DCIT, New Delhi V. M/s. RT Packaging Ltd., New Delhi

ITA 5578/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81668 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 11-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 12-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR CHOPRA
• Keywords: Capital asset; Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH. J.S.REDDY, ACCOUNTANT MEMBER I.T.A .NO.-5578/DEL/2011 (ASSESSMENT YEAR- 2008-09) DCIT, CENTRAL CIRCLE-14, ROOM NO- 320, 3 RD FLOUR, ARA CENTRE, E-2, JHANDEWALAN EXTN., NEW DELHI (APPELLANT) VS RT PACKAGING LTD. LOWER GROUND FLOOR, LOTUS TOWER, NEW FRIENDS COLONY, MATHURA ROAD, NEW DELHI PAN-AAACR0344K (RESPONDENT) APPELLANT BY SH. MANOJ KUMAR CHOPRA, SR. DR RESPONDENT BY SH. AJAY VOHRA, SH. GAURAV JAIN, ADV., MS.BHAKITA KUMAR, ADV. ORDER PER DIVA SINGH, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER DATED 09.08.2011 OF THE CIT(A)-XVIII, NEW DELHI PERTAINING TO 2008-0 9 ASSESSMENT YEAR ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.4,96,95,016/- MADE BY THE ASSESSING OFFICER BY TREATING THE AMOUNT OF LOAN WAIVED OFF BY BANK AS BUSINESS INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A HAS NOT CORRECTLY APPRECIATED THE ORDER OF INCOME TAX APPEL LATE TRIBUNAL IN THE CASE OF M/S ROLLATAINERS LTD. FOR THE ASSESSMENT YE AR 2006-07 WHEREIN THE ITAT HAS CONFIRMED THE ADDITION OF BANK LOAN WAIVED OFF WHICH WAS NOT TAKEN FOR THE PURPOSE OF PURCHASING CAPITAL ASSETS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A HAS ERRED IN LAW AND ON FACTS IN IGNORING THE FACT THAT IN THE P RESENT APPEAL THE ASSESSEE ITSELF HAS ADMITTED THAT THE LOAN HAD NO N EXUS WITH ACQUISITION OF CAPITAL ASSETS. 4. THE ORDER OF THE CIT(A) IS ERRONEOUS AND IS NOT TEN ABLE ON FACTS AND IN LAW. 2 I.T.A .NO.-5578/DEL/2011 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF THE HEARIN G OF THE APPEAL. 2. RIGHT AT THE OUTSET IT WAS SUBMITTED BY THE LD. AR THAT THE POINT AT ISSUE IS FULLY COVERED IN ASSESSEES FAVOUR BY THE ORDER DAT ED 11.06.2010 OF THE CO-ORDINATE BENCH IN ITA NO-3800/D/2007 ITAT IN ACIT VS ROLLATA INERS LTD. THE SAID ORDER IT WAS STATED HAD BEEN CHALLENGED BY THE REVENUE BE FORE THE HONBLE HIGH COURT HOWEVER THE FINDING ON THIS ISSUE WAS NOT CHALLENG ED AS WOULD BE EVIDENT FROM THE JUDGEMENT OF THE HONBLE HIGH COURT DATED 29.07.201 1 IN ITA NO.-448/2011 IN THE CASE OF ROLLATAINERS. COPY OF THE ORDER OF THE TRIBUNAL AND THE DECISION OF THE HONBLE HIGH COURT AVAILABLE ON RECORD WERE RELIED UPON. 2.1. SINCE THE APPEAL HAS BEEN FILED BY THE REVENUE , THE LD. SR. DR WAS REQUIRED TO ADDRESS THE DEPARTMENTAL APPEAL IN THE SAID BACK GROUND. THE LD. SR. DR PLACE RELIANCE ON THE ASSESSMENT ORDER AND SUBMITTED THAT APART FROM THAT HE HAD NOTHING FURTHER TO STATE. 3. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSE SSEE DECLARED A LOSS OF RS.4,71,08,808/- BY WAY OF FILING ITS RETURN. THE R ETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AFTER ISSUANCE OF NOTICE U/S 143(2) ETC. THE ASSESSEE COMPANY AS PER RECORD IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PACKAGING PRODUCTS. DURING THE YEAR THE ASSESSEE HAS GOT A LOAN AND INTEREST W AIVER OF RS. 5,36,40,475/- FROM FINANCIAL INSTITUTIONS. THE TERM LOAN WAIVER BY IC ICI BANK UNDER OTS (ONE TIME SETTLEMENT) SCHEME WAS RS.4,96,95,016/-. RELYING UPON SECTION 41(1) OF THE INCOME TAX ACT, IT WAS CONTENDED THAT IN ORDER TO B RING AN ITEM WITHIN THE PURVIEW OF THE SAID SECTION, FOLLOWING CONDITIONS ARE NECE SSARY:- (C) AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RES PECT OF TRADING LIABILITY INCURRED BY THE ASSESSEE AND (D) SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILI TY BY WAY OF REMISSION OR CESSATION THEREOF HAS BEEN OBTAINED. 3 I.T.A .NO.-5578/DEL/2011 3.1. IT WAS CONTENDED THAT THESE CONDITIONS ARE NOT APPLICABLE TO THE FACTS OF ASSESSEE. CONSIDERING THESE SUBMISSIONS THE AO CAM E TO THE FOLLOWING CONCLUSIONS:- 3.3. THE ASSESSEE SUBMISSIONS HAVE BEEN CONSIDERED . HOWEVER, IT MAY BE NOTED THAT, THE LOAN HAS BEEN WAIVED OFF, THE SAME HAS BEEN UTILIZED TO RUN THE BUSINESS OF THE ASSESSEE. THE LIABILITY HA S CEASED TO EXIST, THOUGH IT IS NOT A LIABILITY UNDER SECTION 41(1), I T FALLS WITHIN THE AMBIT OF DEFINITION OF INCOME AS PER SECTION 2(24) OF INC OME TAX ACT AND WITHIN THE AMBIT PROFIT & GAINS OF BUSINESS & PROFE SSION AS PER SECTION 28(IV) OF INCOME TAX ACT, 1961. THEREFORE, IT IS TO BE TREATED AS INCOME OF THE ASSESSEE, IN VIEW OF THE ABOVE, FO R THE YEAR UNDER CONSIDERATION AND IS THEREFORE ADDED BACK TO THE IN COME ACCORDINGLY. 3.4. WITHOUT PREJUDICE TO THE ABOVE, EVEN IF WE CON SIDER THE SCHEME OF OTS. IT WOULD BE PROPER TO NOTE THAT THE LOANS HAVE BEEN TAKEN AGAINST HYPOTHECATION OF PLANT & MACHINERY, THEN THIS WAIVE R WOULD BE REDUCED FROM BLOCK OF ASSETS CONSIDERING THE DEFINI TION OF ACTUAL COST IN THE INCOME TAX ACT AND THE RELEVANT DEPRECIATION WOULD BE REDUCED ACCORDINGLY. 3.5. HENCE LOAN WAIVED OFF IS ADDED BACK TO THE TOT AL INCOME OF THE ASSESSEE. 3.6. PENALTY PROCEEDINGS U/S 271(1)(C) ARE INITIATE D SEPARATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND THE REBY CONCEALING INCOME. [ADDITION OF RS.4,96,95,016/-] 3.2. BEFORE THE CIT(A), APART FROM RELYING UPON VAR IOUS DECISIONS OF DIFFERENT COURTS, SPECIFIC RELIANCE WAS PLACED UPON THE DECIS ION RENDERED BY THE TRIBUNAL IN THE CASE OF ROLLATAINERS CITED ABOVE. CONSIDERING THE SAME CIT(A) CAME TO THE FOLLOWING CONCLUSION:- 5.1. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND THE SUBMISSION MADE BY THE LD. AR. IN SO FAR AS THE FIRST ISSUE R EGARDING BENEFIT ARISING ON ACCOUNT OF WAIVER OF TERM LOAN IS CONCERNED, THE SA ID ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN THE APPE LLANTS GROUP CONCERN CASE, ROLLATAINERS LTD. FOR THE ASSESSMENT YEAR 2006-07, WHEREIN IT HAS BEEN UPHELD THAT BENEFIT ARISING ON WAIVER OF TERM LOAN, WHICH HAS BEEN UTILIZED FOR MEETING CAPITAL REQUIREMENT LIKE PURCHASE OF FIXED ASSETS BY AN ASSESSEE IS NOT LIABLE TO TAX AS INCOME UNDER ANY PROVISIONS OF THE ACT. AS REGARDS THE SECOND ALTERNATIVE CONTENTION OF THE ASSESSING OFFI CER THAT SINCE LOANS WERE BORROWED AGAINST HYPOTHECATION OF PLANT AND MACHINE RY, THE BENEFIT ARISING ON WAIVER THEREOF WOULD BE LIABLE TO BE REDUCED FRO M THE COST OF RELEVANT BLOCK OF ASSET, WHICH WOULD REDUCE AMOUNT OF DEPREC IATION CLAIMED BY AN ASSESSEE, I AM CONVINCED WITH THE ARGUMENTS OF THE ASSESSEE. THE SCHEME OF THE ACT RELATION TO COMPUTATION OF WRITTEN DOWN VAL UE OF BLOCK OF ASSET AND 4 I.T.A .NO.-5578/DEL/2011 COMPUTATION OF DEPRECIATION THEREON IS VERY CLEAR A ND AN AMOUNT CAN BE REDUCED FROM THE WDV OF A BLOCK OF ASSET ONLY IF TH E SAME IS RECEIVED ON TRANSFER OF AN ASSET. IN THE INSTANT CASE, THERE IS NO TRANSFER OF ANY ASSET/PLANT AND MACHINERY. THE ASSESSING OFFICER HAS SIMPLY ST ATED THAT LOANS WERE BORROWED AGAINST HYPOTHECATION OF PLANT AND MACHINE RY. IN THAT VIEW OF THE MATTER, THE AFORESAID CONTENTIO N OF THE ASSESSING OFFICER ARE AGAINST THE SETTLED POSITION IN LAW. FOR THE AFORE SAID CUMULATIVE REASONS I DELETE THE ADDITION MADE BY THE ASSESSING OFFICER A ND THE GROUND OF APPEAL RAISED BY THE ASSESSEE STANDS ALLOWED. 4. IT IS SEEN THAT CONTRARY TO THE CONCLUSION ARRIV ED AT NO DISTINCTION ON FACT AND LAW WAS BROUGHT TO OUR NOTICE BY THE DEPARTMENT. WE HAVE TAKEN OURSELVES THROUGH THE ORDER RENDERED BY THE CO-ORDINATE BENCH IN THE CASE OF ROLLATAINERS AND THE SPECIFIC REASONING TAKEN BY THE AO. CONSID ERING THE SAME AND THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSESSEE AND THE REVENUE BASED ON THE FACTS AND THE PRINCIPLE LAID DOWN IN ROLLATAINERS C ASE, WE FIND OURSELVES UNABLE TO COME TO A CONTRARY FINDING. BEING SATISFIED WITH T HE REASONING AND FINDING ARRIVED AT ON THE FACTS AS THEY STAND WE UPHOLD THE SAME. THE GROUNDS RAISED BY THE DEPARTMENT ARE DISMISSED. THE SAID ORDER WAS PRONO UNCED ON THE DATE OF HEARING ITSELF. 5. IN THE RESULT THE APPEAL OF THE DEPARTMENT IS DI SMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 5 TH OF SEPTEMBER 2014. SD/- SD/- (J.S.REDDY) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 05/09/2014 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR 5 I.T.A .NO.-5578/DEL/2011 ITAT NEW DELHI