DCIT - 3(3)(1), MUMBAI V. RAMA INDUSTRIES LTD., MUMBAI

ITA 3634/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5224 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 25-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI
• Keywords: Capital asset; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D , BENCH MUMBAI BEFORE SHRI M.BALAGANESH, AM & SHRI AMARJIT SINGH, JM ITA NO. 3634 /MUM/201 8 ( ASSESSMENT YEAR : 2010 - 11 ) DY. COMMISSIONER OF INCOME TAX - 3(3)(1), ROOM NO.609, 6 TH FLOOR AAYAKAR BHAVAN M.K .ROAD, MUMBAI 400 020 VS. M/S. RAMA INDUSTRIES LTD 812, RAHEJA CHAMBERS FREE PRESS JOURNAL MARG NARIMAN POINT MUMBAI 400 021 PAN/GIR NO. AAACR5096C (APPELLANT ) .. (RESPONDENT ) REVENUE BY SHRI D.G. PANSARI ASSESSEE BY NONE DATE OF HEARING 05 / 08 /2019 DATE OF PRONOUNCEMENT 21 / 08 /2019 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN ITA NO. 3634/MUM/2018 FOR A.Y. 2010 - 11 ARISES OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 8, MUMBAI IN APPEAL NO. CIT - 8/I T - 31/12 - 13 DATED 22/03/2018 (LD. CIT(A) IN SHORT) AGAINST THE ORDER OF ASSESSMENT PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 30/04/2012 BY THE LD. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 3(3), MUMBAI (HEREINAFTE R REFERRED TO AS LD. AO). 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE IN THE SUM OF ITA NO. 3634/MUM/2018 M/S. RAMA INDUSTRIES LTD., 2 RS.2,22,08,961/ - ON ACCOUNT OF PRINCIPAL AMOUNT OF LOAN WAIVED BY THE BANK IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1 . NONE APPEARED ON BEHALF OF THE ASSESSEE. SINCE THE ISSUE IS COVERED, WE PROCEED TO HEAR THE LD. DR AND DISPOSE OFF THE APPEAL BASED ON THE MATERIALS AVAILABLE ON RECORD. 3. WE FIND THAT THE ASSESSEE HAS BEEN DECLARED AS A SICK INDUSTRIAL COMPANY BY BOARD OF INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR). THE ASSESSEE HAS BEEN GRANTED ONE TIME SETTLEMENT SCHEME FOR ITS WORKING CAPITAL LOAN BY ORIENTAL BANK OF COMMERCE WHEREIN , THE INTEREST PORTION WAIVED HAS BEEN DULY OFFER ED TO TAX BY THE ASSESSEE, ON WHICH THERE IS NO DISPUTE. THE PRINCIPAL COMPONENT OF LOAN WAIVED BY THE BANK WORKED OUT TO RS.2,22,08,961/ - . THIS AMOUNT WAS NOT OFFERED TO TAX BY THE ASSESSEE IN THE RETURN OF INCOME ON THE GROUND THAT IT IS CAPITAL IN NATUR E. THE LD. AO HOWEVER, DISAGREED WITH THE VIEW OF THE ASSESSEE AND ADDED THE SAME TO THE TOTAL INCOME ON THE GROUND THAT IN ASSESSEES OWN CASE FOR A.Y.2009 - 10 SIMILAR ADDITION WAS MADE BY HIM VIDE ORDER PASSED U/S.143(3) OF THE ACT DATED 14/03/2011. WE FI ND THAT IN A.Y.2009 - 10, THIS ADDITION WAS MADE BY APPLYING THE PROVISIONS OF SECTION 41(1) AND 28( IV) OF THE ACT. THE LD. CIT(A) HAD DELETED THE ADDITION FOR A.Y.2009 - 10. 3.1. WE FIND THAT THE LD. CIT(A) HAD OBSERVED IN A.Y.2009 - 10 THAT NO DEDUCTION OR B ENEFIT WAS CLAIMED BY THE ASSESSEE IN RESPECT OF PRINCIPAL COMPONENT OF THE LOAN IN EARLIER YEARS AND ACCORDINGLY, THE PROVISIONS OF SECTION 41(1) OF THE ACT CANNOT BE MADE APPLICABLE TO THE SAME. WE FIND THAT THE LD. CIT(A) HAD ALSO OBSERVED IN A.Y.2009 - 1 0 THAT SINCE THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF OBTAINING LOANS AND HENCE, THE WAIVER OF SUCH LOANS BY THE BANKS COULD NOT BE CONSTRUED AS BENEFIT ITA NO. 3634/MUM/2018 M/S. RAMA INDUSTRIES LTD., 3 ARISING FROM SUCH BUSINESS AND ACCORDINGLY, THE SAME CANNOT BE BROUGHT TO TAX U/S.28( IV ) OF THE ACT. THE LD. CIT(A) THEREAFTER , PLACED RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. CIT REPORTED IN 128 TAXMAN 394 (BOM) AND DELETED THE ADDITION. THE LD. CIT(A) FOR THE YEAR UNDER CONSIDERAT ION I.E. A.Y.2010 - 11 HAD MERELY FOLLO WED THOSE DIRECTIONS AND DELETED THE ADDITION TOWARDS THE WAIVER OF PRINCIPAL COMPONENT OF LOAN BY THE BANK IN THE SUM OF RS.2,22,08,961/ - . WE FIND THAT THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M AHINDRA & MAHINDRA LTD., SUPRA WHICH WAS RELIED UPON BY THE LD. CIT(A) HAD BEEN SUBSEQUENTLY APPROVED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. MAHINDRA & MAHINDRA REPORTED IN 255 TAXMAN 305 (SC) WHEREIN IT WAS HELD AS UNDER: - THE TERM 'LOAN' G ENERALLY REFERS TO BORROWING SOMETHING, ESPECIALLY A SUM OF CASH THAT IS TO BE PAID BACK ALONG 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 IT IS A WELL - SETTLED PRINCIPLE THAT CREDITOR OR HIS SUCCESSOR MAY EXERCISE THEIR 'RIGHT OF WAIVER' UNILATERALLY TO ABSOLVE THE DEBTOR FROM HIS LIABILITY TO REPAY. AFTER SUCH EXERCISE, THE DEBTOR IS DEEMED TO BE ABSOLVED FROM THE LIABILITY OF REPAYMENT OF LOAN SUBJECT TO THE CONDITIONS OF WAIVER. THE WAIVER MAY BE A PARTLY WAIVER 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, WAIVER OF LOAN BY THE CREDITOR RESULTS IN THE DEBTOR HAVING EXTRA CASH IN HIS HAND. IT IS RECEIPT IN THE HANDS OF THE DEBTOR/ASSESSEE. THE SHORT BUT COGENT ISSUE IN THE INSTANT CASE ARISES WHETHER WAIVER OF LOAN BY THE CREDITOR IS TAXABLE AS A PERQUISITE UNDER SECTI ON 28(IV) OR TAXABLE AS A REMISSION OF LIABILITY UNDER SECTION 41(1). ON A PLAIN READING OF SECTION 28(IV), PRIMA FACIE, IT 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), THE BENEFIT WHICH IS RECEIVED HAS TO BE IN SOME OTHER FORM RATHER THAN IN THE SHAPE OF MONEY. IN THE INSTANT CASE, IT IS A MATTER OF RECORD THAT THE AMOUNT OF RS.57.74 LAKHS IS HAVING RECEIVED AS CASH RECEIPT DUE TO THE WAIVER OF LOAN. THEREFORE, THE VERY FIRST CONDITION OF SECTION 28(IV) 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 INSTANT CASE. HENCE, IN NO CIRCUMSTANCES, IT CAN BE SAID THAT THE AMOUNT OF RS 57.74 LAKHS CAN BE TAXED UNDER THE PROVISIONS OF SECTION 28(IV). ITA NO. 3634/MUM/2018 M/S. RAMA INDUSTRIES LTD., 4 ON A PERUSAL OF SECTION 41(1), IT IS EVIDENT THAT IT IS A SINE QUA NON THAT THERE SHOULD BE AN ALLOWANCE O R DEDUCTION CLAIMED BY THE ASSESSEE IN ANY ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE. THEN, SUBSEQUENTLY, DURING ANY PREVIOUS YEAR, IF THE CREDITOR REMITS OR WAIVES ANY SUCH LIABILITY, THEN THE AS SESSEE IS LIABLE TO PAY TAX UNDER SECTION 41. THE OBJECTIVE BEHIND THIS SECTION IS SIMPLE. IT IS MADE TO ENSURE THAT THE ASSESSEE DOES NOT GET AWAY WITH A DOUBLE BENEFIT ONCE BY WAY OF DEDUCTION AND ANOTHER BY NOT BEING TAXED ON THE BENEFIT RECEIVED BY HIM IN THE LATER YEAR WITH REFERENCE TO DEDUCTION ALLOWED EARLIER IN CASE OF REMISSION OF SUCH LIABILITY. IT IS UNDISPUTED FACT THAT THE ASSESSEE HAD BEEN PAYING INTEREST AT 6 PER CENT PER ANNUM TO THE KJC AS PER THE CONTRACT BUT THE ASSESSEE NEVER CLAIMED DE DUCTION FOR PAYMENT OF INTEREST UNDER SECTION 36(1)(III). IN THE CASE AT HAND, THE COMMISSIONER(APPEALS) RELIED UPON SECTION 41(1) AND HELD THAT THE ASSESSEE HAD RECEIVED AMORTIZATION BENEFIT. AMORTIZATION IS AN ACCOUNTING TERM THAT REFERS TO THE PROCESS O F ALLOCATING THE COST OF AN ASSET OVER A PERIOD OF TIME, HENCE, IT IS NOTHING ELSE THAN DEPRECIATION. DEPRECIATION IS A REDUCTION IN THE VALUE OF AN ASSET OVER TIME, IN PARTICULAR, TO WEAR AND TEAR. THEREFORE, THE DEDUCTION CLAIMED BY THE ASSESSEE IN PREVI OUS ASSESSMENT YEARS WAS DUE TO THE DEPRECATION OF THE MACHINE AND NOT ON THE INTEREST PAID BY IT. MOREOVER, THE PURCHASE EFFECTED FROM THE KJC IS IN RESPECT OF PLANT, MACHINERY AND TOOLING EQUIPMENTS WHICH ARE CAPITAL ASSETS OF THE ASSESSEE. IT IS IMPORT ANT TO NOTE THAT THE SAID PURCHASE AMOUNT HAD NOT BEEN DEBITED TO THE TRADING ACCOUNT OR TO THE PROFIT OR LOSS ACCOUNT IN ANY OF THE ASSESSMENT YEARS. IT IS TO BE NOTED THAT THERE IS DIFFERENCE BETWEEN 'TRADING LIABILITY' AND 'OTHER LIABILITY'. SECTION 41( 1) PARTICULARLY DEALS WITH THE REMISSION OF TRADING LIABILITY. WHEREAS IN THE INSTANT CASE, WAIVER OF LOAN AMOUNTS TO CESSATION OF LIABILITY OTHER THAN TRADING LIABILITY. HENCE, THERE IS NO FORCE IN THE ARGUMENT OF THE REVENUE THAT THE CASE OF THE ASSESSEE WOULD FALL UNDER SECTION 41(1). TO SUM UP, THE JUDGMENT AND ORDER PASSED BY THE HIGH COURT CANNOT BE INTERFERED WITH FOR THE FOLLOWING REASONS: A ) SECTION 28(IV) DOES NOT APPLY ON THE PRESENT CASE SINCE THE RECEIPTS OF RS 57.74 LAKHS ARE IN THE NATURE OF C ASH OR MONEY. B ) SECTION 41(1) DOES NOT APPLY SINCE WAIVER OF LOAN DOES NOT AMOUNT TO CESSATION OF TRADING LIABILITY. IT IS A MATTER OF RECORD THAT THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION UNDER SECTION 36(1)(III) QUA THE PAYMENT OF INTEREST IN ANY PREVIOU S YEAR. C ) IN VIEW OF ABOVE DISCUSSION, THE APPEALS BEING DEVOID OF MERIT ARE DISMISSED . ITA NO. 3634/MUM/2018 M/S. RAMA INDUSTRIES LTD., 5 3.2. RESPECTFULLY FOLLOWING THE SAME, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION IN THE SUM OF RS.2,22,08,961/ - TOWARDS WAIVER OF PR INCIPAL AMOUNT OF LOAN. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 4. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 / 08 /201 9 SD/ - ( AMARJIT SINGH ) SD/ - (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 21 / 08 / 2019 KARUNA , SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//