ACIT, CHENNAI V. M/s. Innvol Medical India Limited, CHENNAI

ITA 2099/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0777 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 22-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO. 2099/MDS/2012 ASSESSMENT YEAR : 2006-07 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), NO. 121, MAHATMA GANDHI ROAD, CHENNAI 600 034. VS. M/S. INNVOL MEDICAL INDIA LIMITED, NO. 387, WALAJAH ROAD, KUNNAM VILLAGE, SRIPERUMPUDUR TALUK, CHENNAI 631 604. [PAN:AAACI2101H] (APPELLANT) (RESPONDENT) A PPELLANT BY : SHRI SHAJI P. JACOB, ADDL. C IT RESPONDENT BY : NONE DATE OF HEARING : 07.02.2013 DATE OF PRONOUNCEMENT : 14.02.2013 ORDER PER S.S. GODARA, JUDICIAL MEMBER IN THIS APPEAL, THE REVENUE CHALLENGES THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS) I, COIMBATORE DATED 29.08. 2012 IN APPEAL NO. 586/11-12 FOR THE ASSESSMENT YEAR 2006-07 IN PROCEE DINGS UNDER SECTION 143(3) R.W.S. 263 OF THE INCOME TAX ACT 1961 [IN SH ORT THE ACT]. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS CONTRARY TO THE LAW AND FACTS OF TH E CASE. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE CES SATION OF LIABILITY ON ACCOUNT OF OTS WITH IFCI AND OTHER CREDITORS AMOUNT ING TO RS.4.93 I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2099 2099 2099 2099/M/12 /M/12 /M/12 /M/12 2 CRORES CANNOT BE SUBJECTED TO TAX U/S.28(IV) OR U/S .41(L) OF THE INCOME- TAX ACT. 2.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FAC T THAT THE TERM LOAN WAS AVAILED FOR THE PURPOSE OF PURCHASE OF PLANT AN D MACHINERY. HENCE WHEN THE LOAN WAS WAIVED ON OTS WITH IFCI, THE PRIN CIPAL ALONGWITH INTEREST OUGHT TO HAVE BEEN ADJUSTED AGAINST THE FI XED ASSETS AND NOT AGAINST MISCELLANEOUS EXPENDITURE PENDING AMORTISAT ION, ONCE IT IS HELD AS NOT INCOME U/S.41(L) OF THE ACT. 2.2 IT IS SUBMITTED THAT THE DECISION OF JURISDICTI ONAL HIGH COURT IN THE CASE OF MIS. ISKRAEMECO REGENT LTD. (331 ITR 317(20 11) RELIED UPON BY THE CIT(A) HAS NOT BECOME FINAL AND SLP HAS BEEN FILED AND PENDING BEFORE THE HON'BLE SUPREME COURT. 3. IN SUPPORT OF THE GROUNDS, THE REVENUE CONTEND S THAT THE CIT(A) HAS ERRED IN UPSETTING THE FINDINGS OF THE ASSESSING OF FICER ON DISALLOWANCE ON ACCOUNT OF CESSATION OF ASSESSEES LIABILITY BY VIR TUE OF ONE TIME SETTLEMENT WITH IFCI TO THE TUNE OF ` .4.93 CRORES WHICH IS LIABLE TO BE TREATED AS INCOM E UNDER SECTION 41(1) READ WITH SECTION 28(IV) OF THE ACT. REITERATING THE PLEAS ABOVE SAID, THE REVENUE PRAYS FOR ACCEPTANCE OF THE APPEAL. 4. ON BEHALF OF THE ASSESSEE, WE FIND THAT NOBODY HAS COME PRESENT DESPITE SERVICE OF NOTICE [RPAD ON RECORD]. THEREFO RE, WE PROCEED EXPARTE AGAINST THE ASSESSEE. 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A COMPANY; ENGAGED IN THE BUSINESS OF MANUFACTURING MEDICAL DEVICES. ON 0 2.02.2007 IT FILED ITS RETURN DISCLOSING ITS INCOME AS NIL. THEREAFTER , SUMMARY ASSESSMENT FOLLOWED BY SCRUTINY ASSESSMENT WAS FINALIZED ON 19.12.2008. ON I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2099 2099 2099 2099/M/12 /M/12 /M/12 /M/12 3 15.03.2011, THE CIT UNDER SECTION 263 OF THE ACT DIRECTED THE ASSESSING OFFICER TO DECIDE ABOUT THE TAXABILITY OF AMOUNT OF ` .4,93,97,793/- IN THE LIGHT OF SECTION 41(1) R.W.S. 28(IV) OF THE ACT. 6. IN CONSEQUENTIAL PROCEEDINGS, THE ASSESSING OFF ICER NOTICED FROM ASSESSEES ANNUAL REPORT THAT THE IFCI HAD TAKEN IT OVER; WHO SOLD ITS EQUITY SHARES OF ` .61,20,478/-, WHICH WERE PLEDGED BY THE SHARE HOLDE RS. THEREAFTER, THE ASSESSEE WENT FOR ONE TIME SETTLEME NT [OTS] AND SETTLED FOR ` .185 LAKHS AGAINST OUTSTANDING BALANCE OF ` .564.29 LAKHS. THEN, IT WROTE BACK AN AMOUNT OF ` .9,93,97,793/- IN ITS NOTES ON ACCOUNT UNDER THE HE AD DEBTORS AND CREDITORS, LOAN BALANCES AND OTHERS A ND ADJUSTED IT IN TRIAL PERIOD EXPENSES ACCOUNT. THE ASSESSEE HAD ALSO ADJU STED THE AMOUNT OF ` .4.93 CRORES AGAINST CURRENT YEAR EXPENDITURE. IT E XPLAINED BEFORE THE ASSESSING OFFICER THAT THE SAID ACCOUNT ON ITS PART NEITHER ATTRACTED SECTION 28(IV) PRESCRIBING VALUE OF ANY BENEFIT OR PERQUISI TE NOR SECTION 41(1) OF THE ACT PRESCRIBING PROFITS CHARGEABLE TO TAX. ACCORD INGLY, ITS CONTENTION WAS THAT THE AFORESAID AMOUNT HAD ACCORDINGLY NOT BEEN OFFERED AS INCOME. IN THE ASSESSMENT ORDER DATED 23.12.2011, THE ASSESSIN G OFFICER NEGATED ASSESSEES ABOVE SAID PLEAS AND HELD THAT IT HAD OM ITTED TERM LOAN FROM IFCI FOR FIXED ASSET IN FURTHERANCE TO BUSINESS PURPOSE AND OWING TO OTS, ITS LIABILITY OF ` .4.93 CRORES HAD COME DOWN. IN ASSESSING OFFICERS OPINION, IF THE RECEIPTS AND REPAYMENT OF LOANS ARE IN THE NATURE O F CAPITAL THEN THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2099 2099 2099 2099/M/12 /M/12 /M/12 /M/12 4 AFORESAID CESSATION OF LIABILITY WAS LIABLE TO BE T AXED AS REVENUE RECEIPT UNDER SECTION 41(1) OF THE ACT. THEREFORE, HE MAD E ADDITION OF ABOVE SAID AMOUNT IN ASSESSEES TOTAL INCOME. 7. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL. VIDE ORDER UNDER CHALLENGE, THE CIT(A) HAS DELETED THE ADDITION BY H OLDING AS UNDER: 6. I HAVE GONE THROUGH THE SUBMISSIONS MADE BY TH E APPELLANT AND THE ORDER OF THE ASSESSING OFFICER. THE ASSESSING O FFICER IN HIS ASSESSMENT ORDER STATED THAT 'AS PER THE DIRECTIONS OF CLT-I, CHENNAI, NOTICE U/S 142(1) / 143(2) WAS ISSUED TO THE ASSESS EE COMPANY. THE ORIGINAL ASSESSMENT DONE U/S 143(3) ON 19.12.2008 W AS SET ASIDE U/S 263 BY THE CIT-1, CHENNAI VIDE HIS ORDER DATED 15.0 3.2011 WITH A DIRECTION TO THE ASSESSING OFFICER TO VERIFY THE TA XABILITY OF RS.4,93,97,793/- AFTER GOING INTO THE ROOT OF THE M ATTER, COLLECTING INFORMATION FROM PAST RECORDS AND DECIDING THE ISSU E IN ACCORDANCE WITH LAW, SPECIFICALLY PROVISIONS OF SECTION 41(1) AND 28(IV) OF THE INCOME TAX ACT. THE ASSESSING OFFICER AFTER EXAMINI NG THE INFORMATION FILED BY THE APPELLANT, MADE AN ADDITION U/S 41(1) OF THE INCOME TAX ACT. THE ASSESSING OFFICER IN HIS ORDER AT PARA 7 STATED THAT THE TERM LOAN FROM IFCI WAS AVAILED TO PURCHASE FIXED ASSETS FOR THE PURPOSE OF BUSINESS. DUE TO THE OTS AGREEMENT (ONE TIME SETTLE MENT), THE ASSESSEE'S LIABILITY TOWARDS TERM LOAN REPAYMENT HA D REDUCED TO THE EXTENT OF RS.4,93,97,793/-. THE ASSESSING OFFICER C ONCLUDED THAT 'IF THE RECEIPTS ARE CAPITAL IN NATURE AND ALSO REPAYMENT O F LOAN IN CAPITAL, THEN THE ISSUE OF LIABILITY SHOULD HAVE BEEN ADJUST ED AGAINST THE FIXED ASSETS AND NOT AGAINST THE AMORTIZATION EXPENDITURE WHICH IS PARTLY REVENUE IN NATURE. THIS ITSELF IS PROVING THAT THE ASSESSEE COMPANY HIMSELF HAD RECOGNIZED THE ISSUE OF LIABILITY AS RE VENUE IN NATURE, HOWEVER, FAILED TO OFFER THE SAME INCOME U/S 41(1). HENCE, THE SAME IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMP ANY'. 7. AS SEEN FROM PARA 7 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER MADE AN ADDITION U/S 41(1) SINCE THE ISSUE OF LIABI LITY (LOAN FROM IFCI) WAS ADJUSTED AGAINST THE AMORTIZATION EXPENDITURE. THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY OTHER FACTS ON RECO RD TO MAKE AN ADDITION U/S 41(1). A PERUSAL OF THE DEFINITION OF SECTION 2(24) OF THE INCOME TAX ACT, WHICH DEFINES 'INCOME' WOULD INCLUD E THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MON EY OR NOT WOULD I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2099 2099 2099 2099/M/12 /M/12 /M/12 /M/12 5 ARISE FROM THE BUSINESS. SECTION 28(IV) COMES UNDER THE HEADING 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. SIMI LARLY, SECTION 41(1) OF THE INCOME TAX ACT, 1961 DEALS WITH 'PROFITS CHA RGEABLE TO TAX'. GRANT OF LOAN BY A BANK CANNOT BE TERMED AS A TRADI NG TRANSACTION AND IT CANNOT ALSO BE CONSIDERED IN THE CASE OF BUSINES S. INDISPUTABLY, THE APPELLANT OBTAINED THE LOAN FOR THE PURPOSE OF INVE STING IN ITS CAPITAL ASSET. A PART OF THIS LOAN AMOUNT ALONG WITH THE IN TEREST WAS WAIVED BY ONE TIME SETTLEMENT AGREEMENT BETWEEN THE APPELLANT AND IFCI. WHAT HAS BEEN DONE IN THE PRESENT CASE IS A WAIVER OF LO AN AND INTEREST. THERE IS NO CHANGE OF CHARACTER WITH REGARD TO THE ORIGINAL RECEIPT WHICH WAS CAPITAL IN NATURE. THE TRANSACTION IN THE PRESENT CASE BEING A LOAN TRANSACTION HAVING NO APPLICATION WITH RESPE CT TO SECTION 28(IV), THE SAME CANNOT BE TERMED AS INCOME WITHIN THE PURV IEW OF SECTION 2(24). 8. IN THE CASE OF CIT VS P.GANESH CHETTIAR (1982) 133 ITR 103 (MAD), THE HON'BLE HIGH COURT HELD THAT A DEBT FORG IVEN CANNOT BE TREATED AS INCOME. IN SO FAR AS THE APPLICABILITY O F SECTION 41(1)(A) OF THE INCOME TAX IS CONCERNED, THE SAME CANNOT ALSO H AVE ANY APPLICATION IN AS MUCH AS THE SAID PROVISION WOULD BE APPLICABL E TO A TRADING LIABILITY. ACCORDINGLY, IN THE CASE OF MAHINDRA & M AHINDRA LIMITED 2611TR 501 (BOM.), IT WAS HELD THAT '0 LOAN RECEIVE D FOR THE PURPOSE OF CAPITAL ASSET WOULD NOT CONSTITUTE A TRADING LIABIL ITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY TRADE IN PREVIOUS YEAR, T HE ASSESSEE HAS OBTAINED WHETHER IN CASH OR ANY OTHER MANNER WHATSO EVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENE FIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACC RUING TO HIM THEREBY DEEMING TO BE PROFITS AND GAINS OF BUSINESS OR PROF ESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS I N EXISTENCE IN THAT YEAR OR NOT'. ON A READING OF THAT PROVISION, IT IS APPARENT THAT BEFORE TH E SECTION CAN BE INVOKED, IT IS NECESSARY THAT A N ALLOWANCE OR DEDUCTION WAS GRANTED DURING THE COURSE OF ASSESSME NT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY W HICH IS INCURRED BY THE ASSESSEE, AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR AN ASSESSEE OBTAINS, WHETHER IN CASH OR IN ANY OTHER MANNER, AN Y AMOUNT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CE SSATION OF SUCH LIABILITY. IN THAT CASE, EITHER THE AMOUNT OBTAINED BY THE ASSESSEE OR THE VALUE OF THE BENEFIT ACCRUING TO THE ASSESSEE CAN B E DEEMING TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND CAN BE BROUGHT TO TAX AS THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH AMOUN T OF BENEFIT IS OBTAINED. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2099 2099 2099 2099/M/12 /M/12 /M/12 /M/12 6 9. IN THE FACTS OF THE PRESENT CASE, IT IS AN ADMI TTED POSITION THAT THERE HAD BEEN NO ALLOWANCE OR DEDUCTION IN ANY OF THE PREVIOUS YEARS OR PRECEDING YEARS AND HENCE, THERE IS NO QUESTION OF PROVISION OF APPLYING THE PROVISION AS SUCH. IT IS ALSO TO BE NO TED THAT THE APPELLANT 'HAS NOT STARTED ITS COMMERCIAL PRODUCTION AND HAS NOT FILED ANY PROFIT AND LOSS ACCOUNT. THEREFORE, I AM OF THE OPINION TH AT SECTION 41(1) HAS NO APPLICATION AT ALL TO THE PRESENT CASE ON HAND. RELYING ON THE DECISIONS OF THE JURISDICTIONAL HIGH COURT IN THE C ASE OF ISKRAEMECO RENT LIMITED REPORTED IN 331 ITR 317 (2011), THE AS SESSING OFFICER IS DIRECTED TO DELETE THE ADDITION. THEREFORE, THE REVENUE IS AGGRIEVED. 8. WE HAVE HEARD CONTENTIONS OF THE REVENUE AND AL SO PERUSED THE FINDINGS OF THE ASSESSING OFFICER AND CIT(A) AS WEL L AS THE GROUNDS RAISED BEFORE US. THE ISSUE WHICH ARISES FOR OUR CONSIDERA TION IS AS TO WHETHER THE CIT(A) HAS RIGHTLY HELD THAT THE AMOUNT OF ` .4.93 CRORES, WHICH HAS BEEN WAIVED OFF IN FURTHERANCE TO OTS RESULTING IN CESSA TION OF LIABILITY COULD NOT BE TREATED AS REVENUE RECEIPT UNDER SECTION 41(1) O F THE ACT. FACTS BEFORE US ARE NOT DISPUTED. THE ASSESSEE HAD ENTERED INTO A SETTLEMENT IN QUESTION WITH IFCI, WHO HAD TAKEN OVER ITS OPERATION. BY WAY OF OTS, THE ASSESSEES LIABILITY WAS REDUCED TO THE TUNE OF ` .4.93 CRORES. IN THIS REGARD, WE NOTICE THAT THE CASE LAW OF HONBLE MADRAS HIGH COURT REPO RTED AS [2011] 331 ITR 317 (MAD) CLEARLY HOLDS THAT WHEN THE CONCERN ASSES SEE HAD TAKEN LOAN FOR PURCHASE OF CAPITAL ASSET AND LATER ON THE LOAN WAS WAIVED OFF BY THE BANK, IT DOES NOT AMOUNT TO A BENEFIT ARISING OUT OF BUSINES S AND IT IS ALSO NOT EVEN REMISSION OF THE LIABILITY WHICH COULD ATTRACT SECT ION 41(1) OF THE ACT. THOUGH THE REVENUE CONTENDS BEFORE US IN THE GROUND S THAT IT HAS PREFERRED I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2099 2099 2099 2099/M/12 /M/12 /M/12 /M/12 7 AN SLP BEFORE THE HONBLE APEX COURT AGAINST THIS J UDGMENT, IN OUR OPINION, THIS ARGUMENT IS NOT A VALID GROUND FOR FOLLOWING T HE CASE LAW OF THE HONBLE JURISDICTIONAL HIGH COURT AND MORE SO, NO DISTINGUI SHING FEATURES HAVE BEEN POINTED OUT BY THE APPELLANT/REVENUE. THEREFORE, WE HOLD THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION IN QUESTION. 9. CONSEQUENTLY, THE APPEAL STANDS DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 14 TH OF FEBRUARY, 2013 AT CHENNAI. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER CHENNAI, DATED, THE 14.02.2013 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.