DCIT (OSD) 1(1), MUMBAI V. GLOBAL BOARDS LTD, MUMBAI

ITA 8878/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4237 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 20-03-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 20-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Capital receipt

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI R.K. GUPTA, JM AND SHRI N.K. BILLAI YA, AM ./I.T.A. NO. 8878/MUM/2010 ( / ASSESSMENT YEAR :2007-08 THE DCIT-1(1), AAYAKAR BHAVAN, MUMBAI-400 020 M/S. GLOBAL BOARDS LTD., PLOT NO. K/5, ADDL. MIDC INDL. AREA, MAHAD, DIST. RAIGAD ./ ./PAN/GIR NO. : AAACG 1343F ( ! /APPELLANT ) .. ( '#! / RESPONDENT ) ! $ / APPELLANT BY : ` SHRI PAVAN VED '#! % $ /RESPONDENT BY : SHRI YOGESH THAR % &' / DATE OF HEARING :18.06.2013 () % &' / DATE OF PRONOUNCEMENT : 10.7.2013 *+ / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-1, MUMBAI DT.16.8.2010 PERTAINING TO A.Y. 2 007-08. 2. THE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS. 132,89,83,428/- U/S. 28(IV) OF THE I.T. ACT. 3. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURIN G AND DEALING IN PAPERBOARDS AND TRADING IN RELATED PAPER PRODUCTS. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CREDITED AN AMOUNT OF RS. 132,89,8 3,428/- ON ACCOUNT OF ITA NO.8878/M/2010 2 WAIVER OF LOAN AND INTEREST OF VARIOUS FINANCIAL I NSTITUTIONS/BANKS BUT THE SAME HAS NOT BEEN OFFERED TO TAX. THE AO OBSERVED THAT THE WAIVER WAS A RESULT OF WAIVER IN CONSEQUENCE TO A BIFR ORDER. T HE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE SAME IS NOT TAXABLE AS IT IS AN INCOME TO THE ASSESSEE. THE ASSESSEE FILED A DETAILED REPLY DT. 24.12.2009 EXPLAINING THAT LOAN WAIVERS ARE NOT TAXABLE AS THE SAID AMO UNT IS A CAPITAL RECEIPT. THE AO FOUND NO MERITS IN THE SUBMISSIONS OF THE ASSESSEE. THE AO WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS DERIVE D A BENEFIT BY WAY OF ONE TIME SETTLEMENT, WHEREIN THE ASSESSEE BECOMES OWNER OF THE MONIES AMOUNTING TO RS. 132,89,83,428/- WHICH IS NO MORE PAYABLE. THE AO THEREAFTER WENT ON TO DISCUSS CERTAIN JUDICIAL DECISIONS TO SUPPORT HIS VIEW AND FINALLY CAME TO THE CONCLUSION THAT THE SU M OF RS. 132,89,83,428/- IS ASSESSEES INCOME. TO SAFEGUARD THE INTEREST OF THE REVENUE, THE AO WENT ON TO DISCUSS THE PROVISIONS O F SEC. 43(1) OF THE ACT AND STATED THAT IF AT ANY APPELLATE STAGE, APPE LLATE AUTHORITY DECIDES THAT WAIVER OF LOAN IS NOT TAXABLE AS INCOME OF THE ASSESSEE THEN, THE COST OF PLANT AND MACHINERY FOR THE PURPOSE OF DEPRECIAT ION SHOULD BE REDUCED BY THE AMOUNT OF LOAN WAIVED AND COMPLETED THE ASSE SSMENT PROCEEDINGS. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A). IT WAS EXPLAINED THAT DUE TO DEPRESSION IN THE PAPER BOARD INDUSTRY AND LIQUIDITY CRISES, THE ASSESSEE HAS INCURRED HEAVY CASH LOSSE S SO MUCH SO THAT THE ASSESSEE COMPANYS NET WORTH WAS COMPLETELY ERODED BY MARCH 2000. THE ASSESSEE COMPANY WAS DECLARED A SICK INDUSTRIAL COMPANY IN AUGUST, 2001 U/S. 3(1)(O) OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985. THEREAFTER, THE ASSESSEE FILED A SCHEME FOR RECONSTRUCTION OF THE ASSESSMENT COMPANY WITH THE BOARD FOR INDUSTRIA L AND FINANCIAL RECONSTRUCTION (BIFR) WHICH GAVE SANCTION TO THE SC HEME FILED BY THE ITA NO.8878/M/2010 3 ASSESSEE COMPANY. THE MAIN OBJECTIVES AS PER THE S AID SCHEME OF THE ASSESSEE COMPANY THAT WAS SOUGHT TO BE ACHIEVED ARE AS UNDER: 1. INTRODUCTION OF NEW MANAGEMENT 2. OPERATIONAL RESTRUCTURING I.E. INTRODUCTION OF A N EW PLANT TO ENHANCE THE CAPACITY UTILIZATION. 3. SETTLEMENT OF SECURED AND UNSECURED LENDERS BY WAIV ER OF LOANS TO SOME EXTENT. 4. RESTRUCTURING OF THE EQUITY SHARE CAPITAL OF THE CO MPANY BY WRITING DOWN 99% OF THE EXISTING EQUITY CAPITAL. 5. INFUSION OF FRESH INVESTMENT OF RS. 82.25 CRORES B Y SPECIAL PURPOSE VEHICLE (SPV)/ 4.1. THE BIFR SCHEME ENVISAGED RELIEF AND CONCESSI ON IN FORM OF WAIVER OF SECURED AND UNSECURED LOANS AND INTEREST THEREON. CONSEQUENTLY, SECURED LOANS, UNSECURED LOANS AND IN TEREST ACCRUED AND DUE AMOUNTING TO RS. 47,16,86,823/-, RS. 56,23,77,1 02/- AND RS. 29,59,09,366/- RESPECTIVELY WAS WAIVED. THUS, THE TOTAL WAIVER OF SECURED AND UNSECURED LOANS ALONGWITH INTEREST ACCR UED AMOUNTED TO RS. 1,32,89,83,428/-. IT WAS EXPLAINED TO THE LD. CIT( A) THAT THIS AMOUNT WAS CREDITED TO PROFIT AND LOSS ACCOUNT AS EXTRAORD INARY ITEMS. OUT OF THE AFORESAID SUM, THE AMOUNT OF SECURED AND UNSECURED LOANS AMOUNTING TO RS. 1,03,40,63,925/- WAS TRANSFERRED TO CAPITAL RE SERVE ACCOUNT. IT WAS FURTHER EXPLAINED THAT THE RELIEF AND CONCESSION GIVEN UNDER THE BIFR SCHEME WAS SUBJECT TO CERTAIN SPECIFIC TERMS AND CO NDITIONS. IT WAS STRONGLY CONTENDED BEFORE THE LD. CIT(A) THAT THE R ELIEF AND CONCESSIONS GIVEN UNDER THE BIFR SCHEME WAS CONTINGENT AND DE PENDED UPON FULFILLMENT OF CERTAIN CONDITIONS, THEREFORE THE VE STED RIGHT FOR SUCH RELIEF AND CONCESSIONS WOULD HAVE BEEN DERIVED BY THE ASS ESSEE ONLY AFTER ITA NO.8878/M/2010 4 FULFILLING OF ALL THE AFORESAID CONDITIONS. IT WA S PLEADED BY THE ASSESSEE THAT THE QUESTION OF ANY BENEFIT OR PERQUISITE ARIS ING TO THE ASSESSEE DOES NOT ARISE IN THE YEAR OF WAIVER I.E. IN THE CURRENT YEAR. THE QUESTION WOULD ARISE ONLY IN THE YEAR IN WHICH THE CONDITIONS ARE SATISFIED OR OTHERWISE FULFILLED. THE ASSESSEE RELIED UPON THE DECISION O F THE TRIBUNAL IN THE CASE OF VIDHYAVIHAR CONTAINERS LTD. VS ACIT IN ITA NO. 8 036/M/04 AND IN THE CASE OF LALIT PROFILES & STEEL INDUSTRIES LTD. VS ACIT IN ITA NO. 4487/M/08. 4.2. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S OF THE ASSESSEE AND ALSO THE JUDICIAL DECISIONS RELIED UPON BY THE ASSE SSEE AND THE AO, THE LD. CIT(A) WAS CONVINCED THAT THE RELIEF/CONCESSIONS HA VE ARISEN OUT OF BIFR ORDER AND SINCE THE ASSESSEE HAS NOT SATISFIED /FULFILLED THE CONDITIONS LAID DOWN IN THE BIFR ORDER, IT STOOD AB ATED. THE LD. CIT(A) WAS ALSO CONVINCED THAT THE DECISION OF THE TRIBUNA L RELIED UPON BY THE ASSESSEE SQUARELY APPLY ON THE FACTS OF THE CASE AS THE TRIBUNAL HAS HELD THAT THE WAIVER OF LOAN IS CONTINGENT UPON FULFILL MENT OF CERTAIN CONDITIONS AND AS THE ASSESSEE HAS NOT FULFILLED TH E CONDITIONS, THE AOS ACTION IS NOT JUSTIFIED IN TAXING THE SAID WAIVER A MOUNT U/S. 28(IV) OF THE ACT AND ACCORDINGLY DIRECTED THE AO TO DELETE THE A DDITIONS MADE ON THIS ACCOUNT. 6. REVENUE IS AGGRIEVED BY THIS FINDINGS OF THE LD. CIT(A). 7. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUP PORTED THE FINDINGS OF THE AO. THE LD. DR FURTHER RELIED UPON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF LOGITRON ICS (P) LTD. VS CIT 333 ITR 386. HE FURTHER RELIED UPON THE DECISION O F THE HIGH COURT OF ITA NO.8878/M/2010 5 BOMBAY, GOA BENCH IN THE CASE OF HINDUSTAN FOODS LT D. VS DCIT 328 ITR 392. 8. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL DREW OUR ATTENTION TO THE ORDER OF THE BIFR AS EXHIBITED AT PAGE-78 OF THE PA PER BOOK. LD. COUNSEL FOR THE ASSESSEE STRONGLY SUBMITTED THAT TH E SCHEME OF BIFR GIVING CONCESSION TO THE ASSESSEE WAS CONDITIONAL AND AS THE ASSESSEE HAS FAILED TO COMPLY WITH THE CONDITIONS, THE ORDER OF THE BIFR HAS FAILED, THEREFORE, IT AMOUNTS TO NO WAIVER OF LOAN AND THER EFORE THERE SHOULD NOT BE ANY QUESTION OF TAXING THE SAME AS INCOME OF THE ASSESSEE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIA L EVIDENCE BROUGHT ON RECORD AND THE JUDICIAL DECISIONS RELIED UPON BY BO TH SIDES. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD APPLIED FOR BIFR. IT IS ALSO NOT BEEN DISPUTED THAT THE SCHEME HAS BEEN SANCTIONED BY THE BIFR. IT IS ALSO AN UNDISPUTED FACT THAT THE RELIEF GIVEN UNDER BIFR SC HEME WAS SUBJECT TO CERTAIN SPECIFIC TERMS AND CONDITIONS. THIS FACT I S CLEAR FROM PARA- 10A(XII) OF BIFR SCHEME WHEREIN IT HAS BEEN CLEARLY STATED THAT THE RELIEF AND CONCESSION WOULD BE SUBJECT TO THE SPECIFIC TER MS AND CONDITIONS AS STATED IN APPENDIX-I. A PERUSAL OF THE SPECIFIC TE RMS AND CONDITIONS SHOW THAT IN THE EVENT OF DEFAULT IN APPLYING WI TH THE CONDITIONS THE SAME WOULD CONSTITUTE AS EVENT OR DEFAULT AND ON TH E EVENT OF SUCH DEFAULT, IT HAS BEEN PROVIDED UNDER PARA-B OF APPE NDIX-I THAT THE LOAN CREDITORS WERE ENTITLED TO FOLLOWING REMEDIES. A) REVOKE THE RELIEF AND CONCESSIONS GRANTED. ITA NO.8878/M/2010 6 B) CHANGE OR TAKE OVER OF MANAGEMENT/SALE OF BUSINESS OF THE ASSESSEE. C) TAKE OVER THE POSSESSION OF THE ASSETS D) ENFORCEMENT OF SECURITY INTEREST IN ACCORDANCE WITH THE PROVISIONS OF SECURITIZATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT 20 02 (SARFAESI ACT.) E) CONVERSION OF DEFAULTED AMOUNT INTO EQUITY AT PARK AND RIGHT TO RECOMPENSE/ACCELERATE PAYMENT. 10. A PERUSAL OF THE ENTIRE SCHEME WITH THE EVENT O F DEFAULT CLEARLY SHOW THAT THE VESTED RIGHT OF THE RELIEF AND CONCES SIONS GIVEN TO THE ASSESSEE UNDER BIFR SCHEME COULD HAVE BEEN DERIVED BY THE ASSESSEE ONLY AFTER FULFILLING OF ALL THE AFORESAID CONDITIO NS. MATERIAL ON RECORD SHOW THAT IN THE SUBSEQUENT YEARS, THE ASSESSEE HAS FAILED TO FULFILL CERTAIN CONDITIONS SPECIALLY THE CONDITIONS RELATING TO REP AYMENT OF NON CONVERTIBLE AND OPTIONALLY CONVERTIBLE DEBENTURES I N ACCORDANCE WITH THE REPAYMENT SCHEDULE IN THE BIFR SCHEME DUE TO WHICH THE POSSESSION OF ALL THE ASSETS OF THE ASSESSEE HAS BEEN TAKEN BY TH E ASSET RECONSTRUCTION CO. INDIA LTD. (ARCIL). THIS IS EVIDENCED BY THE N OTICE U/S. 13(2) OF THE SARFAESI ACT DT. 16.3.2009 ISSUED BY ARCIL. IN THE SAME NOTICE, THE ARCIL DEMANDED THE ASSESSEE TO PAY AN AMOUNT OF RS . 7,48,17,89,467 WHICH IS MUCH MORE THAN THE AMOUNT PAYABLE BY THE A SSESSEE BEFORE THE BIFR SCHEME. THE ASSESSEE WAS ASKED TO PAY THIS AM OUNT WITHIN 60 DAYS FAILING TO WHICH ARCIL COULD BE ENTITLED TO TAKE ME ASURES AVAILABLE TO IT UNDER THE SAFAESI ACT LIKE TAKING OVER THE POSSESSI ON OF THE PARTY. IT IS SEEN FROM THE RECORDS THAT THE ASSESSEE FAILED TO P AY THE SUM DEMANDED BY ARCIL CONSEQUENT OF THAT ARCIL TOOK THE POSSESSI ON OF THE PROPERTIES OF THE ASSESSEE AS EVIDENCED FROM THE PA NCHNAMA FOR TAKING ITA NO.8878/M/2010 7 OVER THE PROPERTIES BY ARCIL. IT IS ALSO SEEN FROM THE RECORD THAT ON 2 ND JULY, 2009, THE ASSESSEE WAS INFORMED THAT IN THE H EARING OF THE BIFR HELD ON JULY, 16, 2009, THE BIFR SCHEME UNDER WHICH THE ASSESSEE HAD RECEIVED ALL THE RELIEF AND CONCESSION HAS BEEN ABA TED. WITH THESE FACTS ON RECORD AS ALL THE RELIEF AND CONCESSION INCLUDI NG THE WAIVER OF SECURED AND UNSECURED LOAN AND THE INTEREST HAS BEEN ABAT ED THERE IS NO BENEFIT OR PERQUISITE THAT HAS ARISEN TO THE ASSESSEE. AS A LL THE RELIEFS/CONCESSIONS GIVEN TO THE ASSESSEE HAS BEEN WITHDRAWN, AND AT TH E SAME TIME WE FIND THAT THESE FACTS HAVE NOT AT ALL BEEN ADDRESSED BY THE LOWER AUTHORITIES THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY , WE RESTORE THIS ISSUE BACK TO THE FILES OF THE AO. THE ASSESSEE IS DIRECT ED TO EXPLAIN THE FACTS WHICH OCCURRED SUBSEQUENTLY TO THE ORDER OF THE BIF R. THE AO IS DIRECTED TO VERIFY ALL THE FACTS WHICH OCCURRED SUB SEQUENT TO THE ORDER OF THE BIFR AND FRAME THE ASSESSMENT DE-NOVO AFTER GIV ING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY, 2013 *+ % ) , -*. 10.7.2013 ) % / SD/- SD/- (R.K. GUPTA ) (N.K . BILLAIYA ) * /JUDICIAL MEMBER * / ACCOUNTANT MEMBER MUMBAI; -* DATED 10/07/2013 . . ./ RJ , SR. PS ITA NO.8878/M/2010 8 *+ *+ *+ *+ % %% % '&0 '&0 '&0 '&0 10& 10& 10& 10& / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT. 3. 2 ( ) / THE CIT(A)- 4. 2 / CIT 5. 03/ '& , , / DR, ITAT, MUMBAI 6. /4 5 / GUARD FILE. *+ *+ *+ *+ / BY ORDER, #0& '& //TRUE COPY// 6 66 6 / 7 7 7 7 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI