MILTONS P. LTD, MUMBAI V. ASST CIT 6(3), MUMBAI

ITA 9135/MUM/2010

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0746 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 29-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: YOGESH KAMAT SR
• Keywords: Capital asset; Capital receipt
• Section: 28

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI B BENCH , , , BEFORE S/SH. JOGINDER SINGH ,JUDICIA L MEMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 9135 /MUM/201 0 , / ASSESSMENT YEAR - 200 7 - 08 MILTONS PVT. LTD. ARVIND HOUSE, DARUKHANA, QUAY STREET, REAY ROAD EAST MUMBAI - 400 010. PAN: AABCM 6689 D VS ACIT, CIRCLE - 6(3) A AYAKAR BHAVAN, 5 TH FLOOR M.K. MARG MUMBAI. ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI HIRO RAI / REVENUE BY :SHRI YOGESH KAMAT - SR.A R / DATE OF HEARING : 1 5 - 0 6 - 2015 / DATE OF PRONOUNCEMENT : 10 - 0 7 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 29.10.2010 OF THE CIT(A) - 12 , MUMBAI ,THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: THE FOLLOWIN G ARE GROUNDS OF APPEAL, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER. 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN TREATING AND TAXING A SUM OF RS.9,88,26,837/ - , BEING THE SUM WAIVED BY BANKS FROM LOAN, AS INCOME OF THE APPELLANT AS PE R PROVISIONS OF SECTION 41(1) OF THE INCOME TAX ACT. THE LEARNED COMMISSIONER OF' INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT SECTION 41 (1) APPLIES ONLY WHERE THE APPELLANT HAS OBTAINED ANY DEDUCTION OR ALLOWANCE IN RESPECT OF ANY EXPENDITURE OR LOSS IN EARLIER YEARS AND WOULD NOT APPLY IN RESPECT OF LOAN AVAILED BY THE APPELLANT FROM THE BANK. 2. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN TREATING AND TAXING . THE AMOUNT OF RS.9,88 ,26,837/ - , BEING THE - SUM WAIVED BY THE BANK FROM LOAN, AS INCOME U / S 28 (IV) OF THE L.T.ACT.THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT PROVISIONS OF SECTION 28 (IV) WOULD NOT APPLY TO THE WAIVER OF LOAN AS SUCH WAIVE R OF LOAN WOULD NOT AMOUNT TO A PERQUISITE OR BENEFIT SO AS TO BE TAXABLE U/S 28 (IV) OF THE I.T.ACT. 3. THE APPELLANT CRAVES TO ADD, ALTER AND/OR AMEND THE ABOVE GROUNDS OF APPEAL WHOLLY OR PARTIALLY. ADDITIONAL GROUND RAISED BY THE ASSESSEE IS AS FOLLOWS: THE LEARNED ASST. CIT AND THE LEARNED CIT (APP EALS) WERE NOT JUSTIFIED IN NOT SETTING OFF THE UNABSORBED BUSINESS LOSSES AGAINST THE LONG TERM CAPITAL GAINS FROM THE SALE OF BUSINESS ASSETS. ASSESSEE - CO MPANY, ENGAGED IN THE BUSINESS OF M ANUFACTURING AND EXPORTING OF READY TO W E AR GARMENTS, FILED ITS RETURN OF INCOME ON 25.3.08 DECLARING TOTAL INCOME AT RS.9.99 CR ORES . THE ASSESSING OFFICER (AO) C OMPLETED THE ASSESSMENT U/S. 143 (3) OF THE ACT ON 2.12.2008 DETERMI N - ING THE INCOME OF THE ASS ESSEE AT RS. 15.88 CR ORES . ITA/ 9135 /MUM/201 0 ,AY. 0 7 - 08 - MILTON 2 2. THE FIRST GROUND OF APPEAL IS ABOUT TREATING THE SUM OF RS.9.88 CR ORES, B EING THE SUM WAIVED BY BANKS FROM LOANS A S INCOME AS PER PROVISIONS OF SECTION 41(1) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE A SSESSEE HAD NOT INC LUD ED A SUM OF RS. 9 , 88 , 26 , 837/ - AS PRINCIP A L AM OUNT OF LOAN WRITTEN OFF BY FINANCI A L I NSTITUTION IN THE COMPUTATION OF INCOME. HE DIRECTED THE ASSESSEE TO FURNISH DETAILS ABOUT THE DISPUTED AMOUNT AND TO SHOW CAUSE AS TO WHY THE SAME SHO U LD NOT BE ADDED BACK AS CESSATION OF LIABILITY U/S. 41(1) OF THE ACT. IN ITS REPLY,THE ASSESSEE STATED THAT IT HAD LIABILITY TO PAY UNION BANK OF I NDIA FROM WHOM IT HAD TAKEN A LOAN THAT OUT OF THE SAID AM OUN T RS.9.88 CR ORES O F THE PRINCIPAL AM O UNT WAS AG REED TO BE WAIVED OFF , THAT THE RECEIPT IN QUESTION WAS A CAPITAL RECEIPT AND HENCE NOT TAXABLE. THE ASSESSEE RELIED UPON THE CASE OF MAHINDRA AND MAHINDRA LTD. THE AO DID NOT AGREE WITH THE EXPLANATION OF THE ASSESSEE AND ADDED THE SAID AMOUNT INVOKING T HE PROVISIONS OF S ECTION 41(1) OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA). BEFORE HIM, IT WAS STATED THAT THE ASSESSEE HAD TAKEN A LOAN FROM THE BANK FOR THE PURPOSE OF ITS BUSINE SS, THAT THE ASSESSEE MADE HUGE LOSSES AND COULD NOT PAY LOAN TO THE BANK, THAT AS ON 1.4.2006 THE OUTSTANDING LOAN DUE TO BANK WAS RS.20.93 CR ORES , THAT THE BANK APPROACHED THE D EBT R ECOVERY TRIBUN AL FOR RECOVERING THE LOAN DUE, THAT DURING THE FY 2006 - 07 AFTER PROTRACTED NEGOTIATIONS, THE BANK SETTLED THE LOAN AT RS.11.05 CRORES AS ONE TIME SETTLEMENT SCHEME, THAT THE BALANCE AMOU N T WAS WAIVED, THAT THE WAIVED BALANCE OF RS. 9.88 CR ORES WAS CREDITED TO ITS P&L AMOUNT FOR THE YEAR ENDING ON 31.3.2007 , THAT BO TH THE PRE - CONDITIONS FOR INVOKING SECTION 41(1) WERE NOT EXISTING, THAT THE ASSESSEE HAD NOT REMITTED A TRADING LIABILITY, THAT IT HAD NOT BEEN CARRYING ON ANY MONEY L END ING BUSINESS , THAT THE AMOUNT WAS NOT CLAIMED OR ALLOWED BY WAY OF DEDUCTION IN ANY O F THE AYS . AFTER CONSIDERING THE SUBMIS SION OF THE ASSESSEE, THE FAA HELD THAT BY VIRTUE OF THE WAIVER OF LOAN ADVANCED BY UNION BANK OF INDIA TO THE ASSESSEE THERE HAD BEEN A BENEFIT THAT ACCRUED TO IT, THAT SUCH INCOME WOULD BE INCOME OF THE ASSESSEE FOR THE YEAR , THAT IT WOULD BE CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION, THAT THE AMOUNT WOULD QUALIFY FOR INCOME WITHIN THE MEANING OF S.28(IV) OF THE ACT, THAT THE ARGUMENT OF THE ASSESSEE THAT BENEFIT WOULD NOT A RISE UNDER THE HEAD BUSINESS OR PROFESSION COULD NOT ACCEPTED, THAT THE LOAN HAD BEEN TAKEN BY THE ASSESSEE FOR BUSINESS PURPOSES, THAT AGAINST THE LOAN IT HAD BEEN CLAIMING DEDUCTION UNDER THE HEAD INTEREST EXPENSES IN THE EARLIER YEARS, THAT IT WAS USING THE MONEY ADVANCED AS A LOAN BY THE BANK IN THE PREVIOUS ASSESSMENT YEARS, THAT IT HAD EARNED INCOME FROM THE LOAN , THAT DURING THE YEAR UNDER APPEAL IT HAD APPROACHED THE BANK THAT DUE TO CERTAIN PROBLEMS IT WOULD NOT BE POSSIBLE FOR IT TO RETURN THE MONE Y, THAT THE BANK UNDER THE ONE TIME SETTLEMENT SCHEME SETTLED THE LOAN AT RS.11.05 CR ORES , THAT IT W AIVED THE BALANCE OF RS.9.88 CRORES , THAT AS FAR AS THE ASSESSEE WAS CONCERNED IT HAD DECIDED NOT TO REPAY THE BANK LOAN, THAT THE WAIVER BY THE BANK HAD TO BE TREATED AS CESSATION OF LIABILITY , THAT THE AMOUNT WOULD QUALIFY AS BENEFIT TO THE ASSESSEE U/S. 28(IV) OF THE ACT , THAT IN THE PREVIOUS YEARS IN WHICH THE PROFIT WAS SOUGHT TO BE CHARGED TO TAX THE BUSINESS OF THE ASSESSEE EXISTED AND WAS NOT CLOSED D OWN , THAT IN THE CASE UNDER CONSIDERATION THERE WAS CLEAR CUT REMISSION OF LIABILITY AS CREDITOR HAD VOLUNTARILY GIVEN UP THE CLAIM.CONFIRMING THE ORDER OF THE AO, THE FAA UPHELD THE ADDITION OF RS.9.88 CRORES. 4. DURING THE COURSE OF HEARING B EFORE US, AUTH ORISED REPRESENTATIVE( A R)STATED THAT WAIVER OF INTEREST COULD NOT BE EQUATED WITH EARNING OF ACCRUING OF INCOME, THAT IT DEPENDED UPON THE ITA/ 9135 /MUM/201 0 ,AY. 0 7 - 08 - MILTON 3 PURP OSE OF AVAILING THE LOANS, THAT LOAN WAS NOT FOR BUSINESS PURPOSES, THAT ISSUE WAS NOT CONSIDERED BY ANY OF THE AU THORITIES. HE REFERRED TO THE MATTER OF MAHINDRA & MAHINDRA VS. CIT (261 ITR 501) AND PG.20 AND 24 OF THE PAPER BOOK ESPECIALLY PARA NOS . 7 AND 8 OF THE RESPECTIVE PAGES. HE ALSO RELIED UPON THE CASES OF XYLON HOLDINGS PVT.LTD(90DTR205)AND SOFTWORKS COMPUTE RS P.LTD.(354ITR16). DEPARTMENTAL REPRESENTATIVE(DR) STATED THAT THE LOAN WAS TAKEN FOR BUSINESS PURPOSES. HE REFERRED TO PARA 5.1 AT PG . 11 OF THE ORDER OF THE FAA. HE RELIED ON THE CASE OF S OLID CONTAINERS LTD. ( 308 ITR 417 ) . IN THE REJOINDER THE AR STATED THAT THE LOAN COULD BE CAPITAL AS WELL AS FOR BUSINESS PURPOSES. 5. WE HAVE PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD TAKEN LOAN FROM THE UNION BANK OF INDIA,THAT MATTER TRAVELLED UP TO DEBT RECOVERY TRIBUNAL,THAT THE FAA AND THE AO HAD GIVEN A CATEGORICAL FINDING OF FACT THAT THE LOAN HAD BEEN TAKEN BY THE ASSESSEE FOR BUSINESS PURPOSES, THAT IT WAS CLAIMING DEDUCTION UNDER THE HEAD INTEREST EXPENSES PERTAINING TO THE SAME LOAN IN THE EARLIER YEARS, THAT THE ASSESSEE HAD USED THE LOAN MO NEY IN THE EARLIER ASS ESSMENT Y EA RS FOR BUSINESS AND HAD EARNED INCOME FROM IT , THAT DURING THE COURSE OF HEARING BEFORE US THE AR HAD ALSO ADMITTED THAT LOAN WAS TAKEN FOR BUSINESS PURPOSES ALSO, THAT THE ASSESSEE HAD AR GU E D THAT LOAN WAS ALSO TAKEN IN TH E FIELD OF CAPITAL INVEST MENT. WE FIND THAT T HE ASSESSEE HAD NOT PRODUCED AN Y EVIDENCE BEFORE AO OR THE FAA IN THAT REGARD .E VEN BEFORE US THE ARGUMENT WAS TAKEN BUT NO DOCUMENTARY EVIDENCE WAS FURNISHED. WE ARE AWARE THAT IN THE CASES OF MAHINDRA AND MAHI NDRA (SUPRA); XYLON HOLDING LTD. (SUPRA) AND SOFTWORKS COMPUTERS (SUPRA), THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD THAT IF THE LOAN WAS FOR PURCHASE OF CAPITAL ASSET AND INTEREST ON LOAN WAS NOT DEDUCTED U/S. 36 THEN SUBSEQUENT WAIVER OF THE PRINCIPLE AMOUNT OF LOAN WOULD NOT BE TRE ATED AS CESSATION OF LIABILITY.BUT, IN THE CASE BEFORE US THE ASSESSEE HAS NOT PROVED BEFORE ANY OF THE AUTHORITIES THAT INTEREST PERTAINING TO THE LOAN WAS NOT CLAIMED AS DEDUCTION IN EARLIER Y EA RS .T HERE FORE, NONE OF THE CAS ES RELIED UPON BY THE ASSESSEE WOULD COME TO ITS RESCUE. ON THE OTHER HAND THE CASE RELIED UPON BY THE AO AND THE FAA I.E. SOLID CONTAINERS LTD. (SUPRA), GOES AGAINST THE ASSESSEE . IN THAT CASE IT WAS FIUND THAT LOAN WAS TAKEN FOR TRADING ACTIVITIES AND ULT IMATELY UPON WAIVER IT HAD TO BE TREATED AS ASSESSEE S INCOME. WE FIND THAT THE HONBLE COURT HAD DISTINGUISHED THE CASE OF MAHINDRA AND MAHINDRA (SUPRA), WHILE DECIDING THE CASE OF SOLID CONTAINERS. R ESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE JURISDIC TIONAL HIGH COURT , DELIVERED IN THE CA SE OF SOLID CONTAINERS (SUPRA), WE DECIDE THE FIRST GROUND OF APPEAL AGAINST THE ASSESSEE . 6. WITH REGARD TO GR OUND NO.2 WE ARE OF THE OPINION THAT THE AMOUNT IN QUESTION COULD NOT BE TREATED AS INCOME U/S. 28(IV) OF THE A CT AS IT WOULD NOT AMOUNT TO BE PERQUISITE OR BENEFIT THAT COULD BE TAXED UNDER THE SAID SECTION. WE HAVE ALREADY UPHELD THE ORDER OF THE FAA WITH REGARD TO GRO UND NO.1, THEREFORE, DISPUTED AMOUNT HAS TO BE TAXED AS PER THE PROVISIONS OF S.41(1) OF THE A CT. 7 . WITH REGARD TO ADDITIONAL GROUND T HE AR REFERRED TO THE DECISION OF THE SPECIAL BENCH ( 134 ITD 73) . THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. WE FIND THAT IN THE APPELLATE PROCEEDINGS,THE ASSESSEE HAS NOT SPECIFICALLY RAISED AN ISSUE BEFOR E THE FAA ABOUT SETTING OFF THE UNABSORBED BUSINESS LOSSES AGAINST THE LONG TERM CAPITAL GAINS FROM THE SALE OF BUSINESS ASSETS. BUT,AS IT IS A PURELY GROUND,SO WE ARE ADMITTING IT AND REMITTING BACK IT THE ISSUE TO THE FILE OF THE ITA/ 9135 /MUM/201 0 ,AY. 0 7 - 08 - MILTON 4 FAA FOR FRESH ADJUDICATI ON,WHO WOULD DECIDE THE ISSUE AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE .ADDITIONAL GROUND IS ALLOWED IN FAVOUR OF THE ASSESSEE ,IN PART. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JU LY ,2015. 10 TH , 2015 SD/ - SD/ - (/ JOGINDER S INGH ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 10 . 0 7 . 2015 . . . JV . SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CON CERNED CIT / 5. DR B BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.