Income Tax Appellate Tribunal - Mumbai
C & M Farming Ltd, Nashik vs Assessee on 14 March, 2012
आयकर अपील य अ धकरण, मुंबई यायपीठ ' मुंबई ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, MUMBAI
सव ी वजयपाल राव, या.स एवं सव ी jktsUnz लेखा सद य ।
BEFORE SHRI VIJAY PAL RAO, JM & SHRI RAJENDRA, AM ,
आयकर अपील सं./I.T.A. No. 3782/Mum/2012
( नधारण वष / Assessment Year :2007-08)
M/s C&M Framing Ltd. बनाम/ Commissioner of Income Tax
C&M House, N.D. Patel, 574, Aayakar Bhavan,
Vs.
Road, Behind GPO, M.K. Road,
Nasik Mumbai - 400 020.
Maharashtra - 422 001.
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACC0473C
(अपीलाथ /Appellant) .. ( यथ / Respondent)
नधा रती क ओर से/Assessee by : Shri K. Gopal
राज ब क ओर से/ Revenue by : Shri. Sanjeev Jain
सुनवाई क तार ख / D a t e of H e a r i ng : 21 February 2014
घोषणा क तार ख/D a t e O f Pr on o u nc e m e nt : 28th February 2014
आदे श / O R D E R
PER : वजयपाल राव, या.स. / VIJAY PAL RAO, JM
This appeal by the assessee is directed against the revision order dated 14.3.2012 of Commissioner of Income Tax passed u/s 263 of Income Tax Act for the assessment year 2007-08.
2. The assessee has raised the following grounds in this appeal:
1. The Ld. Commissioner of Income Tax [ hereinafter referred to as "Ld. CIT"] erred in passing the order dated 14.03.2012 under section 263 of the Act without appreciating that the assessment order dated 31.12.2009 passed under section 143(3) is neither erroneous nor prejudicial to the interest of revenue. Hence, the provisions of section 263 of the Act are not attracted in the Appellant's case. Therefore, the order dated 14.03.2012 passed by the Ld. CIT under section 263 of the Act is bad in law and the same may be quashed.2
2. The Ld. CIT(A) failed to appreciate that the Ld. AO has passed the assessment order dated 31.12.2009 under section 143(3) of the Act after due application of mind and after carrying on required investigations. Therefore, the Ld. CIT is not justified in invoking the provisions of section 263 and hence, the order passed under section 263 of the Act is without jurisdiction.
3. Without prejudice to the above the Ld. CIT(A) failed to appreciate that the issues raised during the course of the proceedings under section 263 do not satisfy the conditions that the assessment order dated 31.12.2009 is erroneous as well as prejudicial to the interests of Revenue. Therefore, the order passed under section 263 of the Act dated 14.03.1012 is bad in law and hence, the same may be quashed and set aside.
3. The assessment was completed u/s 143(3) of the Income Tax Act on 31.12.2009. The Commissioner, on perusal of the assessment record found that the assessee has not added back an amount of Rs. 30,60,895/- which was found to be inadmissible u/s 40(a) nor added by the Assessing Officer at the time of assessment. Further it was also noticed by the Commissioner that an amount of Rs. 22.52 crores being the Principle amount of loan which was waved off by the bank has not been credited to the profit and loss account nor added back in the computation of income. Accordingly, the Commissioner was of the view that the order passed u/s 143(3) dated 31.12.2009 is erroneous and prejudicial to the interest of revenue. Hence, a show cause notice dated 29.11.2011 u/s 263 of the Income Tax Act was issued to the assessee. The assessee filed its reply to show cause notice vide letter dated 8.12.2012 and mainly contended that when the scrutiny assessment u/s 143(3) is made after considering the reply of the assessee on the issue then non-discussion of the fact is not enough to invoke the provisions of section 263 of the Income Tax Act. The Assessing Officer has taken a possible view then the Commissioner is not permitted to take a different view by exercising the power u/s 263. The Commissioner did not accept the contention of the assessee and held that as regards inadmissible amount u/s 40(a) of Rs. 30,60,895/- the assessee has made no submissions in response to show cause notice about the liability of such amount. The Commissioner has held that when the A.O has not done a proper verification on this 3 issue while passing the assessment order then the said order is erroneous and prejudicial to the interest of revenue. Accordingly, the Commissioner set aside the order and remitted the issue to the record of the Assessing Officer to framed assessment de-novo. Onthe issue of waver of loan the Commissioner has placed reliance on the following decisions:
CIT Vs Karam Chand Thapar 222 ITR 112 (SC) CIT Vs Sundaram Iyengar (T.V.) and Sons Ltd. 222 ITR 344 (SC) Solid Containers Ltd. Vs DCIT 308 ITR 417 (Bom)
4. Accordingly, the Commissioner held that waver of principle amount of loan was to be treated as income of the assessee. Holding the assessment order passed u/s 143(3) as erroneous and prejudicial to the interest of revenue the same was set aside to the file of the A.O to frame the assessment de-novo.
5. Before us the Ld. A.R of the assessee has submitted that the assessment has been framed u/s 143(3) after considering all the facts on the issue of waver of loan. The Ld. A.R has pointed out that the bank loan has been waved as a result of one time settlement. The assessee offered the interest component of the waver and since the principle amount cannot be treated as the income therefore, the same cannot be assessed to tax. The Ld. A.R has pointed out that the A.O has raised a query during the assessment proceedings on this issue and the assessee replied the same vide its letter dated 28.12.2009. The Ld. A.R has referred the reply of the assessee dated 28.12.2009 filed before the A.O on 29.12.2009 and submitted that the A.O raised certain queries during the hearing on 22.12.2009 regarding the waver of principle component of loan as business income u/s 41(1) of the Income Tax Act. The assessee explained and submitted its reply to the query which has been considered by the A.O. Accordingly by accepting the reply of the assessee, the A.O did not assess the principle component of the waver of loan by the bank. The Ld. A.R has then pointed out that in reply 4 to show cause notice the assessee has explained this fact to the Commissioner that this issue has been considered by the A.O in the assessment proceedings and taken a possible view.
Therefore, provisions of Section 263 cannot be invoked on the issue on which two views are possible and A.O has taken one of the possible views. The Ld. A.R has relied upon the following decisions:
Grasim Industries Ltd. Vs CIT 321 ITR 92 CIT Vs 211 Taxman 108 CIT Vs Max India Ltd. 295 ITR 282 Fine Jewellery India Ltd. Vs ACIT 56 SOT 22
6. Thus the Ld. AR has contended that the A.O has examined the issue and accepted the explanation of the assessee for not treating the principle component of waver of loan as income u/s 41(1) of the Income Tax Act then the Commissioner cannot exercise its jurisdiction u/s 263 merely because he does not agree with the view of the assessee. Placing reliance on the decision of the Hon'ble Jurisdictional High Court in case of CIT Vs Jilo Holding Pvt. Ltd. (supra) the Ld. A.R has submitted that the Hon'ble High Court after considering the decision in case of Solid Containers Ltd. Vs DCIT (supra) has held that the principle part of the loan waved cannot be treated as income u/s 41(1) or u/s 28(iv) of the Income Tax Act. The Ld. A.R has referred the profit and loss account and submitted that the assessee itself has offered to tax the waver of interest and waver of principle amount has been credited to the capital reserve in the balance sheet. The Ld. A.R has submitted that in the notes forming part of accounts at the page no. 5 of the paper book the assessee has explained the details of one time settlement of its debts. Since the loan in question was a term loan and therefore, the waiver of the same cannot be treated as the income of the assessee. Hence, the Ld. A.R has submitted that the issue even on merits is covered in favour of the assessee and 5 therefore, the impugned order of the Commissioner is not sustainable so far as it relates to the issue of waver of loan and treating the principle loan amount as income of the assessee u/s 41(1) of the income Tax Act.
7. On the other hand, the Ld. D.R has submitted that the alleged reply dated 28.12.2009 is claimed to have been filed by the assessee on 29.12.2009 but there is no reference of the said reply in the assessment order on this issue because the A.O has not at all discussed this issue. He has further submitted that when the A.O has not discussed the issue in the assessment order then there is no inquiry and examination of the issue by the A.O and consequently there is not application of mind on the part of the A.O. He has further submitted that even on the issue of inadmissibility of amount of Rs. 30,60,895/- u/s 40(a) of the Income Tax act neither the assessee has explained nor the A.O has taken up this issue in the assessment order and therefore, there is a complete lack of inquiry and application of mind on the part of the A.O which renders the assessment order erroneous so far as prejudicial to the interest of the revenue. He has relied upon the impugned order of the Commissioner and submitted that the Commissioner has placed reliance on the decisions of the Hon'ble Supreme Court as well as Hon'ble Jurisdictional High Court and therefore, there was only one view possible on this point as held by the Hon'ble Supreme Court as well as Hon'ble Jurisdictional High Court. When the A.O has not taken any view on the issue in question then there is not question of change of opinion by the Commissioner while exercising the power u/s 263. He has relied upon the order of the Tribunal in case of Hindustan Tin Works Ltd. Vs. DCIT (092 ITD 101). In rebuttal the Ld. A.R has submitted that this issue is a debatable issue as per the decision of Hon'ble High Court in case of Xylon Holding Pvt. Ltd. (supra) therefore, two views are possible on this issue.
8. We have considered the rival submissions and careful perused the relevant material on record. We find that while passing the assessment order u/s 143(3) on 31.12.2009 the A.O 6 has not discussed anything about these two issues on which the Commissioner has invoked his jurisdiction u/s 263. As far as the issue of disallowance u/s 40(a) regarding a sum of Rs.30,60,895/- the same was found as inadmissible u/s 40(a) as per the Auditors Report of the assessee however, the Commissioner noted that neither the assessee disallowed in the computation of income nor the Assessing Officer has added the same. After conclusion of hearing of the matter th Ld. of the assessee produced copy of the consequential order dated 25/03/2013 passed by the A.O. in pursuant to the revision order under section 263. We find that in the consequential order the A.O. stated that the said amount of Rs.30,60,895/- has already been disallowed u/s 40(a)(ia) vide order passed under section 143(3) dated 31/12/2009. The matter was accordingly fixed for clarification on 07/02/2014 and 21/02/2014. After considering the clarification furnished by A.O. as well as by Ld. AR of assessee we find that the said amount of Rs.30,60,895/- was disallowed by the assessee itself in the revised computation and also find place in the computation of income in the original assessment order dated 31/12/2009 however, the fact was neither explained before the commissioner during the revision proceedings nor before us during the hearing of the appeal and only on production of consequential order passed by AO this fact fist time came to our notice. Nevertheless, when the amount was already disallowed at the time of original assessement then there is no question of disallowance in the revision order.
9. As regards the issue of principle amount of loan which was waved off by the bank in one time settlement undisputedly this issue has not been dealt with or discussed by the A.O in the assessment order dated 31.12.2009 passed u/s 143(3). From the plain reading of the assessment order it does not exhibit that the A.O has raised any query on this issue. However, the assessee claimed to have filed reply dated 28.12.2009 on 29.12.2009 whereby a query raised by the A.O on this issue of waver of principle portion of loan has been duly explained by the assessee. It is pertinent to note that the impugned order has been passed on 31.12.2009 7 and therefore, there is hardly any possibility of considering the alleged reply of the assessee was filed on 29.12.2009. Apparantly the issue of treating the waver of principle part of loan as income of the assessee has not been duly examined by the A.O and even if it is presumed that the Assessing Officer has accepted the claim/explanation of the assessee it was done so in haste without proper inquiry and verification and the same would not tantamount that the A.O has taken a view. Even otherwise, if the A.O has taken a view the same was not sustainable in law as it was contrary to the law laid down on the point by the Hon'ble Supreme Court as well as Hon'ble Jurisdictional High Court in cases as relied upon by the Commissioner and it would empower the Commissioner to exercise its jurisdiction u/s 263 of such issue. Therefore, when the order of the Assessing Officer does not exhibit any thought process on the issue of taxability of waver of the loan then it cannot be interferred that the A.O has applied his mind on this issue while framing the assessment u/s 143(3). The proceedings before the Assessing Officer are quashi judicial proceedings therefore, the decision on the issue must be explicit and supported by reasons and not something to be accepted on the basis of assumption. When there is no examination and adjudication of the issue as clear from the assessment order then it cannot be presumed that the Assessing Officer has examined and verified the issue and then taken a view. We are of the view that a mere clerical work of verification of quantitative figures would not be termed as examination of issue of taxability and application of mind by adjudicating authority like A.O. It is manifest from the assessment order that there is a complete lack of inquiry on this issue.
Accordingly, the A.O failed to apply his mind on the issue particularly when the decisions of Hon'ble Supreme Court as well as Hon'ble Jurisdiction High Court in case of CIT Vs Sundaram Iyengar (T.V.) & Sons Ltd. (supra) and Solid Containers Ltd. Vs DCIT (supra) which are binding on the A.O. as no contrary decisions were available at the point of the framing the assessment hence, it cannot be said that there were two possible views on this 8 issue. A lack of inquiry and non-application of mind on the part of the A.O renders his order erroneous so far as prejudicial to the interest of revenue. It is pertinent to note that neither before the Commissioner nor before us the assessee has claimed that the loan in question was taken for acquisition/purchase of asset. Therefore, if the loan is taken for business of the assessee as working capital then the decisions relied upon by the Commissioner are fully applicable on this issue. When there is no adjudication by the A.O then there is no question of taking a view on the point. The A.O is duty bound to make an inquiry of a particular item of income and if he does not conduct an inquiry then the Commissioner is justified in exercising its power u/s 263 to interfere the assessment order which is erroneous and prejudicial to the interest of the revenue. Having regard to the fact that the loan in question has not been claimed to have been taken for purchase of capital asset the contention of the assessee that the Commissioner has exercised its power u/s 263 on change of opinion is not acceptable. There is no consideration by the A.O much less proper consideration to the issue in question which clearly shows a lack of the inquiry on the part of the A.O. to adjudicate the issue.
10. At this stage we would like to discuss the decisions relied upon by both the parties. The Ld. A.R has heavily placed reliance on the decision of Hon'ble Jurisdictional High Court in case of CIT Vs Xylon Holding Pvt. Ltd. The Hon'ble High Court has considered the facts of the said case as well as contention of the assessee in para 7 as under:
As against the above, Mr. Pardiwalla, Counsel for the respondent-assessee submits that the issue arising in this appeal would stand covered by the decision of this court in the matter of Mahindra & Mahindra Ltd. (supra). According to him, the decision of this court in the matter of Solid Containers Ltd. (Supra) is not applicable as in that case the loan was taken for business purpose and not for purchase of a capital asset as in this case. So far as the alternative submission is concerned, Mr. Pardiwalla submits that Section 28(iv) of the Act would not apply to any benefit received in cash or money as in this case. This issue according to Mr. Pardiwalla is also covered by the decision of this court in the matter of Mahindra & Mahindra Ltd. (Supra). Therefore, he submits that the appeal should not be entertained.9
11. After considering the fact that the loan was taken for purchase of capital asset the Hon'ble High Court has held in para 8 as under:
We have considered the submissions. The issue arising in this case stand covered by the decision of this Court in the matter of Mahindra & Mahindra Ltd. (Supra). The decision of this court in the matter of Solid Containers Ltgd. (supra) is on completely different facts and inapplicable to this case. In the matter of Solid Containers (supra) the assessee therein had taken a loan for business purpose. In view of the consent terms arrived at, the amount of loan taken was waived by the lender. The case of the assessee therein was that the loan was a capital receipt and has not been claimed as deduction from the taxable income in the earlier years and would not come within the purview of section 41(1) of the Act. However this court by placing reliance upon the decision of the Apex Court in the matter of CIT v T.V. Sundaram Iyenger & Sons Ltd. [1996] 222 ITR 344/ 88 Taxman 429 held that the loan was received by the assessee for carrying on its business and therefore, not a loan taken for the purchase of capital assets. Consequently, the decision of this court in the matter of Mahindra & Mahindra Ltd. (supra) was distinguished as in the said case the loan was taken for he purchase of capital asset and not for trading activities as in the case of Solid Containers Ltd. (supra. In view of the above, the decision of this Court in the matter of Solid Containers Ltd. (supra) will have no application to the facts of the present case and the matter stands covered by the decision of this Court in the matter of Mahindra & Mahindra Ltd. (supra). The alternative submission that the amount of loan written off would be taxable under section 28(iv) of the Act also came up for consideration before this Court in the matter of Mahindra & Mahindra Ltd (supra) and it was held therein that Section 28(iv) of the Act would apply only when a benefit or prerequisite is received in kind and has no application where benefit is received in cash or money
12. Thus, it is clear that the decision in case of Jilon Holding Pvt. Ltd. is based on the fact that the loan was taken by the assessee for purchase of capital asset and the waver of the same would not be treated as income or benefit or prerequisite u/s 28(iv) of the Income Tax Act. On the contrary the decision in case of Solid Containers Ltd. Vs DCIT (supra) is base on the fact that the loan taken by the assessee was for the business purpose being working capital and therefore, on waver of such loan it was treated as income of the assessee being trading receipt. The relevant finding of the Hon'ble Jurisdictional High Court in case of Solid Containers Ltd. Vs DCIT (supra) is as under:
We have carefully considered the submissions made by the rival parties. The assessee company had taken certain loan from M/s. P.S. Jain Motors. This amount was payable to them with interest of Rs.2,83,819/-. The party filed a suit for recovery and thereafter the assessee company filed counter-claims and the matter was settled out of the court whereby the assessee company was not to pay any amount. The assessee company credited to the profit 10 and loss account the interest amount and offered the same for taxation. With regard to the addition of Rs.6,86,071/-, the assessee company directly credited the amount to the reserves account considering the same as capital receipt. It was claimed by the learned counsel that the amount was not a deemed profit under section 41(1) of the Act. According to the learned counsel, this amount cannot be charged even under the provisions of section 28 of the Act as the amount earned is neither a revenue receipt nor intended for revenue account. In this connection, we would like to refer to the decision of the Honourable Supreme Court in the case of CIT vs. T.V. Sundaram Iyengar and Sons Ltd. (1996), 222 ITR 344 wherein the Honourable Supreme Court has laid down that "If the amount is received in the course of trading transactions, even though it is not taxable in the year of receipt as being of capital character, the amount changes its character when the amount becomes the assessee' s own money because of limitation or by any other statutory or contractual right. Where the assessee received deposits in the course of trading transactions, the amount of such credit balances which were barred by limitations and which were written back by the assessee to the profit and loss account were to be assessed as the assessee' s income". In view of the above decisions of the Apex Court and also keeping in view the provisions of Section 28(iv) of the Act, we find full justification for making the addition of Rs.6,86,071/-. Accordingly, the findings of the learned CIT (A) are upheld."
It is worthwhile to refer to observation of Apex Court in T.V. Sundaram Iyenger & Sons [ 1966] 222 ITR 344.
22. The principle laid down by Atkinson, J. applies in full force to the facts of this case. If a common sense view of the matter is taken,l the assessee, because of the trading operation, had become richer by the amount which it transferred to its profit and loss account. The moneys had arisen out of ordinary trading transactions. Although the amounts received originally were not of income nature, the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the deposit became time-
barred and the amount attained a totally different quality. It became a definite trade surplus. Atkinson, J. pointed out that in Tattersall case no trading asset was created. Mere change of method of bookkeeping had taken place. But, where a new asset came into being automatically by operation of law, common sense demanded that the amount should be entered in the profit and loss account for the year and be treated as taxable income. In other words, the principle appears to be that if an amount is received in course of a trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee' s own money because of limitation or by any other statutory or contractual right. When such a thing happens, common sense demands that the amount should be treated as income of the assessee.
23. In the present case, the money was received by the assessee in course of carrying on his business. Although it was treated as deposit and was of capital nature, at the point of time it was received, by efflux of time the money has become the assessee' own money. What remains after sadjustment of the deposits has not been claimed by the customers. The claims of the customers have become barred by limitation. The assessee itself has treated the money as its own money and taken the amount to its profit and loss account. There is no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was somebody else' money. In fact, as s Atkinson, J. pointed out that what the assessee did was the common sense way of dealing with the amounts."
The present appellant can hardly drive any advantage from the case of Mahindra & Mahindra Ltd. (supra). As in that case, aclear finding was recorded that the Assessee 11 continued to pay interest at the rate of 6% for a period of 10 years and the agreement for purchase of toolings was entered into much prior to the approval of loan arrangement given by the reserve Bank of India. Therefore, the loan agreement, in its entirety, was not obliterated by such waiver. Secondly, the purchase consideration related to capital assets. The toolings were in the nature of dies and the Assessee was a manufacturer of heavy vehicles. The import was that of plant and machinery and the waiver could not constitute business. The facts of the present case are entirely different in as much as it was a loan taken for trading activity and ultimately, upon waiver the amount was retained in business by the Assessee. Thus, the principle stated by the Supreme Court in the case of T.V. Sundaram Ayengar & Sons Ltd. (supra) would be squarely applicable to the facts of the present case. The amount which initially did not fall within the scope of the provisions rendering it liable to tax subsequently have become the Assessee' income being part of the trading of the Assessee. Similar view was also taken by a Bench of Madras High Court in the case of Commissioner of Income tax v. Aries Advertising Pvt. Ltd., 2002 (255) ITR 510. The court took the view that the Assessee because of trading operation became richer by the amount which had been transferred and/or retained in the Profit and Loss Account of the Assessee. In view of the above settled position of law and the facts of the present case, we are of the considered view that no question of law much less substantial question of law arises for consideration in the present appeal. Appeal dismissed in limine.
13. In the case in hand the assessee has not claimed that the loan in question was taken for purchase of capital asset therefore, the order passed by the A.O is otherwise not sustainable in view of the decision of the Hon'ble Jurisdictional High Court in case of Solid Containers Ltd. Vs DCIT (supra). The order of the AO is contrary to the binding law laid down by the Hon'ble Jurisdictional High Court and further it was without an inquiry and passed in haste. There was complete failure on the part of the A.O to apply his mind to the issue of taxability of waver of loan by the lenders which renders the order as erroneous and prejudicial to the interest of the revenue. The Commissioner has given the reasons to exercise the powers u/s 263 in para 4.3.1 and 4.3.2 as under:
4.3.1 In the instant case, on the basis of amount inadmissible u/s 40(a), the Tax Auditor in his report by clause 17(f) has reported that an amount of Rs. 30,60,895 is inadmissible u/s. 40(a) of the income Tax Act, 1961 and neither the assessee nor the Assessing Officer has added back the said amount in the computation of income. Even in response to the show cause notice u/s 263, the assessee has made no submission on the allowability of such an amount other than saying that the said amount has been allowed by the Assessing officer after considering the issue. Ahence, it is clear that the Assessing Officer has not done a proper verification on this issue, while passing the Assessment Order. In view of the above, the Assessment order passed u/s 143(3) dated 31.12.2009 is erroneous and 12 prejudicial to the interest of revenue, and the same is set aside to the file of AO to frame the assessment, de novo.
4.3.2 On the issue of waiver of loan during the year under consideration, the assessee had settled loans under one time settlement with KBC Bank, Belgium, Pegasus Assets Reconstruction Co. Ltd. And Indusind Bank Ltd. Amounting to Rs. 40,86,38,638/- out of which Rs. 18,33,79,615/- being interest waiver was credited to the Profit & Loss Account and the principle waiver amounting to Rs. 22,52,59,023/- was directly credited to the Balance sheet without routing through the Profit & Loss A/c. In this regard, on the issue of the true nature of liability, the Hon'ble Supreme Court in the case of CIT Vs. Karamchand Thapper & Others (222 ITR 112) has laid down the principal that the amount initially not received as a trading receipt can become a trading receipt subsequently. It cannot be laid down that, as a matter of law, any amount that that was initially not received as assessee as a trading receipt, can never become a trading receipt, can never become a trading receipt. If an amount is received in the course of business, even though it is not taxable in the year of receipt, as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or any other statutory or contractual right. When such a thing happens, commonsense demands that the amount should be treated as income of the assessee as has been held by Hon'ble Supreme Court in the case of Sundaram Iyenger (T.V.) and Sons Ltd. (1996), 222 ITR 344 , 353. In that case, unclaimed balances representing deposits from customers became time barred. It has been held by the apex court that the amount so transferred were assessable in the hands of the assessee. The operative of the aforesaid Judgment of Hon'ble Supreme Court in the case of Sundaram Iyenger (T.V.) & Sons Ltd., rendered by a bench consisting of three Hon'ble Judges including the Chief Justice, is reproduced as under:-
"The principle laid down by Atkinson, J. applies in full force to the facts if this case. If a common sense view if the matter is taken, the assessee; because of the trading operation, had become richer by the amount which if transferred to its profit and loss account. The moneys had arisen out if ordinary trading transactions. Although the amounts received originally was not of income nature, the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of long time, the claim of the deposit became time barred and the amount attained a totally different quality. It became a definite trade surplus. Atkinson, J. pointed out that in Tattersall's case no trading asset was created. Mere change of method of book-keeping had taken place. But, where a new asset came into being automatically by operation of law, common sense demanded that the amount should be entered in the profit and loss account for the year and be treated income. In other words, the principle appears to be that of an amount is received in course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's won money because of limitation or by any other statutory or contractual right. When such a thing happens, common sense demands that the amount should be treated as income of the assessee.
The Hon'ble Bombay High Court in the case of Solid Containers Ltd. 308 ITR 417 has also held that waiver of principal portion of loan was to be treated as income of the assessee. Hence, the amount of principal waiver amounting to Rs. 22,52,59,023/- shold have been treated as income of the assesseee. In view of the above, the Assessment Order passed u/s 143(3) dated 31.12.2009 is erroneous and prejudicial to the interest of Revenue, and the same is set aside to the file of the Assessing Officer to frame the Assessment Order, de novo.13
14. It is clear that the interference by the CIT(A) was not merely on the ground that he was having a different view on the matter but there was failure on the part of the A.O to apply mind and to follow the decision on the point. Before parting with the issue we find that the reply dated 27.12.2009 allegedly filed on 29.12.2009 itself goes to prove that the A.O has passed the order in haste without examining the issue. From the facts and circumstances as discussed above the only conclusion can be drawn is that there is a lack of inquiry on the part of the A.O and therefore, it is a case of complete failure on the part of the A.O to apply mind on the issue. Hence, we are of the view that the Commissioner was justified in exercising the power u/s 263 of the Income Tax Act.
15. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on this 28th day of February 2014
SD/- Sd/-
(RAJENDRA ) (VIJAY PAL RAO)
Accountant Member Judicial Member
Place: Mumbai : Dated: 28th February 2014
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai