DCIT CENTRAL CIRCLE 2(1), PUNE V. M/s. Veena Industries Ltd, Pune

ITSSA 2/PUN/2020

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The case involves M/s. Veena Industries Limited, which entered into a one-time settlement with HSBC Bank and Barclays Bank PLC, resulting in the waiver of a significant amount of debt. The Assessing Officer (AO) treated the waived amounts as income under section 41(1) of the Income Tax Act, which pertains to the taxation of benefits received from the remission of trading liabilities. The CIT(A) reversed the AO's decision, holding that only the interest component of the waived amount was taxable, as it was previously claimed as a deduction. The Tribunal agreed with the CIT(A)'s decision, emphasizing that the principal amount of the loans, which were not recorded as expenses or losses in the profit and loss account, should not be taxed under section 41(1).

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137827 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 19-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-07-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 05-01-2020
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, ‘B’ PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER आयकर अपील सं. / IT(SS)A No.02/PUN/2020 नधा रण वष / Assessment Year : 2013-14 DCIT, Central Circle-2(1), Pune Vs. M/s. Veena Industries Limited, S-145, MIDC, Bhosari, Pune 411 026 Maharashtra PAN : AAACV9329E Appellant Respondent आदेश / ORDER PER R.S. SYAL, VP : This appeal by the Revenue arises out of the order dated 28-10-2019 passed by the CIT(A)-12, Pune in relation to the assessment year 2013-14. 2. The only issue raised through various grounds is against the deletion of addition of Rs.19.61 crore. 3. Pithily put, the facts of the case are that the assessee entered into one time settlement with two banks, namely, HSBC Bank and Barclays Bank PLC. As per the assessment order, qua HSBC bank total amount due as on 09-10-2012 was Rs.8,50,98,162/-, which Assessee by Shri Neelesh Khandelwal Revenue by Shri Ajay Kumar Kesari Date of hearing 18-07-2023 Date of pronouncement 20-07-2023 IT(SS)A No.02/PUN/2020 M/s. Veena Industries Limited 2 was settled against payment of Rs.2,25,00,000/-. Anent to Barclays Bank PLC, the total amount outstanding as on 18-02-2013 was Rs.23,70,70,277/-, against which settlement was made for Rs.5.00 crore. The AO called upon the assessee to explain as to why the differential amount, waived by the banks, should not be charged to tax? The assessee submitted that it was in the nature of capital receipt and hence not liable to tax. Not convinced, the AO invoked the provisions of section 41(1) of the Act and held the total amount of waiver of Rs.24,96,68,439/-, being, the differential amount, chargeable to tax. The ld. CIT(A) held that only the interest component, in respect of which deduction was claimed by the assessee in earlier years amounting to Rs.1,41,20,527/-, was liable to tax u/s.41(1). Remaining amount of Rs.19.61 crore was held to be not taxable. This is how, the Revenue has come up in appeal before the Tribunal. 4. We have heard both the sides and gone through the relevant material on record. The crux of the matter is that the assessee obtained certain loans from two banks, part of which along with the interest thereon, was payable. Pursuant to the settlement with the banks, the assessee was relieved from paying the amount that came to be added by the AO u/s.41(1) of the Act. This section provides that where an allowance or deduction has been made in the IT(SS)A No.02/PUN/2020 M/s. Veena Industries Limited 3 assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year, the assessee obtains some benefit by way of remission or cessation thereof, such benefit accruing to the assessee, shall be deemed to be the profits and gains of business and accordingly chargeable to tax. The nitty gritty of the provision is that the assessee should have claimed deduction towards any expenditure or loss or trading liability in an earlier year and, when, in a later year, the amount ceases to be payable or is remitted, then the earlier allowed deduction becomes income chargeable to tax u/s.41(1) of the Act. To put it straight, the condition precedent for taxability of the remission or cessation under this provision is that there should be some equivalent deduction in this or on earlier year. This provision does not talk of the benefit received by way or remission or cessation etc., which did not enter into the trading or profit and loss account and was confined only to the balance sheet. Here is a case in which the assessee received loan from two banks, which remained in the balance sheet and thereafter such loan was remitted to some extent. In our considered opinion, section 41(1) is not attracted on such amount because it was not allowed as deduction by means of loss or expenditure or trading liability in any earlier year, which, on remission in the year under consideration, IT(SS)A No.02/PUN/2020 M/s. Veena Industries Limited 4 could become chargeable to tax u/s.41(1) of the Act. The ld. CIT(A) has rightly held that only the amount of interest which was debited to the Profit and loss account of the assessee in the current/earlier years amounting to Rs.1.41 crore, that was still payable by the assessee at the time of remission and stood remitted by the banks, was chargeable to tax and the remaining amount was capital receipt that could not be covered within the ambit of section 41(1) of the Act. We, therefore, accord our imprimatur to the view canvassed by the ld. CIT(A) on this score. 5. In the result, the appeal is dismissed. Order pronounced in the Open Court on 20 th July, 2023. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 20 th July, 2023 सतीश आदेश की ितिलिप अ ेिषत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. थ / The respondent 3. The Pr.CIT(Central), Pune 4. DR, ITAT, ‘B’ Bench, Pune 5. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune IT(SS)A No.02/PUN/2020 M/s. Veena Industries Limited 5 Date 1. Draft dictated on 18-07-2023 Sr.PS 2. Draft placed before author 19-07-2023 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *