respondents APPEAL under Clause 15 of the Letters Patent against the orderdated 23.6.2021 made in W.P.No.8050 of 2015. Prayer in WP.No.8050/2015: Petition filed under Article 226 ofthe Constitution of India praying to issue writ ofcertiorarified mandamus to call for the records of the secondrespondent to quash the impugned order No.148/Circle-2,SLM/2014-15 dated 02.03.2015 issued in terms of Section 148 ofthe Income Tax Act, 1961 on the assumption of JurisdictionU/s.147 of the said Income Tax Act, 1961 for framing Re-assessment in relation to the Assessment year 2007-2008 inPAN:AAACT7676G of the 3[rd] respondent and further direct thesecond respondent to drop the proceedings initiated under 147 ofthe Act for the said Assessment year 2007-08. For Appellant: Mr.A.S.SriramanFor Respondents: Mr.A.P.Srinivas, SSC Judgment was delivered by T.S.SIVAGNANAM,J We have elaborately heard Mr.A.S.Sriraman, learnedcounsel appearing for the appellant and Mr.A.P.Srinivas, learnedSenior Standing Counsel accepting notice for the respondent. 2. This appeal filed by the writ petitioner – assessee isdirected against the order dated 23.6.2021 in W.P.No.8050 of2015. 3. The said writ petition was filed by the appellant –assessee challenging he order passed by the second respondentdated 02.3.2015, by which, the objections filed by the assesseefor the reopening of assessment for the year 2007-08 wererejected and the assumption of jurisdiction by the secondrespondent was sustained. 4. Before the learned Single Judge, the assessee contendedthat the reassessment proceedings initiated vide order dated02.3.2015 after expiry of four years from the end of theassessment year 2007-08 would attract the Proviso under Section147 of the Income Tax Act, 1961 (for short, the Act) and in theabsence of any failure on the part of the assessee in disclosingfully and truly all material facts, the reassessment proceedingswere without authority of law. It was further contended that oneof the reasons for reopening, as mentioned in the counteraffidavit filed in the said writ petition by the secondrespondent, was that the mere production before the AssessingOfficer the books of accounts or other evidence, from which,material evidence could, with due diligence, have beendiscovered by the Assessing Officer would not necessarily amountto disclosure mentioned in the First Proviso. 5. The appellant – assessee also contended that the issue oftaxability of the benefit derived from one time settlement (OTS)was discussed and accepted in the original assessment orderdated 27.7.2009. Therefore, the Explanation to Section 147 ofthe Act had been wrongly invoked by the second respondent andthereby the reassessment order dated 02.3.2015 was liable to bequashed. The assessee further contended that the reopening ofassessment on the same ground amounted to change of opinion. Itwas also the case of the assessee that the reopening of theassessment for taxing the benefit derived from the OTS wascompletely against the decision of this Court in the case ofIskraemeco Rent Limited Vs. CIT [reported in (2011) 331 ITR317] and the law laid down in that decision was affirmed by theHon'ble Supreme Court in the decision in the case ofCommissioner Vs. Mahindra & Mahindra Ltd. [reported in (2018)404 ITR 1]. 6. By relying upon the above decisions, the assesseecontended that the reopening of assessment was bad in law. Itwas also contended that the reopening of assessment was beyondfour years and that therefore, unless there was a fresh tangiblematerial, the reassessment proceedings could not have beeninitiated. It was further contended that neither in the reasonsfor reopening nor in the counter, the Assessing Officer broughtout any fresh tangible material for sustaining the reassessmentproceedings. 7. It is seen that the appellant filed notes on submission,both on facts as well as pointing out the legal position. 8. In the counter filed by the second respondent in the saidwrit petition, in respect of the contentions, which were raisedby the appellant - assessee and more particularly with regard tothe benefit derived from the OTS and as to how it was discussedin the original assessment, there was no denial by the secondrespondent and the averment in paragraph 9 only touched upon thesaid issue, which, in fact, was a verbatim extract of thereasons for reopening. The reasons for reopening were extractedby the Assessing Officer in the order dated 02.3.2015, which wasimpugned in the said writ petition. 9. A perusal of the reasons clearly show that there was noreference to fresh tangible material, which came to the noticeof the Assessing Officer to justify reopening. With the abovepleadings by the parties and the legal contentions raised by theassessee and the Department, the said writ petition was heard. 10. We find from the order impugned before us that afternoting the submissions made on either side, the learned SingleJudge proceeded to take note of the scheme under Section 147 ofthe Act as to how the power has been conferred on the AssessingOfficer to reopen the proceedings. Thereafter, the learnedSingle Judge noted that the Assessing Officer formed an opinionand based on that opinion, the notice under Section 148 of theAct was issued and the procedure laid down by the Hon'bleSupreme Court in the case of GKN Driveshafts (India) Ltd. Vs.ITO [reported in (2003) 259 ITR 19] was followed and therefore,the assessee was bound to participate in the assessment(reassessment) proceedings by defending their case in a mannerknown to law. Thus, we also find that the legal issue, which wasraised by the assessee questioning the assumption ofjurisdiction, has not been considered and decided by the learnedSingle Judge. 11. We have perused the original assessment order dated27.7.2009 under Section 143(3) of the Act. Before passing suchan order, the Assessing Officer had discussed the case with the assessee and sought for further particulars, which werefurnished by the assessee along with their letter dated19.6.2009. 11. We have perused the original assessment order dated27.7.2009 under Section 143(3) of the Act. Before passing suchan order, the Assessing Officer had discussed the case with the assessee and sought for further particulars, which werefurnished by the assessee along with their letter dated19.6.2009. 12. In annexure III, the relevant documents concerning thesubject issue had been furnished by the assessee namely withregard to the OTS of loan liability, the assessee submitted thatthe company had availed several term loans from financialinstitutions and banks for the purchase of machinery andacquired capital asset, that those loans were not in the natureof trading liability, but were in the nature of capitalliability and that the waiver of loan liability was not thewaiver of any trading liability and the waiver of capitalliability would not become income under Section 41(1) of the Acton the ground of remission or cessation thereof. 13. The assessee placed reliance on the decision of theBombay High Court in the case of Mahindra & Mahindra Ltd. Vs.CIT [reported in (2003) 261 ITR 501], which held the field atthe relevant time. The assessee further contended that thewaiver amount of term loan availed by the assessee did notpartake the character of assessable income either under Section28(iv) or under Section 41(1) of the Act. Further, by once againreferring to the decision of the Bombay High Court in the caseof Mahindra & Mahindra Ltd., it was submitted that the loan hadbeen availed by the assessee towards augmenting their capitaland that any amount waived out of the said liability should beonly treated as capital receipt not liable for taxation. Theassessee also placed reliance on the decision of this Court inthe case of CIT Vs. P.Ganesa Chettiar [reported in (1979) 133ITR 103] and submitted that a debt forgiven or waived cannotconstitute an income. 14. The assessee also contended that the term loan frombanks was taken long time before and they paid interest forcertain period, that there was a separate loan agreementwhenever we got the term loan and that the loans availed wereused for purchase of machinery and hence, Section 28(iv) of theAct was not applicable. The assessee further contended that theyhad not claimed any deduction in the assessment (profit and lossaccount) by taking term loan, that it was not a tradingliability and that waiver of the loan could not be taxed underSection 41(1) of the Act. Thus, the assessee submitted that theamounts referable to loans received for purchase of capitalassets would not constitute a trading liability and accordingly,Section 41(1) was not attracted. 15. The Assessing Officer, while completing the originalassessment, took note of the submissions and in the assessmentorder dated 27.7.2009 under Section 143(3) of the Act, there was a discussion in respect of the OTS and the loans, etc. Withregard to the hire purchase interest, the Assessing Officernoted that the same was not disallowed in the earlier yearsunder Section 43(B) of the Act and as such, when it was waived,it became income of the assessee since the same was allowed inthe earlier years as trading liability. Accordingly, a sum ofRs.40,75,340/- was assessed to tax under Section 41(1) of theAct. 16. Thus, it is clear that the issue, which appears to bethe reason for reopening, was, in fact, discussed by theAssessing Officer in the original assessment and it wascompleted. If such is the factual position, unless and until theAssessing Officer has fresh tangible material brought on recordwhile recording the reasons for reopening, the reopening ofassessment, if permitted, would amount to review of the earlierdecision, which is impermissible in law. Thus, we are satisfiedthat the assumption of jurisdiction by the second respondent toreopen the assessment is not sustainable. 16. Thus, it is clear that the issue, which appears to bethe reason for reopening, was, in fact, discussed by theAssessing Officer in the original assessment and it wascompleted. If such is the factual position, unless and until theAssessing Officer has fresh tangible material brought on recordwhile recording the reasons for reopening, the reopening ofassessment, if permitted, would amount to review of the earlierdecision, which is impermissible in law. Thus, we are satisfiedthat the assumption of jurisdiction by the second respondent toreopen the assessment is not sustainable. 17. For all the above reasons, the writ appeal is allowed,the impugned order passed in W.P.No.8050 of 2015 is set aside,W.P.No. 8050 of 2015 is allowed and the order dated 02.3.2015passed by the second respondent is quashed. No costs.Consequently, the connected CMP is closed. Sd/- Assistant Registrar(CS-VIII) //True Copy// RS Sub Assistant Registrar To 1.The Commissioner of Income Tax, Income Tax Department, No.3 Gandhi Road, Salem-7. Gandhi Road, Salem-7. 2.The Assistant Commissioner of Income Tax, Circle-2, Income Tax Department, No.3, Gandhi Road, Salem-7. Department, No.3, Gandhi Road, Salem-7. 3.The Deputy Commissioner of Income Tax, Circle (1), Income Tax Department, No.3, Gandhi Road, Salem-7. Department, No.3, Gandhi Road, Salem-7. +1cc to Mr.S.Sridhar, Advocate, S.R.No.44206 +1cc to Mr.A.P.Srinivas, Advocate, S.R.No.44516 WA.No.2174 of 2021&CMP.No.13747 of 2021 NK(CO)CB(01/11/2021) https://hcservices.ecourts.gov.in/hcservices/