DCIT, New Delhi V. M/s. Rollatainers Ltd., New Delhi

ITA 5469/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87161 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 26-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Keywords: Business income; Opportunity of being heard; Earning of tax free income
• Section: 43B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F : NEW DELHI BEFORE SH. R.S. SYAL , A.M. & SH. A.T. VARKEY , J.M. ITA NO. 5469 /DEL / 20 11 ASSESSMENT YEAR: 2008 - 09 DCIT, CENTRAL CIRCLE - 14, VS. M/S ROLLATAINERS LTD., NEW DELHI LOWER GROUND FLOOR, LOTUS TOWER, NEW FRIENDS COLONY, NEW DELHI (PAN: AAACR0344K ) (APPELLANT) (RESPONDENT) AND C.O. NO. 14/DEL/2012 [IN ITA NO. 5469/DEL /2011] ASSESSMENT YEAR: 2008 - 09 M/S ROLLATAINERS LTD., VS. DCIT, CENTRAL CIRCLE - 14 LOWER GROUND FLOOR, LOTUS TOWER, NEW DELHI NEW FRIENDS COLONY, NEW DELHI (PAN: AAACR0344K) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. GAURAV JAIN, ADV. DEPARTMENT BY : SH. VIKRAM SAHAY, SR. DR DATE OF HEARING: 26.03.2015 DATE OF PRONOUNCEMENT: 27 . 03.02015 ORDER PER R.S. SYAL, A.M. : THIS APPEAL BY THE REVENUE AND THE C ROSS OBJECTION BY THE ASSESSEE ARISE OUT OF THE ORDER PASSED BY THE LEARNED CIT(A) ON 09.08.2011 IN RELATION TO THE ASSESSMENT ORDER 2008 - 09 . 2 ITA NO. 5469/DEL /2011 & C.O. NO. 14/DEL/2012 2. THE ONLY ISSUE RAISED BY THE REVENUE THROUGH VARIOUS GROUNDS IS AGAINST THE DELETION OF ADDITION OF RS. 52,45,912/ - MADE BY THE ASSESSING OFFICER BY TREATING THE AMOUNT OF LOAN WAIVED OFF BY THE BANK S AS BUSINESS INCOME. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE GOT A LOAN AND INTEREST WAIVER OF RS. 96.19 LAKHS FROM ICICI AND FEDERAL BANK. THE LOAN WAIVER UNDER OTS SHARE WAS RS. 52.45 LAKHS. THE INTEREST WAIVER WAS OFFERED AS INCOME BY THE ASSESSEE SUBJECT TO THE PROVISIONS OF SECTION 43B OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE ACT ) . ON BEING CALLED UPON TO EXPLAIN AS TO WHY THE WAIVER OF LOAN BE NOT TREATED AS ASSESSEE S INCOME UNDER SECTION 41(1) OF THE ACT, THE ASSESSEE STATED THAT THE SAID LOAN WAS UTILIZED F O R RUN N I NG ITS BUSINESS . WITHOUT PREJUDICE TO THE ABOVE, IT WAS ALSO STATED THAT THE LOANS WERE TAKEN ` AGAINST HYPOTHECATION OF PLANT & MACHINERY AND BY CONSIDERING THE DEFINITION OF ACTUAL COST , THE WAIVER AMOUNT WOULD REDUCE THE VALUE OF BLOCK OF ASSETS. NOT CONVINCED WITH THE ASSESSEE S SUBMISSIONS, THE ASSESSING OFFICER ADDED A SUM OF RS. 52 ,45,912/ - TO THE TOTAL INCOME. THE LEARNED CIT(A) TREATED THIS WAIVER OF LOAN AS NOT CONSTITUTING INCOME AS COVERED BY THE TRIBUNAL ORDER PASSED IN THE ASSESSEE S OWN CASE FOR THE A.Y. 2006 - 07 AND ACCORDINGLY DELETE D THE ADDITION. 4. WE HAVE HEARD THE RI VAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT CAN BE SEEN FROM THE IMPUGNED ORDER THAT THE LEARNED CIT(A) HAS DELETED THE ADDITION BY RELYING ON THE ORDER PASSED BY THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE A.Y. 2006 - 07 . A COPY OF SUCH ORDER IS AVAILABLE ON PAGES 6 ONWARDS OF THE PAPER BOOK. THE RELEVANT DISCUSSION HA S BEEN MADE BY THE 3 ITA NO. 5469/DEL /2011 & C.O. NO. 14/DEL/2012 TRIBUNAL ON PAGES 17 AND 19 OF ITS ORDER . AFTER CONSIDERING ALL THE RELEVANT FACTS, THE TRIBUNAL HAS HELD THAT WAIVER OF `T ERM LOAN WOULD NOT CONSTITUT E INCOME , BUT THE WAIVER OF `C ASH CREDIT LOANS WOULD ATTRACT TAXABILITY . IT IS A MATTER OF RECORD THAT B OTH THE ASSESSEE AS WELL AS THE REVENUE PREFERRED THEIR RESPECTIVE APPEALS AGAINST THE SAID TRIBUNAL ORDER. THE REVENUE ALBEIT CHALLENGED THE ORDER ON OTHER ISSUES, BUT DID NOT CONTEST THE RELIEF ALLOWED BY THE TRIBUNAL INSOFAR AS THE WAIVER OF `T ERM LOAN NOT CONSTITUTING INCOME , IS CONCERNED. THE ASSESSEE S APPEAL AGAINST THE WAIVER OF `C ASH CREDIT LIMIT AS CONSTITUTIN G INCOME , HAS BEEN DISMISSED BY THE HON BLE DELHI HIGH COURT. A COPY OF JUDGMENT OF THE HON BLE DELHI HIGH COURT IS AVAILABLE ON RECORD. THE POSITION, WHICH ERGO EMERGES, IS THAT THE VIEW TAKEN BY THE TRIBUNAL IN SUCH ORDER HAS ATTAINED FINALITY. IN OTH ER WORDS, WHEREAS THE WAIVER OF ` TERM LOANS IS NOT CHARGEABLE TO TAX, THE WAIVER OF `C ASH CREDIT LOANS CALL S FOR AN ADDITION. 5. WHEN WE PERUSE THE ASSESSMENT ORDER , IT CAN BE SEEN THAT THE ASSESSEE CONTENDED VIDE ITS WRITTEN SUBMISSION S THAT THE LOA NS WERE UTILIZED TO RUN THE BUSINESS OF THE ASSESSEE. IN PARA 4.1.1 , IT HAS BEEN MENTIONED BY THE ASSESSEE THAT IT WOULD BE PROPER TO NOTE THAT THE LOANS HAVE BEEN TAKEN AGAINST HYPOTHECATION OF PLANT AND MACHINERY . SIMILAR POSITION WAS REITERATED BEFORE THE LEARNED CIT(A) AS WELL , WHICH IS DISCERNIBLE FROM PAGE 6 OF THE IMPUGNED ORDER RECORDING THE ASSESSEE S SUBMISSION THAT SIMPLY BECAUSE LOANS WERE BORROWED AGAINST HYPOTHECATION PLANT AND MACHINERY, THE SAME DOES NOT HAVE ANY NEXUS WITH ACQUISITION OF SUCH ASSETS . THE L EARNED CIT(A) , WHILE DELETING THE 4 ITA NO. 5469/DEL /2011 & C.O. NO. 14/DEL/2012 ADDITION , APPEARS TO HAVE BEEN SWAYED BY THE FACT UM OF LOAN ON ACCOUNT OF HYPOTHECATION OF PLANT AND MACHINERY AND IN THIS PROCESS F AILED TO PROPERLY APPRECIATE T HE LINE OF DISTINCTION DRAWN BY THE TRIBUNAL IN ITS ORDER FOR A.Y. 2006 - 07 BETWEEN THE WAIVER OF TERM LOAN AND CASH CREDIT LOAN . IT GOES WITHOUT SAYING THAT A LOAN BORROWED AGAINST HYPOTHECATION OF PLANT AND MACHINERY DOES NOT PER SE ASSUME THE CHARACTER OF A TERM LOAN. ON A SPECIFIC QUERY, THE AR COULD NOT PLACE ON RECORD ANY DOCUMENT FROM THE BANK S UNDER WHICH THE WAIVER OF SUCH LOANS WAS ALLOWED FOR DEMONSTRAT ING IF THESE WERE TERM LOANS OR CASH CREDIT LOANS. UNDER SUCH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND SEND THE MATTER TO THE FILE OF ASSESSING OFFICER FOR RE - DECIDING THIS ISSUE IN THE LIGHT OF OUR ABOVE OBSERVATION THAT HA VE BEEN C U LLED OUT FROM THE PROCEEDINGS FOR THE A.Y. 2006 - 0 7, AS DISCUSSED ABOVE. IN OTHER WORDS, THE ASSESSING OFFICER SHOULD FIND OUT THE NATURE OF LOAN WHICH WAS WAIVED BY ICICI AND FEDERAL BANK. IF IT TURNS OUT TO BE TERM LOAN , THEN ITS WAIVER SH OULD NOT ATTRACT ANY TAXATION. ON THE OTHER HAND, IF THE WAIVER IS FOUND OUT TO BE OF A LOAN IN THE NATURE OF CASH CREDIT, THEN THE TAXABILITY TO THAT EXTENT HAS TO BE MAINTAINED. THE MERE FACT THAT SOME PLANT AND MACHINERY WAS HYPOTHECATED FOR OBTAINING LOAN CANNOT BE CONSIDERED AS A RELEVANT CRITERIA FOR DETERMINING THE NATURE OF LOAN AS TO WHETHER IT IS TERM LOAN OR CASH CREDIT L OAN . NEEDLESS TO SAY , THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARD IN SUCH FRESH PROCEEDINGS. 5 ITA NO. 5469/DEL /2011 & C.O. NO. 14/DEL/2012 6. THE ONLY ISSUE RAISED BY THE ASSESSEE IN ITS C ROSS OBJECTION IS AGAINST THE SUSTENANCE OF ADDITION UNDER SECTION 14A OF THE ACT TO THE TUNE OF RS. 9,50,015/ - , BEING % OF THE AVERAGE VALUE OF INVESTMENT AS PER RULE 8D OF THE INCOME - TAX RULES, 1962 . 7. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE DID NOT E ARN ANY EXEMPT INCOME. THE ASSESSING OFFICER APPLIED RULE 8D OF THE INCOME - TAX RULES, 1962, TO WORK OUT DISALLOWANCE UNDER SECTION 14A OF THE ACT TO THE TUNE OF RS. 27,23,703/ - , COMPRISING OF DISALLOWANCE ON ACCOUNT OF INTEREST AND % OF AVERAGE VALUE OF INVESTMENT AMOUNTING TO RS. 9,50,015/ - . THE L EARNED CIT(A) ALLOWED RELIEF ON THE QUESTION OF DISALLOWANCE OF INTEREST BUT SUSTAINED THE DISALLOWANCE @ % OF THE AVERAGE VALUE OF INVESTMENT AS PER RULE 8D(2)(III). THE ASSESSEE IS AGGRIEVED AGAINST THE SUST ENANCE OF THIS DISALLOWANCE. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT CAN BE SEEN FROM THE ASSESSMENT ORDER ITSELF THAT THE ASSESSEE CLAIMED NOT TO HAVE E ARN ED ANY EXEMPT INCOME , WHICH REMAINED UNCONTROVERTED AND THE ASSESSING OFFICER MADE DISALLOWANCE UNDER SECTION 14A BY APPLYING THE RULE 8D. THE L EARNED AR HAS RELIED ON THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. HOLCIM INDIA PVT. LTD., (2014) - 90 - CCH - 081 - DEL - HC , IN WHICH IT HAS BEEN LAID DOWN THAT THERE CAN BE NO DISALLOWANCE UNDER SECTION 14A IN THE ABSENCE OF ANY EXEMPT INCOME . SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN CERTAIN OTHER CASES AS WELL . IN VIEW OF THIS CLEAR JUDGMENT COMING FROM THE HON BLE JU RISDICTIONAL HIGH COURT , WHICH HAS A 6 ITA NO. 5469/DEL /2011 & C.O. NO. 14/DEL/2012 BINDING FORCE ON US, IT IS APPARENT THAT THERE CAN BE NO DISALLOWANCE UNDER SECTION 14A IN THE ABSENCE OF ANY EXEMPT INCOME. SINCE THE ASSESSEE ADMITTEDLY DID NOT HAVE ANY EXEMPT INCOME, THERE CAN BE NO QUESTION OF SUSTENANCE OF ANY DISALLOWANCE UNDER SECTION 14A. THIS GROUND IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS A LLOWED FOR STATISTICAL PURPOSES AND THE C ROSS OBJECTION OF THE ASSESSEE IS ALLOWED. THE DECISION IS PR ONOUN CED IN THE OPEN COURT ON 2 7 T H MARCH , 2015. S D / - S D / - ( A.T. VARKEY ) ( R.S. SYAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 7 T H MARCH , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI