DCIT, CHENNAI V. Cooper Standard Automotive India P Ltd., Chengalput

ITA 794/CHNY/2016

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8654 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-07-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 29-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Keywords: Capital asset
• Section: 43

Judgement Text

आयकर अपील य अ धकरण, ‘बी’ यायपीठ, चे नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI ी एन.आर.एस. गणेशन, या यक सद य एवं ी ए. मोहन अलंकामणी, लेखा सद य के सम& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.794/Mds/2016 नधा(रण वष( / Assessment Year : 2005-06 The Deputy Commissioner of Income Tax, Corporate Circle – 1(2), Chennai - 600 034. v. M/s Cooper Standard Automotive India Pvt. Ltd., Plot No.3-A, Ford Supplier Park, Kilkaranai Village, Melrosapuram Post, Via Singaperumal Koil, Chengalpet – 603 204. PAN : AABCC 3665 P (अपीलाथ,/Appellant) (-.यथ,/Respondent) अपीलाथ, क/ ओर से/Appellant by : Shri Shiva Srinivas, JCIT -.यथ, क/ ओर से/Respondent by : None स ु नवाई क/ तार ख/Date of Hearing : 02.06.2016 घोषणा क/ तार ख/Date of Pronouncement : 22.07.2016 आदेश /O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) – 1, Chennai, dated 05.01.2016 and pertains to assessment year 2005-06. 2 I.T.A. No.794/Mds/16 2. The notice of hearing was served on the assessee by RPAD and the Registry has placed on record the postal acknowledgement as a proof of service of notice to the assessee. Inspite of receipt of notice, the assessee has not chosen to appear before this Tribunal. Therefore, we heard Ld. Departmental Representative and proceed to dispose of the appeal on merit. 3. Shri Shiva Srinivas, the Ld. Departmental Representative, submitted that the only issue arises for consideration is with regard to loan waived by the creditor. According to the Ld. D.R., the assessee has shown in the balance sheet the waiver of unsecured loan to the extent of `75,99,892/-. The Assessing Officer found that when the unsecured loan was waived, the same has to be treated as income under Section 28(iv) of the Income-tax Act, 1961 (in short 'the Act'). The Ld. D.R. further submitted that the money was received by the assessee in the course of carrying on the business. When the loan was received, it was not taken as income. However, when the loan was waived by the lender, the same has to be necessarily taken as income of the assessee since the loan waived by the lender was benefit arising to the assessee under Section 28(iv) of the Act. Placing reliance on the judgment of Madras High 3 I.T.A. No.794/Mds/16 Court in CIT v. Ramaniyam Homes (P.) Ltd. (2016) 68 taxmann.com 289, the Ld. D.R. submitted that on identical set of facts, the Madras High Court found that when the loan was borrowed for acquiring asset gets wiped off by repayment, two entries are made in the books of account, one in the Profit & Loss account where the payments are entered and the other in the balance sheet where the amount of unrepaid loan is reflected. When a portion of loan is reduced not by repayment but by the lender writing it off, only one entry gets into the books, as a natural entry. Therefore, when a portion of loan was waived, the total amount of loan shown on the liabilities side of the balance sheet is reduced and the amount shown as capital reserves is increased to the extent of waiver. In view of the above, according to the Ld. D.R., the CIT(Appeals) is not justified in deleting the addition made by the Assessing Officer. 4. We have considered the submission of Ld. Departmental Representative and perused the relevant material available on record. The question arises for consideration is when the assessee borrowed loan and the same was waived by the lender, whether such a loan would form part of income of the assessee? This issue was examined by the Madras High Court in Ramaniyam Homes (P.) 4 I.T.A. No.794/Mds/16 Ltd. (supra). After considering the judgment of Apex Court in CIT v. T.V. Sundaram Iyengar & Sons Ltd. (222 ITR 344) and its own judgment in Iskraemeco Regent Ltd. v. CIT (2011) 331 ITR 317, the Madras High Court found that there cannot be any distinction between the loan borrowed for acquiring a capital asset and for the purpose of trading activities. Irrespective of purpose for which the loan was availed, the amount of loan is always treated as liability and it gets reflected in the balance sheet as such. When a repayment is made in monthly, quarterly, half yearly or yearly instalments, the instalment is divided into two components, one relating to interest and another relating to a portion of the principal. The interest paid on principal alone is deducted in computing the profits and gains of business. Any amount of interest paid in respect of capital borrowed for acquisition of an asset for extension of existing business or profession, whether capitalized in the books of account or not for any period beginning from the date on which the capital was borrowed for the acquisition of the asset, till the date on which it was put to use, shall not be allowed as deduction. 5. The Madras High Court further found that in the double entry system of accounting, when a portion of the loan is waived, the total 5 I.T.A. No.794/Mds/16 amount of loan shown on the liabilities side of the balance sheet is reduced and the amount shown as capital reserves, is increased to the extent of waiver. The amount representing the waived portion of the loan is shown as a capital receipt in the Profit & Loss account itself. The Madras High Court further found that these accounting principles were not considered in the earlier judgment of Madras High Court in Iskraemeco Regent Ltd. (supra). In fact, the Madras High Court observed as follows at para 43 of its order:- “ 43. Therefore, it is clear that the moment the asset is put to use, then the interest paid in respect of the capital borrowed for acquiring the asset, could be allowed as deduction. When the loan amount borrowed for acquiring gets wiped off by repayment, two entries are made in the books of account, one in the Profit & Loss account where payments are entered and another in the balance sheet where the amount of unrepaid loan is reflected on the side of the liability. But, when a portion of the loan is reduced, not by repayment, but by the lender writing it off (either under a one time settlement scheme or otherwise), only one entry gets into the books, as a natural entry. A double entry system of accounting will not permit of one entry. Therefore, when a portion of the loan is waived, the total amount of loan shown on the liabilities side of the balance sheet is reduced and the amount shown as Capital Reserves, is increased to the extent of waiver. Alternatively, the amount representing the waived portion of the loan is shown as a capital receipt in the Profit & Loss account itself. These aspects have not been taken note of in Iskraemeco Regent Ltd. ” 6 I.T.A. No.794/Mds/16 6. In view of the later judgment of Madras High Court, this Tribunal is of the considered opinion that the loan waived by the lender has to be considered as benefit under Section 28(iv) read with Section 41(1) of the Act. Therefore, the same has to be assessed as income of the assessee. By respectfully following the judgment of the Madras High Court in Ramaniyam Homes (P.) Ltd. (supra), the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored. 7. In the result, the appeal of the Revenue is allowed. Order pronounced on 22 nd July, 2016 at Chennai. sd/- sd/- (ए. मोहन अलंकामणी ) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद य/Accountant Member या यक सद य/Judicial Member चे नई/Chennai, 5दनांक/Dated, the 22 nd July, 2016. Kri. आदेश क/ - त6ल7प अ8े7षत/Copy to: 1. अपीलाथ,/Appellant 2. -.यथ,/Respondent 3. आयकर आय ु 9त (अपील)/CIT(A)-1, Chennai-34 4. Principal CIT, Chennai-1, Chennai 5. 7वभागीय - त न ध/DR 6. गाड( फाईल/GF.