M/s. Apple Credit Corporation Limited, CHENNAI V. DCIT, CHENNAI

ITA 954/CHNY/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4842 (ITAT-CHENNAI)
• Duration Of Justice: 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 21-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 25-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business income; Depreciation; Question of law; Assessment record
• Section: 143(3); 263; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D, CHENNAI B E F O R E DR. O.K.NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER .. I.T.A. NO.954(MDS)/2011 ASSESSMENT YEAR: 2006-07 M/S.APPLE CREDIT CORPORATION THE DEPUTY COMMISSIONER LTD., GOKUL ARCADE, OF INCOME-TAX, 1 ST FLOOR, 2-SARDAR PATEL RD., VS. COMPA NY CIRCLE I(1), CHENNAI-600 020. CHENNAI. PAN AACCA2996C. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.VIJAYARAGHAVAN RESPONDENT BY: SHRI ANIRUDH RAI, CIT, DR. O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL IS FILED BY THE ASSESSEE. THE APPEAL RELATES TO THE ASSESSMENT YEAR 2006-07. IT IS DIRECTED AGA INST THE REVISION ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX, CHE NNAI-I UNDER ITA NO.954(MDS)/2011 2 SECTION 263 OF THE INCOME-TAX ACT, 1961 THROUGH HIS PROCEEDINGS DATED 25-3-2011. 2. THE ASSESSEE COMPANY IS ENGAGED IN FINANCING BU SINESS, MAINLY OF HIRE PURCHASE AND LEASE TRANSACTIONS. TH E RETURN OF INCOME WAS FILED FOR THE IMPUGNED ASSESSMENT YEAR 2006-07 FOR ` 2,49,95,042/-. INITIALLY THE RETURN WAS PROCESSED UNDER SECTION 143(1). LATER ON THE FILE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3). 3. THE COMMISSIONER OF INCOME-TAX ON GOING THROUGH THE ASSESSMENT RECORDS FOUND THAT THE ASSESSEE HAD MADE A ONE-TIME SETTLEMENT OF ITS LOANS LIABILITIES, RESULTING IN W AIVER OF ` 43.68 CRORES OF LIABILITY WHICH IS CREDITED BY THE ASSESSEE COMP ANY TO ITS CAPITAL RESERVE ACCOUNT. THE COMMISSIONER OF INCOME-TAX HE LD THE VIEW THAT THIS REMISSION OF LOAN LIABILITY AMOUNTED TO INCOME TAXABLE IN THE HANDS OF THE ASSESSEE BY VIRTUE OF THE PROVISIONS O F LAW CONTAINED UNDER SECTION 41(1) OR SECTION 28(IV) OF THE INCOME -TAX ACT, 1961. AS THE ASSESSING OFFICER HAS NOT BROUGHT THIS AMOUNT T O TAX, THE COMMISSIONER OF INCOME-TAX PROPOSED TO REVISE THE A SSESSMENT ORDER AND ACCORDINGLY ISSUED NOTICE UNDER SECTION 2 63. ITA NO.954(MDS)/2011 3 4. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE CO MPANY SUBMITTED BEFORE THE COMMISSIONER OF INCOME-TAX THA T THE ISSUE OF WAIVER OF THE LOAN LIABILITY WAS VERY MUCH DELIBERA TED UPON BY THE ASSESSING AUTHORITY IN THE COURSE OF THE ASSESSMENT PROCEEDINGS. IT IS ONLY AFTER CONSIDERING THE FACTUAL AND LEGAL ASP ECTS OF THE ISSUE THAT THE ASSESSING OFFICER HAS NOT BROUGHT THE AMOUNT OF WAIVER AS INCOME IN THE HANDS OF THE ASSESSEE. THE ASSESSEE EXPLAINED BEFORE THE COMMISSIONER OF INCOME-TAX THAT THE ASSE SSEE, BEING A FINANCING COMPANY, WAS FACING ACUTE CASH CRUNCH FOR SO MANY YEARS IN THE PAST AND WAS NOT IN A POSITION TO HONOUR THE COMMITMENTS OF REPAYMENTS OF BANK LOANS. THE BANKS AND THE INSTIT UTIONS WHO ADVANCED LOANS TO THE ASSESSEE COMPANY HAVE ALREADY TREATED THE SAID LOANS AS NON PERFORMING ASSETS (NPA) IN AS EAR LY AS 2000 ITSELF. IT IS IN THE LIGHT OF THE ABOVE FINANCIAL CONDITION THAT A SETTLEMENT WAS ARRIVED AT BETWEEN THE ASSESSEE COMPANY AND THE BAN KERS FOR A ONE- TIME SETTLEMENT SO THAT THE INTEREST AND A PART OF THE LOAN ARE WAIVED AND THE BALANCE AMOUNT IN THE PRINCIPAL ACCOUNT PAY ABLE BY THE ASSESSEE AND THE LIABILITY TO BE SETTLED ONCE FOR A LL. 5. THE ASSESSEE ALSO EXPLAINED THAT THE WAIVER OF A TRADING LIABILITY MIGHT BE IN THE NATURE OF INCOME, BUT THE WAIVER OF A LIABILITY ITA NO.954(MDS)/2011 4 AROSE ON CAPITAL ACCOUNT CANNOT BE TREATED AS THE I NCOME OF AN ASSESSEE EITHER UNDER SECTION 28(IV) OR UNDER SECTI ON 41(1), AS HELD BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF ISK RAEMECO REGENT LTD. VS. COMMISSIONER OR INCOME-TAX, 331 ITR 317. THE ASSESSEE ALSO EXPLAINED THE RATIO OF THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA AND MAHINDRA LTD. VS. COMMISSIONER OF INCOME-TAX, 261 ITR 501, WHERE THE COURT HAS TAKEN THE VIEW THAT THE AMOUNT RECEIVED AND USED FOR PURCHASE OF THE CAPITA L ASSET COULD HARDLY CONSTITUTE A TRADING RECEIPT. SUCH RECEIPT COULD BE CONSIDERED ONLY TOWARDS CAPITAL ACCOUNT. THE ASSESSEE ALSO RE LIED ON THE DECISION OF THE HONBLE SUPREME COURT RENDERED IN T HE CASE OF COMMISSIONER OF AGRICULTURAL INCOME-TAX VS. KERALA ESTATE MOORIAD CHALAPURAM, 161 ITR 155, TO HARNESS ITS ARGUMENT TH AT WAIVER OF CAPITAL LIABILITIES WOULD NOT AMOUNT TO INCOME LIAB LE FOR TAXATION IN THE HANDS OF THE ASSESSEE. THE ASSESSEE CONTENDED BEFO RE THE COMMISSIONER OF INCOME-TAX THAT AS HELD BY THE BOMB AY HIGH COURT IN THE CASE OF MAHINDRA AND MAHINDRA LTD., 261 ITR 501AND THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CHETAN CH EMICALS PVT. LTD., 267 ITR 770, THE WRITE OFF OF CAPITAL LIABILITY CAN NOT BE BROUGHT TO TAX UNDER SECTION 41(1) AS THE WAIVER OF SUCH LIABILITY DOES NOT SATISFY THE ITA NO.954(MDS)/2011 5 STATUTORY CONDITIONS PRESCRIBED FOR INVOKING SECTIO N 41(1). THE ASSESSEE ALSO CONTENDED THAT THE WAIVER OF THE LIAB ILITY BEING MONETARY IN NATURE, CANNOT BE TREATED AS INCOME UND ER SECTION 28(IV) AS THAT PARTICULAR SECTION COVERS ONLY CASES WHERE BENEFITS ARE DERIVED BY AN ASSESSEE BY WAY OF OTHER THAN CASH. 6. THE ASSESSEE EXPLAINED THAT THE WAIVER OBTAINED BY THE ASSESSEE COMPANY REPRESENTED ONLY THE WAIVER OF THE PRINCIPAL AMOUNT AND AS PER THE PROVISIONS OF LAW DECLARED BY VARIOUS COURTS OF LAW, IT IS NECESSARY TO HOLD THAT WAIVER OF LOAN LI ABILITY DOES NOT CREATE ANY INCOME TAXABLE IN THE HANDS OF THE ASSESSEE. T HE ASSESSEE COMPANY THEREFORE SUBMITTED THAT THE REVISION PROPO SAL MADE BY THE COMMISSIONER OF INCOME-TAX MAY BE DROPPED. 7. BUT THE COMMISSIONER OF INCOME-TAX COULD NOT AC CEPT THE CONTENTIONS ADVANCED BY THE ASSESSEE COMPANY. THE COMMISSIONER OF INCOME-TAX HELD THAT DEPRECIATION WAS ALLOWED ON THE ASSETS PURCHASED BY THE ASSESSEE COMPANY OUT OF THE BANK L OANS AND INTEREST ACCRUING ON SUCH LOANS WAS ALSO ALLOWED AS DEDUCTIONS AND THEREFORE THERE IS NO BASIS IN DENYING THE TRADING CHARACTER OF THE LOANS AVAILED BY THE ASSESSEE COMPANY. HE ACCORDIN GLY HELD THAT THE CASE LAWS RELIED ON BY THE ASSESSEE COMPANY ARE NOT RELEVANT IN ITA NO.954(MDS)/2011 6 DECIDING THE ISSUE INVOLVED IN THE PRESENT CASE. H E ALSO OBSERVED THAT THE BUSINESS OF THE ASSESSEE IS OF LEASING AND HIRE PURCHASE AND THE LOANS FROM BANKS AND FINANCIAL INSTITUTIONS WER E SECURED BY HYPOTHECATION OF HIRE PURCHASED AND LEASED ASSETS A ND ASSIGNMENTS OF FUTURE RECEIVABLES AND THEREFORE WAIVER OF THE L OANS MUST RESULT IN TAXATION UNDER SECTIONS 41(1) AND 28(IV). THE COMM ISSIONER OF INCOME-TAX HELD THAT THIS ASPECT WAS NOT CONSIDERED BY THE ASSESSING OFFICER. HE ACCORDINGLY SET ASIDE THE ASSESSMENT O RDER FOR THE PURPOSE OF EXAMINING THE ABOVE MENTIONED WAIVER OF LOAN LIABILITY AND ISSUED APPROPRIATE DIRECTIONS TO THE ASSESSING AUTH ORITY. THE REVISION ORDER WAS THUS PASSED UNDER SECTION 263 OF THE INCO ME-TAX ACT, 1961. 8. THE ASSESSEE IS AGGRIEVED AND THEREFORE THIS AP PEAL BEFORE US. 9. THE GROUNDS RAISED BY THE ASSESSEE IN THE APPEA L READ AS UNDER:- 2. THE COMMISSIONER OF INCOME-TAX ERRED IN ASSUMI NG JURISDICTION UNDER SECTION 263 OF THE ACT AND ERRED IN PASSING AN ORDER UNDER SECTION 263 OF THE ACT. ITA NO.954(MDS)/2011 7 3. THE COMMISSIONER OF INCOME-TAX ERRED IN INVOKIN G PROVISION OF SECTION 263 OF THE ACT WITHOUT CONSIDE RING THE FACT THAT THE ORDER U/S.143(3) OF THE ACT IS NEITHE R ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENU E. 4. THE COMMISSIONER OF INCOME-TAX ERRED IN SETTING ASIDE THE ASSESSMENT MADE UNDER SECTION 143(3) OF THE ACT AND DIRECTING THE LEARNED ASSESSING OFFICER TO REDO THE ASSESSMENT. 5. THE COMMISSIONER OF INCOME-TAX FAILED TO APPREC IATE THE FACT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED AO HAS APPLIED HIS MIND AN D HAS DELIBERATED THE ISSUE AT LENGTH AND THAT THE OR DER UNDER SECTION 143(3) OF THE ACT IS NEITHER ERRONEOU S NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. 6. THE COMMISSIONER OF INCOME-TAX FAILED TO APPREC IATE THE FACT THAT NO DEDUCTION WAS CLAIMED IN RESPECT O F BANK LOAN BY THE APPELLANT AND THEREFORE, THE WAIVER OF LOAN OUGHT NOT TO BE TAXED UNDER SECTION 41(1) OR UNDER SECTION 28(IV) OF THE ACT. ITA NO.954(MDS)/2011 8 7. THE COMMISSIONER OF INCOME-TAX ERRED IN RELYIN G ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE O F NECTAR BEVERAGES P LTD VS COMMISSIONER OF INCOME-TA X 267 ITR 385 (BOM) WITHOUT CONSIDERING THE FACT TH AT THE SAID DECISION WAS REVERSED BY THE HON'BLE SUPREME C OURT REPORTED IN 314 ITR 314 (SC). 8. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, EVEN ON MERITS, THE LEARNED CIT ERRED IN NOT CONSIDERING T HE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF ISKRAEMECO REGENT LTD. VS CIT - 196 TAXMAN 103 (MA D) WITH RESPECT TO TAXABILITY OF WAIVER OF PRINCIPAL A MOUNT OF LOAN. 9. IN ANY EVENT, IF THERE ARE TWO VIEWS POSSIBLE, THE ASSESSING OFFICER HAS TAKEN ONE VIEW THE ORDER OF ASSESSMENT CANNOT BE CONSIDERED AS ERRONEOUS AND HENCE THE ASSUMPTION OF JURISDICTION OF THE CIT UN DER SECTION 263 IS BAD IN LAW (MALABAR INDUSTRIAL CO. L TD VS CIT - 243 ITR 83 (S C). ITA NO.954(MDS)/2011 9 10. SHRI R.VIJAYARAGHAVAN, THE LEARNED COUNSEL APP EARING FOR THE ASSESSEE COMPANY CONTENDED THAT THE COMMISSIONE R OF INCOME- TAX HAS PASSED THE IMPUGNED REVISION ORDER WITHOUT ANY SUPPORT FROM THE FACTS OF THE CASE OR FROM THE LAW GOVERNING THE DISPUTED SUBJECT MATTER. HE CONTENDED THAT IT IS NOT CORRECT TO STA TE THAT THE ISSUE WAS NOT CONSIDERED BY THE ASSESSING AUTHORITY. THE COMP LETE STATEMENT OF ACCOUNTS WAS PLACED BEFORE THE ASSESSING AUTHORITY IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, ULTIMATELY CONCLUDED UN DER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. THE ASSESSEE H AS FURNISHED THE ENTIRE DETAILS OF THE LOANS AVAILED BY THE ASSESSEE COMPANY FROM BANKS AND INSTITUTIONS. THE ASSESSEE COMPANY HAS A LSO FURNISHED THE DETAILS OF THE REPAYMENTS PRIOR TO THE ONE-TIME SETTLEMENT AGREEMENT AND ALSO AFTER THE SAID SETTLEMENT AGREEM ENT. THE SCHEDULE OF PAYMENTS MADE BY THE ASSESSEE COMPANY T O BANKS AND FINANCIAL INSTITUTIONS CLEARLY SHOWED THE PATTERN A ND QUANTUM OF THE WAIVER OF THE LIABILITY WHICH RESULTED OUT OF THE O NE-TIME SETTLEMENT. THE PAYMENT SCHEDULE CLEARLY ESTABLISHES THAT WHAT HAS BEEN WAIVED BY THE BANKS, FINANCIAL INSTITUTIONS WERE THE PRINC IPAL PORTION OF THE LOAN AMOUNTS AND THAT PRINCIPAL PORTION OF THE LOAN AMOUNT WAIVED ALONE WAS TRANSFERRED BY THE ASSESSEE COMPANY TO IT S CAPITAL RESERVE ITA NO.954(MDS)/2011 10 ACCOUNT. IT IS AFTER CONSIDERING THESE FACTS THAT THE ASSESSING OFFICER HAS COME TO THE CONCLUSION THAT WHAT WAS WAIVED IN FAVOUR OF THE ASSESSEE COMPANY WAS A PART OF THE PRINCIPAL/LOAN A MOUNT. THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF MAHINDRA AND MAHINDRA LTD. VS. COMMISSIONER OF INCOME-TAX, 2 61 ITR 501 AND THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF ISKRAEMECO REGENT LTD. VS. COMMISSIONER OF INCOME-TAX, 331 ITR 317 WERE VERY MUCH AVAILABLE AT THAT POINT OF TIME ALONGWITH SO M ANY OTHER DECISIONS AND IT IS AFTER CONSIDERING THOSE PRONOUN CEMENTS OF COMPETENT COURTS THAT THE ASSESSING OFFICER HAS ACC EPTED THE CONTENTION OF THE ASSESSEE COMPANY THAT THE WAIVER OF THE PRINCIPAL AMOUNT IS IN THE NATURE OF WAIVER OF CAPITAL LIABIL ITY AND THEREFORE WOULD NOT PARTAKE THE CHARACTER OF INCOME. THE LEA RNED COUNSEL FOR THE ASSESSEE SUBMITTED THEREFORE THAT IT IS AGAINST THE FACTS OF THE CASE TO ARGUE THAT THE ISSUE WAS NOT CONSIDERED BY THE ASSESSING OFFICER. 11. SECONDLY THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT THE WAIVER CANNOT BE BROUGHT TO TAX UNDER SECT ION 41(1), AS THE LOAN WAS NEVER CLAIMED BY THE ASSESSEE COMPANY AS A DEDUCTION IN COMPUTING ITS INCOME FOR ANY OF THE EARLIER ASSESSM ENT YEARS. IT ALSO ITA NO.954(MDS)/2011 11 CANNOT BE BROUGHT TO TAX UNDER SECTION 28(IV) AS TH AT PROVISION STIPULATES THAT WHAT HAS TO BE TREATED AS PROFITS A ND GAINS OF BUSINESS OR PROFESSION IS THE VALUE OF ANY BENEFIT OR PERQUI SITE, WHETHER CONVERTIBLE INTO MONEY OR NOT ARISING FROM BUSINESS OR EXERCISE OF A PROFESSION. THE LEARNED COUNSEL POINTED OUT THAT T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA AND MAHIN DRA LTD. VS. COMMISSIONER OF INCOME-TAX, 261 ITR 501 HAS HELD TH AT THIS PROVISION DOES NOT APPLY TO THE BENEFITS DERIVED BY AN ASSESS EE IN TERMS OF MONEY. THE SAID PROVISION APPLIES ONLY TO BENEFITS OR PERQUISITES ARISING FROM BUSINESS OR PROFESSION OTHER THAN CASH . IN THE PRESENT CASE WHAT HAS BEEN WAIVED BY THE BANKS AND INSTITUT IONS ARE MONETARY LIABILITY AND THEREFORE THE SAME CANNOT BE BROUGHT TO TAX UNDER SECTION 28(IV). 12. THE LEARNED COUNSEL, THEREFORE, SUBMITTED THAT THE WAIVER OF THE LOAN LIABILITY MADE BY THE BANKS AND INSTITU TIONS IN FAVOUR OF THE ASSESSEE COMPANY DOES NOT PARTAKE THE CHARACTER OF INCOME DEFINED IN SECTION 2(24) OF THE INCOME-TAX ACT, 1961. 13. THE LEARNED COUNSEL FURTHER CONTENDED THAT AT THE WORST, IT IS NOT POSSIBLE TO DENY THAT THE VIEW TAKEN BY THE ASSESSING AUTHORITY IS ONE OF THE VIEWS POSSIBLE AND PERMISSIBLE IN LAW . RELYING ON THE ITA NO.954(MDS)/2011 12 JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F MALABAR INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME-TAX, 243 ITR 83, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHE REVER THE ASSESSING OFFICER HAS OPTED FOR ONE OF THE VIEWS PE RMISSIBLE IN LAW, HIS ORDER CANNOT BE HELD TO BE ERRONEOUS. HE RELIE D ON THE SAME DECISION TO BRING HOME THE POINT THAT TO MAKE AN OR DER THE SUBJECT MATTER OF REVISION, IT SHOULD BE BOTH ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND IN SUCH CIRCUMSTANCES WHERE THE IMPUGNED ASSESSMENT ORDER CANNOT BE HELD TO BE ERRO NEOUS, THE COMMISSIONER OF INCOME-TAX WAS NOT JUSTIFIED IN INI TIATING PROCEEDINGS UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961. HE SUBMITTED THAT THE REVISION ORDER PASSED BY THE COMMISSIONER MAY BE SE T ASIDE. 14. SHRI ANIRUDH RAI, THE LEARNED COMMISSIONER OF INCOME- TAX, APPEARING FOR THE REVENUE, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSMENT ORDER IS SILENT ON THIS CRUCIAL ISSUE OF LOAN WAIVER. HE CONTENDED THAT THE ASSESSEE COMPANY HAS CREDITED TH E CAPITAL RESERVE ACCOUNT WITH A SUM OF ` .43.68 CRORES, IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THIS AMOUNT OF ` 43.68 CRORES REPRESENTED THE WAIVER BENEFIT OF THE LOAN AMOUNT ENJOYED BY THE ASSESSEE COMPANY. THE LOAN LIABILIT Y WAS WAIVED BY ITA NO.954(MDS)/2011 13 BANKS AND FINANCIAL INSTITUTIONS AS A ONE-TIME SETT LEMENT OF THE LIABILITIES OF THE ASSESSEE COMPANY. THE LOAN WAS UTILIZED FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS OF THE ASSES SEE COMPANY. THE ASSESSEE HAD ACQUIRED A NUMBER OF ASSETS BY UTI LIZING THE LOAN AMOUNT AND DEPRECIATION WAS CLAIMED THEREON AND ALL OWED IN COMPUTING ITS INCOME FOR EARLIER ASSESSMENT YEARS. LIKEWISE INTEREST WAS ALSO CLAIMED ON THE LOAN AMOUNT AND THE SAME WA S ALLOWED AS DEDUCTION IN THE EARLIER ASSESSMENT YEARS. THE LEA RNED COMMISSIONER OF INCOME-TAX EXPLAINED THAT THE LOANS AVAILED BY THE ASSESSEE FROM BANKS AND INSTITUTIONS HAVE THUS ACTI VELY PARTICIPATED IN THE TRADING ACTIVITY OF THE ASSESSEE COMPANY AND THEREFORE IT IS NOT POSSIBLE TO HOLD THAT THE WAIVER OF THE LIABILITY M UST BE TREATED AS AN EVENT IN THE CAPITAL ACCOUNT. 15. THE LEARNED COMMISSIONER THEREFORE SUBMITTED T HAT THE DECISIONS RELIED ON BY THE ASSESSEE COMPANY WERE NO T IN FACT APPLICABLE TO THE PRESENT CASE. HE FURTHER CONTEND ED THAT ALL THESE ISSUES WOULD COME FOR DELIBERATIONS IN THE COURSE O F THE ASSESSMENT PROCEEDINGS ONLY IF THE ASSESSING AUTHORITY HAS APP LIED HIS MIND ON THE SUBJECT. THE THOUGHT PROCESS OF THE ASSESSING AUTHORITY WOULD BE CLEAR ONLY IF DISCUSSIONS ARE MADE IN THE ASSESSMEN T ORDER. A BARE ITA NO.954(MDS)/2011 14 PERUSAL OF THE ASSESSMENT ORDER MAKES IT CLEAR THAT THE ASSESSING AUTHORITY HAS NOT EVEN MADE A WHISPER ON THE SUBJEC T MATTER IN HIS ASSESSMENT ORDER. 16. THE LEARNED COMMISSIONER OF INCOME-TAX THEREFO RE SUBMITTED THAT THE ASSESSMENT ORDER PASSED BY THE A SSESSING AUTHORITY WAS ERRONEOUS SO ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND THEREFORE THE COMMISSIONER OF INCOME-TA X WAS JUSTIFIED IN EXERCISING HIS JURISDICTION UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961. HE CONTENDED THAT THE APPEAL FILED BY THE AS SESSEE MAY BE DISMISSED. 17. WE HEARD BOTH SIDES IN DETAIL. THE ASSESSEE I S A COMPANY, A NOTIFIED NON-BANKING FINANCE COMPANY, CA RRYING ON THE BUSINESS OF LEASING AND HIRE PURCHASE. THE ASSESSE E COMPANY WAS ONCE THE MARKET LEADER IN THE SEGMENT OF VEHICLE LO ANS. FOR VARIOUS REASONS OF THE BUSINESS DYNAMICS, THE ASSESSEE COMP ANY FACED SEVERE FINANCIAL CRISIS AND ITS HIRE PURCHASE AND L EASING BUSINESS DWINDLED DOWN. THE SITUATION WAS AGGRAVATED BY THE SLUGGISH RECOVERY OF THE AMOUNT DUE FROM BORROWERS. THE ASS ESSEE COMPANY HAD AVAILED LOANS FROM BANKS AND INSTITUTIONS AND A LSO ACCEPTED DEPOSITS FROM PUBLIC. WHEN THE INFLOW OF FUNDS BEC AME SLOW AND THE ITA NO.954(MDS)/2011 15 LIABILITY TOWARDS CREDITORS MOUNTED ITS OWN PRESSUR E, THE ASSESSEE COMPANY SOUGHT FOR A ONE-TIME SETTLEMENT WITH BANKS AND INSTITUTIONS. IT IS IN THE ABOVE BACKGROUND THAT A PORTION OF THE LOAN AMOUNT DUE FROM THE ASSESSEE COMPANY WAS WAIVED BY BANKS AND INSTITUTIONS. THE ASSESSEE-COMPANY HAS SINCE BEEN DENOTIFIED AS A NON BANKING FINANCE COMPANY (NBFC) AND SURRENDERED ITS LICENCE TO THE RESERVE BANK OF INDIA. THE COMPANY IS CURRENTL Y ENGAGED IN PURSUING LEGAL PROCEEDINGS AGAINST THE BORROWERS FO R THE RECOVERY OF AMOUNTS DUE FROM THEM. 18. THIS WAIVER AMOUNT WAS DIRECTLY CREDITED BY TH E ASSESSEE COMPANY IN ITS CAPITAL RESERVE ACCOUNT, AS IN THE V IEW OF THE ASSESSEE COMPANY THE WAIVER BENEFIT DID NOT AMOUNT TO INCOME . THAT IS WHY THE AMOUNT WAS NOT BROUGHT THROUGH THE PROFIT AND L OSS ACCOUNT OF THE ASSESSEE COMPANY. THE WAIVER AMOUNT WAS CREDITED T O THE CAPITAL RESERVE ACCOUNT AND CORRESPONDING DEBIT ENTRIES WER E PASSED IN THE INDIVIDUAL ACCOUNTS OF THE CREDITORS. 19. IN THE COURSE OF SCRUTINY ASSESSMENT UNDER SEC TION 143(3), THE ASSESSEE HAD FURNISHED DETAILS RELATING TO LOANS AND DEPOSITS PAYABLE BY THE ASSESSEE COMPANY AND THE SC HEDULE OF PAYMENTS AFTER ARRIVING AT THE ONE-TIME SETTLEMENT AGREEMENT. THE ITA NO.954(MDS)/2011 16 DETAILS OF PAYMENTS MADE TO VARIOUS BANKS LIKE VIJA YA BANK, BANK OF BARODA, ORIENTAL BANK OF COMMERCE, ALLAHABAD BANK, FEDERAL BANK, STATE BANK OF HYDERABAD, REPCO BANK, ETC. WERE PLAC ED BEFORE THE ASSESSING AUTHORITY. THE DETAILS OF THE PAYMENTS M ADE TO SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA WERE ALSO PLAC ED BEFORE HIM. THE ASSESSEE COMPANY HAS ALSO FILED ALL THE RELEVAN T DETAILS RELATING TO DECLARATION OF LIABILITY ACCOUNTS AND THE ULTIMA TE SETTLEMENT OF THOSE ACCOUNTS ALONGWITH THE PAYMENT SCHEDULES. THEREFOR E, THERE IS NO FORCE IN THE ARGUMENT OF THE REVENUE THAT THE ASSES SING AUTHORITY HAS NOT EXAMINED THE NATURE OF THE WAIVER BENEFIT DERIV ED BY THE ASSESSEE COMPANY AS A RESULT OF THE ONE-TIME SETTLE MENT OF ITS LIABILITIES. IT WAS MADE CLEAR IN THE ASSESSMENT P ROCEEDINGS ITSELF THAT WHAT THE ASSESSEE COMPANY HAS CREDITED IN ITS CAPIT AL RESERVE ACCOUNT WAS THE AMOUNT OF THAT PART OF THE PRINCIPA L PORTION OF THE LOANS AND LIABILITIES WAIVED BY BANKS AND INSTITUTI ONS. THEREFORE, THE QUESTION WHETHER THE WAIVER WAS MADE IN CAPITAL ACC OUNT OR TRADING ACCOUNT, WAS VERY MUCH EXAMINED BY THE ASSESSING AU THORITY IN THE COURSE OF ASSESSMENT. BUT THE ONLY SHORTCOMING REF LECTED IN THE ASSESSMENT ORDER IS THAT THIS ISSUE HAS NOT BEEN DI SCUSSED BY THE ASSESSING AUTHORITY IN A DETAILED MANNER. THE ABSE NCE OF DISCUSSION ITA NO.954(MDS)/2011 17 ON THE ISSUE IN THE FACE OF THE ASSESSMENT ORDER DO ES NOT MAKE OUT A CASE THAT THE ISSUE WAS NOT AT ALL CONSIDERED BY TH E ASSESSING AUTHORITY. ON THE OTHER HAND THE FACT IS THAT THE ISSUES WERE CONSIDERED BY THE ASSESSING AUTHORITY AND THE ASSES SING AUTHORITY HAD APPLIED HIS MIND IN EXAMINING THE NATURE OF THE LIABILITIES WAIVED BY THE BANKS AND INSTITUTIONS. THE QUESTION WHETHE R THE ASSESSING OFFICER HAS DISCUSSED THE MATTER IN THE ASSESSMENT ORDER OR NOT IS NOT BASICALLY A QUESTION OF LAW BUT A QUESTION OF FACT. IT IS A QUESTION OF FACT IN THE SENSE THAT WHETHER THE ASSESSING AUTHOR ITY HAS EDITED HIS ASSESSMENT ORDER IN A BETTER WAY MAKING IT COMPREHE NSIVE AND SELF- SPEAKING. THE SHORT COMING IN EDITING THE ASSESSME NT ORDER BY ITSELF IS NOT A REASON TO CALL THE ASSESSMENT ORDER ERRONE OUS. 20. ON MERIT ALSO, THERE ARE UMPTEEN NUMBER OF JUD ICIAL PRONOUNCEMENTS TO THE EFFECT THAT WAIVER OF LIABILI TY UNDER CAPITAL ACCOUNT WOULD NOT BE IN THE NATURE OF INCOME EITHER UNDER SECTION 28(IV) OR UNDER SECTION 41(1). 21. THE IMPUGNED ASSESSMENT UNDER SECTION 143(3) I S SEEN PASSED ON 26-12-2008. AT THAT POINT OF TIME ITSELF , THE HONBLE HIGH COURT OF DELHI HAS CONSIDERED THE ISSUE IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. TOSHA INTERNATIONAL LTD., 176 TAX MAN 187. IN THAT ITA NO.954(MDS)/2011 18 CASE ALSO THE PRINCIPAL AMOUNT OF THE LOAN WAS WAIV ED BY BANKS AS PART OF A ONE-TIME SETTLEMENT. THE ASSESSING OFFIC ER TREATED THE WAIVED AMOUNT AS THE INCOME OF THE ASSESSEE. THE C OMMISSIONER OF INCOME-TAX(APPEALS) HELD THAT REMISSION OF PRINCIPA L AMOUNT OF LOAN DID NOT AMOUNT TO INCOME UNDER SECTION 41(1) NOR UN DER SECTION 28(IV) NOR UNDER SECTION 2(24). THE TRIBUNAL HELD THAT THE REMISSION WOULD BECOME INCOME UNDER SECTION 41(1) ONLY IF THE ASSESSEE CLAIMS DEDUCTION IN RESPECT OF EXPENDITURE OR TRADI NG LIABILITY. THE REMISSION OF PRINCIPAL AMOUNT OF LOAN OBTAINED FROM BANKS AND FINANCIAL INSTITUTIONS HAD NOT BEEN CLAIMED AS EXPE NDITURE OR TRADING LIABILITY IN ANY OF EARLIER PREVIOUS YEARS. THE TR IBUNAL HELD THAT THEREFORE THE WAIVER CANNOT BE IN THE NATURE OF INC OME. UPHOLDING THE ORDER OF THE TRIBUNAL THE HONBLE HIGH COURT HE LD THAT THE WAIVER OF PRINCIPAL AMOUNT OF LOAN COULD NOT BE TREATED AS INCOME UNDER ANY OF THE SECTIONS OF 41(1), 2(24) AND 28(IV). IN THE SAID DECISION THE HONBLE DELHI HIGH COURT HAS IN FACT FOLLOWED THE D ECISION OF THE HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF M AHINDRA AND MAHINDRA LTD. VS. COMMISSIONER OF INCOME-TAX, 261 I TR 501, RENDERED WAY BACK IN 2003. IN THE SAID JUDGMENT TH E HONBLE BOMBAY HIGH COURT HAS HELD THAT AS THE BENEFIT DERI VED BY THE ITA NO.954(MDS)/2011 19 ASSESSEE WAS WAIVER OF MONETARY LIABILITY, THE SAME WILL NOT COME UNDER SECTION 28(IV) AND AS THE CONDITIONS WERE NOT SATISFIED, THE SAME COULD NOT BE TREATED AS INCOME UNDER SECTION 4 1(1) EITHER. THESE DECISIONS WERE VERY MUCH AVAILABLE BEFORE THE ASSESSING AUTHORITY AT THE TIME OF COMPLETING THE SCRUTINY AS SESSMENT UNDER SECTION 143(3). THEREFORE, IT IS TO BE SEEN THAT T HE VIEW TAKEN BY THE ASSESSING OFFICER IS ONE OF THE POSSIBLE VIEWS. WH ERE THE ASSESSING OFFICER IS FOLLOWING ONE OF THE POSSIBLE VIEWS, IT IS A SETTLED LAW AS DECLARED BY THE HONBLE SUPREME COURT IN THE CASE O F MALABAR INDUSTRIAL COMPANY LTD. VS. COMMISSIONER OF INCOME- TAX, 243 ITR 83 THAT THE ORDER CANNOT BE HELD TO BE ERRONEOUS. THE REFORE IT IS NECESSARY FOR US TO HOLD THAT THE IMPUGNED ASSESSME NT ORDER PASSED UNDER SECTION 143(3) CANNOT BE HELD TO BE AN ERRONE OUS ORDER. 22. IT IS ALSO A SETTLED POSITION OF LAW THAT SECT ION 263 COMES INTO PLAY ONLY WHEN THE TWIN CONDITIONS ARE SATISFI ED, THAT THE ORDER IS ERRONEOUS AS WELL AS IT IS PREJUDICIAL TO THE INTER ESTS OF THE REVENUE. ONCE IT IS SEEN THAT THE ORDER IS NOT ERRONEOUS, TH E OPERATION OF SECTION 263 FAILS. 23. THE HONBLE JURISDICTIONAL HIGH COURT IN THE C ASE OF ISKRAEMECO REGENT LTD. VS. COMMISSIONER OF INCOME-T AX, 331 ITR ITA NO.954(MDS)/2011 20 317 HAS HELD THAT EVERY RECEIPT IN CONNECTION WITH THE BUSINESS OF AN ASSESSEE IS NOT A TRADING RECEIPT. THE COURT HELD THAT THE WAIVER OF THE PRINCIPAL AMOUNT OF LOAN MADE BY THE BANK IN FA VOUR OF THE ASSESSEE CANNOT BE TREATED AS TRADING RECEIPT AND T HEREFORE WOULD NOT BECOME THE BUSINESS INCOME. THE COURT ALSO HEL D THAT THE WAIVER OF LOAN IS NOT IN THE NATURE OF A BENEFIT ARISING O UT OF BUSINESS WITHIN THE MEANING OF SECTION 28(IV). THE COURT ALSO HELD THAT THE WAIVER OF THE PRINCIPAL AMOUNT OF LOAN CANNOT BE TREATED AS R EMISSION OF TRADING LIABILITY SO AS TO COME WITHIN THE PURVIEW OF SECTI ON 41(1). IN THAT CASE ALSO THE ASSESSEE HAD AVAILED THE BENEFIT OF O NE-TIME SETTLEMENT OF LOAN WHEREBY A PORTION OF THE PRINCIP AL LOAN AMOUNT WAS WAIVED AND THE SAME WAS CREDITED BY THE ASSESSEE DI RECTLY IN ITS CAPITAL RESERVE ACCOUNT. THE ABOVE DECISION SQUAR ELY APPLIES TO THE PRESENT CASE. THEREFORE ON MERITS ALSO THE FINDING OF THE COMMISSIONER OF INCOME-TAX DOES NOT HAVE A SOUND FO OTING. 24. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THE REVISION ORDER PASSED BY THE COMMISSIONER OF IN COME-TAX IS NOT SUSTAINABLE IN LAW. IT IS ACCORDINGLY VACATED. 25. IN RESULT THE APPEAL IS ALLOWED. ITA NO.954(MDS)/2011 21 ORDER PRONOUNCED ON THURSDAY, THE 23 RD DAY OF JUNE, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 23 RD JUNE, 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.