M/s. OK Play India Ltd., Haryana V. JCIT, Gurgaon

ITA 3402/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8923 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 14-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 09-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business expenditure; Opportunity of being heard; Capital receipt; Capital expenditure; TDS; Set aside; Capital Gains
• Section: 143(3); 40(a)(ia); 194C; 195; 194A; 13; 68; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.3402/DEL/2016 ASSESSMENT YEAR: 2011-12 M/S. OK PLAY INDIA LTD. 17-18, ROZ-KA-MEO INDUSTRIAL ESTATE, TEHSIL NUH, DISTRICT- MEWAT, HARYANA VS. JCIT, RANGE-II, GURGAON PAN :AAACO2623G (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST O RDER DATED 31/03/2016 PASSED BY THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-1, GURGAON [IN SHORT THE LD. CIT(A)] FO R ASSESSMENT YEAR 2011-12 RAISING FOLLOWING GROUNDS: 1 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) 1, GURGAON HAS GROSSLY ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING AN ADDITION OF RS. 9,46,73,015/- REPRESENTING DISCOUNT ON BUY BACK ON FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB) APPELLANT BY SHRI GAUTAM JAIN, ADV. & SHRI LALIT MOHAN, CA RESPONDENT BY MS. PRAMITA M. BISWA, SR. DR DATE OF HEARING 31.10.2019 DATE OF PRONOUNCEMENT 13.01.2020 2 ITA NO.3402/DEL./2016 1.1 THAT THE LEARNED ASSESSING OFFICER HAS FAILED T O APPRECIATE THAT THE LOAN RAISED BY WAY OF FCCB WAS FOR CAPITAL PURPOSES AND THEREFO RE ANY DISCOUNT ON BUY BACK IS CAPITAL RECEIPT AND THUS NOT TAXABLE. 1.2 THAT THE CONCLUSION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT FCCB WAS NEITHER DEBT AND NOR SHARES IN THE INSTANT YEAR BUT HYBRID INSTRUMENT IS FACTUALLY AND LEGALLY MISCONCEIVED AN D THEREFORE UNTENABLE. 1.3 THAT VARIOUS JUDGMENTS RELIED UPON BY THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) TO BRING TO TAX THE AFORESAID CAPITAL RECEIPT ARE WHOLLY INAPPLICABLE TO THE FACTS OF THE CASE OF THE APPELL ANT COMPANY. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS FURTHER ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE O F CLAIM OF DEDUCTION OF FOLLOWING BUSINESS EXPENDITURE INCURRED BY THE APPE LLANT COMPANY BY INVOKING SECTION 40(A)(IA) OF THE ACT: SR. NO. PARTICULARS AMOUNT (RS.) I) INTEREST AND PROCESSING CHARGES PAID TO INDIAN OVERSEAS BANK, HONGKONG 98,41,570/- II) LOAN PROCESSING CHARGES PAID TO HSIIDC LTD. 2,28,370/- TOTAL 1,00,69,940/ - 2.1 THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) WHILE UPHOLDING THE DISALLOWANCE HAS FAILED TO APPRECIATE THAT SUM OF R S. 98,41,570/- REPRESENTED PAYMENT MADE TO A BANKING COMPANY TO WHICH BANKING REGULATION ACT WAS APPLICABLE AND WAS A RESIDENT AND THEREFORE SECTION 195 OF THE ACT HAD NO APPLICATION AND THUS INVOCATION OF SECTION 40(A)(I) OF THE ACT WAS PERSE MISPLACED, MISCONCEIVED AND UNTENABLE. 2.2 THAT EVEN OTHERWISE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THAT SECTION 40(A)(IA) OF THE ACT HAS NO APPLICATION VIZ-A- VIZ ALLEGED DEFAULT OF NON DEDUCTION OF TDS U/S 195 OF THE ACT. 2.3 THAT THE FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT APPELLANT HAS NOT EXPLAINED THE NATURE OF TRANSACTI ON WITH HSIIDC BECAUSE IF THE SAME IS PROCESSING CHARGES PAID, THEN TDS PROVI SION WOULD APPLY AND DISALLOWANCE OF EXPENSE FOR NON DEDUCTION OF TDS WA S JUSTIFIED IS FACTUALLY AND LEGALLY ERRONEOUS AND OVERLOOKS THE SUBMISSION OF THE APPELLANT THAT HSIIDC LTD. IS A FINANCIAL CORPORATION WHICH IS COV ERED AS EXEMPTED FROM TAX DEDUCTION AS PER SECTION 194A(3)(III)(B) AND THEREF ORE NO DISALLOWANCE WAS WARRANTED. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED BOTH IN LAW AND ON FACTS IS NOT SPECIFICALLY DELETING THE DISAL LOWANCE OF RS. 5,82,825/- AND RS. 4,80,480/- MADE BY INVOKING SECTION 194C READ W ITH SECTION 40(A)(IA) OF THE ACT. 3 ITA NO.3402/DEL./2016 IT IS THEREFORE PRAYED THAT ADDITION/DISALLOWANCES MADE AND SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MAY KINDLY BE DELETED AND APPEAL OF THE APPELLANT COMPANY BE ALLOWED. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE WAS ENGAGED IN MANUFACTURING AND TRADING OF PLASTIC MOU LDED TOYS, SCHOOL FURNITURE, PLAYGROUND EQUIPMENT, INFRASTRUCT URE AND AUTOMOTIVE PRODUCTS ETC. THE ASSESSEE FILED RETURN OF INCOME ON 26/09/2011, DECLARING LOSS OF 9,10,87,560/-. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT. THE SCRUTINY ASSE SSMENT UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHOR T THE ACT) WAS COMPLETED ON 07/03/2014, WHEREIN CERTAIN ADDITION/DISALLOWANCE WERE MADE. AGGRIEVED, THE ASS ESSEE FILED APPEAL BEFORE THE LD. CIT(A), WHO PARTLY ALLOWED TH E APPEAL OF THE ASSESSEE. AGGRIEVED WITH THE ADDITION SUSTAINED BY THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISI NG THE GROUNDS AS REPRODUCED ABOVE. 3. THE FIRST GROUND RAISED BY THE ASSESSEE IS AGAINST UPHOLDING THE ADDITION OF 9,46,70,015/- FOR A DISCOUNT ON BUY-BACK OF FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB). 3.1 THE BRIEF FACTS RELATED TO THIS ISSUE ARE THAT, TH E ASSESSEE RAISED AN AMOUNT OF 40,41,71,000/-BY WAY OF ISSUE OF FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB) IN FINANCIAL YEAR 2007-08 RELEVANT TO ASSESSMENT YEAR 2008-09 FROM TWO OVERSE AS ENTITIES. AS A RESULT OF EXCHANGE FLUCTUATION, THE FCCB LOAN AT THE BEGINNING OF THE INSTANT YEAR STOOD AT 44,97,59,000 (RS.40,41,71,000 + 4,55,88,000). DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR, THE ASSESSEE BOUGH T BACK THE FCCB AT A DISCOUNT OF 24% OF THE FACE VALUE OF THE FCCB AND 4 ITA NO.3402/DEL./2016 THUS, REPAID A SUM OF 33,45,96,810/-. THE DISCOUNT ON BUY- BACK OF FCCB WAS OF 9,46,73,015/-WHICH WAS CREDITED TO RESERVE AND SURPLUS ACCOUNT AS DISCOUNT ON FCCB B OUGHT BACK. ACCORDING TO THE ASSESSEE, THE LOAN THROUGH THE FCCB BEING A CAPITAL RECEIPT, THE DISCOUNT THEREON WAS ALSO CAPITAL RECEIPT AND THEREFORE, THE DISCOUNT ON FCCB WAS NOT CHARGEABLE TO TAX. IT WAS ALSO CONTENDED THAT FCCB WAS NOT CLA IMED OR ALLOWED AS DEDUCTION IN ANY PREVIOUS YEAR, THUS, IT WAS NOT COVERED UNDER SECTION 41(1) OF THE ACT AND IT IS NO T INCOME CHARGEABLE TO TAX IN THE YEAR UNDER CONSIDERATION. BUT ACCORDING TO THE ASSESSING OFFICER, THE FCCB ARE CONVERTIBLE INTO EQUITY SHARES AND INTENTION AND THE MOTIVE OF THE COMPANY IN ISSUE OF THE FCCB WAS TO RAISE FUNDS AS PART OF CAPITAL OF T HE COMPANY FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY AND SUCH FUNDS WERE UTILIZED FOR THE PURPOSE OF THE BUSINESS. ACCORDING TO HIM, TRANSACTIONS RELATING TO FCCB WERE ADVENTURE IN THE NATURE OF TRADE AND THUS THE DISCOUNT ON THE FCCB WAS BUSINES S INCOME. THE ASSESSING OFFICER ALSO REJECTED THE CONTENTION OF THE ASSESSEE THAT DISCOUNT ON BUY-BACK OF FCCB WAS CAPITAL RECEI PT. THE ASSESSING OFFICER OBSERVED THAT FUNDS WERE RAISED T HROUGH FCCB BY THE ASSESSEE WITH THE CLEAR INTENTION OR MOTIVE TO EARN PROFIT FROM DISCOUNT ON BUY-BACK OF FCCB AND THUS, ESSENTI ALLY THE DISCOUNT ON FCCB IS A TRADING RECEIPT. ALTERNATIVEL Y, THE ASSESSING OFFICER ALSO HELD THAT THE DISCOUNT WAS U NEXPLAINED CREDIT UNDER SECTION 68 OF THE ACT. ON FURTHER APP EAL, THE LD. CIT(A) RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LOGITRONICS (P) LIMITED VS CIT (2011), 197 TAXMAN 394 (DELHI) , WHEREIN IT IS HELD THAT IF THE LOAN WAS TAKEN FOR 5 ITA NO.3402/DEL./2016 ACQUIRING THE CAPITAL ASSET, ANY WAIVER THEREOF WOU LD NOT AMOUNT TO ANY INCOME EXISABLE TO TAX, BUT ON THE OTHER HAN D, IF THE LOAN WAS TAKEN FOR TRADING PURPOSES AND WAS TREATED AS S UCH FROM VERY BEGINNING IN THE BOOKS OF ACCOUNTS, THE WAIVER MAY RESULT IN THE INCOME. 3.2 THE LD. CIT(A) ALSO RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD. VERSUS DY. CIT (2009) 308 ITR 417 (BOM.) AND DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ARIES ADVERTISING PRIVATE LIMITED (2002) 255 ITR 510 . 3.3 IN VIEW OF THE DECISIONS RELIED UPON, THE LD. CIT( A) HELD THAT AMOUNT OF GAIN ON DISCOUNT OF FCCB HAS TO BE SUBJEC TED TO TAX IN THE YEAR IN WHICH SUCH INSTRUMENT HAS BEEN DISCOUNT ED AND CONSEQUENT GAIN RESULTED WOULD BE INCOME. 3.4 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FILED P APER-BOOK IN TWO VOLUMES, CONTAINING PAGES 1 TO 132 AND 133 T O 310. THE LD. COUNSEL REFERED TO PAGE 235 -241 TO DEMONSTRATE HOW THE FCCB HAS BEEN UTILIZED FOR ACQUISITION OF CAPITAL A SSETS. HE SUBMITTED THAT IN VIEW OF THE FCCB UTILIZED FOR CAP ITAL EXPENDITURE, THE AMOUNT RECEIVED ON DISCOUNT OF SUC H FCCB WAS NOT TAXABLE EVEN ACCORDING TO THE DECISIONS RELIED UPON BY THE LD. CIT(A). 3.5 THE LD. COUNSEL REFERED TO THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS MAHINDRA AND MAH INDRA LTD. REPORTED IN 404 ITR 1 IN THE CONTEXT OF SECTIO N 28(IV) OF THE ACT AND SUBMITTED THAT BENEFIT RECEIVED IN FORM OTH ER THAN THE SHAPE OF THE MONEY ARISING FROM THE BUSINESS COULD ONLY BE CONSIDERED UNDER SECTION 28(IV) OF THE ACT. ACCORDI NG TO THE LD. 6 ITA NO.3402/DEL./2016 COUNSEL IN THE INSTANCE CASE, SUM BROUGHT TO TAX RE PRESENTS LOANS OUTSTANDING AT THE BEGINNING OF THE YEAR AND ALSO O UTSTANDING AT THE CLOSE OF THE YEAR THUS, IT WAS APPARENT THAT TH ERE WAS NO BENEFIT AND IN ABSENCE OF ANY BENEFIT, THERE CAN BE NO INCOME THAT CAN REFERRED TO TAX UNDER SECTION 28(IV) OF THE ACT . THE LD. COUNSEL SUBMITTED THAT THE DEBT WAVED OR FOREGONE CANNOT P ARTAKE THE EFFECT OF INCOME EITHER UNDER SECTION 41 (1) OR SE CTION 28 OF THE ACT, AS HELD IN THE CASE OF CIT VS MAHINDRA AND MAH INDRA LTD (SUPRA). HE ALSO RELIED ON THE DECISIONS OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS PHOOL CHAND JIWAN RAM, 1 31 ITR 37 (DEL). 3.6 THE LD. DR, ON THE OTHER HAND, ALSO FILED A PAPER BOOK CONTAINING PAGES 1 TO 329 AND RELIED ON THE FINDING OF THE LOWER AUTHORITIES. HE SUBMITTED THAT EXPENSES ON RAISING THE FCCB HAS BEEN CLAIMED AS REVENUE EXPENSE, THEN THE DISCOUNT ON REPAYMENT OF FCCB SHOULD ALSO BE TREATED AS REVENUE RECEIPT. 3.7 WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RE LEVANT MATERIAL ON RECORD. THE ASSESSEE RAISED FCCB IN THE EARLIER YEAR AND DURING THE YEAR REPAID WITH DISCOUNT OF 9,46,73,015/- RECEIVED. ACCORDING TO THE ASSESSEE, THE DISCOUNT R ECEIVED IS IN THE NATURE OF CAPITAL RECEIPT BUT ACCORDING TO THE REVENUE THE DISCOUNT IS IN THE NATURE OF TRADING RECEIPT. THE ASSESSING OFFICER HAS ALLEGED THE ACTIVITY OF RAISING FCCB AS AN ADV ENTURE IN THE NATURE OF TRADE. THIS FINDING OF THE ASSESSING OFFI CER IS WITHOUT ANY BASIS. THE ASSESSEE IS NOT ENGAGED IN RAISING T HE FCCB WITH MOTIVE OF ANY TRADING AND DISCOUNTING AND THEREBY E ARNING PROFIT ON THE SAME. THE ALLEGATION BY THE ASSESSING OFFICE R OF MOTIVE AND INTENT OF EARNING PROFIT BY THE ASSESSEE ARE UNSUBS TANTIATED WITH 7 ITA NO.3402/DEL./2016 ANY EVIDENCES. ON THE CONTRARY, THE ASSESSEE HAS S UBSTANTIATED THAT IT RAISED THE FCCB FOR FUNDING ITS ACQUISITION OF ASSETS. FURTHER, THE LD. CIT(A) HAS RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LOGITRINICS (P) LTD (SUPRA), WHEREIN IT IS HELD AS UNDER: '27..... WE, THEREFORE, RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR HIS FRESH ADJUDICATION WITH A DIRECTION TO THE ASSESSEE TO FURNISH ALL THE DETAILS AND PARTICULARS OF LOAN, AND THE PURPOSE FOR WHICH THE LOAN TAKEN FROM BANK WAS UTIL IZED. ALL THESE INFORMATION ARE WITHIN THE CONTROL AND SPECIFIC KNO WLEDGE OF THE ASSESSEE AND, THEREFORE, IT WOULD BE THE DUTY OF TH E ASSESSEE TO PROVE AND ESTABLISH THAT THE AMOUNT OF LOAN TAKEN F ROM THE BANK WAS UTILIZED FOR THE PURPOSE OF ACQUIRING CAPITAL A SSETS IN CASE THE ASSESSEE WANTS TO HAVE THE BENEFIT OF DECISION OF H ON BLE DELHI HIGH COURT IN THE CASE OF TOSHA INTERNATIONAL LTD. (SUPRA) AS WELL AS THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CA SE OF MAHINDRA & MAHINDRA LTD. (SUPRA). IF ON AN ENQUIRY AND VERIF ICATION, IT TRANSPIRES THAT THE ASSESSEE HAS UTILIZED THE LOAN FOR THE PURPOSE OF ITS BUSINESS ACTIVITY OR TRADING ACTIVITY, THE AMOU NT OF LOAN TO THE EXTENT IT HAS BEEN WAIVED BY THE BANK SHALL BE DEEM ED TO BE THE ASSESSEES INCOME CHARGEABLE TO TAX AS PER THE DECI SION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS L TD. (SUPRA), WHERE THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREM E COURT IN THE CASE OF TV. SUNDARAMLYENGAR& SONS LTD. (SUPRA) HAS BEEN APPLIED AND FOLLOWED. UNDER SECTION 4 , THE CHARGING SECTION, THE CHARGE OF INCOME-TAX IS UPON THE 'TOTAL INCOME OF THE PREVIOUS YEAR. THE T ERM INCOME IS DEFINED UNDER SECTION 2(24). IN GENERAL, ALL RECEIP TS OF REVENUE NATURE, UNLESS SPECIFICALLY EXEMPTED, ARE CHARGEABL E TO TAX. LOAN TAKEN IS NOT NORMALLY A KIND OF RECEIPT WHICH WILL BE TREATED AS INCOME. HOWEVER, WHEN A PART OF THAT LOAN IS WAIVED OFF BY THE CREDITOR, SOME BENEFIT ACCRUES TO THE ASSESSEE. QUE STION IS WHAT WOULD BE THE CHARACTER OF WAIVER OF PART OF THE LOA N AT THE HANDS OF THE ASSESSEE? WAIVER DEFINITELY GIVES SOME BENEFIT TO THE ASSESSEE. WHETHER IT IS TO BE TREATED AS CAPITAL RECEIPT? IF IT IS SO, THEN ONLY CAPITAL GAINS TAX WOULD BE CHARGEABLE UNDER SECTION 45 OR ELSE, WHETHER REMISSION OF LOAN IS NO INCOME AT ALL? THE ANSWER TO THESE QUESTIONS WOULD DEPEND UPON THE PURPOSE FOR WHICH T HE SAID LOAN WAS TAKEN. IF THE LOAN WAS TAKEN FOR ACQUIRING THE CAPITAL ASSET, WAIVER THEREOF WOULD NOT AMOUNT TO ANY INCOME EXIGI BLE TO TAX, BUT ON THE OTHER HAND, IF THE LOAN WAS TAKEN FOR TRADIN G PURPOSE AND WAS TREATED AS SUCH FROM THE VERY BEGINN ING IN THE BOOKS OF 8 ITA NO.3402/DEL./2016 ACCOUNT, THE WAIVER THEREOF MAY RESULT IN THE INCOM E, MORE SO WHEN IT WAS TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT. [PARA 23] 3.8 THE HONBLE HIGH COURT HAS LAID DOWN TEST FOR HOLD ING THE AMOUNT OF WAIVER OF LOAN AS CAPITAL OR TRADING RECE IPT. IF THE AMOUNT OF THE LOAN HAS BEEN UTILIZED FOR CAPITAL EX PENDITURE, THEN THE WAIVER AMOUNT IS IN THE NATURE OF THE CAPITAL RECEIPT AND IF THE AMOUNT OF THE LOAN HAS BEEN UTILIZED FOR TRADIN G PURPOSES THEN THE WAIVER AMOUNT RECEIVED WOULD BE IN THE NAT URE OF TRADING RECEIPT. 3.9 BEFORE US, THE ASSESSEE HAS DEMONSTRATED HOW THE F CCB AMOUNT HAS BEEN UTILIZED TOWARDS CAPITAL EXPENDITUR E. THE ASSESSEE SUBMITTED ENTIRE LIST OF CAPITAL ASSET ACQ UIRED THROUGH THE FUNDS OF FCCB, WHICH IS AVAILABLE ON PAGE 235 T O 241 OF THE PAPER BOOK. THE ASSESSEE HAS SHOWN CAPITAL EXPENDIT URE OF MORE THAN RS.21 CRORES UPTO MARCH, 2008. THE LD. DR COUL D NOT CONTROVERT THIS FACTUAL ASPECT OF UTILIZATION OF TH E FCCB TOWARD CAPITAL EXPENDITURE. IN INSTANT CASE, ONCE IT IS UN DISPUTED THAT FCCB AMOUNT HAS BEEN UTILIZED TOWARD CAPITAL EXPEND ITURE, IN VIEW OF THE DECISION OF THE HONBLE DELHI HIGH COUR T IN THE CASE OF LOGOTRONICS (P) LTD (SUPRA), THE DISCOUNT ON FCCB F ALLS IN THE NATURE OF CAPITAL RECEIPT NOT EXIGIBLE TO TAX. THE LD. CIT(A) HAS GIVEN HIS FINDING ON WRONG ASSUMPTION OF THE FACT T HAT FCCB FUNDS WERE UTILIZED FOR TRADING OR REVENUE EXPENDIT URE, WITHOUT VERIFYING THE BOOKS OF ACCOUNT OF THE ASSESSEE. 3.10 THE HONBLE APEX COURT IN THE CASE OF CIT VS. MAH INDRA AND MAHINDRA LTD. (SUPRA) ON THE ISSUE OF BENEFIT T AXABLE UNDER SECTION 28(IV) HAS HELD AS UNDER: 9 ITA NO.3402/DEL./2016 10. THE TERM 'LOAN' GENERALLY REFERS TO BORROWING SOMETHING, ESPECIALLY A SUM OF CASH THAT IS TO BE PAID BACK AL ONG 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 AB SOLVE THE DEBTOR FROM HIS LIABILITY TO REPAY. AFTER SUCH EXERCISE, T HE DEBTOR IS DEEMED TO BE ABSOLVED FROM THE LIABILITY OF REPAYMENT OF L OAN SUBJECT TO THE CONDITIONS OF WAIVER. THE WAIVER MAY BE A PARTLY WA IVER 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, W AIVER OF LOAN BY THE CREDITOR RESULTS IN THE DEBTOR HAVING EXTRA CAS H IN HIS HAND. IT IS RECEIPT IN THE HANDS OF THE DEBTOR/ASSESSEE. THE SH ORT BUT COGENT ISSUE IN THE INSTANT CASE ARISES WHETHER WAIVER OF LOAN BY THE CREDITOR IS TAXABLE AS A PERQUISITE UNDER SECTION 2 8 (IV) OF THE IT ACT OR TAXABLE AS A REMISSION OF LIABILITY UNDER SECTIO N 41 (I) 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, WHETHE R 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 P ROVISION, 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 F ORM RATHER THAN IN THE SHAPE OF MONEY. IN THE PRESENT CASE, IT IS A MA TTER 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 FIRS T CONDITION OF SECTION 28 (IV) OF THE IT ACT WHICH SAYS ANY BENEFI T OR PERQUISITE ARISING FROM THE BUSINESS SHALL BE IN THE FORM OF B ENEFIT OR PERQUISITE OTHER THAN IN THE SHAPE OF MONEY, IS NOT SATISFIED IN THE PRESENT CASE. HENCE, IN OUR VIEW, IN NO CIRCUMSTANCES, IT C AN BE SAID THAT THE AMOUNT OF RS 57,74,064/- CAN BE TAXED UNDER THE PRO VISIONS OF SECTION 28 (IV) OF THE IT ACT. [EMPHASIS SUPPLIED] 10 ITA NO.3402/DEL./2016 3.11 IN THE INSTANT CASE, THE BENEFIT HAS BEEN RECEIVED IN THE SHAPE OF THE MONEY AND THUS, THE SAID BENEFIT CANNO T BE HELD AS TAXABLE EVEN UNDER SECTION 28(IV) OF THE ACT. 3.12 IN VIEW OF THE DISCUSSION ABOVE, WE SET ASIDE THE F INDING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND HOLD THA T THE DISCOUNT RECEIVED ON FCCB IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. THE GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS ACCOR DINGLY ALLOWED. 4. THE GROUND NO. 2 OF THE APPEAL RELATES TO DISALLO WANCE UNDER SECTION 40(A)(IA) OF THE ACT FOR NON-DEDUCTIO N OF TAX AT SOURCE ON CERTAIN PAYMENTS MADE. 4.1 OUT OF THE DISALLOWANCES MADE BY THE ASSESSING OFF ICER ON THIS ACCOUNT, THE LD. CIT(A) UPHELD DISALLOWANCE OF 98,41,570/- FOR PAYMENT TO INDIAN OVERSEAS BANK (IOB) HONG KONG AND PAYMENT RS.2,28,370/- TO HSIIDC LTD. ACCORDING TO T HE ASSESSING OFFICER, THE PAYMENT MADE TO IOB HONG KONG IN INDIA OR THROUGH ANY BRANCH OF IOB IN INDIA, WAS LIABLE FOR TAX AT S OURCE IN INDIA UNDER SECTION 195 OF THE ACT. REGARDING PAYMENT TO HSIIDC, THE ASSESSING OFFICER HELD THAT PAYMENT WAS FOR SERVICE S AND HSIIDC IS NOT A FINANCIAL COMPANY/CORPORATION ESTABLISHED BY THE STATE AND WAS NOT EXEMPT FROM TDS UNDER SECTION 194A OF T HE ACT. THE LD. CIT(A) UPHELD THE DISALLOWANCES OBSERVING AS UN DER: 7.2 I HAVE CONSIDERED EACH AND EVERY DISALLOWANCE ABOVE IN THE LIGHT OF CONTENTION IN RESPECT OF EACH EXPENSE AS U NDER:- A) PAYMENT TO INDIAN OVERSEAS BANK HONG KONG:- THE ASS ESSING OFFICER CONTENDED THAT TDS WAS TO BE DEDUCTED U/S 1 95 ON INTEREST OF RS.58,79,570/- AND PROCESSING FEES PAYM ENT OF RS.39,62,000/- THE APPELLANT CONTENDS THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN DISALLOWING A SUM OF RS. 98,41 ,570.00 ON ACCOUNT OF INTEREST AND CHARGES PAID TO INDIAN OVER SEAS BANK, 11 ITA NO.3402/DEL./2016 HONG KONG, ON THE GROUND THAT NO TAX HAS BEEN DEDUC TED ON THE SAME. THAT IT WAS SUBMITTED TO HIM THAT THE PAY MENT HAS BEEN MADE TO THE BANK AND HENCE IS OUT OF THE AMBIT OF TAX DEDUCTION. THAT HOWEVER, THE LEARNED ASSESSING OFFI CER RELYING ON HIS OWN INTERPRETATION, HAS OBSERVED THA T THE SAME WAS COVERED IN THE TAX DEDUCTION. THAT IT IS SUBMIT TED THAT THE PAYMENT HAS BEEN MADE TO A BRANCH OF AN INDIAN BANK ON WHICH NEITHER THE PROVISIONS OF SECTION 194 OR THOS E OF SECTION 195 ARE APPLICABLE. THAT IN SUPPORT OF THE APPELLAN TS AVERMENTS, A COPY OF THE CONFIRMATION FROM THE BANK IS ALSO ENCLOSED (PAGE 60 ATTACHED) HEREWITH MENTIONING THA T THE PAYMENT IS MADE TO A BRANCH OF THE INDIAN BANK AND HENCE THE PROVISIONS OF TAX DEDUCTION ARE NOT APPLICABLE. THAT IT IS ACCORDINGLY SUBMITTED THAT THE DISALLOWANCE HAS BEE N INCORRECTLY MADE. I HAVE CONSIDERED THE ARGUMENT ABOVE AND FIND THAT THE CERTIFICATE ISSUED BY THE BANK IS DATED 19.01.2011 WHICH NOWHERE MENTIONS THE NATURE OF TRANSACTION WITH THE BANK AND THE PAYMENT MADE IS EITHER INTEREST CHARGES OR PROCESSING CHARGES PAID TO AN INDIAN BANK. EVEN OTHERWISE THE EXPENSE IS IN RELATION TO EXTENDING EXTERNAL COMMERCIAL BOR ROWING (ECB) FACILITY PROVIDED TO THE APPELLANT FOR DISCOU NTING OF FCCB WHICH HAS CONNOTATION OF SERVICE AND AS SUCH M AKING PAYMENT TO THE BANK FOR ANY KIND OF CONTRACTUAL SER VICES IS LIABLE FOR DEDUCTION AT SOURCE. THE PAYMENT MADE EV EN IF IT IS ASSUMED IS TO AN INDIAN BANK, STILL IT WOULD BE COV ERED UNDER THE PROVISIONS OF TDS. THE DISALLOWANCE IS UPHELD. B) HSIIDC LIMITED: THE ASSESSING OFFICER DID NOT AGREE THAT THE PAYMENT TO HSIIDC FOR LOAN PROCESSING CHARGES IS NO T LIABLE FOR TDS. THE APPELLANT CONTENDS THAT THE LEARNED ASSESSING OFFICER HAS FURTHER ERRED IN ADDING A SUM OF RS.2,2 8,370.00 BEING AMOUNT OF INTEREST PAID TO HSIIDC LIMITED ON THE GROUND THAT NO TAX WAS DEDUCTED AT SOURCE BY THE AGGRIEVED APPELLANT. THAT IT WAS SUBMITTED DURING THE COURSE OF ASSESSMENTS AND REITERATED NOW THAT HSIIDC LIMITED IS A FINANCIAL CORPORATION WHICH IS COVERED AS EXEMPTED FROM TAX DEDUCTION AS PER SEC 194A (3) (III) (B) AND HENCE A NY PAYMENT OF INTEREST TO THEM CAN BE MADE WITHOUT DEDUCTION O F TAX AND HENCE THERE IS NO DEFAULT ON THE PART OF THE APPELL ANT. THAT IT IS ACCORDINGLY SUBMITTED THAT THE DISALLOWANCE BE REVE RSED. I HAVE GIVEN CAREFUL CONSIDERATION AND FIND THAT APPELLANT HAS NOT EXPLAINED THE NATURE OF TRANSACTI ON WITH HSIIDC BECAUSE IF THE SAME IS PROCESSING CHARGES PA ID, THEN TDS PROVISION WOULD APPLY AND DISALLOWANCE OF EXPEN SE FOR NON-DEDUCTION OF TDS WAS JUSTIFIED. C) 12 ITA NO.3402/DEL./2016 4.2 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITT ED THAT LOWER AUTHORITIES HAS ADJUDICATED THE ISSUE WITHOUT PROPER APPRECIATION OF THE FACTS. HE SUBMITTED THAT INTERE ST PAYMENT HAS BEEN MADE TO THE BANK, ON WHICH THE ASSESSEE IS NOT REQUIRED TO DEDUCT PAYMENTS. HE SUBMITTED THAT THE MATTER MAY B E RESTORED TO THE FILE OF THE ASSESSING OFFICER AND BEFORE HIM THE ASSESSEE CAN SUBMIT ALL THE NECESSARY DOCUMENTARY EVIDENCE T O SUPPORT THAT THE ASSESSEE WAS NOT LIABLE FOR DEDUCTION OF T AX AT SOURCE ON THOSE PAYMENTS. 4.3 ON THE OTHER HAND, LD DR THOUGH RELIED ON THE ORDE R OF THE LOWER AUTHORITIES, DID NOT OBJECT FOR RESTORING MAT TER TO THE ASSESSING OFFICER FOR VERIFICATION OF NATURE OF PAY MENT AND ENTITIES IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 4.4 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT METAL ON RECORD. THE ISSUE INVOLVED IS REG ARDING LIABILITY OF DEDUCTION OF TAX AT SOURCE. THE CONTENTION OF TH E ASSESSEE IS THAT THE PAYMENTS ARE NOT LIABLE FOR DEDUCTION OF T AX AT SOURCE AND THE LOWER AUTHORITIES HAS DECIDED WITHOUT VERIF YING THE NATURE OF THE PAYMENT AND CONSTITUTION OF THE ENTITIES. TH E LD. COUNSEL SUBMITTED BEFORE US THAT IN CASE THE MATTER IS REST ORED BACK TO THE ASSESSING OFFICER, ALL NECESSARY DOCUMENTARY EV IDENCES WILL BE SUBMITTED TO SUBSTANTIATE ITS CLAIM THAT PAYMENTS A RE NOT LIABLE TO TAX DEDUCTED AT SOURCE. IN OUR OPINION, LOWER AU THORITIES HAVE NOT VERIFIED THE EXACT NATURE OF PAYMENTS AND CONST ITUTION OF THE ENTITIES. IN VIEW OF THE UNDERTAKING GIVEN BY THE A SSESSEE, WE FEEL IT APPROPRIATE TO RESTORE THE ISSUE BACK TO THE ASS ESSING OFFICER FOR DECIDING THE SAME AFRESH. ACCORDINGLY, THE ISSU E IS RESTORED 13 ITA NO.3402/DEL./2016 BACK TO THE ASSESSING OFFICER TO DECIDE THE ISSUE A FRESH, AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. THUS, THIS GROUND NO. 2 OF THE APPEAL IS ALLOWED FO R STATISTICAL PURPOSES. 5. THE GROUND NO. 3 OF THE APPEAL WAS NOT PRESSED BEF ORE US, THUS IT IS DISMISSED AS INFRUCTUOUS. 6. IN THE RESULT, THE APPEAL IS ALLOWED PARTLY FOR ST ATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 13 TH JANUARY, 2020. SD/- SD/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 13 TH JANUARY, 2020. RK/-(D.T.D.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI