2021 (8) TMI 824 - HC - Income Tax

High Court affirms Commissioner's decision on tax assessments, stresses legal precedent importance

The High Court upheld the Commissioner's decision to set aside the assessments due to the Assessing Officer's erroneous application of the law regarding ... Revision u/s 263 by CIT - AO has not brought to tax the waived principle amounts of loans / borrowings - HELD THAT:- Assessing Officer's failure to consider the ratio of the decision of the Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar and Sons Ltd. [1996 (9) TMI 1 - SUPREME COURT]with reference to the facts of the assessee's case, makes the relevant assessment order erroneous and prejudicial to the interest of the revenue. Commissioner of Income Tax has held that the Assessing Officer has failed to apply the decision of Supreme Court in T.V. SUNDARAM IYENGAR AND SONS, supra, to the case of the assessee wherein it was held that unclaimed balances out of deposits received from customers which were transferred to profit and loss account were assessable as income. Thus, the order of the Assessing Officer on account of incorrect application of the law, can be said to be erroneous in view of the law laid down by the Supreme Court in MALABAR INDUSTRIAL COMPANY, [2000 (2) TMI 10 - SUPREME COURT] Therefore, one of the conditions for invocation of Section 263 of the Act namely the order being erroneous is fulfilled in the fact situation of the case. For the aforementioned reasons, the substantial questions of law are answered against the assessee and in favour of the revenue. Issues:1. Whether the Assessing Officer's order was erroneous in not taxing waived loan amountsRs.2. Whether the Commissioner was justified in setting aside the assessments based on subsequent judgmentsRs.3. Whether the waiver of loan is taxable under specific sections of the Income Tax ActRs.Analysis:Issue 1: Assessing Officer's Error in Taxing Waived Loan AmountsThe appeal involved the question of whether the Assessing Officer correctly assessed the waived loan amounts as income for the Assessment Years 2005-06 and 2006-07. The Commissioner of Income Tax contended that the Assessing Officer failed to tax the waived principal loan amounts, which were credited to the profit and loss account. The Commissioner invoked Section 263 of the Income Tax Act, stating that the Assessing Officer's order was erroneous due to the incorrect application of law. The Commissioner highlighted that the Assessing Officer did not properly consider the taxability of the waived loan amounts, as per the decision in 'CIT Vs. T.V. Sundaram Iyengar and Sons Ltd.' The Commissioner's order set aside the assessments, directing a fresh assessment considering the relevant legal precedents.Issue 2: Commissioner's Justification for Setting Aside AssessmentsThe Commissioner's decision to set aside the assessments was based on the grounds that the Assessing Officer did not apply the law correctly, specifically regarding the taxability of the waived loan amounts. The Commissioner emphasized that the Assessing Officer failed to consider the Supreme Court's decision in 'T.V. Sundaram Iyengar and Sons Ltd.' which stated that unclaimed balances from customer deposits transferred to the profit and loss account were assessable as income. The Commissioner's order highlighted the Assessing Officer's oversight in not applying this legal precedent, leading to an erroneous assessment. The Commissioner's reliance on relevant legal judgments supported the decision to set aside the assessments.Issue 3: Taxability of Waived Loan under Income Tax ActThe debate also revolved around the taxability of waived loans under specific sections of the Income Tax Act. The appellant argued that the waiver of loans should not be taxed under Section 41(1) or Section 28(iv) of the Act, citing various legal precedents to support this stance. The appellant's counsel referenced decisions such as 'CIT Vs. Mahindra & Mahindra Ltd.' to assert that waived loans are not liable to be taxed. On the other hand, the revenue's counsel contended that the Assessing Officer's failure to tax the waived loan amounts, contrary to legal precedents, justified the Commissioner's intervention under Section 263 of the Act. The debate over the taxability of waived loans under specific sections of the Act added complexity to the case.In conclusion, the High Court dismissed the appeal, upholding the Commissioner's decision to set aside the assessments due to the Assessing Officer's erroneous application of the law regarding the taxability of waived loan amounts. The judgment emphasized the importance of correctly applying legal precedents in tax assessments to ensure compliance with the Income Tax Act.