SYSTEMATIC STEEL INDS. LTD, MUMBAI V. DCIT 10(3), MUMBAI

ITA 6115/MUM/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0421 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 30-09-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Capital receipt
• Section: 142(1); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 6115 / MUM/ 20 1 4 ( / ASSESSMENT YEAR: 2010 - 11 ) M/S. SYSTEMATIC STEEL INDUSTRIES LTD. 111, 1 ST RUNWAL - HEIGHTS, L.B.S. MARG, MULUND (W), MUMBAI - 400080 / VS. DY. CIT 10(3), ROOM NO.451, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 ./ ./ PAN/GIR NO. : AAECS 3764 N ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 29 .11 .2017 / DATE OF PRONOUNCEMENT : 23 . 02 . 201 8 / O R D E R PER AMARJIT SINGH, J M: THE ASSESSEE HAS FILED THE PRESENT AP PEAL AGAINST THE ORDER DATED 07 .0 7 .201 4 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 22 MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE AY. 2010 - 11 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND CIRCUMSTA NCES OF THE CASE THE LD. COMMISSION OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.71055875/ - HOLDING THAT THE WAIVER OF LOAN BY BANK REVENUE BY: SHRI V. JUSTINE ASSESSEE BY : NONE ITA. NO.6115 /M/1 4 A.Y.2010 - 11 2 IN ONE TIME SETTLEMENT BECOMES INCOME U/S 41(1) OF I.T. ACT, ON THE GROUND OF REMISSION OR CESSATION THERE OF. WITHOUT PREJUDICE TO THE ABOVE, 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (A ) ERRED IN HOLDING THAT THE WAIVER OF LOAN BY BANK IN ONE TIME SETTLEMENT BECOMES INCOME U/S 41(1) ON THE GROUND OF REMISSION OR CESSATIO N THEREOF, WHEREAS THE LD. ASSESSING OFFICER TREATED AS REVENUE RECEIPT U/S 28(IV) OF I.T. ACT AND CONFIRMING THE ADDITION OF RS.71055875/ - . WITHOUT FOLLOWING THE PROCEDURE U/S 251(2) OF THE ACT, THEREFORE, THE ORDER IS BAD IN LAW. 3. THE LD. COMMISSIONER OF INCOME TAX (A) AS WELL AS THE LD. ASSESSING OFFICER FAILED TO APPRECIATE THAT THE WAIVER OF LOAN BY BANK IN ONE TIME SETTLEMENT SCHEME AMOUNTING TO RS.710.55 LACS CONSIST OF (I) TERM LOAN RS. 513.67 LACS (II) CASH CREDIT RS. 150.00 L ACS (III) UNPAID INTEREST RS. 46.88 LACS RS. 710.55 LACS 4. UNDER THE FACTS AND CIRCUMSTANCES THE LD. COMMISSIONER OF INCOME TAX (A) AS WELL AS THE LD. ASSESSING OFFICER FAILED TO APPRECIATE THAT THE WAIVER OF LOAN WAS NOT THE WAIVER OF ANY TRADING LIABILITY. 5. UNDER THE FACTS AND CIRCUMSTANCES THE LD. ASSESSING OFFICER FAILED TO APPRECIATE THAT WAIVER OF INTEREST OF RS.46.88 LACS WAIVED BY THE BANK WAS NEITHER CLAIMED AS DEDUCTION NOR ALLOWED BY THE DEPARTMENT AS EXPENSE IN ANY OF THE ACCOUNTING Y EAR TO THE APPELLANTS. 6. UNDER THE FACTS UNDER THE FACTS AND CIRCUMSTANCES THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN PASSING THE APPEAL ORDER WITHOUT CONSIDERING ALL THE GROUNDS OF APPEALS RAISED BY THE APPELLANTS IN THE REVISED GROUNDS OF APPEALS F ILED ON 4/12/2013 IN THEIR OFFICE. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN OF INCOME ON 30 . 10 .20 10 DECLARING TOTAL INCOME TO THE TUNE OF RS. NIL . A FTER SET OFF OF CARRIED FORWARD LOSS OF RS.1,10,84,983/ - . THE RETURN WAS PROCE SSED U/S 143(1) OF THE I.T. ACT, 1961. THE CASE WAS SELECTED FOR SCRUTINY. NOTICE U/S 143(2) OF THE I.T. ACT, 1961 DATED 29.08.2011 ITA. NO.6115 /M/1 4 A.Y.2010 - 11 3 WAS ISSUED AND SERVED UPON THE ASSESSEE. ON CHANGE OF INCUMBENT , A FRESH NOTICE U/S 143(2) OF THE ACT DATED 20.07.2012 WAS A LSO ISSUED AND SERVED UPON THE ASSESSEE. NOTICE S U/S 142(1) OF THE ACT ALONG WITH QUESTIONNAIRE DATED 20.07.2012 & 04.12.2012 WERE ALSO ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF GALVANIZED WIRES - FLAT & ROUND, FRP RODS & JOB WORK . THE ASSESSEE COMPANY HAS SHOWN SALES AND OTHER INCOME OF RS.24,23,23,894/ - AND THE NET PROFIT AS PER THE PROFIT AND LOSS ACCOUNT WAS COMPUTED TO THE TUNE OF RS.60,00,390/ - . THE ASSESSEE HAS SHOWN THE INCOME ON WAIVER OF BANK D UES AS CAPITAL RECEIPTS AND CREDITED TO CAPITAL RESERVE IN THE BALANCE - SHEET AS ON 31.03.2010. THE ASSESSEE WAS ASKED TO ELABORATE THE CREDIT OF RS.7 , 10 , 55 , 87 , 577/ - DIRECTLY IN THE RESERVE & SURPLUS ACCOUNT OF THE BALANCE SHEET WITHOUT PASSING THE SAME TH ROUGH P&L A/C . IT WAS FOUND THAT THE ASSESSEE WAS DEFAULTER OF PAYMENT OF LOAN. UNDER THE ONE TIME SETTLEMENT SCHEME WITH THE BANK, THE TOTAL LOAN LIABILITY OF RS.1021.55/ - LAC WAS SETTLED AT RS.311.00 LACS. THE BALANCE AMOUNT TO THE TUNE OF RS.7,10,55,87 ,577/ - WAS DIRECTLY CREDITED TO THE RESERVE AND SURPLUS ACCOUNT. A FTER THE REPLY OF THE NOTICE , THE ASSESSING OFFICER TREATED THE SAID AMOUNT AS REVENUE RECEIPTS U/S 28(IV) OF THE I.T. ACT AND ADDED TO THE INCOME OF THE ASSESSEE. T HE WAIVER AMOUNT TO THE T UNE OF RS.7,10,55,875/ - INCLUDES OF RS.1.97 CRORES BEING CASH CREDIT LOAN. THIS CASH CREDIT LOAN OF RS.1.97 CRORES INCLUDES UNPAID INTEREST LIABILITY UNDER CASH CREDIT ACCOUNT OF RS.46.88 LACS, CASH CREDIT WAS UTILIZED BY ASSESSEE FOR ITA. NO.6115 /M/1 4 A.Y.2010 - 11 4 REGULAR BUSINESS ACTI VITIES OR RUNNING DAY TO DAY AFFAIRS OF THE BUSINESS AND INTEREST ON THIS LOAN WAS CLAIMED AND EXPENDITURE IN EARLIER YEARS HENCE THIS AMOUNT TO THE TUNE OF RS.1.97 CRORES WA S ALSO LIABLE TO BE REMITTED BACK U/S 41(1) OF THE I.T. ACT. HOWEVER, THE SAME WAS NOT ADDED AGAIN IN THE COMPUTATION OF INCOME AS IT WAS PART OF TOTAL ADDITION. THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS. NIL AND INCOME U/S 115JB OF THE ACT WAS ASSESSED TO THE TUNE OF RS.9,00,058/ - . FEELING AGGRIEVED, T HE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO DISMISSED THE APPEAL OF THE ASSESSEE , THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO.1 TO 3 : - 4 . ALL THE ISSUES ARE IN CONNECTION WITH THE ADDITION OF RS. 7,10,55,875/ - . IT IS A WAIVER OF LOAN BY BANK IN ONE TIME SETTLEMENT. THE ADDITION WAS RAISED U/S 41(1) OF THE I.T. ACT. DESPITE NOTICE , THE ASSESSEE FAILED TO APPEAR BEFORE US. BEFORE GOING FURTHER, WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD: - 2.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND THE FINDINGS OF THE AO IN THE IMPUGNED ASSESSMENT ORDER. FROM THE SUBMISSIONS MADE, IT COULD BE ASCERTAINED TH AT THE APPELLANT HAD TERM LOAN AMOUNTING TO RS.7,38,50,561/ - AND CASH CREDIT OF RS,28305314/ - , TOTALLY AMOUNTING T O RS.102155875. AS PER ONE TIME SETTLEMENT WITH THE BANK, THE APPELLANT HAD AGREED TO PAY A SUM OF RS,3,11,00,000/ - . THE LOAN ACTUALLY WAIVED BY THE BANK WAS RS.71055875/ - . THE BREAK UP OF WAIVER BY THE BANK IS AS UNDER: (I) TERM LOAN : RS.5.13 CRORES (II) CASH CREDIT : RS.150. INTEREST UNPAID : 0.46.88 RS.1.97 CRORES RS. 7.10 CRORES ITA. NO.6115 /M/1 4 A.Y.2010 - 11 5 2 . 4 IN SUPPORT OF THIS, THE AR OF THE APPELLA NT HAD FILED COPY OF THE ORDER OF SBI DT 4 12.2009 WHICH HAD ACCEPTED THE OTS OFFER GIVEN BY THE APPELLANT THAT RS 3. 11 CRORES WOULD BE THE FULL AND FINAL SETTLEMENT OF THE TOTAL DUES ANNEXURE I TO VII ALONG WITH THE SUBMISSION CONTAINS THE DETAILS OF THE VARIOUS LOANS AVAILED BY THE APPELLANT I FIND THE JOAN HAS BEEN OBTAINED FOR THE PURPOSE OF BUSINESS AND HENCE IT IS A TRADING LIABILITY. 2.5. IN SUPPORT OF ITS CONTENTI ON THAT WAIVER OF TERM JOAN CANNOT BE ASSESSED AS INCOME U/S. 41(1) OF IT. ACT, I T HAD RELIED ON THE DECISION OF JURISDICTION A! HC IN THE CASE OF MAHENDRA & MAHENDRA 261 ITR 501 AND DECISION OF ITAT IN THE CASE OF ROLLATAINERS LTD REPOTTED IN 7 JTR (TRIB.) 665. IT WAS ALSO CONTENDED THAT PROVISIONS OF SEC. 28(IV) IS ALSO NOT APPLICABL E IT WAS FURTHER CLAIMED THAT SEC.2B(IV} WAS INTENDED TO BRING TO TAX THE BENEFIT ARISING FROM THE BUSINESS THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURING GALVANIZED WIRE (FLAT S. ROUND), FRF RODS AND IT IS NOT IN THE BUSINESS OF BORROWING MONEY HENCE, THE WAIVER OF LOAN OUTSTANDING - DID NOT ARISE FROM THE BUSINESS OF THE APPELLANT, THEREFORE, SEC. 28(IV) HAS NO APPLICATION IT WAS SUBMITTED THAT THE DECISION OF SC IN THE CASE OF TVS S, SONS AND BOMBAY HC IN THE CASE OF SOLID CONTAINERS ARE NOT AP PLICABLE. IT WAS ALSO CLAIMED THAT 28(IV) WOULD COVER ONLY TRANSACTION OTHER THAN MONEY TRANSACTION AND IN THE PRESENT CASE, THE TRANSACTION INVOLVED WAS OF MONETARY IN NATURE AND 2B(IV) HAS NO APPLICATION. THE APPELLANT HAD RELIED ON THE FOLLOWING DECISIO NS: I. ALCHEMIC PVT LTD. 130 ITR 168 (GUJ,) B. RAVINDER SINGH VS. CIT 205 ITR 353 (DELHI) IT. CIT VS. CHETAN CHEMICALS 139 TAXMAN 301. 2 6 AFTER CAREFULLY CONSIDERING THE SUBMISSION AND THE ABOVE DECISIONS. I AM CONVINCED THAT THE WAIVER OF LOAN LIABILITY CANNOT CONSTITUTE INCOME AS PER PROVISIONS OF SECTION 2B(IV) OF L.T. ACT. 2.7 AS MENTIONED ABOVE IN PARA - 2.4, THE LOAN TAKEN BY THE APPELLANT WAS FOR THE PURPOSE OF TRADING ACTIVITY AND NO MATERIAL WAS BROUGHT BEFORE ME TO SHOW THAT IT IS IN THE CAPITAL FI ELD. THE QUESTION OF WAIVER ON ONE TIME SETTLEMENT WHETHER AMOUNTS TO INCOME U/S41(1) OR NOT WAS ADJUDICATED BY THE HON'BLE HIGH COURT OF MUMBAI IN THE CASE OF SOLID CONTAINERS LTD REPORTED IN 308 ITR 417 THE FINDING OF THE HON'BLE COURT IN PARA 3 IS REPRO DUCED HERE UNDER; ITA. NO.6115 /M/1 4 A.Y.2010 - 11 6 Z'3. THE PRESENT APPELLANT CAN HARDLY DRIVE ANY ADVANTAGE FROM THE CASE OF MAHINDRA & MAHINDRA LTD. (SUPRA) AS IN THAT CASE, A DEAR FINDING WAS RECORDED THAT THE ASSESSEE CONTINUED TO PAY INTEREST AT THE RATE OF 6% FOR A PERIOD OF 10 YE ARS AND THE AGREEMENT FOR PURCHASE OF TOOLINGS WAS ENTERED INTO MUCH PRIOR TO THE APPROVAL OF LOAN ARRANGEMENT GIVEN BY THE RESERVE BANK OF INDIA THEREFORE. THE LOAN AGREEMENT, IN ITS ENTIRETY, WAS NOT OBLITERATED BY SUCH WAIVER. SECONDLY, THE PURCHASE CON SIDERATION RELATED TO CAPITAL ASSETS THE LOOTINGS WERE M THE NATURE OF DIES AND THE ASSESSEE WAS A MANUFACTURER OF HEAVY VEHICLES. THE IMPORT WAS THAT OF PLANT AND MACHINERY AND THE WAIVER COULD NOT CONSTITUTE BUSINESS. THE FACTS OF THE PRESENT CASE ARE EN TIRETY DIFFERENT IN AS MUCH AS IT WAS A LOAN TAKEN FOR TRADING ACTIVITY AND ULTIMATELY, UPON WAIVER THE AMOUNT WAS RETAINED IN BUSINESS BY THE ASSESSEE. THUS, THE PRINCIPLE STATED BY_ THE SUPREME CO URT IN THE CASE OF T.V. SUNDARAN AVENOAR & SONS LTD. SUPRA WOULD BE SQUARELY APPLICABLE 10 THE FACTS OF THE PRESENT CASE. THE AMOUNT WHICH INITIALLY DID NOT FALL WITHIN THE SCOPE OF THE PROVISIONS RENDERING IT LIABLE TO TAX SUBSEQUENTLY HAVE BECOME THE ASSESSES INCOME BEING PART OF THE TRADING OF THE ASSESSEE: SI MILAR VIEW WAS ALSO TAKEN BY A BENCH OF MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME FAX V. ARIES ADVERTISING PVT LTD , 2002 (255) ITR 510. THE COURT TOOK THE VIEW THAT THE ASSESSEE BECAUSE OF TRADING OPERATION BECAME RICHER BY THE AMOUNT WHICH H AD BEEN TRANSFERRED AND/OR RETAINED IN THE PROFIT AND LOSS ACCOUNT OR THE APPELLANT', 2.8 THE SUPREME COURT IN THE CASE OF POLYFLEX (INDIA) (P) LTD V. C1T [20021 257 ITR 343J124 TAXMAN 374_HAS EXAMINED THE CONSTITUTION OF SECTION 41(1). THE COURT HAS POINT ED OUT THAT SECTION 41(1) CONSISTS OF TWO MAIN INGREDIENTS: (A) LOSS OR EXPENDITURE AND (B) TRADING LIABILITY. THE TWO INGREDIENTS OF SECTION 41(1) HAVE TO BE READ INDEPENDENTLY. AS THE FIRST INGREDIENT RELATES TO LOSS OR EXPENDITURE AND THE SECOND INGREDI ENT RELATES TO REMISSION OR CESSATION OF TRADING LIABILITY, THE COURT HAS CATEGORICAL RULED THAT THE WORDS 'REMISSION OR CESSATION THEREOF SHALL APPLY ONLY TO A TRADING LIABILITY. PARA 301, ITA. NO.6115 /M/1 4 A.Y.2010 - 11 7 2.9 THE FACTS IN APPELLANTS CASE ARE IDENTICAL. THERE WAS NO DOUB T THAT THE TERM LOAN AVAILED BY THE APPELLANT FROM THE SBL WAS IN NATURE OF TRADING LIABILITY. THEREFORE, WAIVER OF LOAN LIABILITY AMOUNTS TO WAIVER OF TRADING LIABILITY. THE WAIVER OF TRADING LIABILITY WOULD BECOME INCOME UNDER SECTION 41(1) ON THE GROUND OF REMISSION OR CESSATION THEREOF AND DEFINITELY THE APPELLANT HAD OBTAINED BENEFIT TO THE EXTENT OF WAIVER AMOUNTING TO RS.7,10,55,875/ - ( RS.10,21,55,8 75/ - - 3.11,00,000 ) WHICH NEEDS TO BE TAXED U/A 41(1) OF IT ACT. IN VIEW OF THIS, THE ADDITION MADE BY THE AO IS CONFIRMED BUT UNDER SECTION 41(1). THESE GROUNDS OF APPEAL ARE DISMISSED. 5. ON APPRAISAL OF THE ABOVE MENTIONED FINDING, WE NOTICED THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY ON THE BASIS OF THE FINDING OF BOMBAY HIGH COURT IN THE C ASE OF SOLID CONTAINERS LTD. 308 ITR 417 AND IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD 222 ITR 112 (SC) . THE FACTS OF THE PRESENT CASE IS QUITE SIMILAR TO THE FACTS OF THE CASE MENTIONED ABOVE . T HE ASSESSEE TOOK THE LOAN FROM THE SBI AND UND ER ONE TI ME SETTLEMENT THE BANK WAIVED THE LOAN TO THE TUNE OF RS. 7,10,55,875/ - . IT IS HELD TO BE INCOME U/S 28(IV) OF THE ACT . I N VIEW OF THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHI CH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISSUE IS BEI NG DECIDED IN FAVOUR OF THE REVENUE AGAINST THE ASSESSEE . ITA. NO.6115 /M/1 4 A.Y.2010 - 11 8 6 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HERE BY ORDERED TO BE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 23. 02 . 20 18 . SD/ - SD/ - ( SHAMIMYAHYA ) ( AMARJIT SINGH ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 23. 02 .2018 VIJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI