ITO, Ward-2(1)(1), Ahmedabad V. Echon Industries Ltd., Ahmedabad

ITA 201/AHD/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7974 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 12-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD TANWANI SHRI R MAKWANA
• Keywords: Capital expenditure
• Section: 143(1); 147; 148

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD - BENCH B [THROUGH VIRTUAL COURT] BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO.201/AHD/2019 / ASSTT. YEAR: 2010-11 ITO, WARD-2(1)(1) AHMEDABAD. VS. ECHON INDUSTRIES LTD. D-93, AAKASH FLATS OPP: PREMCHAND NAGAR NR.JUDGES BUNGALOWS BODAKDEV, AHMEDABAD. PAN : AAACE 7427 J / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI VINOD TANWANI, CIT-DR SHRI R. MAKWANA, SR.DR ASSESSEE BY : SHRI TUSHAR HEMANI, SR.ADV. ! / DATE OF HEARING : 16/08/2021 '#$ ! / DATE OF PRONOUNCEMENT: 24/08/2021 %& / O R D E R PER RAJPAL YADAV, VICE-PRESIDENT PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF THE R EVENUE AGAINST ORDER OF THE LD.CIT(A)-2, AHMEDABAD DATED 20.11.201 8 FOR THE ASSTT.YEAR 2010-11, VIDE WHICH THE REVENUE HAS CHAL LENGED DELETION OF ADDITION OF PRINCIPAL PART OF LOAN WAIVED BY THE BA NK AMOUNTING TO RS.2,47,88,187/- BY RELYING ON THE JUDGMENT OF HON BLE SUPREME COURT IN CASE OF MAHINDRA AND MAHINDRA, 93 TAXMANN.COM 32 . ITA NO.201/AHD/2019 2 2. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A LIMIT ED COMPANY ENGAGED IN MANUFACTURING AND TRADING OF PVC FOAM SHEETS. THE A SSESSEE HAS E- FILED RETURN OF INCOME BY DECLARING TOTAL LOSS OF R S.2,72,39,776/- WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THE REAFTER, ON THE BASIS OF INFORMATION RECEIVED FROM DIT(R), DELHI TH AT NO RELIEF/CONCESSION WAS ENVISAGED BY THE BIFR WHILE C ONSIDERING SANCTIONED SCHEME UNDER OTS. THEREFORE, AFTER REC ORDING REASONS, NOTICE UNDER SECTION 148 WAS ISSUED FOR REOPENING A ND REFRAMING OF THE ASSESSMENT UNDER SECTION 147 OF THE ACT. 3. DURING THE ASSESSMENT, THE LD.AO OBSERVED THAT A S PER ONE TIME SETTLEMENT SCHEME WITH THE IDBI BANK, THE ASSESSEE COMPANY HAS PAID A SUM OF RS.441 LAKHS TOWARDS LOAN TAKEN FROM THE B ANK, AND RECEIVED A RELIEF OF RS.2,47,88,187 IN THE FORM OF WAVIER TO WARDS PRINCIPAL PORTION OF LOAN AS PER THE ORDER OF THE BIFR. HOWE VER, NO CONCESSION OR RELIEF WAS ALLOWED BY THE BIFR ON THE RECEIPT OF RS .2,47,88,187/- BEING WAIVER OF PRINCIPAL PORTION OF THE LOAN. IT WAS FU RTHER OBSERVED BY THE AO THAT THE ASSESSEE SHOWN THE AMOUNT OF RS.2,47,88 ,187/- AS INCOME FROM OTHER SOURCES AND CREDITED THE SAME TO THE PRO FIT & LOSS ACCOUNT. HOWEVER, IN THE RETURN OF INCOME AND COMPUTATION OF INCOME, THE ASSESSEE HAS CLAIMED THE WAIVER PORTION OF THE PRIN CIPAL AMOUNT AS DEDUCTIBLE INCOME, WHICH CLAIM, ACCORDING TO THE AO , WAS NOT JUSTIFIABLE. THE LD.AO, THEREFORE, SHOW-CAUSED THE ASSESSEE AS TO WHY THE SAME SHOULD NOT BE DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. IT WAS EXPLAINED BY THE ASSESSEE THAT SI NCE THE LOAN WAS TAKEN FOR THE PURPOSE OF SETTING UP OF A UNIT, THEY ARE CAPITAL EXPENDITURE AND NOT A TRADING LIABILITY, AND WAIVER OF PART OF PRINCIPAL PORTION OF THE AMOUNT LOAN WOULD NOT BE TAXABLE IN THE HANDS OF THE ASSESSEE. THE LD.AO DID NOT ACCEPT THIS CONTENTIO N OF THE ASSESSEE, AND HELD THAT SINCE THE CHARACTER OF RECEIPT HAS BE EN CHANGED FROM CAPITAL TO REVENUE AS THE ASSESSEE HAS CREDITED THE AMOUNT IN THE PROFIT & LOSS ACCOUNT, AND THE AMOUNT OF WAIVER PRINCIPAL AMOUNT HAS NOT ITA NO.201/AHD/2019 3 BEEN SPENT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF EARNING BUSINESS PROFIT, NO RELIEF OR DEDUCTION IS ALLOWABLE, BECAUS E ASSESSEE HAS NO LIABILITY TO PAY BACK THAT RECEIPT. HE ACCORDINGLY MADE ADDITION OF RS.2,47,88,187/- BEING WAIVER OF PORTION OF PRINCIP AL LOAN, AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. DISSATISFIED WI TH THE ACTION OF THE AO, THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST AP PELLATE AUTHORITY. THE LD.CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY RELYING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. MAH INDRA & MAHINDRA LTD. 93 TAXAMNN.COM 32 (SC), BY HOLDING THAT WAIVER OF LOAN AMOUNT COULD NOT BE BROUGHT TO TAX, AS THE SAME WAS ON CAP ITAL ACCOUNT AND NOT IN THE NATURE OF INCOME. AGGRIEVED REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. THE LD.DR RELIED UPON ORDER OF THE AO, WHILE THE LD.COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD.CIT(A). 5. ON DUE CONSIDERATION OF FACTS AND CIRCUMSTANCES, AND PERUSAL OF THE IMPUGNED ORDERS, WE FIND THAT THE ISSUE IN DISP UTE IS ABOUT TAXABILITY OF AMOUNT OF LOAN WAIVED BY THE FINANCIA L INSTITUTION, ON ACCOUNT OF ONE TIME SETTLEMENT. THE ASSESSEE HAD OUTSTANDING LOAN LIABILITY OF RS.6,88,90,057/- WITH THE IDBI BANK, W HICH WAS SETTLED UNDER OTS AT RS.441 LAKHS, AND THE BALANCE AMOUNT O F RS.2,47,88,187/- REPRESENTING PRINCIPAL PORTION OF THE LOAN WAIVED BY THE BANK HAS BEEN SHOWN AS INCOME. THE ASSESSEE C REDITED THE SUM AS INCOME IN THE PROFIT & LOSS ACCOUNT AND SHOWN IT IN THE RETURN OF INCOME, AT THE SAME TIME, CLAIMED THE SAME DEDUCTIB LE INCOME. THE LD.AO DID NOT ACCEPT TREATMENT OF WAIVER AMOUNT BY THE ASSESSEE, AND HELD THAT SINCE THE ASSESSEE HAS SHOWN THE RELIEF B Y WAY OF WAIVER OF PART OF PRINCIPAL AMOUNT OF LOAN IN THE PROFIT & LO SS ACCOUNT, THE CHARACTER OF LOAN CHANGED FROM CAPITAL TO REVENUE, AND THEREFORE, THE SAME LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSE E. HOWEVER, WHEN THE MATTER CARRIED IN APPEAL BEFORE THE LD.FIRST AP PELLATE AUTHORITY, CLAIM ITA NO.201/AHD/2019 4 OF THE ASSESSEE WAS ALLOWED BY RELYING UPON THE DEC ISION OF HONBLE SURPEME COURT IN THE CASE OF MAHINDRA & MAHINDRA LT D. (SUPRA). THE HONBLE APEX COURT IN THAT CASE HELD THAT THE WAIVE R OF THE AMOUNT OF TERM LOAN AVAILED BY THE ASSESSEE UNDER OTS WILL NO T FALL UNDER THE PURVIEW OF INCOME EITHER U/S 28(IV) OR U/S 41(1) OF THE ACT. TAKING SUPPORT FROM THE JUDGMENT OF HONBLE APEX COURT, WE ARE OF THE VIEW THAT THE SUM AMOUNT IN DISPUTE REPRESENTING WAIVER OF LOAN LIABILITY WAS ON THE CAPITAL ACCOUNTS, AND NOT IN THE NATURE OF I NCOME, MORE SO WHEN NO DEDUCTION AND ALLOWANCE WAS MADE IN RESPECT OF S UCH LOAN IN ANY ASSESSMENT YEAR. THEREFORE, THE LD.CIT(A) HAS RIGH TLY APPRECIATED THE FACTS OF THE CASE IN TERMS OF THE JUDGMENT OF HONB LE SUPREME COURT, AND ALLOWED THE CLAIM OF THE ASSESSEE, WHICH WE DO NOT FIND ANY INFIRMITY. THUS, ORDER OF THE LD.CIT(A) IS CONFIR MED, AND THE GROUND OF APPEAL OF THE REVENUE IS REJECTED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 24 TH AUGUST, 2021 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) VICE-PRESIDENT AHMEDABAD; DATED 24/08/2021