Rieter India Pvt. Ltd, Pune V. The Assessing Officer of Income tax (ACIT Cir.6, Pune), Pune

ITA 2331/PUN/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6776 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-02-2013
• Assessment Year: misc
• Appeal Filed On: 27-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Keywords: Capital asset; Transfer pricing; Wrong claim; Capital receipt
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.2331/PN/2012 (ASSESSMENT YEAR : 2003-04) RIETER INDIA PVT. LTD., ( PREVIOUSLY KNOWN AS SUESSEN ASIA PRIVATE LIMITED. ), GAT NO.134/1, VADHU ROAD OFF PUNE, KOREGAON BHIMA, TAL. : SHIRUR, DIST.: PUNE 412 207. PAN : AAECS1310G . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 6, PUNE. . RESPONDENT ASSESSEE BY : MR. RAJENDRA AGIWAL DEPARTMENT BY : MR. A. K. MODI DATE OF HEARING : 12-06-2014 DATE OF PRONOUNCEMENT : 25-07-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, PUNE DATED 29.07.2011 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 14.03.2006 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2003-04. 2. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWIN G THREE GROUNDS OF APPEAL :- GROUND 1 (AMENDED GROUND): THE LEARNED CIT (A) ERRED IN SUSTAINING ADDITION OF RS.29,63,27,000/- TREATING THE SAID AMOUNT AS REVENUE RECEIPT WHEN TH E SAID AMOUNT WAS ACTUALLY TOWARDS WAIVER OF PRINCIPAL AMOUNT OF LONG TERM LOANS EARLIER TAKEN AND USED BY THE APPELLANT FOR ACQUIRING FIXED ASSET S. ITA NO.2331/PN/2012 A.Y. : 2003-04 GROUND 2: THE LEARNED CIT (A) ERRED IN UPHOLDING THE DISALLOW ANCE OF RS.5,75,925/- BEING PART OF THE TOTAL GRATUITY FUND CONTRIBUTION PROVISION OF RS.32,35,509/- THAT WAS DISALLOWED AND ADDED BACK BY THE APPELLANT IN ENTIRETY IN THE PRECEDING A.Y.2002-03 AND THEREFORE CALLED FOR NO D ISALLOWANCE ONCE AGAIN IN THE IMPUGNED A.Y.2003-04. IT IS PRAYED THAT THE DISALLOWANCE OF RS.5,75,925/- SUFFERED BY THE APPELLANT TWICE IN TH E SAID YEARS BE DELETED. GROUND 3: THE LEARNED CIT (A) ERRED IN CONFIRMING DISALLOWANC E OF RS.5,00,000/- MADE IN THE STATEMENT OF COMPUTATION OF INCOME BY T HE APPELLANT ITSELF BY WAY OF ABUNDANT PRECAUTION AND WHEN NO SUCH AMOUNT WAS ACTUALLY DEBITED IN THE PROFIT & LOSS ACCOUNT OF THE APPELLA NT FOR THE IMPUGNED A.Y.2003-04. IT IS PRAYED THAT THE AD HOC DISALLOWA NCE BE DELETED. 3. IN BRIEF, THE BACKGROUND OF THE CASE IS THAT THE APPELLANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS PRIMARILY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE O F TEXTILE MACHINES AND COMPONENTS, LIKE TOP ROLLERS, CONVERSION SPLINDERS AND TEXTILE SPINNING MACHINE SPINDERS. THE APPELLANT IS A SUBSIDIARY OF SPINDLE FABRIK SUESSEN, GERMANY. FOR THE ASSESSMENT YEAR 2003-04, ASSESSEE FILED A R ETURN OF INCOME DECLARING A LOSS OF RS.15,98,35,630/- WHICH WAS SUBJECT TO SC RUTINY ASSESSMENT U/S 143(3) OF THE ACT VIDE ORDER DATED 14.03.2006 WHERE BY THE TOTAL INCOME WAS DETERMINED AT A SUM OF RS.19,48,28,480/- AFTER MAKI NG CERTAIN ADDITIONS/DISALLOWANCES. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WHO HAS ALLOWED PARTIAL RELIEF. NOT BEING S ATISFIED WITH THE ORDER OF THE CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US IN TERMS OF AFORESTATED GROUNDS OF APPEAL. 4. IN SO FAR AS THE GROUND OF APPEAL NO.1 IS CONCER NED, IT RELATES TO AN ADDITION OF RS.29,63,27,000/-, WHICH ACCORDING TO T HE ASSESSEE IS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX AS IT REPRESENTS WAIV ER OF PRINCIPAL AMOUNT OF LONG TERM LOAN BY DEG CORPORATION UNDER ONE TIME SE TTLEMENT (OTS) SCHEME. ITA NO.2331/PN/2012 A.Y. : 2003-04 5. IN ORDER TO APPRECIATE THE CONTROVERSY, THE FOLL OWING FACTS ARE RELEVANT. THE ASSESSEE COMPANY HAD AVAILED LOANS FROM CORPORA TION BANK AND DEG CORPORATION, A FINANCIAL INSTITUTION OF GERMANY IN EARLIER YEARS. IT TRANSPIRES THAT THE APPELLANT COMPANY WAS HAVING FINANCIAL STR INGENCY AND WAS UNABLE TO REPAY THE DEBTS AND/OR THE INTEREST THEREOF AND AS A RESULT IN TERMS OF A FINANCIAL RE-STRUCTURING PLAN THE LIABILITIES WERE SETTLED BY WAY OF OTS SCHEME. BEREFT OF OTHER DETAILS, IT WOULD SUFFICE TO NOTE T HAT IN TERMS OF THE OTS SCHEME, ASSESSEE PAID A LUMP-SUM AMOUNT OF RS.34.47 CRORES AND OBTAINED RELIEFS AND CONCESSIONS TO THE TUNE OF RS.767.35 LA CS FROM CORPORATION BANK AND RS.29,63,27,000/- FROM DEG AGGREGATING TO RS.37 30.61 LACS. AFTER EXCLUDING THE INTEREST DECAPITALISED OF RS.58.56 LA CS, THE BALANCE WAIVER AMOUNT OF RS.3672.07 LACS WAS CREDITED TO THE PROFI T & LOSS ACCOUNT OF THE YEAR UNDER CONSIDERATION UNDER THE HEAD FINANCIAL RESTRUCTURING BENEFITS. FURTHER, IN THE COMPUTATION OF TOTAL INCOME FILED A LONG WITH THE RETURN OF INCOME, APPELLANT TREATED THE RESTRUCTURING BENEFIT TO THE EXTENT OF RS.5,22,94,858/- RECEIVED FROM CORPORATION BANK AND RS.29,63,27,000/- RECEIVED FROM DEG AS A CAPITAL RECEIPT NOT CHARGEAB LE TO TAX ON THE GROUND THAT THE SAME REPRESENTED WAIVER OF THE PRINCIPAL A MOUNT OF TERM LOAN FROM THE RESPECTIVE LENDERS, AND REDUCED THE SAME FROM BUSIN ESS INCOME. THE SAID CLAIM MADE BY THE ASSESSEE WAS DISALLOWED BY THE AS SESSING OFFICER. THE CLAIM OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE AFORESAID AMOUNT REPRESENTED WAIVER OF THE PRINCIPAL AMOUNT O F TERM LOAN AND SO FAR AS THE WAIVER OF INTEREST LIABILITY IS CONCERNED THE S AME WAS OFFERED TO TAX. THE ASSESSING OFFICER AGREED IN-PRINCIPLE WITH THE ASSE SSEE THAT WAIVER OF THE PRINCIPAL AMOUNT OF LOAN CAN BE CONSIDERED AS CAPIT AL RECEIPT . HOWEVER, THE ASSESSING OFFICE DID NOT ALLOW THE CLAIM ON THE GRO UND THAT SUFFICIENT DETAILS WERE NOT FURNISHED BY THE ASSESSEE TO JUSTIFY THAT THE IMPUGNED SUM REPRESENTED WAIVER OF PRINCIPAL AMOUNT OF TERM LOAN . THE ASSESSING OFFICER HAS OBSERVED THAT THE SAME WAS NOT PROVED BY THE ASSESSEE BY THE ITA NO.2331/PN/2012 A.Y. : 2003-04 DOCUMENTARY EVIDENCE . ACCORDINGLY, THE CLAIM OF THE ASSESSEE WAS DISALLOWED. 6. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A), WHO HAS SINCE ALLOWED PARTIAL RELIEF. AS PER THE CIT(A) IN SO FAR AS THE WAIVER GRANTED BY CORPORATION BANK IS CONCERNED, IT RELATED TO THE PRINCIPAL AMOUNT OF TERM LOAN, WHICH WAS AVAILED FOR ACQUISITION OF CAPITAL ASSETS. ACCORDINGLY, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETED TH E ADDITION OF RS.3,46,73,025/- (AS AGAINST RS.5,22,94,853/- INADV ERTENTLY CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME) REPRESENTING WAIV ER OF PRINCIPAL AMOUNT OF TERM LOAN GRANTED BY CORPORATION BANK. SO HOWEVER, THE ADDITION MADE BY THE ASSESSING OFFICER TO THE EXTENT OF RS.29,63,27, 000/- ON ACCOUNT OF WAIVER GRANTED BY DEG, GERMANY, THE CIT(A) SUSTAINED THE A DDITION BY CONCLUDING AS UNDER :- 4.3.3 TO SUM-UP , THE BENEFIT OBTAINED BY THE APPELLANT ON ACCOUNT OF WAIVER OF PRINCIPAL AMOUNT OF LOAN AVAILED FROM DEG IS NOT A CAPITAL RECEIPT AS THE LOAN WAS NOT ACQUIRED FOR SPECIFIC PURPOSE OF A CQUISITION OF CAPITAL ASSETS BY THE COMPANY. THE LOAN WAS INITIALLY UTILIZED FO R REPAYMENT OF THE EXISTING CURRENT LIABILITIES AND THEREFORE, ANY SUBSEQUENT WAIVER OF THE LOAN I N THE COURSE OF THE BUSINESS CANNOT BE ON CAPITAL ACCOUNT AND IT IS LIABLE TO BE ASSESSED AS REVENUE RECEIPTS. ACCORDINGLY, THE ADD ITION OF RS.29,63,27,000/- MADE BY THE ASSESSING OFFICER IN RESPECT OF BENEFIT OF WAIVER OF PRINCIPAL AMOUNT OF DEG LOAN IS HEREBY SUSTAINED, THOUGH ON A DIFFERENT GROUND I.E. TREATING THE SAME AS REVENUE RECEIPT. 7. AS PER THE CIT(A), THE BENEFIT OBTAINED BY THE A SSESSEE ON ACCOUNT OF WAIVER OF PRINCIPAL AMOUNT OF LOAN GRANTED BY DEG I S NOT A CAPITAL RECEIPT AS THE LOAN WAS NOT ACQUIRED FOR ANY SPECIFIC PURPOSE OF ACQUISITION OF CAPITAL ASSETS BY THE ASSESSEE. ACCORDING TO THE CIT(A), T HE LOAN RAISED FROM DEG WAS INITIALLY UTILIZED FOR REPAYMENT OF THE THEN EX ISTING CURRENT LIABILITIES AND THEREFORE SUBSEQUENT WAIVER OF LOAN IN THE COURSE O F BUSINESS CANNOT BE TREATED AS TO BE ON CAPITAL ACCOUNT AND INSTEAD IT IS LIABLE TO BE ASSESSED AS THE REVENUE RECEIPT. AGAINST THIS DECISION OF THE CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. ITA NO.2331/PN/2012 A.Y. : 2003-04 8. IN THE ABOVE BACKGROUND, THE RIVAL COUNSELS HAVE MADE THEIR SUBMISSIONS. AS PER THE LEARNED COUNSEL FOR THE AS SESSEE, THE BENEFIT BY WAY OF WAIVER GRANTED BY DEG WAS WITH RESPECT TO THE PR INCIPAL AMOUNT OF TERM LOAN WHICH HAS BEEN USED TO FUND ACQUISITION OF CAP ITAL ASSETS BY THE ASSESSEE. THE CLAIM MADE BY THE APPELLANT IS THAT THE TERM LOAN WAS RAISED FOR ACQUISITION OF CAPITAL ASSETS. IT HAS BEEN EXP LAINED THAT THE TERM LOAN WAS OBTAINED IN THE FINANCIAL YEARS 1994-95 AND 1995-96 AND THE SAME WAS UTILIZED TO RE-PAY THE THEN EXISTING LIABILITIES WH ICH HAD ARISEN ON ACCOUNT OF PURCHASE OF FIXED ASSETS. IT WAS POINTED OUT THAT AT THE TIME OF RAISING OF LOAN FROM DEG, THE ASSESSEE HAD ALREADY EFFECTED PURCHAS E OF FIXED ASSETS BY WAY OF PLANT & MACHINERY FROM SPINDLE FABRIK SUESSEN, G ERMANY, AGAINST WHICH A LIABILITY OF RS.32.75 CRORES WAS OUTSTANDING. THE ASSESSEE COMPANY UTILIZED THE TERM LOAN RAISED FROM DEG FOR RE-PAYMENT OF SUC H LIABILITY, WHICH HAD ARISEN FOR ACQUISITION OF CAPITAL ASSETS, NAMELY, P LANT & MACHINERY. IT WAS, THEREFORE, POINTED OUT THAT THE UTILIZATION OF THE TERM LOAN FROM DEG IS TOWARDS ACQUISITION OF CAPITAL PLANT & MACHINERY. THE LEAR NED COUNSEL FURTHER POINTED OUT THAT THERE WAS NO DISPUTE TO THE FACTUAL POSITI ON THAT THE AMOUNT OF RS.29,63,27,000/- REPRESENTED WAIVER OF PRINCIPAL A MOUNT OF TERM LOAN BY DEG AND THEREFORE, ACCORDING TO HIM, THE CIT(A) OUGHT T O HAVE DELETED THE IMPUGNED ADDITION IN THE SAME MANNER AS HE DELETED THE ADDITION WITH RESPECT TO THE WAIVER OF PRINCIPAL AMOUNT OF TERM LOAN FROM CORPORATION BANK. APART THEREFROM, THE LEARNED COUNSEL HAS REFERRED TO A CO PY OF THE TERM LOAN AGREEMENT WITH DEG, GERMANY DATED 11.11.1994 AS ALS O TO THE CONDITIONS STIPULATED BY THE RESERVE BANK OF INDIA WHILE PERMI TTING THE RAISING OF LOAN FROM DEG LTD., A COPY OF WHICH HAS BEEN PLACED AT P AGE 75 OF THE PAPER BOOK, TO SUPPORT HIS PLEA THAT THE TERM LOAN WAS AV AILED FOR FINANCING IMPORT OF CAPITAL EQUIPMENTS FOR MANUFACTURING OF TEXTILE SPI NNING MACHINERY AND COMPONENTS. FURTHER, AT PAGE 80 OF THE PAPER BOOK IS PLACED THE DETAIL OF THE UTILIZATION OF LOAN RAISED FROM DEG, GERMANY, WHICH ACCORDING TO THE ASSESSEE SHOWS THAT THE FUNDS HAVE BEEN USED TO FUN D THE IMPORT OF VARIOUS ITA NO.2331/PN/2012 A.Y. : 2003-04 CAPITAL ASSETS. IN THIS MANNER, THE CLAIM OF THE A SSESSEE IS SOUGHT TO BE JUSTIFIED. 9. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE APPEARING FOR THE REVENUE HAS DEFENDED THAT ORDER OF THE CIT( A) BY POINTING OUT THAT THE LOAN FROM DEG, GERMANY HAS BEEN AVAILED SUBSEQUENT TO ACQUISITION OF FIXED ASSETS FROM SPINDLE FABRIK SUESSEN, GERMANY AND THE REFORE IT CANNOT BE SAID THAT THE TERM LOAN WAS USED FOR ACQUISITION OF CAPI TAL ASSETS. FURTHER, A REFERENCE HAS BEEN MADE TO PARA 4.3.1 OF THE ORDER OF THE CIT(A) WHEREIN IT IS NOTED THAT THE PREAMBLE OF LOAN AGREEMENT WITH THE DEG, GERMNAY SHOWS THAT THE LOAN WAS A MEANS OF LONG TERM FINANCE FOR THE PROJECT AND THAT THE LOAN WAS NOT GRANTED BY DEG WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ACQUISITION OF CAPITAL ASSETS. THEREFORE, ACCORDIN G TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, IT CANNOT BE SAID THAT THE LOAN FROM DEG, GERMANY WAS AVAILED FOR ACQUISITION OF CAPITAL ASSE TS. THEREFORE, ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE LOAN H AVING BEEN AVAILED FOR FINANCING THE ENTIRE PROJECT COST, THE SUBSEQUENT W AIVER OF THE PRINCIPAL AMOUNT OF LOAN IS A BENEFIT OF REVENUE NATURE AND FOLLOWIN G THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS L TD. VS. DCIT, 308 ITR 417 (BOM.), THE CIT(A) MADE NO MISTAKE IN TREATING SUCH AMOUNT AS A TAXABLE INCOME. 10. IN REPLY, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PURPOSE OF TERM LOAN WAS TO ACQUIRE FIXED ASSETS AN D THERE IS NO DISPUTE THAT THE MONEY HAS BEEN ACTUALLY UTILIZED FOR RE-PAYMENT OF LIABILITY ARISING ON ACCOUNT OF ACQUISITION OF CAPITAL ASSETS AND RELIED UPON THE FOLLOWING DECISIONS IN SUPPORT OF THE CASE OF THE ASSESSEE :- (I) NATH BIO GENES (INDIA) LTD. VS. ACIT VIDE ITA N O.367 & 417/PN/2012 ORDER DATED 27.01.2014; (II) CIT VS. XYLON HOLDINGS PVT. LTD., (2013) 90 DT R 205 (BOM); ITA NO.2331/PN/2012 A.Y. : 2003-04 (III) CIT VS. SOFTWORKS COMPUTERS PVT. LTD., (2013) 354 ITR 16 (BOM); AND, (IV) MAHINDRA AND MAHINDRA LTD. VS. CIT, (2003) 261 ITR 501 (BOM). 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE CRUX OF THE CONTROVERSY IS WHETHER THE BENEFIT OBTAINED BY THE ASSESSEE FROM DEG, GERMANY ON ACCOUNT OF WAIVER BASED ON OTS SCHEME IS LIABLE TO BE TREATED AS A REVENUE INCOME OR IT CONSTITUTES A CAPITAL REC EIPT NOT CHARGEABLE TO TAX. OSTENSIBLY, ASSESSEE HAD RAISED TERM LOAN FROM DEG, GERMANY AND AT THE TIME OF OTS SCHEME, THE PRINCIPAL AS WELL AS INTERE ST ACCRUING THEREOF WAS OUTSTANDING AND ASSESSEE HAD DEFAULTED IN ITS RE-PA YMENT COMMITMENTS. THERE IS NO DISPUTE TO THE PROPOSITION THAT WAIVER OF THE PRINCIPAL COMPONENT OF A LOAN TAKEN FOR A TRADING ACTIVITY, IS LIABLE TO B E CONSIDERED AS A REVENUE RECEIPT, A PROPOSITION WHICH IS IN LINE WITH THE JU DGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS L TD. (SUPRA). SO HOWEVER, WHERE THE WAIVER IS OF THE PRINCIPAL AMOUNT OF LOAN TAKEN FOR ACQUISITION OF CAPITAL ASSETS AND NOT FOR THE PURPOSES OF TRADING ACTIVITY, THE SAME IS TO BE UNDERSTOOD AS A CAPITAL RECEIPT NOT CHARGEABLE TO T AX, A PROPOSITION WHICH IS CONSISTENT WITH THE JUDGEMENTS OF THE HONBLE BOMBA Y HIGH COURT IN THE CASES OF MAHINDRA AND MAHINDRA LTD. (SUPRA) AND SOFTWORKS COMPUTERS PVT. LTD. (SUPRA). THEREFORE, THE CONTROVERSY IN THIS APPEAL IS LIABLE TO BE RESOLVED HAVING REGARD TO THE NATURE OF THE IMPUGNED WAIVER GRANTED BY DEG, GERMANY. 12. AS PER THE REVENUE, THE WAIVER OF PRINCIPAL AMO UNT OF LOAN AVAILED FROM DEG, GERMANY IS A REVENUE INCOME, BECAUSE THE LOAN WAS NOT AVAILED FOR SPECIFIC PURPOSE OF ACQUISITION OF CAPITAL ASSETS B Y THE COMPANY. SECONDLY, ACCORDING TO THE REVENUE, THE LOAN WAS INITIALLY UT ILIZED FOR RE-PAYING THE THEN EXISTING LIABILITIES AND SUBSEQUENT WAIVER THEREOF IS TO BE SEEN AS A REVENUE RECEIPT. ITA NO.2331/PN/2012 A.Y. : 2003-04 13. IN THIS CONTEXT, WE FIND THAT THE ASSESSEE COMP ANY HAD OBTAINED THE TERM LOAN FROM DEG, GERMANY IN THE COURSE OF THE FI NANCIAL YEARS 1994-95 AND 1995-96. THE TERM LOAN FROM DEG, GERMANY HAS B EEN APPROVED BY THE RESERVE BANK OF INDIA VIDE A COMMUNICATION DATED 05 TH JUNE, 1995, A COPY OF WHICH HAS BEEN PLACED AT PAGES 75 TO 79 OF THE PAPE R BOOK. A PERUSAL OF THE SAID RBI APPROVAL REVEALS THAT THE ASSESSEE WAS PER MITTED TO RAISE FOREIGN CURRENCY LOAN FROM DEG, GERMANY FOR FINANCING THE I MPORT OF CAPITAL EQUIPMENTS FOR MANUFACTURING OF TEXTILE SPINNING MA CHINERY AND COMPONENTS. FURTHER, EVEN THE LOAN AGREEMENT WITH DEG, GERMANY REFLECTS FINANCING OF THE PROJECT UNDERTAKEN BY THE ASSESSEE OF MANUFACTURING TEXTILE SPINNING MACHINERY AND COMPONENTS THEREOF. THE SAID AGREEME NT ALSO SHOWS THAT THE LOAN RAISED FROM DEG, GERMANY WAS A LONG TERM MEANS OF FINANCE FOR THE PURPOSES OF FUNDING ASSESSEES PROJECT OF MANUFACTU RING TEXTILE SPINNING MACHINERY AND COMPONENTS FOR TEXTILE INDUSTRIES. A T PAGES 80 TO 82 OF THE PAPER BOOK, ASSESSEE HAS PLACED THE LIST OF MACHINE RIES WHICH HAVE BEEN ACQUIRED FROM SPINDLE FABRIK SUESSEN, GERMANY AND T HE RESPECTIVE INVOICES THEREOF. IT IS NOTICEABLE FROM THE FINANCIAL STATE MENTS OF THE ASSESSEE AS ON 31.03.1995 THAT A LIABILITY OF RS.32.75 CRORES WAS OUTSTANDING AS A PART OF CURRENT LIABILITIES OF RS.42.60 CRORES AGAINST THE NAME OF SPINDLE FABRIK SUESSEN, GERMANY, AGAINST THE MACHINERIES ACQUIRED. THE AFORESAID POSITION IS NOT DISPUTED BY THE REVENUE INASMUCH AS THE SAME IS ALSO EMERGING FROM THE RELEVANT PORTION OF THE BALANCE SHEET INCORPORA TED BY CIT(A) IN HIS ORDER AT PAGE 7. THE LOAN FROM DEG, GERMANY WAS RECEIVED ON 30.09.1995 AND WAS UTILIZED FOR PAYMENT OF THE OUTSTANDING LIABILI TY TOWARDS ACQUISITION OF FIXED ASSETS OF RS.32.75 CRORES, APART FROM MEETING OTHER LIABILITIES. BE THAT AS IT MAY, FACTUALLY SPEAKING, IT IS NOT IN DISPUTE THAT ASSESSEE HAS UTILIZED THE LOAN RAISED FROM DEG, GERMANY FOR PAYMENT OF RS.32.75 CR ORES TO SPINDLE FABRIK SUESSEN, GERMANY, WHICH WAS A LIABILITY OUTSTANDING AGAINST ACQUISITION OF FIXED ASSETS FROM THE SAID CONCERN. THE REVENUE CO NTENDS THAT DISCHARGE OF SUCH LIABILITY OF SPINDLE FABRIK SUESSEN, GERMANY C ANNOT BE TREATED AS ITA NO.2331/PN/2012 A.Y. : 2003-04 UTILIZATION OF TERM LOAN FROM DEG, GERMANY FOR ACQU ISITION OF FIXED ASSETS, BECAUSE THE ASSETS ALREADY STOOD ACQUIRED PRIOR TO THAT DATE. SO HOWEVER, IT IS UNDISPUTABLE THAT THE LIABILITY TOWARDS PAYMENT FOR ACQUISITION OF ASSETS WAS OUTSTANDING AND ASSESSEE HAS UTILIZED THE LOAN FROM DEG, GERMANY TO PAY-OFF SUCH LIABILITY. IN OUR CONSIDERED OPINION, FACTUAL LY SPEAKING, THE PAYMENT MADE BY THE ASSESSEE TO SPINDLE FABRIK SUESSEN, GERMANY TOWARDS OUTSTANDING LIABILITY AGAINST ACQUISITION OF FIXED ASSETS OF RS .32.75 CRORES, WHICH IS OUT OF THE LOAN FUNDS FROM DEG, GERMANY IS TO BE UNDERSTOO D AS UTILIZATION OF LOAN FUNDS TOWARDS ACQUISITION OF CAPITAL ASSETS. THE I NFERENCE OF THE CIT(A) TO THE CONTRARY, IN OUR VIEW, IS ON ACCOUNT OF MISPLACED A PPRECIATION OF THE FACTS. THE CIT(A) IS CORRECT IN SAYING THAT THE LOAN WAS UTILIZED FOR RE-PAYMENT OF EXISTING CURRENT LIABILITIES, SO HOWEVER, IT IS ABUNDANTLY CLEAR THAT THE RE-PAY MENT TO THE EXTENT OF RS.32.75 CRORES WAS FOR LIQUIDATING A LIA BILITY WHICH HAD ARISEN ON ACCOUNT OF ACQUISITION OF CAPITAL ASSETS FROM SPIND LE FABRIK SUESSEN, GERMANY. THEREFORE, IT HAS TO BE UNDERSTOOD THAT T HE LOAN AVAILED FROM DEG, GERMANY WAS UTILIZED FOR THE PURPOSES OF ACQUISITIO N OF CAPITAL ASSETS, TO THE ABOVE EXTENT. THE SUBSEQUENT WAIVER OF SUCH AN AMO UNT, IN OUR VIEW, CANNOT BE SAID TO BE WAIVER OF A LOAN RAISED FOR TRADING A CTIVITY. IN THIS VIEW OF THE MATTER, WE THEREFORE, HOLD THAT THE WAIVER OF THE P RINCIPAL AMOUNT OF TERM LOAN GRANTED BY DEG, GERMANY OF RS.29,63,27,000/- WAS WI TH RESPECT TO A LOAN WHICH WAS GRANTED AS WELL AS UTILIZED FOR PURCHASE OF CAPITAL ASSETS, NAMELY, PLANT & MACHINERY. 14. CONSIDERED IN THE AFORESAID FACTUAL BACKDROP, T HE WAIVER OF RS.29,63,27,000/- REPRESENTS WAIVER OF THE PRINCIPA L AMOUNT OF LOAN UTILIZED FOR ACQUISITION OF CAPITAL ASSETS AND NOT FOR THE PURPO SES OF TRADING ACTIVITY AND ACCORDINGLY THE ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHIND RA AND MAHINDRA LTD. (SUPRA). FOLLOWING THE RATIO OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA AND MAHINDRA LTD. (SUPRA), IT HAS TO BE HE LD THAT THE WAIVER OF THE ITA NO.2331/PN/2012 A.Y. : 2003-04 PRINCIPAL AMOUNT OF LOAN GRANTED BY THE DEG, GERMAN Y TO THE EXTENT OF RS.29,63,27,000/- IN TERMS OF OTS SCHEME IS IN THE NATURE OF CAPITAL RECEIPT NOT CHARGEABLE TO TAX. 15. IN VIEW OF THE AFORESAID DISCUSSION, WE HEREBY UPHOLD THE PLEA OF THE ASSESSEE AND SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.29,63,27,000/- . THUS, ON GROUND OF APPEAL NO.1 ASSESSEE SUCCEEDS. 16. IN SO FAR AS THE GROUND OF APPEAL NO.2 IS CONCE RNED, IT RELATES TO A DISALLOWANCE OF RS.5,75,925/- BEING PART OF THE GRA TUITY FUND CONTRIBUTION. THE SAID GROUND HAS NOT BEEN PRESSED AT THE TIME OF HEA RING AND IS ACCORDINGLY DISMISSED AS NOT PRESSED. 17. IN THE GROUND OF APPEAL NO.3, THE ISSUE RELATES TO A SUM OF RS.5,00,000/- WHICH WAS SUO-MOTU DISALLOWED BY THE ASSESSEE IN THE COMPUTATION OF INCOME. IN THIS CONTEXT, THE BRIEF FACTS ARE THAT IN THE RETURN OF INCOME ASSESSEE HAD VOLUNTARILY OFFERED AN AMOUNT O F RS.5,00,000/- UNDER THE HEADING OTHER DISALLOWANCES IN THE COMPUTATION OF INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE SUBMITTE D THAT THE SAID DISALLOWANCE WAS OFFERED IN LIEU OF PROBABLE ADJUST MENT ON ACCOUNT OF TRANSFER PRICING ANALYSIS. HOWEVER, WHEN FINALLY NO ADVERSE ADDITION WAS MADE ON ACCOUNT OF TRANSFER PRICING, ASSESSEE SUBMITTED BEF ORE THE ASSESSING OFFICER TO DELETE SUCH AD-HOC DISALLOWANCE OF RS.5,00,000/- SUO-MOTU OFFERED BY THE ASSESSEE IN THE RETURN OF INCOME. THE ASSESSING OF FICER AND THEREAFTER THE CIT(A) HAVE NEGATED THE PLEA OF THE ASSESSEE. 18. BEFORE US, IT IS VEHEMENTLY ARGUED THAT THE INC OME-TAX AUTHORITIES ARE REQUIRED TO DETERMINE THE TOTAL INCOME AS PER THE P ROVISIONS OF THE STATUTE AND ITA NO.2331/PN/2012 A.Y. : 2003-04 THAT IT IS EVIDENT FROM THE IMPUGNED SUM DOES NOT F ALL FOR CONSIDERATION AS INCOME UNDER ANY OF THE PROVISIONS OF THE ACT. 19. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE HAS SUPPORTED THE ORDER OF THE AUTHORITIES BELOW BY POI NTING OUT THAT THE ASSESSEE HAD ON ITS OWN, DISALLOWED AN AMOUNT OF RS.5,00,000 /- IN THE RETURN OF INCOME. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO POINTE D OUT THAT SIMILAR DISALLOWANCE WAS MADE BY THE ASSESSEE IN THE PRECED ING YEAR TOO AND THAT THERE WAS NO JUSTIFICATION FOR THE PRESENT CLAIM OF THE ASSESSEE. 20. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE DISALLOWANCE IN QUESTION HAS BEEN SUO-MOTU MADE BY THE ASSESSEE IN ITS COMPUTATION OF INCOME AS OTHER DISALLOWANCES. NO DOUBT A CLAIM OF DEDUCTION OR DISALLOWANCE IS TO BE WORKED OUT ON THE BASIS OF TH E PREVALENT LEGAL POSITION AND IS NOT DEPENDENT ON WHAT STAND THE PARTIES MAY PROFESS. THEREFORE, ANY ERROR OR OMISSION MADE IN THE RETURN OF INCOME OR A NY WRONG CLAIM IN THE RETURN OF INCOME CAN BE SUBJECT TO RECTIFICATION AS PER LA W. SO HOWEVER, IN THE PRESENT CASE, THE CIT(A) HAS CLEARLY ESTABLISHED TH AT ASSESSEE HAS NOT BROUGHT OUT THE DETAILS OF ANY DISCREPANCY IN ANTIC IPATION OF WHICH THE IMPUGNED DISALLOWANCE WAS MADE BY THE ASSESSEE. TH ERE IS NO MATERIAL BEFORE US, APART FROM GENERALIZED ASSERTIONS, THAT THE AFORESAID DISALLOWANCE WAS UNDER ANY PARTICULAR MISCONCEPTION OF LAW OR FA CTS. THE ONUS ON THIS ASPECT IS ENTIRELY ON THE ASSESSEE WHICH HAS NOT BE EN DISCHARGED, THEREFORE, WE FIND NO REASONS TO INTERFERE WITH THE ORDER OF T HE AUTHORITIES BELOW. THUS, ON THIS GROUND ASSESSEE FAILS. ITA NO.2331/PN/2012 A.Y. : 2003-04 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JULY, 2014. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 25 TH JULY, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-III, PUNE; 4) THE CIT-III, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE