Appeal details
Counselvise Citation
[2021] 104 COUNSELVISE.COM (IT) 5819 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 3 month(s) 4 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-12-2021
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
DB-A
Assessment Year
2007-2008
Appeal Filed On
16-09-2019
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) B EFORE SH RI SA TBEER SING H GODA RA, JU DI CIA L MEM BER AND SHR I L AXMI PR AS A D SAHU , AC COUNT ANT MEMBE R ITA No. 1428/Hyd/2019 Assessment Years: 2007-08 Tripura Bio-tech Ltd., Hyderabad PAN – AABCT 9875A ` Income-tax Officer, Ward – 2(2), Hyderabad. (Appellant) (Respondent) Assessee by: Shri P. Murali Mohan Rao Revenue by: Shri T. Sunil Goutam Date of hearing: 15/12/2021 Date of pronouncement: 22/12/2021 O R D E R PER L.P. SAHU, A.M.: This appeal filed by the assessee is directed against CIT(A) - 1 Guntur’s order dated 09/08/2019 for AY 2007- 08 involving proceedings u/s 143(3) of the Income Tax Act, 1961 ; in short “the Act”, on the following grounds of appeal: Left blank intentionally ITA No. 1428/Hyd/2019 Tripural Bio-Tech Ltd., Hy d e r a b a d . :- 2 -: Left blank intentionally ITA No. 1428/Hyd/2019 Tripural Bio-Tech Ltd., Hy d e r a b a d . :- 3 -: 2. Brief facts of the case are that the appellant-company, which is in the business of manufacture of Bio Technology Products, filed its return of income for the A.Y.2007-08 on 30.10.2007 declaring total loss of Rs.71,65,097/-. The case was taken up for scrutiny as per CBDT guidelines and all statutory notices were issued and served on the appellant- company from time to time. 2.1 During the course of scrutiny proceedings, the A.O. observed that the appellant company entered into a compromise proposal with the SBI for onetime settlement of Term Loan of Rs.544.51 lakhs by paying Rs.200.00 lakhs. On verification of the Interest payment component, the AO observed that the appellant-company actually paid an ITA No. 1428/Hyd/2019 Tripural Bio-Tech Ltd., Hy d e r a b a d . :- 4 -: amount of Rs. 1,40,16,703/- towards interest on the said Term loan as against the interest of Rs. 1,73,34,707/- which was due to the SBI and debited to the Profit & Loss Account over the years. The A.O. called upon the appellant-company to give the details of interest disallowance made u/s.43B of the Act for the relevant years. In response to which the appellate-company stated that no such disallowance was made in the respective A.Ys. Hence, the A.O. brought the entire difference of Rs.33,18,004/- (the difference between the amounts debited to the Profit & Loss Account for various A.Ys and the actual interest paid to the Bank) to tax by treating the same as income as per provisions of Sec.41(1) of the Income Tax Act, 1961. 2.2 Similarly, the appellant-company also entered into one time settlement agreement with Technology Development Board as per which the entire amount of principal and interest of Rs.786.00 lakhs was restricted to Rs.2,35,34,000/- (Rs. 2,00,00,000/- towards settlement of total outstanding due and Rs.35,34,000/- towards simple interest on settlement amount over the repayment period). The AO observed that the appellant-company did not pay any interest to the said Board though it debited the Profit & Loss Account for different A.Ys. with interest amount of Rs. 97.46 lakhs. However, the appellant-company disallowed the unpaid interest of Rs.22.26 lakhs for the A.Y.2002-03. After verifying all these details, the A.O. finalized the ITA No. 1428/Hyd/2019 Tripural Bio-Tech Ltd., Hy d e r a b a d . :- 5 -: scrutiny proceedings by treating the difference of Rs.75.18 lakhs as income which is unpaid interest to the said Board by applying the provisions of Sec,41(1) of the Act. 2.3 The A.O. also disallowed R&D Expenditure of Rs.20,45 lakhs claimed by the appellant-company which was not substantiated during the course of scrutiny proceedings. It was also observed that the appellant-company during the F.Y.2006-07 relevant to the A.Y.2007-08, procured an amount of Rs.109.26 lakhs by way of share application money. But the A.R. of the Appellant-company filed confirmations to the extent of Rs.2.69 lakhs only. Since the appellant-company could not furnish any evidences in support of the balance amount of share application money, the A.O. disallowed the rest of the amount and finalized the scrutiny proceedings accordingly. 3. When the assessee preferred an appeal before the CIT(A), the CIT(A) partly allowed the appeal of the assessee. 4. Aggrieved by the order of CIT(A), the assessee is in appeal before the ITAT. 5. As regards Ground No. 2(b) & (c) relating to disallowance of Rs. 1,08,36,300/- u/s 41(1) of the Act, the ld. AR besides reiterating the submissions made before the ITA No. 1428/Hyd/2019 Tripural Bio-Tech Ltd., Hy d e r a b a d . :- 6 -: lower authorities, submitted that the issue is squarely covered in favour of the assessee by the decision of the Hon’ble Supreme Court in the case of CIT Vs. Mahindra & Mahindra Ltd., 93 Taxman 32(SC) to submit that the waiver of loan is not taxable income which cannot be considered as income u/s 41(1) of the Act. 5.1 Further, in regard to ground No. 3(a), (b) & (c) relating to the disallowance on account R&D expenditure, he submitted that all the bills & vouchers were produced before the lower authorities, but, the lower authorities were not considered the same. He, therefore, submitted that the matter may be remitted to the file of AO for reverification of the expenditure claimed. 5.1 As regards ground No. 4(a), (b) & (c) relating to the addition on account of share application money, the ld. AR stated that the assessee is able to produce share applicants and, therefore, the matter may be restored to the file of the AO. 6. On the other hand, ld. DR strongly supported the orders of revenue authorities and objected to the request made by the ld. AR on the ground that ample opportunities was given to the assessee to produce confirmation letters from the share applicants, but, the assessee was unable to produce before the lower authorities. He, therefore, ITA No. 1428/Hyd/2019 Tripural Bio-Tech Ltd., Hy d e r a b a d . :- 7 -: submitted that the orders of lower authorities should be upheld. 7. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. 7.1 As regards ground No. 2(a), (b) & (c) relating to disallowance of Rs. 1,08,36,300/- u/s 41(1) of the Act, it is observed that during the impugned AY, the assessee company entered into compromise proposal with one time settlement of Rs. 544.51 lakhs by paying Rs. 200.00 lakhs. On verification of the documents, it was observed that the assessee had actually paid an amount of Rs. 1,40,16,703/- towards interest on the said term loan as against interest of Rs. 1,73,34,707/-. The AO observed in the assessment order that total interest of Rs. 1,73,34,707/- was claimed as expenditure from the AYs 1999-2000 to 2003-04, but, it was not paid and the assessee itself suo-moto had been disallowed the same u/s 43B of the Act and it paid Rs. 1,40,16,703/- by way of one time settlement and, therefore, the remaining expenditure was settled on one time settlement was Rs. 33,18,004/-, which was brought to the AO as income of the assessee u/s 41(1) of the Act. The provisions of section 41(1) are reproduced below: “41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the ITA No. 1428/Hyd/2019 Tripural Bio-Tech Ltd., Hy d e r a b a d . :- 8 -: assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,— (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.” 7.2 The AR relied on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Mahindra & Mahindra Ltd. (supra), which does not fully support the case of the assessee because earlier the assessee had claimed waiver of the interest on loan as expenditure and did not disallow the same while computing taxable income. For the sake of clarity, the relevant paras from the said order is reproduced below: 15. On a perusal of the said provision, it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being ITA No. 1428/Hyd/2019 Tripural Bio-Tech Ltd., Hy d e r a b a d . :- 9 -: taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability· It is undisputed fact that the Respondent had been paying interest at 6% per annum to the KJC as per the contract but the assessee never claimed deduction for payment of interest under Section 36 (I) (iii) of the IT Act. In the case at hand, learned CIT (A) relied upon Section 41 (I) of the IT Act and held that the Respondent had received amortization benefit. Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time, hence, it is nothing else than depreciation. Depreciation is a reduction in the value of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the Respondent in previous assessment years was due to the, deprecation of the machine and not on the interest paid by it. 16. Moreover, the purchase effected from the Kaiser Jeep Corporation is in respect of plant, machinery and tooling equipments which are capital assets of the Respondent. It is important to note that the said purchase amount had not been debited to the trading account or to the profit or loss account in any of the assessment years. Here, we deem it proper to mention that there is difference between 'trading liability' and 'other liability'. Section 41 (I) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, we find no force in the argument ofthe Revenue that the case of the Respondent would fall under Section 41 (I) of the IT Act. 7.3 In the above paras, the Hon’ble Supreme Court, inter- alia, observed that the assessee does not get away with a double benefit once by way of deduction and another by not ITA No. 1428/Hyd/2019 Tripural Bio-Tech Ltd., Hy d e r a b a d . :- 10 -: being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. Therefore, following the above judgment of the Hon’ble Supreme Court, we uphold the order of the CIT(A) with regard to SBI loan waiver of the assessee company claimed the deduction of interest without making any payments in the earlier years and it was also not disallowed u/s 43B of the Act. 7.4 With regard to the amount waived by the Technology Development Board, there was a total amount of Rs. 97.46 lakhs was claimed as expenditure in the P&L Account, out of which, the assessee has disallowed unpaid interest of Rs. 22.26 lakhs in AY 2002-03 and the remaining amount of Rs. 75.18 lakhs was waived by the Technology Development Board. In the settlement proceedings, the assessee had paid an amount of Rs. 35,34,000/- towards interest and, therefore, the remaining amount of Rs. 39.84 lakhs is to be treated as income u/s 41(1) of the Act. There is no dispute that Rs. 35.34 lakhs was paid under one time settlement scheme. The AO also accepted that out of 786.00 lakhs, which was restricted to Rs. 2,35,34,000/- (Rs. 2 crores towards settlement of total outstanding due and Rs. 35.34 lakhs towards simple interest on settlement amount) Therefore, the assessee will get benefit of Rs. 35.34 lakhs as per the above observations. Therefore, this ground is partly allowed. ITA No. 1428/Hyd/2019 Tripural Bio-Tech Ltd., Hy d e r a b a d . :- 11 -: 7.5 As regards ground No. 3 (a) to (c) relating to disallowance of Rs. 20,45,168/- claimed towards R&D expenditure, before the lower authorities the assessee has submitted bills and vouchers as per the paper book filed before us, but, the lower authorities were not accepted the same. Therefore, in the interest of justice, we remit this issue to the file of the AO with a direction to verify the genuineness of the expenditure claimed by the assessee and decide the issue as per law. The assessee is directed to substantiate its claim with documentary evidence. This ground is allowed for statistical purposes. 7.6 As regards ground No. 4 (a) to (c) relating to the addition of Rs. 1,06,60,000/- made towards share application money, during the course of hearing, the ld. AR of the assessee requested the Bench to give one more opportunity to the assessee to substantiate its claim before the AO as the AO made the addition on the ground that the assessee has not satisfied the conditions laid under section 68 of the Act. Therefore, we remit this issue to the file of the AO with a direction to verify the documents which will be put-forth by the assessee before him in support of its claim and decide the issue in accordance with law after providing reasonable opportunity of being heard to the assessee in the matter. The assessee is directed to avoid ITA No. 1428/Hyd/2019 Tripural Bio-Tech Ltd., Hy d e r a b a d . :- 12 -: unnecessary adjournments for early disposal of the appeal. This ground is treated as allowed for statistical purposes. 8. Ground Nos. 1, 2(a) & 5 are general in nature, hence, need no adjudication. 9. In the result, appeal of the assessee is partly allowed for statistical purposes in above terms. Pronounced in the open court on 22 nd December, 2021. Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 22 nd December, 2021. kv Copy to : 1 Tripural Bio-Tech Ltd., C/o P. Murali & Co., CAs, 6-3-655/2/3, 1 st Floor, Somajiguda, Hyderabad – 82 2 ITO, Ward - 2(2), Hyderabad 3 CIT(A) –1, Guntur 4 PR. CIT – II, Hyderabad 5 ITAT, DR, Hyderabad. 6 Guard File. ITA No. 1428/Hyd/2019 Tripural Bio-Tech Ltd., Hy d e r a b a d . :- 13 -: S . N o . D e t a i l s D a t e 1 D r a f t d i c t a t e d o n 2 D r a f t p l a c e d b e f o r e a u t h o r 3 D r a f t p r o p o s e d & p l a c e d b e f o r e t h e S e c o n d M e m b e r 4 D r a f t d i s c u s s e d / a p p r o v e d b y S e c o n d M e m b e r 5 A p p r o v e d D r a f t c o m e s t o t h e S r . P S / P S 6 K e p t f o r p r o n o u n c e m e n t 7 F i l e s e n t t o B e n c h C l e r k 8 D a t e o n w h i c h t h e f i l e g o e s t o H e a d C l e r k 9 D a t e o n w h i c h f i l e g o e s t o A . R . 10 D a t e o f D i s p a t c h o f o r d e r
