TaxTMI 
TaxTMI 
2016 (4) TMI 1100
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.... 147. Aggrieved with the above order, assessee filed an appeal before the CIT(A). During the course of appeal proceedings, CIT(A) called for the assessment records and the following points were noticed: (i) There was an audit object ion that the principal loan was not brought to tax as per section 41(1) of the IT Act in the case of the appellant. This was communicated to the AO by the audit vide hand wr it ten note dated 25.11.2009. (ii) Subsequently, the AO's replied to the audit at half margin stage vide letter dated 19.02.2009 which is extracted below: "Provisions of sec.41 of the Act are applicable when a liability which was claimed as deduct ion ceased or waived. As the principle portion of bank loan waived by the banks was not claimed as expenditure in earlier years, the question of treating the same as income u/s 41 of the Act does not arise. Therefore the object ion is not correct and may be dropped." (iii) Subsequently, the CIT-I I, Hyderabad vide reply dated 05-01-2011 on the above audit object ion stated as under: "01. The RAP has raised the following objection the gist of which reads as under : "I t was seen from....
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....ing due procedure of law." From the above points, CIT(A) observed that the reasons recorded on the order sheet reflect the view point of the audit. The reasons are not based on AO's application of mind as required of quasi-judicial authority. Further, he observed that the reasons for reopening an assessment need to be based on tangible material which has a livelink with the formation of the belief that there was an escapement of income. For this proposition, he relied on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd., 320 ITR 561. 3. The CIT(A) allowed the appeal of the assessee by relying on the following judicial pronouncements: 1. S. Ranjith Reddy Vs. DCIT [2013] 35 Taxmann.com 415 (Hyd.Trib.) 2. DCIT Vs. Lee Pharma (P) Ltd. [2012] 20 ITR (T) 499 (Hyd Trib) 3. ITO Vs. Object Connect India (P.) Ltd. [2014] 29 ITR (T) 518 (Hyd. Trib) The CIT(A) allowed the grounds 1 & 2 raised by assessee on the reopening of assessments which was based on change of opinion and audit objection. The other grounds were considered as academic considering the fact that the reopening of assessment was quashed. 4. Aggrieved....
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....ose for which the loans have been obtained from the concerned bank. Even the letter from the Bank authorities, furnished by the assessee during the assessment proceedings, does not state the reasons for which the loans were disbursed except stating that they are Term Loans. The assessee has been merely asserting all through the proceedings that the principal loan waiver cannot be brought to tax u/s 41(1). Unless it is shown by cogent evidence, that the principal loan amount has not been claimed as a deduction in the earlier, by Producing proof of its actual utilization, it cannot be concluded that the waiver of the same is not hit by the provisions of section 41(1) 6.2 Ld. DR submitted that the hon'ble Supreme Court in Calcutta Discount Co Ltd Vs ITO 41 ITR 191 pointed out that there are three stages involved in every assessment; (i) the disclosure of all primary facts;(ii) inferences of facts to be drawn from the primary facts disclosed ; and (iii) legal inferences to be drawn from the primary facts disclosed and inferences of facts drawn therefrom. The first part, Viz., the disclosure of the primary facts alone is the duty of the assessee. However, in this context, it is, ....
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....lness of the materials should invariably be present. Then only is the officer prevented from acting under clause (a). Even when full disclosure is made, if a taxable item is omitted in the final computation of income, the officer has a duty to invoke section 147 [Praful Chandra Patel Versus ACIT 236 ITR 832 (Guj)] 6.8 It is submitted that the CIT(A) has referred to the internal correspondence of the department between the AO, and his superior officers, which is an internal matter. There is nothing unusual to infer formation of belief by the Assessing Officer, as the objection was negatived initially by him . The reopening has not been made just on the basis of audit objection. All the correspondences between the A.O and the CIT and audit, helped the AO in coming to a reasoned understanding of the issue, before issuing notice, duly following the procedures as per section 151 of I.T Act, 1961. In fact, while granting approval for reopening of the case, the hon'ble Commissioner has categorically directed to follow the procedure as per law. In fact, the honourable Apex court in the case of PVS Beedies Pvt Ltd(237 ITR 13)) has held in 1997, that reopening of case under 147(b) on ....
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....reated as loan at the time of receipt which was of capital nature, on waiver it had become assessee's own money which was even taken to P&L A/C. This benefit was therefore in the revenue field as the money had been borrowed for day to day affairs and not for purchase of machinery. Therefore, in the absence of full and true disclosure of information by the assessee at any time of the proceedings, the formation of belief is after due application of mind, thoroughly, to the facts of the case. 6.13 In view of the above submissions, the ld. DR submitted that the action of the AO is not under any compulsion of audit party and therefore after due application of mind, hence, the order of CIT(A) may be set aside and that of the AO be restored. 7. Ld. AR submitted that the reassessment was done on the behest of Principal CIT and audit objection. He relied on the extracts of the assessment records as recorded by the CIT(A) in his order in para 4.5 at page 6. He submitted that the extracts clearly shows that the view point of the audit objection and not the clear application of mind of the AO as required u/s 147 of the Act. He also relied on the CIT(A)'s order and relied on the follo....