ACIT, CHENNAI V. M/s. India Cements Capital and Finance Ltd., CHENNAI

ITA 1626/CHNY/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8734 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 24-05-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 21-08-2012
• Court: TRIBUNAL
• Department Lawyers: ARUN C BHARATCIT
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Depreciation; Bad and doubtful debts; Assessment record
• Section: 263; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.1626/MDS./2012 / ASSESSMENT YEAR : 2006-07 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), CHENNAI. VS. M/S.INDIA CEMENTS CAPITAL & FINANCE LIMITED , 827-ANNA SALAI, CHENNAI 600 002. [PAN AAACA 3071 C ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.ARUN C.BHARAT,CIT DR /RESPONDENT BY : MR.R.VIJAYARAGHAVAN,ADVOCATE / DATE OF HEARING : 24 - 05 - 201 6 / DATE OF PRONOUNCEMENT : 11 - 08 - 2016 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, CHENN AI DATED 25.05.2012 PERTAINING TO ASSESSMENT YEAR 2006-07. ITA NO.1626/MDS./12 :- 2 - : 2. THE MAIN GRIEVANCE OF THE REVENUE IN THIS APPEA L IS THAT THE LD.CIT(A) ERRED IN DELETING THE ADDITION MADE ON AC COUNT OF CESSATION OF BANK LIABILITY TO THE EXTENT OF ` 46.05 CRORES. 3. THE FACTS OF THE ISSUE ARE THAT IN THE PREVIOUS YEAR, RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAD ASSIGNED ALL ITS RECEIVABLES TO M/S.UNIQUE RECEIVABLE MANAGEMENT PRI VATE LIMITED (URMPL) ON THE BASIS OF A TRIPARTITE AGREEMENT EXEC UTED ON 28-6- 2006 BETWEEN THE ASSESSEE, URMPL AND THE CONSORTIUM OF BANKS, WHO HAD ADVANCED FINANCE TO THE ASSESSEE COMPANY. THE TOTAL RECEIVABLES AS PER ACCOUNTS WERE ` 93.45 CRORES AND THE BANK LOAN LIABILITIES WERE ` 89.86 CRORES. THE COMMISSIONER OF INCOME-TAX FOUND THAT THE DIFFERENTIAL AMOUNT OF ` 3.59 CRORES HAS BEEN SHOWN AS RECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. BUT, IN THE LIGHT OF THE ASSIGNMENT OF RECEIVABLES TO THE SPECIAL PURPOSE VE HICLE URMPL, THE ASSESSING OFFICER HAS NOT CONSIDERED WHETHER THE SA ID DIFFERENTIAL AMOUNT OF ` 3.59 CRORES WOULD BE IN THE NATURE OF INCOME OR NOT . THE COMMISSIONER OF INCOME-TAX ALSO OBSERVED THAT THE T OTAL RECEIVABLE ASSIGNED TO URMPL IS ` 89.86 CRORES, AGAINST WHICH THE SAID URMPL HAS TO MAKE A PAYMENT OF ` 43 CRORES ALONE TO THE CONSORTIUM OF BANKS, RESULTING IN REMISSION OF LIABILITY. THE AS SESSING OFFICER HAS NOT CONSIDERED THE TAXABILITY OF THE ABOVE REMISSIO N OF LIABILITY. BASED ITA NO.1626/MDS./12 :- 3 - : ON THE ABOVE FINDINGS, THE COMMISSIONER OF INCOME-T AX ISSUED NOTICE UNDER SECTION 263, PROPOSING TO REVISE THE ORDER OF ASSESSMENT PASSED UNDER SECTION 143(3). AFTER EXAMINING THE D ETAILED REPLY FILED BY THE ASSESSEE COMPANY, THE COMMISSIONER OF INCOME -TAX CONFIRMED THE PROPOSALS AND PASSED THE REVISION ORDER, SETTIN G ASIDE THE ORDER OF ASSESSMENT PASSED BY THE ASSESSING AUTHORITY. HE S ET ASIDE THE ASSESSMENT WITH A DIRECTION TO THE ASSESSING OFFICE R TO ENQUIRE ABOUT ALL THE ABOVE ISSUES POINTED OUT BY HIM AND PASS A FRESH ASSESSMENT ORDER IN ACCORDANCE WITH LAW. 3.1 CONSEQUENT TO THE ORDER OF THE CIT, THE ASSESS EE WENT IN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL WITH REGA RD TO ISSUE OBSERVED THAT:- 11. THE QUESTION OF THE DIFFERENTIAL AMOUNT BETWEEN ` 89.86 CRORES AND ` 43 CRORES IS A VERY PREDOMINANT ISSUE THAT SHOULD HAVE BEEN METICULOUSLY EXAMINED I N THE ASSESSMENT ORDER. THE TRIPARTITE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE, THE SPECIAL PURPOSE VEHICLE U RMPL AND THE STATE BANK OF MYSORE, AS THE REPRESENTATIVE OF THE CONSORTIUM OF LENDING BANKS, ENTERED INTO ON 28-6-2006, LISTS OUT THE TERMS AND CONDITIONS OF TH E ASSIGNMENT OF RECEIVABLES TO THE SPECIAL PURPOSE VE HICLE AND THE REPAYMENT OF LOANS BY THE SPECIAL PURPOSE VEHIC LE TO THE CONSORTIUM OF LENDING BANKS. THE CONSORTIUM OF BAN KS IS HAVING A FIRST AND PRIOR CHARGE ON ALL RECEIVABLES OF THE ASSESSEE COMPANY AS SECURITY FOR THE LOANS AND CRED IT FACILITIES ITA NO.1626/MDS./12 :- 4 - : EXTENDED TO THE ASSESSEE. AS ON THE DATE OF THE TR IPARTITE AGREEMENT, THE TOTAL OF THE RECEIVABLES OF THE ASSE SSEE WAS ` 93.45 CRORES. AS AGAINST THE ABOVE AMOUNT, THE TRI PARTITE AGREEMENT LIMITED ITS ASSIGNMENT TO ` 89.86 CRORES. THE DIFFERENTIAL AMOUNT OF ` 3.59 CRORES IS SHOWN AS RECEIVABLES IN THE ACCOUNTS OF THE ASSESSEE COMPANY. THE EXACT NA TURE OF THIS AMOUNT, WHETHER IT SUBSISTS AS RECOVERABLE OR ALREADY INCLUDED IN THE BAD DEBTS WRITTEN OFF OR IS IN THE NATURE OF INCOME, ETC. HAVE NOT BEEN EXAMINED BY THE ASSESSIN G OFFICER, IF NOT DISCUSSED IN THE ASSESSMENT ORDER. THE AMOU NT OF RECEIVABLES ASSIGNED TO THE SPECIAL PURPOSE VEHICLE URMPL WAS ` 89.86 CRORES. IT IS STATED IN THE TRIPARTITE AGREE MENT THAT THE AGREEMENT WAS EXECUTED TO CRYSTALLISE THE LIABI LITIES OF THE ASSESSEE COMPANY TO THE CONSORTIUM OF BANKS. IN PA RAGRAPH 3 OF THE TRIPARTITE AGREEMENT IT IS STATED AS BELOW:- 3. THE DUES OF THE FIRST PART AMOUNTING TO ` 89.05 CRS TO THE THIRD TO FOURTEENTH PARTS IS HEREBY CRYSTALLIZED AND FIXED AT ` 43 CRORES (WITH THE APPLICATION OF INTEREST TO CEASE FROM 1ST JULY 2005). THEREAFTER, THE AGREEMENT SPEAKS ABOUT THE MODALITI ES OF THE PAYMENT OF THE SUM OF ` 43 CRORES BY THE SPECIAL PURPOSE VEHICLE URMPL TO THE CONSORTIUM OF BANKS. 12. CLAUSE 7 OF THE TRIPARTITE AGREEMENT READS AS B ELOW:- 7. THE PARTIES AGREE THAT ON THE SECOND PART PAYING THE THIRD PART THE AFORESAID SUM OF ` 43 CRORES IN TERMS OF CLAUSE 5 ABOVE AND INTEREST IN TERMS OF CLAUSE 6 ABOVE, ALL DUES, CLAIMS, ITA NO.1626/MDS./12 :- 5 - : DEMANDS AND LIABILITIES OF THE THIRD TO FOURTEENTH PARTS AGAINST THE SECOND PART SHALL CEASE AND THE SAME SHALL CONSTITUTE A FULL AN D FINAL SETTLEMENT AND ABSOLUTE RELEASE OF THE SECOND PART FROM ANY OBLIGATION WHATSOEVER TO THE THIRD TO FOURTEENTH PARTS AND THE THIRD TO FOURTEENTH PARTS SHALL NOT BE ENTITLED TO COMMENCE ANY LEGAL PROCEEDINGS AGAINST THE SECOND PART EITHER IN THE DEBT RECOVERY TRIBUNAL OR ELSEWHERE. 13. THE ABOVE CLAUSES IN THE TRIPARTITE AGREEMENT C LEARLY SHOWS THAT THE LIABILITY TO THE CONSORTIUM OF BANKS HAS BEEN CRYSTALLISED AT ` 43 CRORES AND ONCE THE SAID AMOUNT OF ` 43 CRORES WAS PAID OVER TO THE BANKS, THE LIABILITIES OF THE ASSESSEE COMPANY TOWARDS THE BANKS STAND FULLY DISCHARGED AN D SETTLED. THEREAFTER, THE BANKS DO NOT HAVE ANY OPTION FOR LE GAL PROCEEDINGS AGAINST THE ASSESSEE OR THE SPECIAL PUR POSE VEHICLE. THEREFORE, IT IS CLEAR THAT PRIMA FACIE T HERE IS A REMISSION OF LIABILITY IN FAVOUR OF THE ASSESSEE CO MPANY. THIS PARAMOUNT ISSUE OUGHT TO HAVE BEEN EXAMINED BY THE ASSESSING AUTHORITY IN THE ASSESSMENT ORDER. 14. THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO CLAUSE 5(D) OF THE TRI PARTITE AGREEMENT WHICH STATES THAT ANY AMOUNT COLLECTED OV ER AND ABOVE THE CRYSTALLIZED AMOUNT WILL ALSO BE PAID TO THE BANKS AFTER EXTINGUISHING THE OUTSIDE LOAN OF ` 15 CRORES RAISED FOR THE INITIAL THREE INSTALMENTS. WE AGREE WITH THE ARGUM ENT OF THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE THAT THE RE IS DISTANT POSSIBILITY THAT THE SPECIAL PURPOSE VEHICLE MAY RE ALIZE MORE ITA NO.1626/MDS./12 :- 6 - : THAN ` 43 CRORES AND IN SUCH A SITUATION SOME MORE AMOUNT WOULD HAVE TO BE PAID TO THE BANKS. BUT, THAT IS O NLY A POSSIBILITY. THAT LIABILITY OF THE ASSESSEE IS ONL Y CONTINGENT. 15. FOR THE PURPOSE OF SECTION 263, IT IS NOT NECES SARY FOR THE COMMISSIONER OF INCOME-TAX TO MAKE A FINAL ADJUDICA TION OF THE ISSUES. IF HE FINDS PRIMA FACIE THAT CERTAIN RELEV ANT ASPECTS OF THE ASSESSMENT HAVE NOT BEEN EXAMINED BY THE ASSESS ING AUTHORITY, WHICH HAS MADE THE ASSESSMENT ORDER ERRO NEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE CO MMISSIONER OF INCOME-TAX IS WITHIN HIS COMPETENCE TO INVOKE SECTI ON 263. 16. AS FAR AS THE PRESENT CASE IS CONCERNED, THE ASSESSMENT ORDER PASSED BY THE ASSESSING AUTHORITY IS A VERY CRYPTIC ORDER WHERE THERE IS NO DISCUSSION REGARDIN G CERTAIN VITAL ISSUES ARISING FROM THE ASSESSMENT. 17. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF T HE CASE, WE UPHOLD THE REVISION ORDER PASSED BY THE CO MMISSIONER OF INCOME-TAX. 3.2. CONSEQUENT TO THE ORDER U/S.263 OF THE ACT, T HE LD. ASSESSING OFFICER PASSED THE ASSESSMENT ORDER DATED 13.12.201 1 U/S.143(3) R.W.S.263 OF THE ACT OBSERVING THAT IN CLAUSE-3 OF PAGE-5, THE TRIPARTITE AGREEMENT, THERE IS A REMISSION OF LIABI LITY TO THE TUNE OF `46.05 CRORES AND ACCORDINGLY, AO BROUGHT INTO TAX. AGAINST THIS, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ITA NO.1626/MDS./12 :- 7 - : 4. ON APPEAL, THE LD.CIT(A) OBSERVED THAT THE TRIP ARTITE AGREEMENT DATED 28.06.2006 AMONG THE ASSESSEE (FIRS T PART), UNIQUE RECEIVABLE MANAGEMENT PVT.LTD, THE SPV (SECO ND PART) AND THE CONSORTIUM OF BANKS (THIRD TO FOURTEENTH PART), LEAD BANK BEING STATE BANK OF MYSORE (THIRD PART), AS PER CL AUSE (2) OF THE AGREEMENT, THE HIRE PURCHASE AND LEASE RECEIVABLES OF THE ASSESSEE SHALL BE TRANSFERRED TO THE SPV ON 01.10.2005. THE BANK LIABILITIES SHALL ALSO BE TREATED AS THE LIABILITIES OF THE SPV TO THE BANKS. UPON SUCH TRANSFER IN FAVOUR OF THE SPV, THE APPELLANT S HALL BE RELIEVED , OF THE LIABILITIES TO THE BANKS. AS PER CLAUSE(3) THE DUES OF THE ASSESSEE AMOUNTING TO RS.89.05 CRORES TO THE BANK WAS CRYSTA LISED AND FIXED AT RS.43 CRORES. IT IS CLEAR FROM THE AGREEMENT THAT B OTH THE FUND BASED ACTIVITIES OF THE APPELLANT TOGETHER WITH ALL THE R ECEIVABLES AND BANK LIABILITIES WERE TRANSFERRED TO THE SPV. ACCORDINGL Y, THE APPELLANT DID NOT HAVE ANY ASSETS OR BANK LIABILITIES RELATING TO THE FUND BASED ACTIVITIES IN ITS BOOK. THEREFORE, THERE WAS NO RED UCTION ON THE LIABILITY IN THE HANDS OF THE ASSESSEE. THE LIABILITY WAS ON THE TRANSFEREE SPV WHICH IS CLEAR FROM CLAUSE (5) OF THE AATEENT WHICH STATES THAT THE SECOND PART AGREES TO PAY THE AFORESAID SUM OF RS.4 3 CRORES TO THE THIRD PART IN THE FOLLOWING MANNER . .. . THE SECOND PART IS THE SPV AND NOT THE APPELLANT (F IRST PART). ITA NO.1626/MDS./12 :- 8 - : CLAUSE (5)(D) STIPULATES THAT ANY AMOUNT COLLECTED OVER AND ABOVE THE CRYSTALISED AMOUNT WILL ALSO BE PAID TO THE BANKS. IT IS THUS CLEAR THAT THERE WAS NO WAIVER OF LOAN OR REMISSION OF BANK LI ABILITY IN THE HANDS OF THE APPELLANT. THE REMISSION WAS IN THE HANDS OF THE SPV TO WHICH THE TOTAL BANK LIABILITY HAD BEEN TRANSFERRED AT BO OK VALUE OF RS.89.86 CRORES. FURTHER, AS AGREED TO VIDE CLAUSE (5)(D) OF THE AGREEMENT, ANY AMOUNT COLLECTED FROM THE RELATED RECEIVABLES TRANS FERRED TOGETHER WITH THE LIABILITY TO SPV WHICH IS IN EXCESS OF THE NET ACCEPTED LIABILITY SHOULD ALSO BE PASSED ON TO THE BANK. THEREFORE, TH ERE IS NO REDUCTION OF LIABILITY IN THE TRUE SENSE BECAUSE WH ATEVER IS COLLECTED FROM THE CLIENT RECEIVABLE HAS TO BE PASSED ON TO T HE BANKS TO THE EXTENT OF RS.89.86 CRORES. IT IS THUS CLEAR FROM TH E TERMS AND CONDITIONS STIPULATED IN THE TRIPARTITE AGREEMENT T HAT THERE WAS NO LIABILITY IN THE HANDS OF THE APPELLANT BECAUSE THE LIABILITY HAD BEEN TRANSFERRED TO THE SPV. SINCE THERE WAS NO LIABILIT Y AT THE FIRST INSTANCE, THERE IS NO QUESTION OF REMISSION OR CESS ATION OF LIABILITY. THE AO HAS ALSO NOT BROUGHT ON RECORD ANY MATERIAL TO PROVE THAT THE AGREEMENT WAS NOT GENUINE. HENCE, LD.CIT(A) WAS OF THE OPINION THAT THE IMPUGNED SUM CANNOT BE ADDED U/S.41(1). 4.1 FURTHER THE CONTENTION OF THE ASSESSEE WAS THA T THE WAIVER WAS IN THE CAPITAL FIELD SINCE THE LOAN FROM THE BANKS WERE USED FOR ACQUISITION OF CAPITAL ASSETS WHICH WERE GIVEN ON H IRE OR ON LEASE TO ITA NO.1626/MDS./12 :- 9 - : CUSTOMERS. THIS IS CONFIRMED BY THE FACT THAT THE H IRE PURCHASE AND LEASING TRANSACTIONS WERE HYPOTHECATED AGAINST BANK LIABILITY AND BOTH WERE TRANSFERRED TOGETHER TO THE SPV. IN THIS REGAR D, THE ID.AR HAS RELIED ON THE DECISIONS IN THE CASES OF LSKRAEMECO REGENT LTD, JINDAL EQUIPMENT AND LEASING SERVICES LTD, MAHINDRA & MAHINDRA, CHET AN CHEMICALS LTD, MINDTEK INDIA P LTD, ELSCOPE AND NECTAR BEVERAGES P LTD (SUPRA). HE HAS GONE THROUGH THE ABOVE DECISION AND FOUND THAT THE RATIO OF THE DECISION IN THE CASE OF ISKRAEMECO REGENT LTD (SUPRA) IS APPLIC ABLE TO THE FACTS OF THE PRESENT CASE. THE HONBLE JURISDICTIONAL HIGH COURT IN THE ABOVE CASE FOUND THAT THE AMOUNT RECEIVED AND USED FOR THE PURCHASE OF CAPITAL ASSET COULD HARDLY CONSTITUTE A TRADING RECEIPT, SO THAT THE AP PLICATION OF T.V.SUNDARAM LYENGAR & SONS LTDS CASE (222 ITR 344) LACK MERIT. THOUGH TAKEN FOR BUSINESS AND NOT A TRADING RECEIPT, THE AMOUNT RELA TED TO CAPITAL ACCOUNT. IN MAHINDRA & MAHINDRA LTD (SUPRA), IT WAS HELD TO BE NOT TAXABLE FOR THE SAME REASON THAT THE DECISION IN T.V.SUNDRAM IYENGA RS CASE HAS NO APPLICATION. THE ARGUMENT THAT IT WOULD BE TAXABLE U/S 28(IV) WAS ALSO DISMISSED S ITI1OFTANAACTION NOT COMING WITHIN THE PURVIEW OF SEC 2(24). THE HONBIE DELHI HIGH COURT IN THE CASE OF CIT V. TOSHA INTERNATIONAL LTD, 331 ITR 440 HAS ALSO DISMISSED THE APPEAL OF REVENU E BY HOLDING THAT THE AMOUNT OF RS.1048 CRORES WAIVED BY THE FINANCIAL IN STITUTIONS UNDER SCHEME APPROVED BY BIFR CANNOT BE TAXED N THE HANDS OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES, LD.CIT(A) CAME TO A CONCLUSION THAT THE IMPUGNED AMOUNT CANNOT ALSO BE TAXED IN THE HANDS OF THE APP ELLANT EITHER U/S 41(1) ITA NO.1626/MDS./12 :- 10 -: OR U/S 28(IV) OF THE ACT. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LD.D.R SUBMITTED THAT THE QUESTI ON OF THE DIFFERENTIAL AMOUNT BETWEEN ` 89.86 CRORES AND ` 43 CRORES IS A VERY PREDOMINANT ISSUE. THE TRIPARTITE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE, THE SPECIAL PURPOSE VEHICLE URMPL AND THE STATE BANK OF MYSORE, AS THE REPRESENTATIVE OF THE CONSORTIUM OF LENDING BANKS, ENTERED INTO ON 28.06.2006, LISTS OUT OF THE TERMS AND CONDITIONS OF THE ASSIGNMENT OF RECEIVABLES TO THE SPECIAL PURPOS E VEHICLE AND THE REPAYMENT OF LOANS BY THE SPECIAL PURPOSE VEHICLES TO THE CONSORTIUM OF LENDING BANKS. THE CONSORTIUM OF BANKS IS HAVING A FIRST AND PRIOR CHARGE ON ALL RECEIVABLES OF THE ASSESSEE COMPANY A S SECURITY FOR THE LOANS AND CREDIT FACILITIES EXTENDED TO THE ASSESSE E. ACCORDING TO LD.D.R, AS ON THE DATE OF THE TRIPARTITE AGREEMENT, THE TOTAL OF THE RECEIVABLES OF THE ASSESSEE WAS ` 93.45 CRORES. AS AGAINST THE ABOVE AMOUNT, THE TRIPARTITE AGREEMENT LIMITED ITS ASSIGN MENT TO `89.86 CRORES. THE DIFFERENTIAL AMOUNT OF ` 3.59 CRORES IS SHOWN AS RECEIVABLES IN THE ACCOUNTS OF THE ASSESSEE COMPANY . THE EXACT NATURE OF THIS AMOUNT, WHETHER IT SUBSISTS AS RECOV ERABLE OR ALREADY INCLUDED IN THE BAD DEBTS WRITTEN OFF OR IS IN THE NATURE OF INCOME. THE AMOUNT OF RECEIVABLES ASSIGNED TO THE SPECIAL P URPOSE VEHICLE ITA NO.1626/MDS./12 :- 11 -: URMPL WAS ` 89.86 CRORES. IT IS STATED IN THE TRIPARTITE AGREEM ENT THAT THE AGREEMENT WAS EXECUTED TO CRYSTALLISE THE LIABI LITIES OF THE ASSESSEE COMPANY TO THE CONSORTIUM OF BANKS. IN PAR AGRAPH 3 OF THE TRIPARTITE AGREEMENT IT IS STATED AS BELOW:- 3. THE DUES OF THE FIRST PART AMOUNTING TO RS. 89. 05 CRS TO THE THIRD TO FOURTEENTH PARTS IS HEREBY CRYSTALL IZED AND FIXED AT RS. 43 CRORES (WITH THE APPLICATION OF INTEREST TO CEASE FROM 1ST JULY 2005). THEREAFTER, THE AGREEMENT SPEAKS ABOUT THE MODALITI ES OF THE PAYMENT OF THE SUM OF RS 43 CRORES BY THE SPECIAL PURPOSE VEHI CLE URMPL TO THE CONSORTIUM OF BANKS. CLAUSE 7 OF THE TRIPARTITE AGREEMENT READS AS BELOW : 7. THE PARTIES AGREE THAT ON THE SECOND PART PAYIN G THE THIRD PART THE AFORESAID SUM OF RS. 43 CRORES IN TE RMS OF CLAUSE 5 ABOVE AND INTEREST IN TERMS OF CLAUSE 6 AB OVE, ALL DUES, CLAIMS, DEMANDS AND LIABILITIES OF THE THIRD TO FOURTEENTH PARTS AGAINST THE SECOND PART SHALL CEAS E AND THE SAME SHALL CONSTITUTE A FULL AND FINAL SETT LEMENT AND ABSOLUTE RELEASE OF THE SECOND PART FROM ANY OBLIGA TION WHATSOEVER TO THE THIRD TO FOURTEENTH PARTS AND THE THIRD TO FOURTEENTH PARTS SHALL NOT BE ENTITLED TO COMMENCE ANY LEGAL PROCEEDINGS AGAINST THE SECOND P ART EITHER IN THE DEBT RECOVERY TRIBUNAL OR ELSEWHERE. FURTHER, LD.D.R SUBMITTED THAT FROM THE ABOVE CLAUS E IN THE TRIPARTITE AGREEMENT, IT IS VERY CLEAR THAT THE LIABILITY TO T HE CONSORTIUM OF BANKS ITA NO.1626/MDS./12 :- 12 -: HAS BEEN CRYSTALLIZED AT ` 43 CRORES AND ONCE THE SAID AMOUNT OF `43 CRORES WAS PAID OVER TO THE BANKS, THE LIABILITIES OF THE ASSESSEE COMPANY TOWARDS THE BANKS STAND FULL DISCHARGED AND SETTLED. THEREAFTER, THE BANKS DO NOT HAVE ANY OPTION FOR LE GAL PROCEEDINGS AGAINST THE ASSESSEE OR THE SPECIAL PURPOSE VEHICLE . THEREFORE, IT IS CLEAR THAT PRIME FACIE THERE IS A REMISSION OF LIAB ILITY IN FAVOUR OF THE ASSESSEE COMPANY. FURTHER, LD.D.R SUBMITTED THAT T HE CASE LAW RELIED ON BY THE ASSESSEE COMPANY I.E. IN THE CASE OF M/S. ISKRAEMECO REGENT LTD., REPORTED IN 331 ITR 317 (MAD.) CANNOT BE APPLIED TO THE FACTS OF THE CASE. IN THAT CASE, ASSESSEE ENGAGED I N THE BUSINESS OF DEVELOPMENT, MANUFACTURING AND MARKETING OF ELECTRO -MECHANICAL AND STATE ENERGY METERS. IT HAD TAKEN A LOAN FROM THE BANK FOR PURCHASE OF CAPITAL ASSETS. A ONE-TIME SETTLEMENT WITH THE B ANK IS REDUCED THE LOAN LIABILITY. IN THAT CASE, REDUCTION IN LOAN WAS CREDITED TO THE CAPITAL RESERVE ACCOUNT AS IT WAS IN THE CAPITAL FIELD. HOWEVER, IN THE PRESENT CASE, IT IS HEREIN CURRENT LIABILITY WHICH IS IN REVENUE FIELD. HE RELIED ON THE ORDER OF TRIBUNAL IN THE ASSESSEES O WN CASE IN ITA NO.871/MDS./2011 VIDE ORDER DATED 3RD APRIL, 2012 W HEREIN THE TRIBUNAL HAD ALREADY GIVEN THE FINDINGS AGAINST THE ASSESSEE WHILE CONFIRMING THE ORDER OF CIT PASSED U/S.263 OF THE A CT. ITA NO.1626/MDS./12 :- 13 -: 6. BEFORE US, LD.A.R SUBMITTED THE FOLLOWING POINT S FOR OUR CONSIDERATION. A) INDIA CEMENTS CAPITAL LTD (ICCL) TRANSFERRED ITS FUND BASED BUSINESS WITH THE CORRESPONDING LIABILITIES TO M/S UNIQUE RECEIVABLES (URL) WITH THE APPROVAL OF CONSORTIUM OF BANKS. B) ICCL TRANSFERRED RECEIVABLES WORTH RS. 93.45 CRO RES AND BANK LIABILITIES WORTH RS.89.85 CRORES. BALANCE RS. 3.60 CRORES WAS SHOWN AS RECEIVABLE FROM THE TRANSFEREE URL. C) THE TRANSFERS WERE REFLECTED IN THE BOOKS OF ICC L AND URL (NOTES ON ACCOUNTS SCH 14(2) AT PAGE 18 OF PB) ICCL OFFERED RS.7 CRORES AS SHORT TERM CAPITAL GAIN S, BEING THE DIFFERENCE BETWEEN THE BOOK VALUE AND IT WDV OF THE LEASED ASSETS. THE SAME WAS ASSESSED IN THE HANDS OF ICCL FOR AY20 06-07 (PAGE 9 OF PB) D) FOR ASSIGNMENT OF LIABILITIES, THE BANKS INSISTE D THAT ICCL GUARANTEE THE PAYMENT OF RS. 43 CRORES. AS PER THE TRIPARTITE AGREEMENT WITH SBM REPRESENTING THE CONSORTIUM OF B ANKS: CLAUSE 2: LIABILITIES AND RECEIVABLES WILLBE TREATE D AS LIABILITIES AND RECEIVABLES OF URL FROM 1.10.2005. CLAUSE 3: ICCL LIABILITY, IN SPITE OF TRANSFER WOUL D BE RS. 43 CRORES. ITA NO.1626/MDS./12 :- 14 -: CLAUSE 4: ONCE TRASFER IS COMPLETE ICCL DOES NOT HA VE ANY LIABILITY. CLAUSE 5: URL SHALL PAY RS. 43 CRORES TO THE BANKS. CLAUSE 6: URL TO PASS ON FURTHER COLLECTIONS, AFTER SETTLING OUTSIDE LIABILITIES, REALISED FROM RECEIVABLES TO T HE BANKS. CLAUSE 7: ON PAYMENT OF RS. 43 CRORES, BANKS WILL N OT PROCEED TO REALIZE FURTHER AMOUNTS. BUT WHATEVER IS REALIZE D FROM THE RECEIVABLES SHALL BE PASSED ON TO THE BANKS. HENCE THE LIABILITY HAS NOT BEEN WAIVED OR CEASED. CLAUSE 11 &12. ICCL SHALL SELL RECEIVABLES TO URL A ND THE CONSIDERATION IS THE TRANSFER OF BANK LIABILITIES. E. ICCL TRANSFERRED ALL, ITS ASSETS AND LIABILITIES TO URL AT BOOK VALUE. THE SAME WAS REFLECTED IN THE BOOKS OF URL AND HAS BEEN ACCEPTED BY THE DEPARTMENT. F. THE ORDER U/S 263 AND THE ASSMNT ORDER READ WITH 263 DT 26.12.2011 HAS ACCEPTED THE TRANSFER OF LIABILITY O F RS. 89 CRORES. G. URL HAS SHOWN RS. 89 CRORES AS LIABILITY TO BANK S IN ITS BOOKS. H. TOTAL AMOUNT OF RS. 43 CRORES WERE PAID BY URL T O BANKS TILL AUG 2009. I. THIS AMOUNT WAS REDUCED FROM THE BANK LIABILITY IN THE BOOKS OF URL. ITA NO.1626/MDS./12 :- 15 -: J. AT THE TIME OF TRANSFER NO BANK HAS INDICATED AN Y WAIVER OR REDUCTION. K. ANYWAY WAIVER IF ANY WILT HAVE TO BE CONSIDERED IN THE HANDS OF URL. L. ICCL TRANSFERRED THE BUSINESS OF FUND BASED FINA NCING. THE ENTIRE ASSETS AND LIABILITIES WERE TRANSFERRED TO URL. THE RE WAS NO REDUCTION OF LIABILITY IN THE HANDS OF ICCL. M. URL CONTINUED TO SHOW THE LIABILITY IN ITS BOOKS WHICH HAS BEEN ACCEPTED BY THE BANK. THE LD.A.R FURTHER SUBMITTED THAT THE CONSIDERATION FOR TRANSFER OF RECEIVABLES WAS THE VALUE OF LIABILITIES TRANSFERRE D (CLAUSE 12). ACCORDING TO LD.A.R, IF BANKS HAD WAIVED LIABILITY OVER AND ABOVE RS. 43 CRORES, THEN THE VALUE OF LIABILITIES TRANSFERRE D WOULD ONLY BE RS. 43 CRORE. THE CONTENTION OF THE LD.A.R IS THAT THE CONSIDERATION FOR TRANSFER OF RECEIVABLES OF RS. 93.45 CRORES WOULD B E ONLY RS. 43 CRORES RESULTING IN LOSS OF THE DIFFERENTIAL AMOUNT OF APPX RS. 50 CRORES ARISING FROM TRANSFER IN THE HANDS OF ICCL. FINALLY, LD.A.R EMPAHSISED THAT THE AGREEMENT IS SUBJECT TO PAYMENT OF RS.43 CRORES WHICH WAS COMPLETED ONLY IN AUGUST, 2009. FURHTER, LD.A.R PLACED RELIANCE IN THE CASE OF M/S.ISKRAEMECO REGENT LTD., REPORTED IN 331 ITR 317 (MAD.). ITA NO.1626/MDS./12 :- 16 -: 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, AN EARLIER OCCASION THE ASSES SEE CAME IN APPEAL BEFORE THIS TRIBUNAL CHALLENGING THE ORDER OF CIT P ASSED U/S.263 OF THE ACT. THE TRIBUNAL DECIDED THE ISSUE AGAINST TH E ASSESSEE VIDE ITS ORDER DATED 3 RD APRIL, 2012 AND THE RELEVANT PORTION OF THE ORDER WAS REPRODUCED HEREIN ABOVE AT PARA NO.3.1. NOW, LD.A.R PLEADED THAT THERE CANNOT BE ANY REMISSION OF LIABILITY U/S.41(1 ) OF THE ACT. IN OUR OPINION, SINCE THERE IS A CATEGORICAL FINDINGS OF T HE TRIBUNAL THAT THERE WAS A CESSATION/REMISSION OF LIABILITY U/S.41(1) OF THE ACT, ON EARLIER OCCASION CONFIRMING THE ORDER OF LD. CIT PASSED U/S .263 OF THE ACT, WHEREIN THE LD.CIT DIRECTED THE AO TO VERIFY FROM T HE ASSESSMENT RECORDS WHETHER INTEREST/DEPRECIATION/HIRE CHARGES OR ANY OTHER EXPENDITURE RELATED TO BANK LIABILITY HAS BEEN CLAI MED AND ALLOWED BY THE AO IN THE EARLIER YEARS AND IF YES, THE TAX ABILITY OF THE REMISSION OF BANK LIABILITY SHOULD BE EXAMINED BY THE AO UNDE R RELEVANT PROVISIONS OF THE ACT. THE LD. ASSESSING OFFICER C ONSEQUENT TO THIS EXAMINED THE ISSUE AND OBSERVED THAT THERE IS REMIS SION OF BANK LIABILITY ACCRUED TO THE ASSESSEE AT ` 46.05 CRORES. CONTRARY TO THIS, LD.CIT(A) OBSERVED THAT THERE WAS NO CESSATION OF L IABILITY IN THE HANDS OF ASSESSEE AND IT WAS ONLY IN THE HANDS OF U RMP(SPV) AND IF ANY CESSATION IS TO BE CONSIDERED IN THE HANDS OF U RMP. WE ARE NOT IN A POSITION TO UPHOLD THE ARGUMENT OF THE LD.A.R AS HELD BY THE ITA NO.1626/MDS./12 :- 17 -: TRIBUNAL ON EARLIER OCCASION. THERE IS A REMISSION OF LIABILITY IN FAVOUR OF ASSESSEE COMPANY AND THE LIABILITY PAYABLE TO TH E BANK HAS BEEN REDUCED TO ` 43 CRORES AND IT HAS TO BE BROUGHT TO TAX IN THE HANDS OF ASSESSEE ONLY U/S.41(1) OF THE ACT. ACCORDINGLY , THE GROUND RAISED BY THE REVENUE IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS AL LOWED. ORDER PRONOUNCED ON 11 TH AUGUST, 2016, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 11 TH AUGUST, 2016 K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF