Appeal details
Counselvise Citation
[2022] 106 COUNSELVISE.COM (IT) 8280 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
7 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-07-2022
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
G
Assessment Year
2018-2019
Appeal Filed On
30-11-2021
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM ITA No. 2239/Mum/2021 (Assessment Year 2018–19) T h e A sst. Co m m is s io n e r o f In co m e T a x, Ce n tra l C i rcle 5 (4 ) Ro o m n o .1 9 2 7 , 1 9 t h F lo o r, A ir In d ia B ld g , Na r im a n P o in t, Mu m b a i-4 0 0 0 2 1 Vs. Shri Sunil B Dalal D/52, Tarabaug Estate, Charni Road, Mumbai-400 004 (Appellant) (Respondent) PAN No. AAEPD3658F Assessee by : Shri Sashi Tulsiyan, AR Revenue by : Shri Hoshang B. Irani, DR Date of hearing: 06.07.22 Date of pronouncement : 12.07.2022 O R D E R PER PRASHANT MAHARISHI, AM: 01. This appeal is filed by the Asst. Commissioner of Income Tax, Central Circle-5(4), Mumbai [ The Ld AO ] for A.Y. 2018-19 against order [ Appellate Order ] passed by The Commissioner of Income Tax (A) – 53 , Mumbai [ The Ld CIT (A) ] on 31/8/2021. By this order The Ld CIT (A) allowed the appeal of the Assessee against the order [ Assessment Order ] passed u/s 143 (3) of The Income Tax Act , 1961 [ the Act] passed on 9/3/2021 by The Deputy Commissioner of Income tax , central Circle -5 (3), Mumbai was partly allowed. Page | 2 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 02. Aggrieved by the appellate order, learned Assessing Officer has preferred following grounds of appeal:- “1. On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting an addition of Rs.42,45,000/- made u/s.28(iv) of the I.T. Act as loan taken for business purpose is written back without appreciating the decision of the Hon'ble High Court in the case of Solid Containers Ltd. v/s DCIT (2009) 308 ITR 417 (Bom) and Hon'ble Supreme court decision in the case of CIT v/s T.V. Sundaram lyenger & Sons Ltd (1998) 222 ITR 344. 2. On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting an addition of Rs. 1,51,53,000/- made u/s.56(2)(x) of the Act without appreciating strict provision of the Act. 3. The appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal on or before the hearing.” 03. Brief fact of the case shows that assessee is an individual and derives income from salaries, house property, and other sources. For the purpose of business, assessee engages himself in providing commercial loans and the consultancy as well as investment in real estate. 04. Assessee filed his return of income on 19 September 2018 at Rs. 101,20,82,020/-. The case was selected for scrutiny and assessment order under Section 143(3) of the Income-tax Act, 1961 (the Act) was passed by the Page | 3 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 learned Assessing Officer on 9 th March, 2021 at a total income of Rs. 103,44,80,220/-. The learned Assessing Officer made following two additions to the total income of the assessee. i. Addition on account of benefit arising from business under Section 28(iv) of the Act amounting to Rs. 42,45,000/- by writing back unsecured loan from Singhi Associates. ii. Addition under Section 56(2) (x) of the Act amounting to Rs. 1,81,53,200/-. 05. Assessee preferred an appeal before the learned CIT(A), who passed appellate order, wherein a. he deleted the addition of Rs. 42,45,000/- under Section 28(iv) of the Act following decision of Honourable Supreme court in CIT V Mahindra & Mahindra Limited [ 404 ITR 1 (SC) . b. With respect to the addition under Section 56(2) (x) of the Act of Rs. 1,81,53,200/-. He upheld the addition of Rs. 30,32,300/- and deleted the addition of Rs. 1,51,20,900/- holding that there is marginal difference of 6 % between transaction value and consideration mentioned in agreement holding that proviso providing tolerance band of 10 % is applicable retrospectively relying on the decision of coordinate bench in case of Maria Fernandes Cheryl vs. ITO [2021] 123 taxmann.com 252 (Mumbai - Trib.). Page | 4 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 06. The first ground of appeal is with respect to the deletion of addition of Rs. 42,45,000/- by the learned CIT(A). Brief facts of the addition shows that assessee has received a loan of Rs. 1,40,00,000/- from M/s Singhi Associates on 11 th November, 2011. This loan was repaid up to calendar year 2015 to the extent of Rs. 97,55,000/-. The balance amount of Rs. 42,55,000/- was outstanding. This amount was written back by the assessee as per mutual agreement during F.Y. 2017-18. The above loan amount was undisputedly did not carry any interest. The learned Assessing Officer asked the assessee to show cause why the above amount should not be taxed as revenue receipt during the year. The assessee submitted the copy of account of the lender, details of the receipt of the loan, partial repayment of the same, confirmation of loan by the lender. It was stated that the write off the amount of Rs. 42,50,000 cannot be charged under Section 41(1) of the Act. Assessee contested that it was not a ‘trading liability’ but an unsecured loan on which no deduction is claimed and hence, not chargeable to tax under Section 41(1) of the Act. It was also stated that Provisions of Section 28(iv) of the Act are also not applicable since the same is in the nature of cash or money. Assessee relied on the decision of Hon'ble Delhi High Court in case of Logitronics (P.) Ltd. Vs CIT [2011] 197 Taxman 394 (Delhi), Hon'ble Bombay High Court in case of CIT vs. Soft works Computers (P.) Ltd. 354 ITR 16. The learned Assessing Officer rejected the contention of the assessee stating that the several judgments quoted do not apply to Page | 5 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 the facts of the case as the loan written back was taken for primary business activity of the assessee i.e. advancing to others for earning interest income. The learned Assessing Officer held that the amount of advance written back is a ‘benefit’ to the assessee arising from the business activity and is chargeable to tax under Section 28(iv) of the Act. The learned Assessing Officer relied upon the decision of Hon'ble Bombay High Court in case of Solid Containers Ltd. v/s DCIT (2009) 308 ITR 417 (Bom) and decision of Hon'ble Supreme Court in case of CIT vs. T.V. Sundaram Iyengar & Sons Ltd. [1996] 88 Taxman 429 (SC). Accordingly, addition of Rs. 42,45,000/- was made under Section 28(iv) of the Act. 07. Assessee on appeal before the learned CIT(A) reiterated the submissions made before the learned Assessing Officer and relied upon the decision of Hon'ble Bombay High Court in case Mahindra & Mahindra Ltd. Vs. CIT [2003] 261 ITR 501 (Bombay), which is affirmed by the Hon'ble Supreme Court. Assessee further relied on several decisions of co- ordinate Benches. Assessee also contested that the decision of Hon'ble Bombay High Court in case of Solid Containers (supra) does not apply to the facts. Learned CIT(A) held that there is waiver of unsecured loan, which is received in money, and waiver of unsecured loan is not a benefit for perquisite received in kind. The learned CIT(A) further followed the decision of Hon'ble Supreme Court in CIT Vs. Mahindra and Mahindra 404 ITR 1 (Supreme Court).The learned CIT(A) held that Hon'ble Supreme Court in Mahindra and Mahindra (supra) held Page | 6 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 that the Provisions of Section 28(iv) of the Act apply only in case where the benefit of perquisite is received in kind and not in cash. He also noted that the undisputed fact is the waiver of unsecured loan, which is not received in kind, and section 28(iv) of the Act does not get attracted. Thus, the addition of Rs. 42,45,000/- was deleted. 08. The learned Departmental Representative agitating the ground no. 1 submitted that the decision of the Hon'ble Bombay High Court in case of Solid Containers Limited 308 ITR 417 squarely covered the issue as loan taken for business purposes is written back. Thus, the learned CIT(A) has wrongly deleted the above addition. 09. The learned Authorized Representative submitted that the issue is squarely covered by the decision of Hon'ble Supreme Court. He submitted that the Provision of Section 28(iv) of the Act are applicable only when income is arising from business or profession and the benefit is received in some other form other than in the shape of money. He submitted that the benefit is firstly not arising from business as the same received from M/s Singhi and Associates is not used for business purposes, it was not carrying on any interest, further loan was not during the course of business . he further submitted that ld AO is incorrect in holding that it is a business loan. He submitted that this money was taken by assessee for augmenting capital and purchasing assets . It has no connection with business of the assessee as this money was not used for advancing further. Further, write back is of the money Page | 7 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 and not in kind. He further relied on the decision of Hon'ble Bombay High Court in case of Essar Shipping Ltd. Vs. CIT 426 ITR 220 and Pr. Commissioner of Income Tax Vs. SICOM Ltd. in [2020] 274 Taxman 58 (Bombay). He further relied on Plethora of judicial precedents of Hon'ble High Court and co-ordinate benches. With respect to the decision of Solid Containers Limited (supra), he submitted that Hon'ble High Court had held that the loan was for business purposes and a direct nexus between its business and trading liability whereas, in the present case, the loan was taken for the capital of the assessee. He further stated that there is no evidence that the above loan was used for the purpose of business of the assessee. Instead, the balance sheet of the assessee shows that his business assets are funded by his business loans. In any way, there is no nexus of the loan written back with business of assessee. Referring to the decision of the learned CIT(A), he submitted that the decision of the Hon'ble Supreme Court was followed by him, which cannot be found fault with. In the end, he submitted that the waiver of loan cannot be taxed under Section 28(iv) of the Act as it is not for the purpose of business and further it is in form of cash. 010. We have carefully considered the rival contentions and perused the orders of the lower authorities. We have also perused plethora of judicial precedents relied up on by the ld AR in his written submission containing 26 pages as well as in case law paper book containing 132 pages. Facts are undisputedly admitted as narrated above. Page | 8 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 Succinctly, it shows assessee has borrowed interest free money from Singhi Associates of Rs 1.40 Crores for his personal use. Before the commencement of previous year, assessee has repaid it to the extent of Rs. 97,50,000/-. The Amount outstanding of Rs 42,50,000/- were written back by the assessee. AO taxed this write back u/s 28 (iv) of The Act. 011. Honourable Supreme court in Mahindra & Mahindra Limited [2018] 93 taxmann.com 32 (SC) has held as under :- “10. The term "loan" generally refers to borrowing something, especially a sum of cash that is to be paid back along with the interest decided mutually by the parties. In other terms, the debtor is under a liability to pay back the principal amount along with the agreed rate of interest within a stipulated time. 11. It is a well-settled principle that creditor or his successor may exercise their "Right of Waiver" unilaterally to absolve the debtor from his liability to repay. After such exercise, the debtor is deemed to be absolved from the liability of repayment of loan subject to the conditions of waiver. The waiver may be a partly waiver i.e., waiver of part of the principal or interest repayable, or a complete waiver of both the loan as well as interest amounts. Hence, waiver of loan by the creditor results in the debtor having extra cash in his hand. It is receipt in the hands of the debtor/assessee. The short but cogent issue in the instant case arises whether waiver of loan by the Page | 9 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 creditor is taxable as a perquisite under Section 28 (iv) of the IT Act or taxable as a remission of liability under Section 41 (1) of the IT Act. 12. The first issue is the applicability of Section 28 (iv) of the IT Act in the present case. Before moving further, we deem it apposite to reproduce the relevant provision herein below:— '28. Profits and gains of business or profession.— The following income shall be chargeable to income-tax under the head "Profits and gains of business profession",— (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; 13. On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which Page | 10 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in our view, in no circumstances, it can be said that the amount of Rs 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the IT Act.” 012. In the present case the addition has been made by the LD AO u/s 28 (iv) of The Act relying on the decision of Honourable Bombay High court in case of Solid Containers Limited.[ 308 ITR 417] . We find that ld CIT (A) is justified in rejecting the argument of the ld AO for the reason that in that case was not at all on the issue of section 28 (iv) and thus Honourable High court did not have any occasion to consider that provision. In case of Mahindra & Mahindra (SC ) [Supra] honourable SC specifically considered that provision and held that in waiver of loan , as it is not in kind but in cash, section 28 (iv) does not apply. 013. Further subsequently Honourable Bombay High court in [2012] 26 taxmann.com 333 (Bombay)/[2012] 211 Taxman 108 (Bom) CIT V Xylon Holdings (P.) Ltd distinguishing Solid Containers Decision held as under :- “8. We have considered the submissions. The issue arising in this case stand covered by the decision of this Court in the matter of Mahindra & Mahindra Page | 11 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 Ltd. (supra). The decision of this court in the matter of Solid Containers Ltd. (supra) is on completely different facts and inapplicable to this case. In the matter of Solid Containers Ltd., (supra) the assessee therein had taken a loan for business purpose. In view of the consent terms arrived at, the amount of loan taken was waived by the lender. The case of the assessee therein was that the loan was a capital receipt and has not been claimed as deduction from the taxable income in the earlier years and would not come within the purview of Section 41(1) of the Act. However, this Court by placing reliance upon the decision of the Apex Court in the matter of CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344/88 Taxman 429 held that the loan was received by the assessee for carrying on its business and therefore, not a loan taken for the purchase of capital assets. Consequently, the decision of this Court in the matter of Mahindra & Mahindra Ltd. (supra) was distinguished as in the said case the loan was taken for the purchase of capital assets and not for trading activities as in the case of Solid Containers Ltd. (supra). In view of the above, the decision of this Court in the matter of Solid Containers Ltd. (supra) will have no application to the facts of the present case and the matter stands covered by the decision of this Court in the matter of Mahindra & Mahindra Ltd. (supra). The alternative submission that the amount of loan written off would be taxable Page | 12 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 under Section 28(iv) of the Act also came up for consideration before this Court in the matter of Mahindra & Mahindra Ltd. (supra) and it was held there in that Section 28(iv) of the Act would apply only when a benefit or perquisite is received in kind and has no application where benefit is received in cash or money. 9. In view of the issue arising in this appeal being covered by the decision of this Court in the matter of Mahindra & Mahindra Ltd. (supra), no substantial question of law arises and both the questions are dismissed.” [Underline supplied by us] 014. In view of this, we do not find any reason to disturb the appellate order of The LD CIT (A) on this issue. We confirm his findings that the write back of loan is not chargeable as business income u/s 28 (iv) of The Act. Accordingly, Ground No 1 of the appeal is dismissed. 015. The second ground of appeal raised by the learned Assessing Officer is with respect to the deletion of addition of Rs. 1,51,53,000/- under Section 56(2)(x) of the Act. The brief fact shows that during the year assessee has purchased several immovable properties in a project. The learned Assessing Officer noted that these immovable properties have been purchased during the year at a value less than stamp duty value and therefore, the difference is chargeable as income under Section 56(2)(x) of the Act. Page | 13 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 Assessee was asked to explain. Assessee submitted that during FY 2015-16, the above properties were purchased and allotment letters were issued to the assessee. Thus, agreement for sale was registered in FY 2017-18. Therefore, for the purpose of provisions of Section 50C of the Act and Section 56(2)(x) of the Act, the market value of the property was to be considered for the year in which allotment letters were issued and first payment was made as per contract. The assessee also submitted that there is only a difference of 6.55% between the sale consideration and stamp duty valuation and therefore, the addition cannot be made. To support its case, assessee stated that the provision of the law itself allows 10% margin for the same. Assessee relied on the decision of the co-ordinate Bench in Maria Fernandes Cheryl vs. ITO [2021] 123 taxmann.com 252 (Mumbai - Trib.), assessee also referred to the amendment of section 50C of the Act by the Finance Act, 2018, where further relaxation was provided. The learned Assessing Officer rejected the contention of the assessee. He held that the stamp duty value as on the date of booking of flats was Rs. 28,78,28,500/- whereas, the purchase consideration is only Rs. 26,96,75,300/- and therefore, there is a difference of Rs. 1,81,53,200/- and thus, the addition is required to be made under Section 56(2)(x) of the Act. The reliance on the judicial precedent was also rejected, as those judicial precedents were not in existence as on the date of filing of the return as well as those decisions have not reached finality yet. He further held that buffer of 5% of section 56(2)(X) of the Act is Page | 14 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 introduced with effect from 1 st April 2019 and is not applicable for A.Y. 2018-19. Accordingly, addition of Rs. 1,81,53,200/- was made. On appeal before the learned CIT(A), he considered the explanation of the assessee. He found that out of 7 properties, in 6 properties the difference is of approximately 6% and overall difference in 7 properties is 6.73%. Therefore, he deleted the addition with respect to 6 properties amounting to Rs. 1,51,20,900/-. With respect to 7 th property where difference was 14.05%, he upheld the addition. The learned CIT(A) also held that where the difference is less than 10% between agreement value and the stamp duty value, no addition can be made in view of the tolerance limit enhanced to 10 % from Five % by The Finance Act, 2020 with effect from 1 st April, 2021. In holding so, he relied on the decision of Co-ordinate Bench in case of Maria Fernandes Cheryl (supra), Chandra Prakash Jhunjhunwala Vs. DCIT in ITA No.2351/Kol/2017 and Stalwart Impex Private Limited vs. ITO in ITA No.5752/Mum/2019 dated 02.07.2021. Thus, the learned Assessing Officer is aggrieved as per ground no. 2 against the deletion of the addition of ₹1,51,20,900/-. 016. The learned Departmental Representative vehemently supported the order of the learned Assessing Officer. He submitted that 10% tolerance band limit adopted by the learned CIT (A) is applicable from A.Y. 2021-22 and not from A.Y. 2018-19. He submitted that the increase in tolerance band does not apply retrospectively. It was further stated that all the judicial precedent relied upon by Page | 15 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 the assessee has not reached finality and are not applicable for the impugned assessment year and therefore, the deletion of addition by the learned CIT (A) relying upon those decision is incorrect. 017. The learned Authorized Representative supported the order of the learned CIT (A). He relied on the decision of the co-ordinate Bench in case of Maria Fernandes Cheryl (supra), wherein it is held that the prescribed tolerance band of 10% applies retrospectively. He further referred to the several judicial precedent relied upon before the learned CIT (A) as well as the decision of the co-ordinate Benches in case of Joseph Mudaliar Vs. DCIT in ITA No. 6912/Mum/2019 dated 14 th September, 2020, John Flower (India) Pvt. Ltd. vs. DCIT in ITA No.7545/Mum/2014 and Pankaj Anilkumar Pitale Vs. ACIT ITA No. 6813/Mum/2017 dated 19 th March, 2019. Accordingly, he submitted that there is no infirmity in the order of the learned CIT (A) in deleting the addition applying 10% tolerance band limit for this assessment year. 018. We have carefully considered the rival contentions and perused the orders of the lower authorities. Referred facts shows that Assessee has purchased 7 properties. Sale consideration in all the properties is 28,78,28,500/- and stamp duty value is Rs 26,96,75,300/- . Thus difference of Rs 1,81,53,200/- was made by the LD AO u/s 56 92) (x) of The Act. The LD CIT found that out of 7 properties in case of 6 properties the difference between the agreed consideration and stamp duty value is approximately 6 Page | 16 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 %. In the 7 th property, such difference was 14.50 % . Therefore, he confirmed the addition of 7 th properties and deleted the addition with respect to 6 properties holding that Proviso to section 50 C inserted with effect from 1/4/2019 by the Finance Act 2018 allowed the tolerance band of 5 % . It was held to be applicable retrospectively. Further, by the Finance Act 2020 with effect from 1/4/2021 in the same proviso the tolerance band is replaced by increasing it to 10 %. Therefore, when there is no change in the wording of the proviso but only tolerance band is increased it should also apply retrospectively. 019. Coordinate bench in case of Maria Fernandes Cheryl { supra} has already held that the amendment made by Introducing proviso [ Introduction of tolerance band of 5 % and later on 10 % ] applies with effect from 1/4/2003 when the provision of section 50 C were introduced. 020. Further introduction of tolerance band is for removing the hardship in the section. once a statutory amendment is being made to remove an undue hardship to the assessee or to remove an apparent incongruity, such an amendment has to be treated as effective from the date on which the law, containing such an undue hardship or incongruity, was introduced as held by Hon Supreme Court in Alom Enterprises (319 ITR 306) (SC). Page | 17 ITA no. 2239/Mum/2021 Shri Sunil B Dalal; A.Y. 18–19 021. In view of above, respectfully following the decision of the coordinate bench in Maria Fernandes Cheryl [ supra] we do not find any infirmity in the orders of the ld CIT (A) in applying the tolerance band limit of 10 % in the impugned assessment year also and thereby deleting the addition of Rs 1,51,20,900/-. Accordingly, Ground no 2 is dismissed. 022. In the result, Appeal of The ld AO is dismissed. Order pronounced in the open court on 12.07.2022. Sd/- Sd/- (PAVAN KUMAR GADALE) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 12.07.2022 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai
