Kothari Sugars and Chemicals Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2434/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4818 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 22-08-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Gift; Opportunity of being heard; Capital receipt
• Section: 143(3); 148; 28

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 2 4 3 4 / MDS/2016 / ASSESSMENT YEAR :20 0 5 - 0 6 M/S. KOTHARI SUGARS AND CHEMICALS LTD., KOTHARI BUILDINGS, 115, MAHATMA GANDHI ROAD, CHENNAI 600 034. [PAN: A A BCK2495F ] VS. THE ASSISTANT COMMISSIONER OF IN COME TAX , CO RPORATE CIRCLE II ( 4 ) CHENNAI . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE / RESPONDENT BY : S HRI S HIVA SRINIVAS , J CIT / DAT E OF HEARING : 0 7 . 0 2 .201 7 / DATE OF P RONOUNCEMENT : 21 . 0 4 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH I S APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMIS SIONER OF INCOME TAX (APP EALS) 8 , C HENNAI DATED 23 . 0 6 .201 6 RELEVANT TO THE ASSESSMENT YEAR 20 0 5 - 0 6 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT APPEALS IS CONTRARY TO LAW AND OPPOSED TO THE FACTS OF THE CASE. I.T.A. NO . 2434 / M/ 1 6 2 2. THE LEARNED CIT APPEALS HAS E RRED IN CONCLUDING THAT THE WAIVER OF PRINCIPAL PORTION OF THE DEBT CONSTITUTED INCOME TO THE APPELLANT. 3. THE LEARNED CIT APPEALS HAS ERRED IN CONCLUDING THAT THE LOAN HAD BEEN UTILISED TO BUY CAPITAL ASSETS AND HENCE THE WAIVER OF THE SAME WAS NOT TAX ABLE BUT IN FACT WAS A CAPITAL RECEIPT. 4. FOR THESE REASONS AND FOR ANY OTHER REASONS THAT MAY BE TAKEN UP AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT APPEALS MAY BE SET ASIDE AND RELIEF AS PRAYED FOR MAY BE GRANTED. 2. B RIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005 - 06 ON 29.10.2005 ADMITTING NIL INCOME AFTER SETTING OFF CARRY FORWARD OF LOSSES. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] ON 27.02.2007. SUBSEQUENTLY, NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED ON 04.04.2008 TO DISALLOW THE CLAIM OF .149.25 LAKHS BEING PRINCIPAL AMOUNT OF LOANS WAIVED ON ONE TIME SETTLEMENT BY BANKS AND FINANCIA L INSTITUTIONS AND .104.49 LAKHS BEING INTEREST ON LOANS WAIVED BY FINANCIAL INSTITUTIONS. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) R.W.S. 147 ON 21.122009 DISALLOWING THE PRINCIPAL AMOUNT WAIVED BY THE BANKS AND FINANCIAL INSTITUTIONS. THE LD. C IT(A) VIDE HIS APPELLATE ORDER DISMISSED THE APPEAL FILED BY THE ASSESSEE. ON FURTHER APPEAL, THE TRIBUNAL VIDE ITS ORDER IN I.T.A. NO. 1076/MDS/2010 DATED 25.02.2011 HAD SET ASIDE AND REMITTED THE ISSUE BACK TO THE ASSESSING OFFICER WITH A DIRECTION TO MA KE A FACTUAL VERIFICATION ABOUT THE NATURE OF LOAN AND APPLY THE LAW ELUCIDATED BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ISKRAEMECO REGENT LTD. I.T.A. NO . 2434 / M/ 1 6 3 V. CIT 331 ITR 317. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) R.W.S. 25 4 OF THE ACT ON 22.12.2011 BY OBSERVING AS UNDER: TO GIVE EFFECT TO THE ORDER OF THE TRIBUNAL DATED 25.02.2011, AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS CREDITED THE FOLLOWING AMOU NTS IN THE PROFIT AND LOSS ACCOUNT AS RELIEF ON ONE TIME SETTLEMENT OF DEBTS OF .1,11,73,43,000 / - COMPRISING PRINCIPAL AND INTEREST AS FOLLOWS: PRINCIPAL AMOUNT WAIVED . 1,49,25,000/ - INTEREST ON TERM LOAN WAIVED BY ICICI BANK . 1,10,24,18,000/ - . 1,11,73,43,000/ - SINCE THE INTERESTS ON LOANS WERE DISALLOWED IN EARLIER YEAR S, THE INTEREST W AIVED BY ICLCI BANK WAS ALLOWED IN THE A SSESSMENT O RDER ITSELF. 2.1 IT WAS THE SUBMISSIONS OF THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THE ABOVE LOAN WAS AVAILED TO ACQUIRE NEW TECHNOLOGY FOR CAN JUICE EXTRACTION THROUGH CANE SEPAR ATION SYSTEM. ON PERUSAL OF THE EARLIER RECORDS, IN THE NOTES ON ACCOUNTS ANNEXED TO THE BALANCE SHEET , THE ASSESSING OFFICER HAS NOTICED THAT 'THE CANE SEPARATION SYSTEM INSTALLED AT KATTUR UNIT IS NOT PRESENTLY USED PENDING SETTLEMENT ON THE DISPUTE WITH THE ORIGINAL SUPPLIER FOR TECHNICAL DEFECT'. FROM THE NOTES ON ACCOUNTS OF THE EARLIER RECORDS, IT CAN BE INFERRED THAT THE VENTURE FOR WHICH THE AMOUNT CLAIMED TO HAVE BEEN UTILIZED HAS NOT BEEN OPERATIONAL. I.T.A. NO . 2434 / M/ 1 6 4 2.2 AS PER SECTION 28(IV) 'THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION'. SECTION 28 OF THE I.T. ACT, 1961 DEALS WITH THE PROFITS AND GAINS OF BUSINESS AND CLAUSE (4) THEREOF SAYS THAT THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTED INTO MONEY OR NOT, RISING FROM THE BUSINESS OF THE EXERCISE OF PROFESSION, SHALL BE CHARGEABLE AS INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS. 2.3 A PERUSAL OF THE DEFINITION OF SECTION 2(24) OF THE ACT, WHICH DEFINE S 'INCOME' WOULD INCLUDE THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, THAT WOULD ARISE FROM THE BUSINESS. IN ORDER TO APPRECIATE THE ISSUE INVOLVED, IT IS RELEVANT TO EXTRACT THE NECESSARY PROVISIONS OF THE ACT. AS PER SE CTION - '2(24)'INCOME' INCLUDES - (I) PROFITS AND GAINS; (V) THE VALUE OF ANY BENEFIT OR PERQUISITE TAXABLE UNDER CLAUSE (IV) OF SECTION 28;' AS PER SECTION 28(IV) OF THE ACT, 'INCOME INCLUDES': 'THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVE RTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION.' SECTION 28 OF THE I.T. ACT, 1961 DEALS WITH THE PROFITS AND GAINS OF BUSINESS AND CLAUSE ( 4) THEREOF SAYS THAT THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTED INT O MONEY OR NOT, ARISING FROM THE BUSINESS OF THE I.T.A. NO . 2434 / M/ 1 6 5 EXERCISE OF PROFESSION, SHALL BE CHARGEABLE AS INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS. 2.4 SIMILARLY, SECTION 41(1) OF THE ACT DEALS WITH 'PROFITS CHARGEABLE TO TAX' AND THE SAME IS EXTRACTED H EREIN: ' WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO AS THE FIRST - MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOU S YEAR.' 2.5 FROM THE ABOVE, THE ASSESSING OFFICER HAS INFERRED THAT IF ANY PERSON OBTAINED WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY O F REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME - TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHE THER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR WHEN THE ASSESSEE COMPANY CEASES TO BE LIABLE TO PAY SOMETHING THAT IT WAS LEGALLY BOUND TO PAY, THEN IN EFFECT, IT GAINS THE AMOUNT THAT IT WAS BOUND TO PAY. THEREFORE, PRINCIPAL AMOUNT OF LOAN WRITTEN OFF WAS NOTHING BUT GAIN / INCOME IN THE HANDS OF THE ASSESSEE COMPANY. SINCE THE LOAN WAS I.T.A. NO . 2434 / M/ 1 6 6 TAKEN FOR THE PURPOSE OF BUSINESS WHETHER CAPITAL OR NOT, THE ONETIME SETTLEMENT IS A N INTEGRAL PART OF THE BUSINESS. 2.6 IN VIEW OF THE PROVISIONS UNDER SECTION 28(IV) OR SECTION 41(1) OF THE ACT, BY RELYING ON THE DECISION IN THE CASE OF CIT V. T.V. SUNDARAM IYENGAR & SONS 222 ITR 344 (SC), IN THE CASE OF M/S.SOLID CONTAINERS LTD VS DC IT 308 ITR 417 (BOM), WHEREIN, THE ABOVE JUDGEMENT OF HON BLE SUPREME COURT HAS BEEN REFERRED AND MOREOVER, BY FOLLOWING THE JURISDICTIONAL HIGH COURT IN THE CASE OF ISKRAEMECO REGENT LTD VS C I T 331 ITR 317, THE ASSESSING OFFICER HAS HELD THAT GRANT OF LOA N CANNOT BE TERMED AS A TRADING TRANSACTION AND NOT CONSTRUED IN THE COURSE OF BUSINESS , HE DISALLOWED THE PRINCIPAL PORTION OF LOAN WAIVED BY THE BANK AND BROUGHT TO TAX. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). BY FOLLOWING T HE DECISION IN THE CASE OF RAMANIYAM HOMES PVT. LTD. [2016] 68 TAXMANN.COM 289 (MADRAS), WHEREIN THE DECISION IN THE CASE OF ISKRAEMECO REGENT LTD VS C I T (SUPRA) HAS BEEN CONSIDERED BY THE HON BLE MADRAS HIGH COURT, THE LD. CIT(A) CONFIRMED THE DISALLOWANC E MADE ON THIS ACCOUNT. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BY FILING COPY OF THE JUDGEMENT OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. FIDELITY TEXTILES P. LTD. IN TC(A) NO. 1034/2007 DATED 24.02.2016 , I.T.A. NO . 2434 / M/ 1 6 7 T HE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND PRAYED FOR DELETION OF ADDITION. 5. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE POINT AT ISSUE IS WHETHER THE LOAN WAIVED BY THE BANK SHOULD BE CONSIDERED AS THE INCOME OF THE ASSESSEE OR NOT. IT WAS THE SUBMISSION OF THE LD. COUNSE L THAT THE LOANS WERE UTILIZED FOR ACQUIRING CANE SEPARATION SYSTEM AT KATTUR AND MOREOVER, THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDINGS THAT THE LOANS WERE NOT UTILIZED FOR BUYING CAPITAL EQUIPMENT. BEFORE THE LD. CIT(A), THE ASSESSEE HAS RELIED ON TH E DECISION IN THE CASE OF ISKRAEMECO REGENT LTD. V. CIT (SUPRA) AND PLEADED THAT THE ISSUE IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE. THE LD. CIT(A), BY FOLLOWING THE DECISION IN THE CASE OF CIT V. RAMANIYAM HOMES PVT. LTD., CONFIRMED THE ADDITION MA DE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER: 4. DECISION: I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT. THE ONLY ISSUE UNDER CONSIDERATION IS WHETHER THE LOAN WAIVER BENEFIT SHOULD BE CONSIDERED AS THE INCOME OF THE APPELLANT OR NOT. THE APPELLANT RELICS ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF ISKRAEMECO REGENT LTD. VS. CIT [2011} 331 ITR 317 (MAD.] IN SUPPORT OF ITS CONTENTION THAT LOAN WAIVER BENEFIT CANNOT BE CONSIDERED AS THE INCOME OF THE APPELLANT. HOWEVER, T HE JURISDICTIONAL HIGH COURT IN A RECENT DECISION IN THE CASE OF RAMANIYAM HOMES PVT. LTD. [2016] 68 TAXRNANN.COM 289 (MADRAS) HAD AN OCCASION TO DECIDE THIS ISSUE AFTER CONSIDERING THE CASE OF ISKRAEMECO REGENT LTD. I.T.A. NO . 2434 / M/ 1 6 8 IN THE CASE OF RAMANIYARN HOMES PVT.L TD. (SUPRA) THE ASSESSEE WAS INDEBTED TO A BANK AND UNDER A ONE TIME SETTLEMENT (OTS) SCHEME THE BANK WAIVED CERTAIN AMOUNT OF INTEREST AND PRINCIPAL AMOUNT OUT OF TOTAL DUES. THE ASSESSING OFFICER HELD THAT AMOUNT OF WAIVER OF PRINCIPAL AMOUNT OF LOAN WAS TO BE TREATED AS INCOME UNDER SECTION 28(IV). ON APPEAL, THE FIRST APPELLATE AUTHORITY, FOLLOWING DECISION IN ISKRAEMECO REGENT LTD. V. CIT [2011] 331 ITR 317 (MAD), HELD THAT SECTION 28(IV) HAD NO APPLICATION TO CASES INVOLVING WAIVER OF PRINCIPAL AMOUNT OF LOAN. ON REVENUE'S APPEAL, THE TRIBUNAL FOUND THAT THE TERM LOAN HAD BEEN USED BY ASSESSEE FOR ACQUIRING CAPITAL ASSETS. THEREFORE, THE TRIBUNAL ALSO FOLLOWED THE DECISION IN ISKRAEMECO REGENT LTD. (SUPRA) AND CONFIRMED THE ORDER OF THE FIRST APPELLATE AUTHORITY. ON APPEAL, THE JURISDICTIONAL HIGH COURT HELD AS UNDER: THE DELHI HIGH COURT IN LOGITRONICS (P.) V. CIT AND ROLLATAINERS LTD. V. CIT [2011] 339 ITR 54 (DELHI), FOLLOWED THE DECISION OF MADRAS HIGH COURT IN ISKRAEMECO REGENT LTD. (SUPRA) AND E XPOUNDED THE LAW THAT IF A LOAN HAD BEEN TAKEN FOR ACQUIRING A CAPITAL ASSET, WAIVER THEREOF WOULD NOT AMOUNT TO ANY INCOME EXIGIBLE TO TAX. IF THE LOAN IS TAKEN FOR TRADING PURPOSES AND WAS ALSO TREATED AS SUCH FROM THE BEGINNING IN THE BOOKS OF ACCOUNT, THE WAIVER THEREOF MAY RESULT IN THE INCOME, MORE SO WHEN IT IS TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT. BUT, THE DELHI HIGH COURT BOTH IN LOGITRONICS (P.) LTD. (SUPRA) AS WELL AS IN ROLLATAINERS LTD. (SUPRA), DID NOT TAKE NOTE OF ONE FALLACY IN THE REA SONING GIVEN IN THE DECISION OF THIS COURT IN ISKRAEMECO REGENT LTD. (SUPRA). IN THAT DECISION THIS COURT HELD THAT SECTION 28(IV) SPEAKS ONLY ABOUT A BENEFIT OR PERQUISITE RECEIVED IN KIND AND THAT, THEREFORE, IT WOULD HAVE NO APPLICATION TO ANY TRANSACTI ON INVOLVING MONEY. THE ABOVE REASONING DOES NOT APPEAR TO BE CORRECT IN THE LIGHT OF THE EXPRESS LANGUAGE OF SECTION 28(IV). WHAT IS TREATED AS INCOME CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION' UNDER SECTION 28 (IV), IS 'THE VALUE OF ANY BENEFIT - OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION. THEREFORE, IT IS NOT THE ACTUAL RECEIPT OF MONEY, BUT THE RECEIPT OF A BENEFIT OR PERQUISITE, WHICH HAS A MONET ARY VALUE, WHETHER SUCH BENEFIT OR PERQUISITE IS CONVERTIBLE INTO MONEY OR NOT, WHICH IS WHAT IS COVERED BY SECTION 28(IV). SAY FOR INSTANCE, A GIFT VOUCHER IS ISSUED, ENABLING THE HOLDER OF THE VOUCHER TO HAVE DINNER IN A RESTAURANT, IT IS A BENEFIT OR PE RQUISITE, WHICH HAS A MONETARY VALUE. IF THE HOLDER OF THE VOUCHER IS ENTITLED TO TRANSFER IT TO SOMEONE ELSE FOR A MONETARY CONSIDERATION, IT BECOMES A PERQUISITE CONVERTIBLE INTO MONEY. BUT, IRRESPECTIVE OF WHETHER IT IS CONVERTIBLE INTO MONEY OR NOT, IT SHOULD HAVE A MONETARY VALUE SO AS TO ATTRACT SECTION 28(IV). I.T.A. NO . 2434 / M/ 1 6 9 A MONETARY TRANSACTION, IN THE TRUE SENSE OF THE TERM, CAN ALSO HAVE A VALUE. ANY NUMBER OF INSTANCES WHERE A MONETARY TRANSACTION CONFERS A BENEFIT OR PERQUISITE THAT WOULD HAVE A VALUE, CAN BE CONCEIVED OF. THERE MAY BE CASES WHERE AN INCENTIVE IS GRANTED BY THE SUPPLIER, WAIVING A PORTION OF THE SALE PRICE OR GRANTING A REBATE OR DISCOUNT OF A PORTION OF THE PRICE TO BE PAID, WHEN THE PAYMENTS SCHEDULED OVER A PERIOD OF TIME, ARE MADE PROMP TLY. IT IS NEEDLESS TO POINT OUT THAT IN SUCH CASES, THE PROMPT PAYMENT OF MONEY ITSELF BRINGS FORTH A BENEFIT IN THE FORM OF AN INCENTIVE OR A REBATE OR A DISCOUNT IN THE PRICE OF THE PRODUCT. WE DO NOT KNOW WHY IT SHOULD NOT HAPPEN IN THE CASE OF WAIVER OF A PART OF THE LOAN. THEREFORE, THE FINDING RECORDED IN DECISION IN ISKRAEMECO REGENT LIMITED (SUPRA) THAT SECTION 28(IV) HAS NO APPLICATION TO ANY TRANSACTION, WHICH INVOLVES MONEY, IS A SWEEPING STATEMENT AND MAY NOT STAND IN THE LIGHT OF THE EXPRESS L ANGUAGE OF SECTION 28(IV). THE WAIVER OF A PORTION OF THE LOAN WOULD CERTAINLY TANTAMOUNT TO THE VALUE OF A BENEFIT. THIS BENEFIT MAY NOT ARISE FROM 'THE BUSINESS' OF THE ASSESSEE. BUT, IT CERTAINLY ARISES FROM 'BUSINESS'. THE ABSENCE OF THE PREFIX 'THE' T O THE WORD 'BUSINESS' MAKES A WORLD OF DIFFERENCE. IN SO FAR AS ACCOUNTING PRACTICES ARE CONCERNED, NO SUCH DISTINCTION EXISTS. IRRESPECTIVE OF THE PURPOSE FOR WHICH, A LOAN IS AVAILED BY AN ASSESSEE, THE AMOUNT OF LOAN IS ALWAYS TREATED AS A LIABILITY AN D IT GETS REFLECTED IN THE BALANCE SHEET AS SUCH. WHEN A REPAYMENT IS MADE IN MONTHLY, QUARTERLY, HALF YEARLY OR YEARLY INSTALMENTS, THE INSTALMENT IS DIVIDED INTO TWO COMPONENTS, ONE RELATING TO INTEREST AND ANOTHER RELATING TO A PORTION OF THE PRINCIPAL. TO THE EXTENT OF THE PRINCIPAL REPAID, THE LIABILITY AS REFLECTED IN THE BALANCE SHEET GETS REDUCED. THE INTEREST PAID ON THE PRINCIPAL AMOUNT OF LOAN, WILL BE ALLOWED AS DEDUCTION, IN COMPUTING THE INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', AS PER THE PROVISIONS OF THE ACT. BUT, SECTION 36(1)(III) MAKES A DISTINCTION. THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION IS ALLOWED AS DEDUCTION UNDER SECTION 36(1)(III), IN COMPUTING THE INCOME REFERRED TO IN SECTION 28. BUT, THE PROVISO THEREUNDER STATES THAT ANY AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION, WHETHER CAPITALISED IN THE BOOKS OF ACCOU NT OR NOT FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR THE ACQUISITION OF THE ASSET, TILL THE DATE ON WHICH SUCH ASSET WAS PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION. THEREFORE, IT IS CLEAR THAT THE MOMENT THE ASSET IS PU T TO USE, THEN THE INTEREST PAID IN RESPECT OF THE CAPITAL BORROWED FOR ACQUIRING THE ASSET, COULD BE ALLOWED AS DEDUCTION. WHEN THE LOAN AMOUNT BORROWED FOR ACQUIRING AN ASSET GETS WIPED OFF BY REPAYMENT, TWO ENTRIES ARE MADE IN THE BOOKS OF ACCOUNT, ONE IN THE PROFIT AND LOSS ACCOUNT WHERE PAYMENTS ARE I.T.A. NO . 2434 / M/ 1 6 10 ENTERED AND ANOTHER IN THE BALANCE SHEET WHERE THE AMOUNT OF UNREPAID LOAN IS REFLECTED ON THE SIDE OF THE LIABILITY. BUT, WHEN A PORTION OF THE LOAN IS REDUCED, NOT BY REPAYMENT, BUT BY THE LENDER WRITING IT OFF (EITHER UNDER A ONETIME SETTLEMENT SCHEME OR OTHERWISE), ONLY ONE ENTRY GETS INTO THE BOOKS, AS A NATURAL ENTRY. A DOUBLE ENTRY SYSTEM OF ACCOUNTING WILL NOT PERMIT OF ONE ENTRY. THEREFORE, WHEN A PORTION OF THE LOAN IS WAIVED, THE TOTAL AMOUNT OF L OAN SHOWN ON THE LIABILITIES SIDE OF THE BALANCE SHEET IS REDUCED AND THE AMOUNT SHOWN AS CAPITAL RESERVES, IS INCREASED TO THE EXTENT OF WAIVER. ALTERNATIVELY, THE AMOUNT REPRESENTING THE WAIVED PORTION OF THE LOAN IS SHOWN AS A CAPITAL RECEIPT IN THE PRO FIT AND LOSS ACCOUNT ITSELF. THESE ASPECTS HAVE NOT BEEN TAKEN NOTE OF IN ISKRAEMECO REGENT LTD.(SUPRA) IN VIEW OF ABOVE, THE WAIVER OF PRINCIPAL AMOUNT WOULD CONSTITUTE INCOME FALLING UNDER SECTION 28(IV) BEING THE BENEFIT ARISING FOR THE BUSINESS. THE REFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF RAMANIYAM HOMES PVT. LTD, THE AMOUNT OF LOAN WAIVER OF RS.1,49,25,000/ - IS CONFIRMED AS THE INCOME OF THE APPELLANT. THE APPELLANT FAILS ON THIS GROUND. 7. WHI LE REFERRING TO THE DECISION OF THE DIVISION BENCH IN THE CASE OF ISKKRAEMECO REGENT LTD. V. CIT (SUPRA) TO CONSIDER THE ISSUE AS TO WHETHER THE LOAN WAIVER BENEFIT SHOULD BE CONSIDERED AS THE INCOME OF THE ASSESSEE, IN THE CASE OF RAMANIYAM HOMES PVT. LTD . (SUPRA), THE HON BLE JURISDICTIONAL HIGH COURT HAS OBSERVED THAT THE FINDING RECORDED IN THE DECISION IN THE CASE OF ISKRAEMECO REGENT LIMITED (SUPRA) THAT S ECTION 28(IV) HAS NO APPLICATION TO ANY TRANSACTION, WHICH INVOLVES MONEY, IS A SWEEPING STATEMEN T AND MAY NOT STAND IN THE LIGHT OF THE EXPRESS LANGUAGE OF SECTION 28(IV). FURTHER, THE HON BLE HIGH COURT HAS OBSERVED THAT W HEN THE LOAN AMOUNT BORROWED FOR ACQUIRING AN ASSET GETS WIPED OFF BY REPAYMENT, TWO ENTRIES ARE MADE IN THE BOOKS OF ACCOUNT, ON E IN THE PROFIT AND LOSS ACCOUNT I.T.A. NO . 2434 / M/ 1 6 11 WHERE PAYMENTS ARE ENTERED AND ANOTHER IN THE BALANCE SHEET WHERE THE AMOUNT OF UNREPAID LOAN IS REFLECTED ON THE SIDE OF THE LIABILITY. BUT, WHEN A PORTION OF THE LOAN IS REDUCED, NOT BY REPAYMENT, BUT BY THE LENDER WRITIN G IT OFF (EITHER UNDER A ONETIME SETTLEMENT SCHEME OR OTHERWISE), ONLY ONE ENTRY GETS INTO THE BOOKS, AS A NATURAL ENTRY. A DOUBLE ENTRY SYSTEM OF ACCOUNTING WILL NOT PERMIT OF ONE ENTRY. THEREFORE, WHEN A PORTION OF THE LOAN IS WAIVED, THE TOTAL AMOUNT OF LOAN SHOWN ON THE LIABILITIES SIDE OF THE BALANCE SHEET IS REDUCED AND THE AMOUNT SHOWN AS CAPITAL RESERVES, IS INCREASED TO THE EXTENT OF WAIVER. ALTERNATIVELY, THE AMOUNT REPRESENTING THE WAIVED PORTION OF THE LOAN IS SHOWN AS A CAPITAL RECEIPT IN THE P ROFIT AND LOSS ACCOUNT ITSELF. THESE ASPECTS HAVE NOT BEEN TAKEN NOTE OF IN ISKRAEMECO REGENT LTD.(SUPRA) . THUS, BY TAKING INTO ACCOUNT OF THE ACCOUNTING SYSTEM AS WELL AS PROPER INTERPRETATION OF THE PROVISIONS OF SECTION, THE HON BLE MADRAS HIGH COURT HA S NOT FOLLOWED THE DECISION IN THE CASE OF ISKRAEMECO REGENT LIMITED (SUPRA) AND ACCORDINGLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE , WHICH WAS FOLLOWED BY THE LD. CIT(A) TO CONFIRM THE DISALLOWANCE MADE BY THE ASSESSING OFFICER . 8. WE HAVE ALSO PERUSED THE DECISION RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE IN THE CASE OF CIT V. FIDELITY TEXTILES P. LTD. (SUPRA) AND WE ARE OF THE CONSIDERED OPINION THAT THE CASE LAW HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE, BECAUSE IN T HAT CASE, THE FACTS ARE THAT A BRITISH NATIONAL I.T.A. NO . 2434 / M/ 1 6 12 AND TWO INDIAN CITIZENS, JOINED TOGETHER AND FLOATED A LIMITED COMPANY. THE BRITISH NATIONAL BROUGHT IN FOREIGN FUNDS TO THE TUNE OF .2,95,00,000/ - . AFTER SOME TIME, THE BRITISH NATIONAL ENTERED INTO AN AGREEMENT WITH THE OTHER TWO PERSONS, ON 26.06.2000. UNDER THE SAID AGREEMENT, THE BRITISH NATIONAL AGREED TO WAIVE THE LOAN AMOUNT THAT HE ADVANCED TO THE ASSESSEE COMPANY IN RETURN FO R A PROMISE THAT NO LIABILITY ARISING OUT OF NON - FULFILLMENT OF EXPORT OBLIGATIONS SHOULD BE FASTENED ON HIM. CONSIDERING THE TERMS CONTAINED IN THE AGREEMENT TO BE A QUID PRO QUO , THE ASSESSING OFFICER TREATED THE LOAN AMOUNT AS REVENUE INCOME FOR THE COM PANY. THIS IS NOT THE FACTS IN THE PRESENT CASE IN HAND. THUS, THE FACTS ARE ENTIRELY DIFFERENT IN THE CASE LAW RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. 9. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE FIND NO REASON TO INTERFERE WITH THE ORDERS O F THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THE 21 ST APRIL , 201 7 AT CHENNAI. SD/ - SD/ - (CHANDRA POOJARI) ACCOU NTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 21 . 0 4 .201 7 VM/ - I.T.A. NO . 2434 / M/ 1 6 13 / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.