Deputy Commissioner of Income-tax, Circle - 1, Nashik V. Artheon Battery Company Pvt.Ltd, Nashik

ITA 410/PUN/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6970 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 28-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VIJAY B REDDY
• Keywords: Capital asset; Capital receipt; Capital expenditure
• Section: 208; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, J UDICIAL MEMBER . / ITA NO . 410 /PUN/201 8 / ASSESSMENT YEAR : 20 14 - 15 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, NASHIK ...... / APPELLANT / V/S. ARTHEON BATTERY COMPANY PVT. LTD., E - 11, MALEGAON MIDC, JINDAL STEEL ROAD, SINNAR, NASHIK 422113 PAN : AAHCA8411F / RESPONDENT ASSESSEE BY : SHRI HARIOM TULSYAN REVENUE BY : SHRI T. VIJAY B. REDDY / DATE OF HEARING : 31 - 08 - 2021 / DATE OF PRONOUNCEMENT : 07 - 0 9 - 2021 / ORDER PER S.S. VISWANETHRA RAVI, JM : THIS APPEAL BY THE REVENUE AGAINST THE ORDER DATED 15 - 12 - 2017 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 1, NASHIK [CIT(A)] FOR ASSESSMENT YEAR 2014 - 15. 2 ITA NO .410/PUN/2018, A.Y. 2014 - 15 2. THE APPELLANT - REVENUE RAISED FOUR GROUNDS OF APPEAL AMONGST WHICH THE ONLY ISSUE EMANATES FOR OUR CONSIDERATION IS AS TO WHETHER THE CIT(A) JUSTIFIED IN DELETI NG THE ADDITION MADE INVOKING THE PROVISIONS OF SECTION 28( IV ) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURING OF COMPLETE LINE OF LEAD - ACID BATTERIES, SERVING DOMESTIC AND EXPORT AS WELL. THE AO FOUND THAT THE ASSESSEE HAS CREDITED IN ITS RESERVE ACC OUNT AN AMOUNT OF RS.25,19,15,516/ - WHICH WAS WAIVED ON EXTERNAL COMMERCIAL BORROWINGS (ECB) LOAN ACCOUNT. THE AO ASKED THE ASSESSEE WHY THE WAIVED OF F ECB LOAN SHOULD NOT BE TAXED U/S. 28(IV) OF THE ACT. IT WAS SUBMITTED AS PER THE ACCOUNT STANDARD THE WAIVER OF F LOAN SHALL NOT BE TREATED AS ORDINARY BUSINESS ACTIVITIES AS THE SAID ECB WERE AVAILED TO ACQUIRE CAPITAL ASSETS. THE SAID WAIVER OF ECB LOAN IS A CAPITAL IN NATURE AND IS NOT CHARGEABLE TO TAX. THE AO DID NOT FOUND THE SUBMISSIONS OF ASSESSEE AS ACCEPTABLE AND TREATED THE SAID AMOUNT AS INCOME U/S. 28(IV) OF THE ACT. THE CIT(A) HELD AS THE LOAN AVAILED FOR THE PURPOSE OF CAPITAL ASSETS AND THE WAIVER OF PRINCIPAL AMOUNT WOULD BE A CAPITAL RECEIPT , NOT LIABLE TO TAX. HAVING AGGRIEVED, THE APP ELLANT - REVENUE IS BEFORE US. 4. THE LD. DR, SHRI T. VIJAY B. REDDY SUBMITS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE BROADLY RELIED UPON FROM THE JUDGMENT OF HONBLE HIGH COURT OF BOMABY IN THE CASES OF SANTOGEN SILK MILLS LTD. REPO RTED IN 57 TAXMAN.COM 208 (BOM.) AND MAHINDRA & MAHINDRA LTD. REPORTED IN 261 ITR 501 (BOM.) . THE AO CONTENDED THAT THE 3 ITA NO .410/PUN/2018, A.Y. 2014 - 15 JUDGMENTS AS RELIED UPON BY THE ASSESSEE HAVE NOT BEEN ACCEPTED BY THE APPELLANT - REVENUE AS THE SLP WERE PENDING FOR ADJUDICATION BEFOR E THE HONBLE SUPREME COURT. HE SUBMITS THAT THE AO HEAVILY PLACED RELIANCE ON THE JUDGMENT OF HONBLE HIGH COURT OF MADRAS IN THE CASE OF RAMANIYAM HOMES P. LTD. REPORTED IN 384 ITR 530 (MAD.) AND ARGUED THAT A LOAN / ADVANCE , EVEN IF FOR A CAPITAL ASSET, WOULD ON IT S WAIVER YIELD A BENEFIT ARISING IN THE COURSE OF BUSINESS AND IS ASSESSABLE U/S. 28(IV) OF THE ACT. HE FURTHER SUBMITS THAT THE DECISION IN THE CASE OF RAMANIYAM HOMES P. LTD. (SUPRA) ON THE VERY ISSUE CANNOT BE IGNORED AND THE CIT(A) HELD TH AT THE DECISION OF HONBLE HIGH COURT OF BOMAY WILL HAVE A BINDING EFFECT AND FOLLOWING THE SAME DELETED THE ADDITION MADE BY THE AO. 5. THE LD. AR, SHRI HARIOM TULSYAN SUBMITS THAT THE ASSESSEE IS A SUBSIDIARY OF NS INDIA HOLDING AB HAVING 51% SHARES I N THE ASSESSEE COMPANY. THE ASSESSEE BORROWED USD 30 LACS FROM THE HOLDING COMPANY, IN THE FORM OF EXTERNAL COMMERCIAL BORROWINGS (ECBS) FOR THE PURPOSE OF CAPITAL EXPENDITURE DURING F.Y. 2009 - 10 (A.Y. 2010 - 11) AND FURTHER BORROWED USD 17 LACS FROM THE HO LDING COMPANY DURING F.Y. 2011 - 12 (A.Y. 2012 - 13) . THE SAID BORROWINGS WERE FULLY UTILIZED FOR THE CAPITAL EXPENDITURE. FURTHER, HE SUBMITS THAT THE ASSESSEE WAS RUNNING INTO LOSSES AND DURING THE YEAR UNDER CONSIDERATION THAT THE NS INDIA HOLDING AB DECI DED TO WAIVE OF F THE ENTIRE ECB LIABILITY. THE WAIVER WAS DONE TO ENSURE THAT THE ASSESSEE WOULD BE WOULD BE ABLE TO SUSTAIN IN BUSINESS AND THE HOLDING COMPANY WOULD BE ABLE TO PROTECT THE CAPITAL INVESTMENT IN THE ASSESSEE. HE ARGUED , THE WAIVER OF F PR INCIPAL AMOUNT IS NOT A REVENUE RECEIPT AND WITHOUT CONSIDERING THE DECISION OF HONBLE HIGH COURT 4 ITA NO .410/PUN/2018, A.Y. 2014 - 15 OF BOMBAY IN THE CASE OF MAHINDRA & MAHINDRA LTD. (SUPRA) THE AO HELD THE WAIVER AMOUNT UNDER ECB AS TAXABLE BY PLACING RELIANCE OF THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF RAMANIYAM HOMES (P) LTD. (SUPRA). THE LD. AR PLACED ON RECORD THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAHINDRA AND MAHINDRA LTD. REPORTED IN 404 ITR 1 (SC) AND ARGUED THAT THE WAIVER OF PRINCIPAL PORTION OF LOAN BORROWE D TOWARDS PURCHASE OF CAPITAL ASSETS BY WAY OF FINANCIAL ASSISTANCE IS FULLY COVERED BY THE DECISION OF HONBLE SUPREME COURT AND REFERRED TO PARA NO. 13 OF THE SAID JUDGMENT AND PRAYED TO DISMISS THE GROUNDS RAISED BY THE APPELLANT - REVENUE. 6. IN REJOI NDER THE LD. DR FAIRLY CONCEDED THAT THE DECISION OF HONBLE SUPREME COURT IS FULLY APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND THE AMOUNT AS ADDED BY THE AO IS NOT LIABLE TO TAX. 7. HAVING HEARD BOTH THE PARTIES, WE NOTE THAT THE ASSESSEE HAS RECEIVED ECB IN CONVERTIBLE FOREIGN EXCHANGE FOR ACQUIRING ASSETS IN THE EARLIER YEAR S . DURING THE YEAR UNDER CONSIDERATION DUE TO HEAVY LOSSES THE ECB LOAN HAS BEEN WAIVED BY THE HOLDING COMPANY AND SAME HAS BEEN CREDITED TO CAPITAL RESERVE. THE FACTS REMAIN UNDISPUTED BY THE APPELLANT - REVENUE THAT THE ECB LOANS WERE ACCEPTED TO ACQUIRE CAPITAL ASSETS . THE WAIVER OF F LOAN HAVING CAPITAL IN NATURE CANNOT CHANGE ITS NATURE TO REVENUE ONLY BECAUSE OF SUCH WAIVER BY THE HOLDING COMPANY. AS DIS CUSSED ABOVE, THE ASSESSEE HAS TRANSFERRED THE WAIVER OF PRINCIPAL AMOUNT CONSISTING OF ECB DIRECTLY TO ITS CAPITAL RESERVE. WE NOTE THAT AT THE TIME OF ASSESSMENT THERE WERE TWO DECISIONS, ONE BY HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY AND ANOTHER BY HONBLE HIGH COURT OF 5 ITA NO .410/PUN/2018, A.Y. 2014 - 15 MADRAS BUT HOWEVER THE AO PREFERRED TO PLACE RELIANCE OF THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF RAMANIYAM HOMES (P) LTD. (SUPRA) AND HELD THE DECISION OF HONBLE HIGH COURT OF BOMBAY IS NOT APPLICABLE AS THE DEPARTMENT DID N OT ACCEPT THE SAME IN VIEW OF THE SLP BEING PENDING FOR ADJUDICATION BEFORE THE HONBLE SUPREME COURT. THE CIT(A) BY PLACING RELIANCE IN THE CASE OF MAHINDRA & MAHINDRA LTD. (SUPRA) BY HOLDING THE SAID DECISION BINDING ON THE SUBORDINATE AUTHORITIES FALLI NG UNDER THE JURISDICTION OF HONBLE HIGH COURT OF BOMBAY. FURTHER, WE NOTE THAT THE ASSESSEE OFFERED THE INTEREST COMPONENT AND CURRENCY FLUCTUATION DIFFERENCE TO INCOME TAX BY CREDITING THE SAME IN THE PROFIT AND LOSS ACCOUNT AS IT WAS CLAIMED AS DEDUCT ION IN THE EARLIER YEAR. FURTHER, THE HONBLE SUPREME COURT HELD IN ORDER TO INVOK E THE PROVISIONS U/S. 28(IV) OF THE ACT, THE BENEFIT WHICH IS RECEIVED HAS TO BE IN SOME OTHER FORM RATHER THAN IN THE SHAPE OF MONEY. THE VERY FIRST CONDITION OF SECTION 2 8(IV) OF THE ACT IS ANY BENEFIT OR PERQUISITE ARISING FROM THE BUSINESS SHALL BE IN THE FORM OF BENEFIT OR PERQUISITE OTHER THAN IN THE SHAPE OF MONEY AND HELD AN AMOUNT RECEIVED AS CASH RECEIPT DUE TO THE WAIVER OF LOAN CAN BE IN NO CIRCUMSTANCES TAXED UN DER THE PROVISIONS OF SECTION 28(IV) OF THE ACT. 8. IN THE PRESENT CASE, AS DISCUSSED ABOVE, THE ECB LOAN AS RECEIVED FROM THE HOLDING COMPANY BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE FOR THE PURPOSE OF ACQUIRING ASSETS IN THE EARLIER YEARS. THE SAID LOAN HAS BEEN WAIVED AND CREDITED TO THE CAPITAL RESERVE TO AN EXTENT OF RS. 25,19,15,516/ - . THEREFORE, THERE IS NO BENEFIT OR PERQUISITE OTHER THAN IN THE SHAPE OF MONEY TO INVOKE THE PROVISIONS OF SECTION 28(IV) OF THE ACT , THUS, IN OUR OPINION, TH E RATIO LAID DOWN BY THE HONBLE HIGH COURT OF 6 ITA NO .410/PUN/2018, A.Y. 2014 - 15 BOMBAY IN THE CASE OF MAHINDRA & MAHINDRA LTD. (SUPRA) WHICH HAS BEEN AFFIRMED BY THE HONBLE SUPREME COURT IN THE CASE OF MAHINDRA AND MAHINDRA LTD. (SUPRA) IS APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE SAME, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND IT IS JUSTIFIED. THUS, THE GROUNDS RAISED BY THE APPELLANT - REVENUE ARE DISMISSED. 9. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNC ED IN THE OPEN COURT ON 07 TH SEPTEMBER, 202 1 . SD/ - SD/ - ( R.S. SYAL ) ( S.S. VISWANETHRA RAVI ) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 07 TH SEPTEMBER, 202 1 . RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) - 1, NASHIK 4. THE PR. CIT - 1, NASHIK 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE