AI Insights
The case involves an appeal by the Assistant Commissioner of Income Tax, Circle-2, Nagpur against M/s. Sharda Ispat Ltd. concerning the assessment year 2009-2010. The primary issues in the appeal were the validity of the reopening of the assessment under section 147 of the Income Tax Act, 1961, and the taxability of a waived loan amount of Rs.5,79,61,882 as well as the inclusion of Rs.14,680 as short-term capital gains. The CIT(A) had earlier ruled in favor of the assessee, which the Revenue challenged in the Tribunal. The Tribunal's decision affirmed the CIT(A)'s findings, leading to the dismissal of the Revenue's appeal.
Appeal details
Counselvise Citation
[2022] 140 COUNSELVISE.COM (IT) 136805 (ITAT-NAGPUR)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 2 month(s) 25 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
22-11-2022
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
DB
Next Hearing Date
14-11-2022
Assessment Year
misc
Appeal Filed On
27-08-2021
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCHES : NAGPUR (THROUGH VIRTUAL HEARING) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER ITA.No.309/Nag./2017 Assessment Year 2009-2010 The ACIT, Circle-2, Nagpur. vs., M/s. Sharda Ispat Ltd., Kamptee Road, Nagpur PIN 440 026 PAN AABCS8628N (Appellant) (Respondent) For Revenue : Shri KailashKanojia, DR For Assessee : Shri Rajesh Loya, C.A. Date of Hearing : 15.11.2022 Date of Pronouncement : 23.11.2022 ORDER PER SATBEER SINGH GODARA, J.M. This Revenue’s appeal for A.Y. 2009-10, arises against the CIT(A)-2, Nagpur’s order dated 31.05.2017, passed in case No.CIT(A)-2/41/2015-16, in proceedings under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 [“In short Act”]. 2. Heard both the parties. Case file perused. 3. The Revenue raises the following substantive grounds in the instant appeal : 1. “ On the facts and in the circumstances of the case and in law the Ld. CIT(Appeals) has erred in holding that the reopening of the assessment within the meaning of section 147 of the Act is not within the ambit of law. 2 ITA.No.309/Nag./2017 M/s. Sharda Ispat Ltd., Nagpur. 2. On the facts and in the circumstances of the case and in law the Ld.CIT(Appeals) has erred in so holding ignoring the fact that the notice u/s 148 was issued within 4 years of the end of the assessment year and therefore the first proviso to section 147 does not apply in as much and truly all material facts necessary for the assessment is not a precondition for issue of such notice u/s 148. 3. On the facts and circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.5,79,61,882/- made by the Assessing Officer on account of waiver of loan amount as remission or cessation of liability. 4. On the facts and circumstances of the case, the Ld.CIT(Appeals)-2, Nagpur erred in deleting the addition of Rs. 14,680/- being STCG in the computation of income in the order passed u/s 143(3) r.w.s. 147 of the Act. 5. Any other ground which may be urged with the permission the Hon’ble Tribunal.” 4. It emerges during the course of hearing that we hardly need to deal with the relevant factual matrix at length as Revenue could hardly convince us regarding all the three issues raised herein involving validity of section 148/147 proceedings followed by section 41(1) cessation of liability by way of waiver of loan amount of Rs.5,79,61,882/- and short term capital gains addition of Rs.14,680/-; respectively. 3 ITA.No.309/Nag./2017 M/s. Sharda Ispat Ltd., Nagpur. 5. Suffice to say, we find during the course of hearing that the CIT(A)’s lower appeal detailed discussion running into 34 pages has termed the impugned reopening itself as a mere change of opinion not sustainable in the light of CIT vs., Kelvinator of India [2010] 320 ITR 561 (SC) thereby holding that the Assessing Officer had duly examined the assessee’s entire records during his regular assessment framed on 30.12.2011. We note with the able assistance coming from both the sides that the assessing authority herein appears to have recorded its reasons to believe of the taxpayer’s taxable income having escaped assessment on account of waiver of loan by the banks to the tune of Rs.5,79,61,882/- amounting cessation of liability only u/s. 41(1) of the Act. 5.1. Both the learned representatives referred to the said reasons of reopening which are hardly found to be sustainable in law. We make it clear that hon’ble apex court landmark decision in Sugauli Sugar Works P. Ltd. vs. Union of India [1999] 236 ITR 518 (SC) had settled the law that there has to be an actual cessation of liability in assessee’s books so as to attract Section 41(1) of the Act which applies in case the same have been claimed as an expenditure or liability, as the case, may be, in preceding years. There has to be a clear cut live nexus to be proved at the Revenue’s behest between the expenditure or liabilities claimed in the past, which in-turn, form subject matter of any remission or cessation in 4 ITA.No.309/Nag./2017 M/s. Sharda Ispat Ltd., Nagpur. subsequent assessment years in other words. The Assessing Officer’s reopening reasons [intimated on 03.06.2014] hardly throw any light qua this clinching aspect. We notice in this factual backdrop that the CIT(A)’s detailed discussion rejects such existence of such a nexus outrightly in his detailed discussion as follows : “ 7.5. The appellant has contended that the provisions of section 41(1) is applicable on remission of only those trading liabilities for which an allowance/ deduction respect of loss, expenditure has been allowed to the assessee in any assessment year and subsequent thereto during any previous year, if the assessee obtains any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, and the same is deemed to be the profits and gains of business and profession chargeable to tax in that previous year. Thus the sine qua non of invoking section 41(1) is that in any earlier assessment year, the allowance or deduction ought to have been made in computing the income chargeable to tax. In the case of the appellant there is no dispute that the loan was obtained from financial institution and banks which was not allowed as deduction in any previous year as it was not a trading liability created out of any 5 ITA.No.309/Nag./2017 M/s. Sharda Ispat Ltd., Nagpur. expenditure or loss. Therefore, section 41(1) has no application to the case of the appellant.” 6. Learned DR at this stage took us to the CIT(A)’s detailed discussion in paragraphs 7.1 to 7.3 and vehemently argued that the provisions of section 41(1) duly get satisfied in facts of the instant case as follows : “ 7.1. The assessee is a private limited company engaged in the business of manufacturing of TOR steel, wire, rod, angle and other re-rolled products. The company was declared sick under the Sick Industrial Companies Act, 1985. Therefore, the assessee company applied for the reconstruction and rehabilitation before the 'Board for Industrial and Financial Reconstruction (BIFR)'. In the course of rehabilitation, the management has made one time settlement with three banks/financial institutions viz., IDBI, IFCI and SBI. BIFR has sanctioned rehabilitation scheme of the company on 21.01.2010 and declared the loan amounts with the financial institutions and banks as NPA as the assessee company was unable to repay the loan as well as the interest amount. In the process of settlement the assessee company got the relief of waiver of principal amount of loan of Rs.5,79,61,882/- which was credited to the 'Capital Reserve Account' in the balance sheet of the company. The contention of the 6 ITA.No.309/Nag./2017 M/s. Sharda Ispat Ltd., Nagpur. appellant is that since the principal loan amount is in the nature of 'Capital receipt', it is credited to the 'Capital Reserve Account' in the balance sheet. The claim of the assessee was accepted by the AO in the original assessment order passed u/s 143(3) passed u/s 143(3) treating the remission of loan as a ‘Capital receipt' . However, in the re-assessment proceedings u/s 143(3) r.w.s 147 of the Act, the AO has added the principal amount of waiver of loan of Rs.5,79,61,882/- to the total income of the assessee by holding that the amount of loan waived by the bank is cessation of liability and therefore, is taxable in the hands of the assessee company u/s 41(1) of the Act. 7.2. The contention of the appellant is that the waiver of loan is a 'Capital receipt', not chargeable to tax. The appellant has submitted that the company had obtained the loan from the banks and the financial institutions in the earlier years which could not be repaid because of heavy losses suffered by the company. Therefore, according to the appellant, the loan amount has become NPA in the year 1998 and thereafter the company was declared as sick industrial company and matter was referred to BIFR. The appellant has contended that the loan obtained from the banks and the financial institutions was utilized for acquisition of capital assets. The appellant 7 ITA.No.309/Nag./2017 M/s. Sharda Ispat Ltd., Nagpur. in this regard has drawn the attention to the balance sheet of the earlier period of the company explaining the purpose and utilization of the loan obtained from the banks and the financial institutions. The AR has explained to the AO that the company has under taken the expansion cum modernization programme in the year 1995-96 with the capital investment planning of more than Rs.16 crores out of which approximately Rs.10 crores were sourced through term loan from the banks and the financial institutions. The appellant has submitted that the term loan from IDBI was utilized for acquisition of capital assets including the plant & machinery, transformer, electrical equipments etc. The appellant in support of his claim has also enclosed a letter dated 09.04.2002 from IDBI wherein the purpose of loan and non-payment of dues are specified. The appellant has further submitted that the utilization of loan from the financial institutions has also been specified in the balance sheets filed with the department. The total amount outstanding to IDBI which was in dispute is Rs.8,01,00,000/- and the settlement was arrived at Rs.5,25,00,000/-. Thus, the balance amount of Rs.2,76,00,000/- is the waiver of principal amount on account of one time settlement in respect of the loan amount from the IDBI bank. Thus, the appellant has contended that the waiver of loan liability being capital 8 ITA.No.309/Nag./2017 M/s. Sharda Ispat Ltd., Nagpur. receipt in the books of account of the company was credited to the 'Capital Reserve Account'. 7.3. As regards to the settlement with the State Bank of India, the appellant has submitted that the working capital facility was increased during the period from F.Y. 1993 to F.Y.1997 when the expansion cum has submitted that since the funds available with the company were already blocked in the working capital, and there was no balance available for payment of margin money and payment of acquisition of plant & machinery on which no term loans were taken. Therefore, under such situation the company had utilized the amount available in the working capital facility of SBI for investment in margin money or capital assess purchased on loan as well as for acquisition of capital assets. This fact is verifiable from the audited financial statements and gross block of assets during the expansion period from F.Y. 1993 to F.Y. 1998. On perusal of the financial statements and balance sheet it is seen that the total purchases and investment in capital assets during the period 1993 to 1998 is around Rs.23 crores and the term loan obtained for investment in capital asset is approximately Rs.10 crores only. Thus, the appellant has contended that the balance amount of approximately Rs.13 crores has been utilized from the 9 ITA.No.309/Nag./2017 M/s. Sharda Ispat Ltd., Nagpur. working capital facility provided by the SBI. The working capital loan outstanding as on 31.03.1992 is Rs.5.06 cr. which had been increased to Rs.10.58 cr. as on 31.03.1998. The appellant has further submitted that the outstanding amount to SBI was at Rs.12.03 cr. Out of which settlement was reached in respect of Rs.9 cr. And the balance of Rs.3.03 cr. Is the waiver of principal amount of loan from SBI. All these details of purpose of loan from the banks and the financial institutions were filed before the AO during the original scrutiny assessment as well as during the re-assessment proceedings. The Id. AO has accepted the use and purpose of utilization of loan towards capital expenditure and the same is not disputed by the AO. The appellant has filed a copy of submission filed before the AO during the re-assessment proceedings along with the audited financial statements which are annexed at page No.6 to 15 of the paper book filed by the appellant. The appellant had thus demonstrated that the Id. AO had verified the submission of the assessee and there is no dispute about the purpose for which the loan was obtained and its utilization for acquisition of capital asset. In this regard the appellant has relied on the decision of Hon'ble ITAT, Mumbai Bench in ITA No.1986 & 3012/Mum/2012-13 dated 20.04.2016 in the case of Trigyn Technologies Ltd. vs. ACIT wherein the Hon'ble 10 ITA.No.309/Nag./2017 M/s. Sharda Ispat Ltd., Nagpur. Tribunal found that the "Loan was sanctioned for working capital/ for acquisition". However, the same was utilized for acquisition of capital assets. The Tribunal had held that the amount having been utilized for capital assets, the remission of loan subsequently is a capital receipt.” 7. We find no merit in the Revenue’s instant arguments once there is no finding of fact at all; either recorded by the Assessing Officer or CIT(A), that any of the assessee’s expenditure or liabilities claimed as revenue items in earlier assessment years, have undergone cessation or remission as the case may be, in the relevant previous year. We, thus, reject Revenue’s contentions both on validity of reopening as well as on merits so far as this first and foremost issue of section 41(1) addition of Rs.5,79,61,882/- is concerned. 7.1. The factual position would hardly be any different regarding the later issue of alleged short term capital gains addition of Rs.14,680/- wherein the CIT(A) has noted the Assessing Officer’s section 154 computation itself as follows : “10.2. On careful examination of the material facts, it is seen that the short term capital gains has not arisen in the hands of the appellant pursuant to the demerger scheme effective from 01.04.2008 nor such capital gain was found included in the computation of revised return of income filed by the appellant. The revised 11 ITA.No.309/Nag./2017 M/s. Sharda Ispat Ltd., Nagpur. return of income filed by the appellant has already been considered in the order passed u/s 154 dated 24.12.2012. The AO has correctly started the computation of income from the computation of income as per order u/ s 154 of the Act. However, the ACIT, Circle-2, has erroneously considered the amount of STCG of Rs.14,680/- as per original return while making computation in the order u/s 143(3) r.w.s.147. Therefore, the same is directed to be deleted.” 7.2. We thus, therefore, no reason to interfere with the learned CIT(A)’s findings on the instant later issue as well. Rejected accordingly. 7.3. No other ground or argument has been pressed before us. 8. This Revenue’s appeal is dismissed in above terms. Order pronounced in the open court on 23.11.2022. Sd/- Sd/- [DR. DIPAK P. RIPOTE] [SATBEER SINGH GODARA] ACCOUNTANT MEMBER JUDICIAL MEMBER Pune, Dated 23 rd November, 2022 VBP/- 12 ITA.No.309/Nag./2017 M/s. Sharda Ispat Ltd., Nagpur. Copy to 1. The appellant 2. The respondent 3. The Ld. CIT(A) concerned. 4. The CIT concerned 5. D.R. ITAT, Nagpur Bench, Nagpur 6. Guard File. //By Order// Assistant Registrar, ITAT, Pune Benches, Pune.
Mehul