AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2023 (10) TMI 275
X X X X Extracts X X X X
X X X X Extracts X X X X
....143(2), to which a response was filed on 29.08.2016. 3. An order of assessment came to be passed under scrutiny on 29.12.2017 which is stated to be pending in appeal before the first appellant authority. On 07.04.2021, a notice under Section 148 was issued, the officer having reason to believe that income had escaped assessment for that year. 4. The petitioner complied with the notice by filing return of income on 28.04.2021 and preliminary objections on 19.05.2021 and 23.07.2021. Interalia, it was submitted that the procedure under Section 148A, substituted by Finance Act, 2021 with effect from 01.04.2021, had not been properly followed by the assessing officer and thus the issue of notice on 07.04.2021 invoking the old provision for reassessment was bad in law. 5. A writ petition had been filed in W.P.No.6251 of 2022 challenging the notice and interim protection obtained. In the meanwhile, on 04.05.2022, the Hon'ble Supreme Court passed judgment in the case of Union of India vs Ashish Agarwal (2022 SCC online 543), to the effect that notices under Section 148 issued after 31.03.2021 shall be deemed to have been issued under Section 148A of the Act. 6. A slew of di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal scrutiny assessment and there is thus no justification for the present re-assessment. That apart, unrealized loss of foreign currency devaluation assumes the nature of a revenue deduction and provision of Rs. 51.11 crore, which was sought to be added back to taxable income had already been disallowed by the petitioner. The proposal to tax the sum would only result in double taxation of the same amount. 12. Coming to the second writ petition relating to AY 2017 - 2018, the petitioner had filed returns of income, original and revised on 30.11.2017 and 29.03.2019 respectively. On 30.12.2019, an order of assessment had been passed under scrutiny which is stated to be pending in first appeal. Notice under the old provisions of Section 148 had been issued on 30.06.2021. 13. Upon due response by the petitioner, notice had been issued on 23.05.2022 and the sequence of events thereafter was similar to what had transpired for AY 2014 - 2015 pursuant to the judgment in the case of Ashish Agarwal and CBDT Instruction dated 11.05.2022. 14. On merits, the proposal relates to the computation of loss due to conversion of PCD's to equity shares which have been the subject-matter of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....radically changed with effect from 01.04.2021 requiring no necessity any longer for the satisfaction of such tests. 21. Without prejudice, they point out that the test of full and true disclosure is premised upon the proviso to old Section 147 which is no longer in the statute book. Moreover, the bar under the proviso would apply only if notice had been issued beyond four years whereas in the present case, notice has been issued within three years. Thus even on this score, invoking the provisions of Section 148, the argument of the petitioner is to be rejected. 22. An additional ground has been filed in W.P.No.22737 of 2022 urging that the liberty granted in Ashish Agarwal's case would be available only in those cases where the re-assessment notice had been challenged either before the High Courts or the Supreme Court. In the present case, that notice was never challenged and hence, the liberty that has been assumed by the respondent is misplaced. 23. This submission is misplaced, since in that judgment, the Hon'ble Supreme Court has granted liberty, carte blanch to the revenue, to both continue with proceedings where notices had already been issued, or afresh, whe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ents put forth challenging the proceedings both on assumption of jurisdiction and on the merits, are considered. 25. The issues that arise in these writ petitions for consideration are crystallized as follows:- (i) Whether the assumption of jurisdiction for re-assessment for AY 2014-15 and 17-18 is right in law. (ii) Whether the officer had 'information' in terms of Explanation 1 to section 149, to proceed with the impugned re-assessments for AY 2014-15 and 2017-18. (iii) Whether the officer had in his possession books of accounts or other documents or evidence that are represented in the form of an asset to come to a conclusion that income that had escaped assessment. 26. Having heard the detailed submissions of Mr.Niraj Sheth for Mr.S.P.Chidambaram for the petitioner and Mr.A.P.Srinivas for the respondents, my decision is as under. 27. Section 148 has been substituted with effect from 01.04.2021 and the new provision, with the Explanation (as it stood then), is extracted below:- Issue of notice where income has escaped assessment. 148. Before making the assessment, reassessment or recomputation under section 147, and subject t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....scaped assessment amounts to or is likely to amount to one lakh rupees or more for that year; (c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment. 29. Substituted provisions of section 149 w.e.f. 01.04.2021 (as they stood then), read as follows: 149. Time limit for notice No notice under Section 148 shall be issued for the relevant assessment year. (a) If three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) If three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year. Provided that no notice under Section 148 shall be issued at any tim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng period breeded uncertainty in finalisation of assessments which was undesirable. The above view emanates from the speech of the Hon'ble Finance Minister introducing the new scheme of re-assessment as follows: Reduction in Time for Income Tax Proceedings 153. Honourable Speaker, presently, an assessment can be re-opened up to 6 years and in serious tax fraud cases for up to 10 years. As a result, taxpayers have to remain under uncertainty for a long time. 154. I therefore propose to reduce this time-limit for re-opening of assessment to 3 years from the present 6 years. In serious tax evasion cases too, only where there is evidence of concealment of income of Rs. 50 lakh or more in a year, can the assessment be re-opened up to 10 years. Even this reopening can be done only after the approval of the Principal Chief Commissioner, the highest level of the Income Tax Department. 34. The new scheme and provisions have thus to be interpreted in line with the legislative intent and mandate that they usher in certainty and ease of procedure. This aligns with the observations, in conclusion, of the Hon'ble Supreme Court in Parashuram Pottery Works vs. Income ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessment u/s 143(3) r.w.s. 92 CA(3) of the Act by order dated 29.12.2017. 37. The issues that have been identified for re-assessment in notice under Section 143(2) r/w 147 dated 04.05.2021, are (A)disallowance of unrealised loss and (B)amortization of sale consideration. In notice dated 21.05.2021, the Officer outlines the issues for re-assessment thus: The company has entered into interest rate swaps in the nature of fixed/floating for national principal of Rs. 4396.00 crore outstanding as on 31.03.2014 for varying maturities linked to various benchmarks for asset liability management and hedging. The company has foreign currency borrowings equivalent to Rs. 7240.47 crore against which the company has also entered into coupon only current swaps for notional principal of Rs. 391.16 crore and forward contracts of Rs. 14.16 crore to hedge the foreign currency risks forwards interest on the foreign currency borrowings. On verification of the cash flow from operating activities, it was noticed there was unrealized loss on foreign currency revaluation to the extent of Rs. 221.44 crore. As per Section 43A of the IT Act, in respect of unrealised foreign exc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as under'. 39. All materials in relation to foreign currency borrowings and transfer of assets to Asset Reconstruction Companies have been fully and comprehensively placed before the Officer, even at the time of scrutiny proceedings. The original assessment order passed on 29.12.2017 specifically recorded detailed examination of the financials of the petitioner. One of the issues dealt with under original assessment relates to disallowance under Section 14a r/w Rule 8 of Income Tax Rules in the course of which the investments of the petitioner have been subject to minute scrutiny. 40. Interest from investments, including external commercial borrowings, income from venture capital funds and deduction under Section 36(1)(viii) in relation to transfer to special reserve, have not escaped the Officer's scrutiny. An addition has been made under capital gain and disallowance of deduction of interest cost on zero coupon bonds. Thus, there is no doubt that the Officer has examined all aspects of the return and framed an assessment after thorough scrutiny. 41. While so, the impugned proceedings are initiated based on the financial records already available with the Officer and indi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amount of the loan outstanding along with interest accrued thereon payable by the company (Lanco Infratech) to the Investor (the assessee) was agreed to and the outstanding loan of Rs. 321 crore shall be adjusted towards the subscription amount of the investor. 4.Schedule-I to the agreement-Para 4 Interest-The subscription amount carry an interest @ 10.50% p.a. and such interest along with subscription amount will compulsorily get converted into equity shares on the Conversion Date. 5 Schedule-l to the agreement-Para 7.1.4 Conversion Price shall mean Rs. 6.23 per share. From the above, it is evident that the assessee is aware on the subscription date itself that the subscription amount to CCDs, along with accrued interest, shall compulsorily converted into equity shares on the agreed conversion price. The value of the shares viz, Rs. 206,12,90,787 now cited by the assessee pertains to a diminution in the value of investments and the sum of Rs. 111,94,95,405/- on this account pertains to investments in the nature of capital assets. The difference between the subscription amount and the value of shares, at best, would from part of cost of acquisition of Inv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n for bad and doubtful debt (P&I Item Serial no.40 shown above) for corresponding deletion of Gross NPA Block on account of sale of NPA loan to ARC (refer Schedule 18.11 of the Annual report reproduced in para C.2). Hence, based on the discussion the claim of loss (Rs.1233.73 Crore) on sale of NPA Loans to ARC cannot be considered as write off as irrecoverable within the meaning of section 36(1)(vii). Any deduction on write off of bad loan, also is limited u/s 36(1)(vii) to the excess amount of bad debt over the provision made earlier for bad debt. The loss arising from NPA Loan sold, is in nature of bad debt, which comes under section 36(1). Hence, cannot be considered u/s 37. Reliance is also placed on the Apex court in the case of Southern Technologies Ltd Vs JCIT (CA NO.1337 of 2003 and 154 of 2010 order dated 11.01.2010), where it has been held that- ....If an item falls under sections 30 to 36, but is excluded by an Explanation to section 36(1)(vii), then section 37 cannot come in. Section 37 applies only to items which do not fall in sections 30 to 36. In view of the above, Assessee's Claim of loss (Rs. 1233.73 Crore) on sale of NPA Loans to AR....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 50. Obviously, only some specific information that has come to the notice of the officer, and hitherto unknown, would satisfy this requirement. Such information must be tangible and new and stale information already part of the record simply cannot qualify. Incidentally, the term 'flagged' has been omitted from this clause w.e.f 01.04.22 by Finance Act 2022. 51. Thus, and evidently, material already on record and that has undergone scrutiny at the first instance cannot satisfy the statutory condition. On this score, the assumption of jurisdiction for initiation of proceedings for re-assessments is seen to be bad in law and quashed. 52. Additionally, the validity of the impugned proceedings have also to be tested on the anvil of the statutory condition in section 149 that the officer has in his possession, 'books of accounts or other documents or evidence which reveal that income chargeable to tax, represented in the form of an asset' has escaped assessment. This additional requirement flows from the reason that the notices have been issued beyond three years from the end of the relevant assessment years. In the present case, the petitioner argues that there is no such as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Income-tax vs Taj Borewells (291 ITR 232) that makes reference to an earlier decision in S.Rajagopala Vandayar vs. CIT (184 ITR 450). 57. The substantial question framed in the case of Taj Borewells as relevant to this matter, was this: "1. Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in not considering the balance sheet and profit and loss account wherein contribution of the partners have been shown could be taken to be the books of account and the credits appearing therein have to be explained?" 58. After taking note of the judgement of the Supreme Court in CIT vs. National Syndicate (41 ITR 225) and the Madras High Court in P.Appavu Pillai vs CIT (58 ITR 622), this Court in Rajagopala Vandayar's case had taken the view that a profit and loss account does not form part of the books of accounts. The Bench, in Taj Borewells, notes this aforesaid position and that subsequently, 'books or books of accounts' have been defined under the Act w.e.f. 01.06.2021. 59. That definition is inclusive and wide, bringing into the ambit of that phrase, 'ledgers, day-books, cash books, account-books and other books, whether ....