Asstt.Commissioner of Income Tax,Central C ircle,1(3), Nagpur V. Mahesh Agricultural Implements & Steel Forgings Limited, Nagpur

ITA 208/NAG/2009

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3015 (ITAT-NAGPUR)
• Duration Of Justice: 9 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 15-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR MILIND BHUSANI
• Assessee Lawyers: R V LOYA
• Keywords: Capital receipt
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D. T. GARASIA, HONBLE JUDICIAL MEMBER I.T.A. NO .208 / NAG / 09 ASSESSMENT YEAR: 2006 - 2007 A.C.I.T., VS. MAHESH AGRICULTURAL IMPLEMENTS CENTRAL CIRCLE - 1(3), & STEEL FORGINGS LTD., NAGPUR. OLD MOTOR STAND, ITWARI, NAGPUR. PAN:AABCM1379A (APPELLANT) (RESPONDENT) APPELLANT BY : DR. MILIND BHUSANI, CIT, D. R. RESPONDENT BY : SHRI R. V. LOYA DATE OF HEARING :17/10/2012 DATE OF PRONOUNCEMENT : 07/12/2012 ORDER PER P. K. BANSAL: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 30/06/2009 BY TAKING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL: 1. ON FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE LEARNED CIT(A) IS JUSTIFIED IN DELETING AN AMOUNT OF RS.34,45,780/ - (WRONGLY MENTIONED AS RS.34,45,7814/ - ) BEING CESSATION OF LIABILITY U/S 41(1) OF THE I.T. ACT. 2. ON FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER TH E LEARNED CIT(A) IS JUSTIFIED IN DELETING THE REMISSION OF INTEREST RECEIVED, WITHOUT APPRECIATING THE FACT THAT IN EARLIER ASSESSMENT YEARS, THE ASSESSEE HAD CLAIMED DEDUCTION TOWARDS INTEREST PAYABLE ON THE VERY SAME BANK LOAN, WHICH WAS SUBJECT MATTER O F ONE TIME SETTLEMENT. I.T.A. NO. 208/NAG/09 2 2. THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE COMPANY IS DEALING IN IRON & STEEL. PROPER BOOKS OF ACCOUNT AND RECORDS HAVE BEEN MAINTAINED. THEY ARE SUBJECT TO AUDIT AND TAX AUDIT. ALL THE REQUIRED DETAILS HAVE BEEN FILED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF HEARING WHICH HAVE BEEN VERIFIED BY THE ASSESSING OFFICER. THERE WAS SEARCH & SEIZURE OPERATION U/S 132 OF THE I.T. ACT. THE ASSESSEE FILED ITS E - RETURN ON 26/11/2006 SHOWING LOSS OF RS.4,34,900/ - THE ASSESSING OFFICER MADE ADDITION OF RS.34,45,780/ - TO THE RETURNED INCOME ON THE BASIS THAT THE AMOUNT OF REMISSION ON BANK SETTLEMENT IS IN RELATION TO INTEREST AND NOT THE PRINCIPAL AMOUNT AS CLAIMED BY THE ASSESSEE. THE ASSESSEE OBJECTED TO THE PRE SUMPTION OF THE ASSESSING OFFICER WHICH IS CONTRARY TO THE BANKING CUSTOMS AND NORMS. THE ASSESSEE SUBMITTED THAT WHILE VERIFICATION OF THE RETURN OF INCOME AND ANNEXURES ATTACHED TO IT, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS CREDITED RS.34,45, 781/ - IN CAPITAL RESERVE FUND ACCOUNT. ACCORDINGLY DETAILS WERE CALLED FROM THE ASSESSEE AND ENQUIRY MADE. THE ASSESSEE INFORMED THAT THE ASSESSEE HAD OBTAINED LOAN FROM PUNJAB NATIONAL BANK IN EARLIER YEARS. BECAUSE OF PERSISTENT LOSSES THE ASSESSEE DE FAULTED WITH THE BANKER AND THEREFORE A CIVIL SUIT WAS FILED FOR RECOVERY. THE ASSESSEE AND THE BANK OPTED FOR ONE TIME SETTLEMENT BEFORE DRT AND THE TOTAL DUES TO THE BANK IN RESPECT OF THE COMPANY WERE SETTLED BY ALLOWING REMISSION OF RS.34,45,780/ - . T HE ASSESSEE CLAIMED THAT THE REMISSION IS ON ACCOUNT OF PRINCIPAL AND, THEREFORE, NOT LIABLE TO TAX. HOWEVER, THE ASSESSING OFFICER HELD THAT THE REMISSION IS ON ACCOUNT OF INTEREST AND, THEREFORE, MADE ADDITION TO THE RETURNED INCOME. THE ASSESSEE OBJE CTED TO THE PRESUMPTION MADE BY THE ASSESSING OFFICER THAT THE BANK RECOVERS PRINCIPAL AMOUNT FIRST AND THE REMISSION IF ANY IS ON ACCOUNT OF INTEREST. 3. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A). THE FINDINGS OF THE CIT(A), AS GIVEN VIDE PARA 4.6 AND 4 . 7, ARE REPRODUCED AS UNDER: I.T.A. NO. 208/NAG/09 3 4.6 ON THE ABOVE ISSUE, SPECIFIC QUERY WAS RAISED TO THE AO IN THE APPELLATE PROCEEDING OF PSIL WHO WAS PRESENT WITH THE BANK MANAGER OF PUNJAB NATIONAL BANK WHO SIGNED LETTER DATED 23 RD APRIL, 2009 TO CLARIFY THE BANKING NORMS AND PRESCRIBED PRACTICE. IT WAS CLARIFIED BY THE MANAGER THAT AS PER THE BANKING NORMS AND PRESCRIBED PRACTICE BY THE RBI, THE MONEY RECOVERED FROM THE BORROWER IS TO BE APPLIED FIRST TOWARDS INTEREST AND THEN TOWA RDS PRINCIPAL. THIS RESOLVES THE ISSUE BEFORE ME AND THEREFORE IN THE FACTS OF THE CASE THE PAYMENT MADE BY THE APPELLANT WILL HAVE TO BE APPROPRIATED TOWARDS INTEREST FIRST. THUS THE MAIN POINT AT ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE ON THIS GROUND. THUS, ON THE PRINCIPLE THAT THE AMOUNT RECOVERED BY THE BANK SHOULD BE FIRST ADJUSTED TOWARDS INTEREST AS PER THE BANKING NORMS AND PRACTICE AND FOLLOWING THE RULES OF APPROPRIATION, THE AMOUNT RECOVERED BY THE BANK IS FIRST APPROPRIATED TOWARDS THE LIABI LITY OF INTEREST AS PROVIDED IN THE BOOKS OF ACCOUNT . IN SUCH CIRCUMSTANCES WHAT REMAINS UNPAID IS THE PRINCIPAL AMOUNT DETAILS OF WHICH ARE AS UNDER: LIABILITY IN THE BOOKS OF ACCOUNT ON ACCOUNT OF CASH CREDIT LIMIT RS90,00,000/ - LESS : AMOUNT AVAILABLE AFTER APPROPRIATION OF INTEREST RS55,54,220/ - INTEREST (1,03,55,000 - 48,00,780/ - ) ------------------ REMISSION RS34,45,780/ IT IS AN UNDISPUTED FACT THAT THE LAST SANCTIONED LIMIT IN THE CASH CREDIT ACCOUNT IS RS.90 LACS . THIS AMOUNT IS PROVIDED BY THE BANK AS LOAN TO THE ASSESSEE AND, THEREFORE, THERE IS NO QUESTION OF ASSESSEE GETTING / CLAIMING DEDUCTION OF SUCH AMOUNT IN THE P&L IT IN THE EARLIER YEARS. THE AMOUNT OF REMISSION RECEIVED BY THE ASSESSEE ON THIS ACCOUNT CANNOT BE BROUGHT WITHIN THE PURVIEW OF SECTION 41(1). THE WAIVER, CONSIDERING THE ABO VE ASPECT OF RULES OF APPROPRIATION AND THE BANKING NORMS AND PRESCRIBED PRACTICE OF RECOVERING INTEREST FIRST, IS ON ACCOUNT OF PRINCIPAL AMOUNT AND, THEREFORE, THE PROVISIONS OF S ECTION 41(1) CANNOT BE INVOKED TO BRING SUCH WAIVER OF LOAN INTO TAX NET. THE LEARNED AR HAS RELIED ON VARIOUS DECISIONS INCLUDING THAT OF JURISDICTIONAL HIGH COURT ON TH E ISSUE THAT THE REMISSION/CESSATION OF THE LOAN LIABILITY IS A CAPITAL RECEIPT AND IT CANNOT BE SUBJECT TO TAX U/S 41(1) OF THE ACT AND THAT A DEBT FORGIVEN CANNOT BE TREATED AS INCOME SINCE SUCH WAIVER ONLY AFFECTS CAPITAL ACCOUNT. THE DECISIONS SQUARELY APPLY TO THE FACTS OF THE CASE AND SUPPORT THE VIEW TAKEN AS ABOVE. I.T.A. NO. 208/NAG/09 4 4.7 THUS, TO SUM UP, IT IS ABUNDANTLY CLEAR THAT THE ENTIRE PLAINT AMOUNT OF RS.1.38 CRORES REPRESENTS PRINCIPAL AMOUNT, OUTSTANDING AS PER BANK'S RECORDS, AND ANY REMISSION THEREOF WOUL D CONSTITUTE CAPITAL RECEIPT ONLY. THIS POSITION BECAME FURTHER CLEAR AND BEYOND ANY SCOPE OF ARGUMENT BY THE CONFIRMATIONS RECEIVED FROM THE BANK MANAGER AS DISCUSSED IN DETAIL ABOVE. FROM ALL THE PARAMETERS WHICH COULD BE APPLIED TO ASCERTAIN CORRECT POS ITION IN THIS REGARD IT TRANSPIRES THAT THE PLAINT AMOUNT IN QUESTION CANNOT BE BIFURCATED INTO PRINCIPAL + INTEREST, CONSEQUENTLY RULING OUT APPLICATION OF SECTION 41(1) OF THE ACT. EVEN GOING BY THE SECOND PROPOSITION THAT THE AMOUNT RECOVERED SHOULD BE ADJUSTED TOWARDS INTEREST FIRST IN VIEW OF THE BANKING NORMS AND CUSTOMS AND THE RULES OF APPROPRIATION, THE AMOUNT RECOVERED BY THE BANK IN THE INSTANT CASE IS JUST SUFFICIENT TO CATER TO THE CLAIM OF INTEREST IF ANY AND PARTIALLY TOWARDS PRINCIPAL. THIS RULE OF APPROPRIATION WAS ALSO CONFIRMED IN APPEAL PROCEEDINGS BEFORE ME BY THE BANK MANAGER HIMSELF. EVEN IF IT IS PRESUMED THAT THE PLAINT AMOUNT OR THE AMOUNT PAYABLE BY THE ASSESSEE COMPRISES OF PRINCIPAL AND INTEREST BOTH, THEN THE AMOUNT PAID TO THE BANK BY WAY OF SETTLEMENT TAKES CARE OF INTEREST AND PARTIALLY TOWARDS PRINCIPAL AND THE BALANCE REMAINING UNPAID, WAIVED BY THE BANK AND ON REMISSION TREATED AS CAPITAL RECEIPT IN ASSESSEE'S ACCOUNT, IS PRINCIPAL LOAN AMOUNT ONLY. IN THE LIGHT OF ABOVE DI SCUSSION AND VARIOUS FACTUAL AND LEGAL ASPECTS OF THE CASE, I AM OF THE CONSIDERATE OPINION THAT AMOUNT OF RS.34,45,781/ - REPRESENTS PRINCIPAL LOAN AMOUNT AND IS RIGHTLY TREATED BY THE ASSESSEE AS CAPITAL RECEIPT ON ITS REMISSION. AAPPLICATION OF SECTION 41(1) IS UNWARRANTED IN THE FACTS OF THE CASE. THE ADDITION IS ACCORDINGLY ORDERED TO BE DELETED. GROUND NO.2 IS ALLOWED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOTICED THAT DURING THE ASSESSMENT PROCEEDINGS SPECIFIC QUERY WAS RAISED TO THE ASSESSING OFFICER WHO WAS PRESENT WITH THE BANK MANAGER OF PUNJAB NATIONAL BANK TO CLARIFY THE BANKING NORMS AND PRESCRIBED PRACTICE. IT WAS CLARIFIED BY THE BANK MANAGER THAT AS PER THE BANKING NORMS AND PRESC RIBED PRACTIVE BY THE RBI, THE MONEY RECOVERED FROM THE BORROWER IS TO BE APPLIED FIRST TOWARDS INTEREST AND THEN TOWARDS PRINCIPAL. THE ENTIRE AMOUNT REPRESENTS PRINCIPAL AMOUNT, OUTSTANDING AS PER BANKS RECORDS AND ANY REMISSION THEREOF WOULD CONSTITUT E CAPITAL RECEIPT ONLY. WE ARE IN AGREEMENT WITH CIT(A)S VIEW I.T.A. NO. 208/NAG/09 5 THAT E VEN IF IT IS PRESUMED THAT THE PLAINT AMOUNT OR THE AMOUNT PAYABLE BY THE ASSESSEE COMPRISES OF PRINCIPAL AND INTEREST BOTH, THEN THE AMOUNT PAID TO THE BANK BY WAY OF SETTLEMENT TAKES CARE OF INTEREST AND PARTIALLY TOWARDS PRINCIPAL AND THE BALANCE REMAINING UNPAID, WAIVED BY THE BANK AND ON REMISSION TREATED AS CAPITAL RECEIPT IN ASSESSEE'S ACCOUNT, IS PRINCIPAL LOAN AMOUNT ONLY. THUS, IT IS CLEAR THAT THE REMISSION IS ON ACCOUNT OF CA PITAL AND NOT REVENUE. NO CONTRARY EVIDENCE WAS BROUGHT BY LEARNED D. R., WHICH MAY COMPEL US TO TAKE A VIEW DIFFERENT FROM THE CIT(A). WE CONFIRM THE ORDER OF CIT(A) AND DISMISS THE GROUND OF REVENUE. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ( O RDER PRONOUNCED IN THE OPEN COURT ON 07/12/2012 ) SD/. SD/. ( D. T. GARASIA ) ( P. K. BANSAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 07/12/2012 * CL SINGH COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR