ACIT CENT. CIR5(4) , MUMBAI V. M/S. INFINITE BUILDCON PVT. LTD, MUMBAI

ITA 2241/MUM/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5217 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2018-2019
• Appeal Filed On: 30-11-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Capital receipt; TDS
• Section: 192

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL “C” Bench, Mumbai Shri B.R. Baskaran (AM) & Shri Rahul Chaudhary (JM) I.T.A. No. 2241/Mum/2021 (A.Y. 2018-19) ACIT, Central Circle-5(4) Room No. 1927 19 th Floor Air India Building Nariman Point Mumbai-400 021. Vs. M/s. Infinite Buildcon Pvt. Ltd. 322, Commerce House 140 N.M. Road Fort, Mumbai-40001. PAN : AACC19980N (Appellant) (Respondent) Assessee by Shri Sashi Tulsiyan Department by Shri Santhil Kumaran Date of Hearing 05.09.2022 Date of Pronouncement 20.09.2022 O R D E R Per B.R.Baskaran (AM) :- The Revenue has filed this appeal challenging the order dated 31.8.2021 passed by learned CIT(A)-53, Mumbai and it relates to A.Y. 2018- 19. 2. The effective grounds of appeal urged by the Revenue read as under :- 1. On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting an addition of Rs 2,15,21,467/- made u/s. 28(iv) of the Act being the value of benefit arising from business of the assessee without appreciating the facts of the case and the decision of Hon'ble Supreme Court in the case of CIT Vs. T.V.Sundaram Iyengar & Sons Ltd. [1996] 6SCC 294/88 Taxmann 429. 2. On the facts and circumstances of the case, having held that the benefit was in money form and not in kind, and having co-terminus power as the Assessing Officer, has erred in not treating the waived off unsecured loan as income u/s. 56(2)(x) of the Act. 3. Facts relating to the case are stated in brief. The assessee is a private limited company and it has derived income from house property and M/s. Infinite Buildcon Pvt. Ltd. 2 business. The nature of business carried on by the assessee is of financing and brokerage. 4. The first issue relates to deletion of addition of Rs. 2,15,21,467/- made by the Assessing Officer under section 28(iv) of the I.T. Act. 5. The facts relating to the issue are that the Assessing Officer noticed that the assessee has written back certain loans received by it to the tune of Rs. 265 lakhs and credited the same directly to the capital reserve account i.e. the above said amount was not routed through the profit and loss account. The assessee explained that it had received loan of Rs. 22.50 crores from M/s. Uttam Galva Metallics Ltd. on 27.6.2014 relevant to A.Y. 2015-16. During the year under consideration it was agreed that the above said loan was to be assigned to Mr. Sunil Dalal for a sum of Rs. 20 crores and the remaining amount of Rs.2.50 crores was waived of. Accordingly, the assessee transferred the above said amount Rs. 2.50 crores to the “Capital Reserve” account, since it was a capital receipt. The assessee had also taken loan of Rs. 15 lakhs from M/s. V. Raheja Design Construction Pvt. Ltd. on 8.10.2014 relevant to A.Y. 2015-16. During the year under consideration it was agreed by the parties that the above said loan need not be paid by the assessee, i.e., the above said amount of Rs.15.00 lakhs was also waived of. Accordingly, the assessee transferred the above said sum of Rs. 15 lakhs also to the “Capital Reserve” account. In aggregate, the assessee has credited the Capital Reserve account with Rs. 2.65 crores during the year under consideration. 6. The assessee claimed that the above said amount is not taxable under section 41(1) of the Act, since the above said amount was not claimed as expenditure in any of the years. It is pertinent to note that the interest payable on the above said loans was also waived of. The assessee had claimed interest expenditure in the earlier years and hence the assessee M/s. Infinite Buildcon Pvt. Ltd. 3 offered the unpaid amount out of interest expenditure as its income. The Assessing Officer noticed that the assessee claimed deduction of interest of Rs. 4,97,85,337/- in the earlier years. However, it has offered a sum of Rs. 4,48,06,804/- only as income during the year under consideration. Hence, the Assessing Officer assessed difference amount of Rs. 49,78,533/- under section 41(1) of the Act. 7. The Assessing Officer further took the view that the loan waiver amount of Rs.2.65 crores is in the nature of benefit accrued to the assessee during the course of carrying on of the business and accordingly held that the same is assessable as income of assessee under section 28(iv) of the Act. Since the AO had assessed Rs.49,79,533/- u/s 41(1) of the Act, he assessed the difference amount of Rs.2,15,21,467/- (Rs.2,65,00,000/- (less) Rs.49,78,533/-) u/s 28(iv) of the Act. 8. During the appellate proceedings, the Ld CIT(A) noticed that the amount of Rs. 49,78,533/- assessed u/s 41(1) of the Act actually represents TDS deducted from interest provision and remitted by the assessee to the credit of the government on behalf of the lender i.e. the above said amount has already been paid by the assessee, meaning there, the said TDS amount should be treated as having already been paid to the assessee. Hence the question of waiver of the same does not arise. Hence the assessee has correctly offered interest amount of 4,48,06,804 as its income. Hence, learned CIT(A) deleted the addition of Rs. 49,78,533/- made under section 41(1) of the Act. We notice that the Revenue has also accepted the same and hence did not challenge this decision of Ld CIT(A). 9. With regard to the amount of Rs. 2,15,21,467/- assessed under section 28(iv) of the Act, learned CIT(A) deleted the addition following the decision rendered by Hon'ble Supreme Court in the case of Mahindra & Mahindra Ltd. (261 ITR 501), wherein it was held that the provisions of section 28(iv) shall M/s. Infinite Buildcon Pvt. Ltd. 4 apply only in respect of benefit or perquisite received in kind. It was further held by Hon'ble Supreme Court that waiver of loan is in respect of money transaction and therefore would not be in nature of any benefit or perquisite as construed in section 28(iv) of the Act. Accordingly learned CIT(A) deleted the addition of Rs.21,15,21,467/-. The Revenue is aggrieved on the decision so rendered by learned CIT(A). 10. We have heard the parties on this issue and perused the record. It is pertinent to note that the amount that should have been considered u/s 28(iv) by the AO is Rs.2.65 crores, which represented principal portion of loan waived of by the lenders. The assessment of interest u/s 41(1) is nothing to do with the above said amount. We are making this observation only for the purpose of clarification. 11. We noticed that learned CIT(A) has deleted the addition made u/s 28(iv) of the Act with following observation :- “6.3 The facts of the case and findings of the AO recorded in the assessment order and the submission made by the appellant have been considered. The Appellant has submitted that the write back of the outstanding unsecured loan of Rs. 2,15,21,467/- is not trading asset and argued that the unsecured loan received was on capital account. The Appellant has further submitted that the benefit or perquisite as per sec 28(iv) of the Act must be in kind and not cash and the write back of unsecured loan is benefit received in cash. The Appellant has relied upon decision in the cases of Mahindra and Mahindra Ltd. vs CIT [2003] 261 ITR 501 and Commissioner of Income-Tax-8 vs. Santogen Silk Mills Ltd. (ITA No. 814 of 2013) and Commissioner of Income-tax-3 vs Xylon Holdings (P) Ltd. (ITA NO. 3704 of 2010) and Accelerated Freez & Drying Co. Ltd. vs Deputy CIT reported at (2010) 1 ITR (Tre) 225 (Cochin) Sec 28 and clause (v) of the Act read as under 28 The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession” :- M/s. Infinite Buildcon Pvt. Ltd. 5 (iv) the value of any benefit or perquisite, whether convertible into money or not arising from business or the exercise of a profession; On careful reading of provision of sec.28(iv) of the Act, the first part of the provision suggests that there is some kind of benefit of perquisite derived in course of business activity and the value of such benefit or perquisite is to be taxed irrespective of whether such benefit or perquisite is convertible into money or not. Therefore from the plain reading of the provision of sec.28(iv) of the Act, it is clear that what is stipulated therein is that in course of business activity, benefit or perquisite is received and that the same is received in kind. In the facts of the present case of the Appellant, there is waiver of unsecured loan and this loan is received in money itself and thus, it is clear that waiver of unsecured loan is not a benefit or perquisite received in kind. On this issue the following decisions are relevant. a) Mahindra and Mahindra Ltd vs CIT [2003] 261 ITR 501 (Bom), has explained that section 280v) of the Act seeks to charge the value of any benefit or perquisite meaning thereby that the benefit must be in kind. The Court further held that the waiver of loan is in respect of money transaction and, therefore, would not be in nature of any benefit or perquisite as construed in section 28(M) of the Act. b) The decision of Bombay High Court in Mahindra and Mahindra, supra, has been affirmed by the Hon'ble Supreme Court in CIT v Mahindra and Mahindra Ltd. (2018) 404 ITR 1 (SC) wherein the relevant extract of the decision is reproduced as hereunder "13) On a plain reading of Section 28 (iv) of the IT Act, prima facie, a 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 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." [Emphasis supplied] b) Accelerated Freez & Drying Co. Ltd. v Deputy CIT reported at (2010) 1 ITR (Trib) 226 (Cochin) wherein the relevant extract of the decision is reproduced as hereunder. M/s. Infinite Buildcon Pvt. Ltd. 6 "22. The facts of the case having made clear, the question is the reduction in the liability availed by the assessee on the basis of One Time Settlement Scheme in respect of its outstanding term loans, whether to be treated as taxable income under section 28(iv) or under section 41(1) of the Act. 23. Let us first examine the applicability of section 28(iv). The section seeks to charge the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, as profits whether the waiver of loan would amount to a perquisite so as to be taxable as such under section 28 of the Act. The Bombay High Court in the case of Mahindra & Mahindra Ltd. (supra) has considered the very same issue. While rejecting the revenue's stand, the Court explained that section 28(iv) seeks to charge the value of any benefit or perquisite, meaning thereby that the benefit must be in kind whereas the waiver of loan was in cash. Hence, clause (iv) of section 28 was not attracted at all. While arriving at that conclusion, the Bombay High Court in fact referred to the decision of the Gujarat High Court in the case of CIT v. Alchemic (P) Ltd. [1981] 130 ITR 168. The Gujarat High Court in the said case has held that the benefit or perquisite arising from business as construed in section 28(iv) would not include cash receipt. The Court observed that it is only if the benefit or perquisite is not in cash or money, that section 28(iv) would apply and the question of including the value of such benefit or perquisite as income from business would ever arise. Agreeing with the above ratio laid down by the Gujarat High Court, the Hon'ble High Court of Bombay in the case of Mahindra & Mahindra Ltd. (supra) held that waiver of loan is in respect of money transaction and, therefore, would not be in the nature of any benefit or perquisite as construed in section 28(iv) The Court further observed that the loan amount was utilized by the assessee to purchase machinery and, therefore, it was on capital account and waiver of such capital account liability cannot be treated as on revenue account and cannot be brought to tax, as only the receipts on revenue account would partake the character of income. The issue raised in this appeal has been thus made clear by the Hon'ble High Court of Bombay in the case of Mahindra & Mahindra Ltd. (supra). d) ITO VS M/s Sri Vasavi Polymers P. Ltd. (ITA no. 606/VIZ/2018) Vishakapatnam ITAT - wherein the Revenue had relied on the decisions of Solid Containers Ltd vs DCIT, Spl Range-1 Mumbai [2009] 178 taxman 192 (Bombay) and TV Sunderam lyengar & Sons Ltd [1996] 222 ITR 324 (SC). The Hon'ble ITAT Vishakhapatnam rejecting the contention of the Revenue has held that “......... 5. During the appeal hearing, the Ld DR submitted that the amount of Rs. 1,70,00,000/- represent waiver of working capital loan which was used for day to day running of the business, therefore, submitted that the same required to be brought to tax u/s 28(1) of the Act The Ld DR relied on the following decisions M/s. Infinite Buildcon Pvt. Ltd. 7 (a) Hon'ble High Court of Bombay in the case of Solid Containers Ltd. Vs Dy Commissioner of Income Tax (b) Hon'ble High Court of Delhi in the case of Rollatainers Ltd Vs. Commissioner of Income Tax (2011) 15 taxmann.com 111 (Delhi) (c) Hon'ble High Court of Madras in the case of Commissioner of income Tax, Chennai Vs Ramaniyam Homes (P) Ltd. [2016] 68taxmann.com 289 (Madras) 4. Against which the department has filed appeal before this Tribunal. The department has raised following grounds in this appeal. ........... 2. The Ld. CITIA) ought to have appreciated that the OCC facility was availed by assessee for working capital requirements and waiver of any such OCC loan amount either party or fully is a revenue receipt us. 2001) of the IT Act, in view of the decision of the Apex Court in the case of CITVS, TV Sundaramiyengar and Sons Ltd (222 ITR 344). .............. The Hon'ble Supreme Court also considered the issue with regard to taxing the remission of liability u/s 28(v) and decided the issue against the revenue and in favour of the assessee, since, the receipt was in the nature of cash or money. The Hon'ble Supreme Court held that section 28(iv) of the Act has no application since the receipt was in the nature of cash or money in the instant case what the assessee has received was remission of liability which was in the form of cash or money and the difference amount of principal which was settled by onetime payment was never debited to Profit & Loss account. Therefore, the decision of Hon'ble Supreme Court is squarely applicable in the instant case The Ld DR relied on the decision of Hon'ble Delhi High Court in the case of Rollatainers Ltd Vs. Commissioner of Income Tax (2011) 15 taxmann.com 111 (Delhi) and the decision of Hon'ble High Court of Madras in the case of Commissioner of Income Tax, Chennai Vs Ramaniyam Homes (P) Ltd., the judgements were delivered prior to the judgement of Hon'ble Supreme Court in the case of Mahindra and Mahindra supra and the Hon'ble High Courts have no occasion to consider the decision of Hon'ble Supreme Court. Therefore, we do not find any reason to interfere with the order of the Ld CIT(A) and accordingly. We uphold the same. The appeal of the revenue is dismissed. ..............” The above decisions including that of the Hon'ble Supreme Court in the case of CIT & Mahindra, supra, it is clear that the provisions of sec 28(iv) of the Act apply where the benefit or perquisite in received in kind and not in cash. In the of the Appellant, it is undisputed fact that the M/s. Infinite Buildcon Pvt. Ltd. 8 waiver is of unsecured loan and d loan is not receipt in kind and thus, sec.28(iv) of the Act does not get attracted. In view of the above, the addition of Rs. 2,15,21,467/- made u/s 28(iv) of the Act is hereby deleted.” 12. We notice that the Ld CIT(A) has followed the decision rendered by Hon’ble Supreme Court in the case of Mahindra & Mahindra (supra) in arriving at the conclusion that the provisions of sec.28(iv) will not aply to waiver of loan. The Learned AR also placed reliance on the decision rendered by the Coordinate Bench in the case of ACIT Vs. Sunil B. Dalal (ITA No. 2239/Mum/2021 dated 12.7.2022), wherein the Tribunal has held that the provisions of section 28(iv) of the Act will not apply to waiver of loan and in this regard the Tribunal has also taken support of the decision rendered by Hon'ble Supreme Court in the case of Mahindra & Mahindra Ltd. (supra). 13. We notice that, in the grounds of appeal, the Revenue has taken support of the decision rendered by Hon'ble Supreme Court in the case of T.V.Sundaram Iyengar & Sons Ltd. (supra) in order to contend that the loan taken by the assessee was for the purpose of carrying on of the financing business and hence the decision rendered by Hon'ble Supreme Court in the case of Mahindra & Mahindra Ltd. (supra) will not apply. We notice that the decision has been rendered by Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra) on a different set of facts, i.e. in the case before Hon’ble Supreme Court, the assessee had received deposits from its customers (Debtors) in the course of carrying on of its business and the said deposits was written off in the books of account on the reasoning that there was no claim from debtors. Since the deposits were received during the course of carrying on regular trading activities, the Hon’ble Supreme court held that the write off amount available in the said debtors account is assessable as income. In the instant case, the assessee has received loan from certain parties for the purpose of using it in the business of lending of money. The lenders are not the customers of the assessee. There should not M/s. Infinite Buildcon Pvt. Ltd. 9 be any dispute that the loan transaction is a capital account trasaction. Hence waiver of loan cannot take the colour of trading transactions as per the decision rendered by Hon’ble Supreme court in the case of Mahindra & Mahindra Ltd (supra). Accordingly in our view the decision rendered by Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra) cannot be applied to the facts of the present case. 14. The Next ground urged by the Revenue is an alternative proposition raised by the AO, i.e., it is the contention of the AO that the learned CIT(A) should have held that the impugned amount should have been assessed an income of the assessee under section 56(2)(x) of the Act. The AO has raised this alternative contention on the ground that the power of learned CIT(A) is co-terminus with the power of the Assessing Officer. 15. We have heard the parties on this issue and perused the record. There is no dispute with regard to the fact that the power of learned CIT(A) is coterminus with the power of the Assessing Officer. However the question is whether the Assessing Officer can compel the learned CIT(A) to exercise that power, when the learned CIT(A) has only addressed the ground urged before him, that too when such contention of the assessee is debatable one. Further, if the Ld CIT(A) is intending to examine the issue from different angle, then the natural justice would warrant that he should put the same before the assessee seeking his explanations. Nothing of that sort has happened. In our view, it is the prerogative of appellate authority to examine the issue from different angle after affording adequate opportunity to the assessee. Before us, no authority was cited that the AO in support his ground that the Ld CIT(A) ought to have examined the issue from different angle. Accordingly, we do not find any merit in the alternative ground raised by the AO. M/s. Infinite Buildcon Pvt. Ltd. 10 16. Be that as it may, we notice that the provisions of section 56(2)(x) of the Act are attracted when any person “receives” any sum of money without consideration from any other person during a particular year. The contention of learned AR is that the assessee had received the loan in 2014 relevant to A.Y. 2015-16 and it has not received any money during the year under consideration i.e. A.Y. 2018-19. The Ld A.R submitted that, by applying strict rule of construction, provisions of section 56(2)(x) cannot invoked in AY 2018-19, when the assessee has not received any sum of money during that year. He further submitted that the assessee has only got waiver of loan, which was received in the earlier years and such waiver does not result in fresh receipt of any money. 17. The Learned DR, on the contrary, submitted that the character of the loan has changed during the year under consideration from loan funds to own funds and hence it should be construed that the assessee has received money during the year under consideration. 18. We have heard the parties on this issue. There is no dispute with regard to the fact that the assessee had received loans in the year 2014 i.e., the money has been received in the year relevant to AY 2015-16. There is no further receipt of any money from the lender during the year under consideration. The amount of Rs. 2.65 crores credited by the assessee to Capital Reserve account represents “waiver of loan” made during this year. The loan itself was received by the assessee in the earlier years. In our considered view, ‘waiver of the loan’ cannot be equated with the ‘actual receipt of money’ contemplated under section 56(2)(x) of the Act. Accordingly, we find merit in the contentions of the learned AR that the provisions of section 56(2)(x) of the Act are not attracted since there is no receipt of money during the year under consideration. Accordingly, we reject the ground urged by the Revenue. M/s. Infinite Buildcon Pvt. Ltd. 11 19. In the result, appeal filed by the Revenue is dismissed. Order pronounced in the open court on 20.09.2022. Sd/- Sd/- (RAHUL CHAUDHARY) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 20/09/2022 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// (Assistant Registrar) PS ITAT, Mumbai