Appeal Details
Counselvise Citation
[2022] 104 COUNSELVISE.COM (IT) 2967 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Miscellaneous Application
Pronouncement Date
04-09-2022
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
C
Next Hearing Date
21-07-2022
Assessment Year
2006-2007
Appeal Filed On
11-05-2022
Judgement Text
M.P. No.47/Bang/2022 (in ITA No.1317/Bang/2018) IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Assessment Year : 2006-07 M/s. I. G. Petrochemicals Ltd., D-4, Jyothi Complex, 134/1, Infantry Road, Bengaluru-560 001. PAN : AAACI 4115 R Vs. DCIT, Circle -3(1)(1), Bengaluru. APPELLANT RESPONDENT Appellant by : Shri. S. Ganesh, Sr. Advocate Respondent by : Smt. Priyadarshini Baseganni, Addl. CIT(DR)(ITAT), Bengaluru Date of hearing : 22.07.2022 Date of Pronouncement : 05.09.2022 O R D E R Per Chandra Poojari, Accountant Member: This is a Miscellaneous petition filed by the Assessee u/s.254(2) of the Income Tax Act, 1961 (Act) praying for rectification of mistake apparent in the order of the Tribunal dated 21.1.2022. 2. A brief background of the case needs to be given before dealing with the claim made in this MP. The Assessee is a company engaged in the business of manufacture and sale of Petro Chemicals. In AY 2005-06 and 2006-07, the Assessee received waiver of Principal amounts of loan/borrowings of Rs.28.66 Crores and Rs.145.22 Crores respectively on one time settlement (OTS) with MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 2 of 20 banks and financial institutions. The Assessee also received waiver of interest due on the aforesaid loans. While the principal amount waived was claimed as not taxable in the return of income, the interest component that was waived on the loans were offered to tax by the Assessee u/s.41(1) of the Act. 3. The Assessing Officer (AO) as well as the CIT(A) did not accept the claim of the Assessee that the waiver of principal amount of loan/borrowings is not chargeable to tax as income and brought to tax the same in AY 2005-06 & 2006-07. The Assessee filed appeals before the Tribunal for both AY 2005-06 & 2006-07, being ITA No. 140/Bang/2020 for AY 2005-06 and ITA No.1317/Bang/ 2018 for AY 2006-07. 4. ITA No.140/Bang/2020 for AY 2005-06 was decided by the Tribunal by order dated 27.12.2021 whereby the claim of the Assessee was accepted. However in ITA No.1317/Bang/2018 for AY 2006-07 by order dated 21.1.2022, the Tribunal did not accept the claim of the Assessee. The relevant observations of the Tribunal, in doing so, is contained in paragraph 6 and 7 of the order of tribunal, which reads as follows: “6. We have carefully gone through the above order of the Tribunal. In that order, the Tribunal specifically observed in para 20 that "However, in the present case, the principal portion of the loan which was received by the assessee in the capital field is not in the course of trading activity and it is not a surplus from trade so as to tax it. Being so, with regard to the principal term loan portion, it is a capital receipt only and waiver of the same is not taxable." Further, it was observed by the Tribunal in para 21 that "However, with regard to the interest portion, if it allowed as deduction in any earlier year on waiver of the same has to be considered as a trade receipt. The AO is required to verify with regard to interest waiver, if any, and if it is allowed as deduction in any earlier assessment year, then only the waiver can be treated as revenue receipt MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 3 of 20 liable to tax. With these observations, we remit the issue with regard to interest waiver only to the file of the AO for reconsideration. 7. Being so, in our opinion, the Tribunal has given a finding that principal term loan portion is being a capital receipt and waiver of that portion would not amount to income either u/s 28(iv) or u/s 41(1) of the Act. Further, the expenditure, which was not allowed as a deduction in earlier year and waiver of the same cannot be treated as revenue receipt. To that extent, we have no hesitation in agreeing with the contentions of the Ld. A.R. In our opinion, so far as the term loans were concerned, these were taken by the assessee for the purpose of capital assets from time to time. With regard to this loan, the amount did not come into the possession of the assessee on account of any trading transaction; the receipts were capital in nature being loan repayable over a period of time along with interest. Therefore, on waiver of this term loan, no benefit or perquisites arose to the assessee in the revenue field. On the other hand, it is a capital receipt. Thus, the waiver of the term loan cannot be treated as income of the assessee. However, waiver of overdraft, letter of credit, pre- shipment advance, export bills, benefit had arisen to the assessee. These loans were received in the course of carrying on business of the assessee even if it was treated as loan at the time of receipt of said loan and waiver of said amount will result in revenue receipt and to be liable for tax. Since it was the money had been borrowed for day-to- day affairs and not for purchase any capital assets, the said loan were not term loan taken for the acquisition or purchase of capital assets. On the other hand, it is used as a circulating capital not as a fixed capital and the money was used in ordinary course of business in carrying the day-to-day affairs of the assessee. Being so, writing off the over draft cash credit, letter of credit, pre-shipment advance and export bills, etc. which was received for carrying out the day-to-day operation of the assessee and waiver of the same to be treated as income of the assessee u/s 28(iv) of the Act. Similarly, interest waiver, if any and if it is allowed as a deduction in any earlier assessment years, then only the waiver of such interest could be treated as revenue receipt liable to tax u/s 41(1) of the Act. With this observation, we remit this issue in dispute to the file of AO for reconsideration.” (underlining for emphasis) 5. In this MP filed against the order dated 21.1.2022, the Assessee has submitted that it had taken both term loans as well as working capital loans from banks, in respect of which the Assessee entered into one- settlement with banks in the financial years relevant to Asst. Years 2005- 06 and 2006-07. These one-time settlements involved the waiver of not MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 4 of 20 only the interest charged by the banks in the past, but also the principal amounts of both the term loans as well as working capital loans in respect of both A.Y 2005-06 as well as A.Y 2006-07. It was the Assessee's basic contention in both Asst. Years that the waiver of the principal amounts of both the term loans as well as working capital loans constituted a capital receipt which was not taxable income. This claim was allowed by its order dated 27/12/2021. It has been further contended that the order dated 27.12.2021 passed by the Tribunal reproduced paragraph-30 of the order of C I T (Appeals) for A.Y 2005-06, which would make it clear that the Tribunal, in its said order dated 27/12/2021 accepted the Assessee's claim of waiver of principal of loan as capital receipt in respect of waiver of the principal amount of both term loans as well as working capital loans. It is the contention of the Assessee in this Miscellaneous application that the said ITAT order of the Tribunal for A.Y 2005-06 dated 27.12.2021 should have been followed by this Hon'ble Tribunal while disposing of the said ITA no.1317/2018 for A.Y 2006-07. However, in the order dated 21/1/22, passed for AY 2006-07, the Tribunal proceeded on the erroneous footing that its earlier order for A.Y 2005-06 related only to waiver of term loans and not to waiver of working capital loans. We have already set out the contents of paragraph-7 of the order of the Tribunal dated 21.1.2022 in the earlier paragraph of this order and underlined the relevant findings of the Tribunal. It is the stand of the Assessee in this MA that the only reason given for not following the ITAT order in the Applicant's own case for Asst. Year 2005-06, i.e., that the earlier year waiver was in respect of term loan whereas the waiver was in respect of working capital loan for AY 2006-07. It is the stand of the Assessee that the aforesaid basis on which the claim of the Assessee was not accepted for AY 2006-07, was erroneous MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 5 of 20 and this constituted a mistake apparent from the record which requires the rectification of the ITAT order dated 21/1/22. It has further been contended that on this ground, alone and by itself, the present Miscellaneous Application requires to be allowed, and the said ITA No. 1317/2018 requires to be allowed in toto instead of being partly dismissed. 6. Apart from the above, it has further been averred in the MA that the observations of the Tribunal in its order dated 21.1.2022 that loan taken in the ordinary course of business is a trading receipt, though it is repayable by the Assessee and such observations are directly contrary to the judgment of the Hon’ble Surpeme Court in the case of The Peerless General Finance & Investment Co.Ltd. Vs. CIT 416 ITR 1 which holds that any loan received by an Assessee which is repayable by him can never be considered to be a revene receipt. It has further been contended that the above observations of the Tribunal are contrary to the plain language of Sec.41(1) of the Act, which provides that a liability waiver benefit received by an Assessee can be taxed only if the amount had been allowed as a deduction in the IT assessment of the Assessee for any earlier Assessment year. Since this basis condition is not fulfilled, Sec.41(1) in fact acts as a bar or prohibition against such a waiver being treated as taxable income. 7. It has further been contended that in the order of the Tribunal dated 27.12.2021 for AY 2005-06 it has been expressly held, following the Judgments of the Supreme Court in Saraswati Industrial Syndicate vs C.I.T (186 ITR 278) and C.I.T vs Mahindra & Mahindra Ltd — 404 ITR 1 that a liability waiver benefit received by the assessee could be treated as taxable income under section 41(1) of the I.T. Act only if the amount in MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 6 of 20 question had, in the assessee's assessment for an earlier Asst.Year, been allowed as a deduction, and in the current Asst.Year, there was a remission or cessation of that liability. The ITAT proceeded in that earlier order on the footing that as, in respect of neither term loans nor working capital loans had any deduction ever been allowed in any past assessment of the Assessee, therefore, the waiver of the principal amount of the liability in the current year was not taxable as it was a capital receipt and. further, section 41(1) of the I.T.Act was not applicable to the waiver. However, in its order dated 21.1.2022 for A.Y 2006-07, the Tribunal has not followed its earlier order again because it proceeds on the footing that the earlier ITAT order for A.Y.2005-06 related only to term loans and not to working capital loans and that such working capital loans are trading receipts, on the ground that they are received in the ordinary course of business. It has been contended that this too is a mistake apparent from the record which requires to be rectified. It has also been contended that the ITAT in it’s order dated 21.1.2022 completely misread and misunderstood the judgment of the Supreme Court in the case of T.V.Sundaram Iyengar & Sons Ltd. 222 ITR 344 (SC) and failed to appreciate that the receipts in that case were trading receipts in the ordinary course of business, whereas, in contrast, in the present case, the receipts in question were loan amounts received from banks which could not possibly be considered as trading receipts even if the loans were working capital loans. The Tribunal has also erred in taxing the waiver u/s.28(iv) of the Act and doings so was contrary to the decision of Supreme Court in the cae of Mahindra & Mahindra (supra) which expressly holds that Sec.28(iv) applies only to a non-monetary benefit. MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 7 of 20 8. The learned counsel for the Assessee reiterated stand of the Assessee as contained in the MP. The learned DR submitted that the mistake pointed out cannot be regarded as a mistake apparent on the face of record within the meaning of Sec.254(2) of the Act. 9. We have carefully considered the rival submissions. Copies of one time settlement with the Banks and various financial institutions are available in pages 110 to 130 of Assessee’s paper book. A copy of reconciliation of payment made under OTS and write back for AY 2005-06 & 2006-07 is available at page 107 to 108 of the Assessee’s paper book. The computation of total income for AY 2005-06 and 2006-07 is also available at pages 70 to 72 and 83-85 of the Assessee’s paper book, respectively. 10. From a perusal of reconciliation of payments made under OTS and the claim of the Assessee that the principal amount waived is not taxable, the position that emerges is as follows: Sr. No. PARTICULARS AMOUNT AMOUNT A ASSESSMENT YEAR 2005-06 OUTSTANDING AS ON 31.03.2004 UTI BANK 1794.08 VIJAYA BANK ' 1667.50 IIBI 805.01 4266.59 Less • PAID UNDER OTS DURING THE YEAR UTI BANK 303.62 VIJAYA BANK 529.58 IIBI 580.01 1413.21 MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 8 of 20 2853.38 ADD : INCREASE IN LIABILITY DUE TO CURRENT YEAR TRANSACTIONS. 16.61 TOTAL PRINCIPAL WRITE BACK 2869.99 Sr. No. PARTICULARS AMOUNT AMOUNT A ASSESSMENT YEAR 2006-07 OUTSTANDING AS ON 31.03.2005 34670.50 PAID UNDER OTS DURING THE YEAR 2005-06 18447.71 BALANCE PAYMENT UNDER OTS PAID DURING - NEXT YEAR 1696.94 20144.65 BALANCE WRITE BACK 14525.85 ADD : INCREASE (DECREASE) IN LIABILITY DUE TO CURRENT YEAR TRANSACTIONS. -3.51 14522.34 TOTAL PRINCIPAL WRITE BACK PAYMENT DURING 2005-06 UNDER OTS Rs.in Lacs Paid by Spinaker Paid Direct Total Bank of India 2828.76 1466.25 4295.01 Canara Bank 1691.78 1691.78 ICICI/ARCIL 2144.00 60.00 2204.00 United Bank of India 1304.91 1304.91 Bank of Baroda 2727.54 1073.00 3800.54 Dena Bank 1273.23 81.77 1355.00 LIC 616.47 616.47 SASF 2910.00 190.00 3100.00 Standard Chartered Bank 80.00 80.00 Total 12500.00 5947.71 18447.71 MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 9 of 20 PAYMENT DURING 2006-07 UNDER OTS BANK OF INDIA 54.94 ICICI/ARCIL 1056.00 UNITED BANK OF INDIA 200.00 BANK OF BARODA 200.00 DENA BANK 136.00 SASF 50.00 1696.94 11. The nature of loans waived is given in page 109, 110, 111 & 112 of the Paper book and the same are as follows: SR NO PARTICULARS 31.03.1997 31.03.1998 31.03.1999 31.03.2000 31.03.2001 31.03.2002 31.03.2003 31.03.2004 31.03.2005 2005-05 A TERM LOAN ICICI .... 1 5016.11 5191.655424.58 5255.80 5290.93 5290.93 5290.93 5290.93 3552.50 2 IDBI . i 2727.72 2891.323099.99 3163.21 3243.87 3382.92 3382.92 3382.92 3382.92 3 LIC 680.00 616.46 616.46 616.46 615.46 615.46 515.46 616.46 616.46 4 1181 950.00 950.00 950.00 950.00 950.00 950.00 805.01 0 5 DEBENTURES - UBI 750.00 750.00 750.00 750.00 750.00 750.00 750.00 750.00 636.50 TOTAL ( A ) 9173.83 10399.43 10841.03 10735 47 10851 26 10990 31 10990 31 10845.32 .8188 38 0 00 B BANK BORROWING UTI BANK LTD 1 175.86 79.77 1258.52 2121.38 1656.66 2772.88 2390.46 1794.08 2 VIJAYA BANK - 108.48 2369.86 2250.30 2019.85 4086.48 2387.91 1667.50 3 BANK OF INDIA 416.20 1227.65 5968.24 6502.13 6-468.12 7039.69 7040.15 7040.15 7134.69 4 CANARA BANK 115.94 273.32 3183.88 3443.81 3937.34 3937.50 3937.59 3937.59 3651 81 5 ICICI BNAK LTD. 260.67 603.74 2220.46 2355.31 2407.57 2891.40 2640.17 1841.95 2185.12 UNITED BANK OF INDIA 150.00 150.00 3080.16 2016.14 2703.29 3257.79 3220.36 3220.36 2733.65 7 BANK OF BARODA 46.4.14 541.87 5414.97 5730.88 5910.18 10766.05 6744.73 6298.00 6304.96 8 DENA BANK 200.00 206.68 3044.60 2819.76 2766.14 4848.14 2872.94 2872.94 2877.47 9 STANDARD CHARTERED BANK 100.00 99.96 1743.33 1945 61 2075.63 2455.44 2146.40 1819.91 4584.42 TOTAL ( B) 1882.81 3291.67 28284.02 29185.32 29944.78 42058.47 33880.71 30492.48 26482.12 0.00 GRAND TOTAL ( 4+8) 11056.64 13691 1 39125.05 39920.79 40796.04 53048.78 44871.02 41337.8 34670.50 0 MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 10 of 20 MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 11 of 20 MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 12 of 20 MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 13 of 20 12. It is clear from the aforesaid statement that the nature of the loan in AY 2005-06 & 2006-07 remains the same. The claim of the Assessee in this MP is that the tribunal erroneously proceeded in its order for Assessment Year 2006- 07 on the footing that its earlier order for AY 2005-06 related only to waiver of term loans not to waiver of working capital loan. This is not correct as seen from para 20 of the order of the Tribunal for Assessment Year 2005-06 wherein the Tribunal has referred to term loan and interest thereon. There is no reference to waiver of working loan in AY 2005-06. The fact is that the there was waiver of both term loan and working capital loan in AY 2006-07. On the question whether waiver of working capital loan can be taxed u/s.41(1)/28(iv) of the Act or not, the law is laid down by the Hon’ble Bombay High Court in the case of Solid Containers Ltd. v. DCIT (2009) 308 ITR 417 (Bom) on the basis of which the AO brought to tax the amount waived as income of the Assessee in both AY 2005-06 & 2007. When the position of taxability came up before the Bombay High Court in the case of Mahindra & Mahindra Ltd. v. CIT (2003), 261 ITR 501 (Bom) (HC), where the waiver was of loan availed for the purpose of acquiring capital equipments, it was held that when no deduction was claimed by the assessee in earlier years and the utilisation of loan went into acquiring capital assets, s.28(iv) or s.41(1) cannot be made applicable. However in the case of Solid Containers Ltd v. DCIT (2009) 308 ITR 417 (Bom) (HC), the Hon’ble court deviated from the earlier decision and held that application of the funds would decide the nature of treatment to be given to the remission of liabilities. The court held that if the loans were utilised for trading purposes, remission of such liabilities would be in the nature of income, whereas if the loans were utilised for capital purposes, remission of loan could not be treated as income. Court further observed that a receipt, which is capital in nature in the earlier year, by efflux of time, can change its character as revenue receipt. The MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 14 of 20 Supreme Court in the case of Mahindra and Mahindra Ltd. [2018] 404 ITR 1 (SC) upheld the Bombay High Court view but the same was again in the context of waiver of loan for acquisition of capital assets and it held that the provisions of section 28(iv) and 41(1) are not applicable in the event of waiver of loan. In the case of CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344 (SC), the court observed that the moneys had arisen out of ordinary trading transactions. The assessee had received certain deposits from customers in the course of carrying on his business, which were originally treated as capital receipts. Since these credit balances, standing in favour of assessee’s customers, were not claimed by the customers, the assessee transferred such amounts to its profit and loss account. The assessee did not include such amounts in its total income. The Court held that although the amounts received originally were not of income nature, the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the deposit became time barred and the amount attained a totally different quality. It became a definite trade surplus. Although it was treated as deposit and was of capital nature at the point of time it was received, by efflux of time the money has become the assessee’s own money. What remains after adjustment of the deposits has not been claimed by the customers. The claims of the customers have become barred by limitation. Here we see the concept of ‘changing of character of receipt by efflux of time’ and the action of the assessee of crediting it to profit & loss account which shows that the assessee treats it as revenue, as in the present case, where receipts have been shown as extraordinary items in the profit and loss account (Note 14 of notes to Profit & Loss Account). It is based on these decisions that the AO made the impugned additions in AY 2005-06 & 2006-07. MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 15 of 20 13. From the discussion in paragraph-12 above, it is clear that waiver of working capital loan was taxable. Therefore, the view taken by the Tribunal in it’s order dated 21.1.2022 cannot be said to be an unsustainable view. The tribunal has given reason as to why waiver of principal portion of working capital loan is taxable and has taken a conscious decision after considering the Tribunal’s order dated 27.12.2021 for AY 2005-06. It is no doubt true that to the extent the waiver of loan was towards term loan, it was not taxable as was held by the Tribunal in it’s earlier order for AY 2005-06 dated 27.12.2021. Therefore, to the extent that the Tribunal order dated 21.1.2022 holding that the waiver of principal of loan availed for capital account purpose is not taxable. 14. The question that would arise for consideration is whether any mistake can be rectified in exercise of powers u/s.254(2) of the Act. The Hon’ble Supreme Court in Commissioner of Income Tax vs. Reliance Telecom Limited, Civil Appeal No.7110 of 2021 dated 03rd December, 2021 reported as (2021) 323 CTR (SC) 873 on the scope of powers u/s.254(2) of the Act held as under:- “4. In the present case, a detailed order was passed by the ITAT when it passed an order on 6- 9-2013, by which the ITAT held in favour of the Revenue. Therefore, the said order could not have been recalled by the Appellate Tribunal in exercise of powers under section 254(2) of the Act. If the Assessee was of the opinion that the order passed by the ITAT was erroneous, either on facts or in law, in that case, the only remedy available to the Assessee was to prefer the appeal before the High Court, which as such was already filed by the Assessee before the High Court, which the Assessee withdrew after the order passed by the ITAT dated 18-11- 2016 recalling its earlier order dated 6-9-2013. Therefore, as such, the order passed by the ITAT recalling its earlier order dated 6-9- 2013 which has been passed in exercise of powers under section 254(2) of the Act is beyond the scope and ambit of the powers of the Appellate Tribunal conferred under section 254 (2) of the Act. Therefore, the order passed by the ITAT dated 18-11-2016 recalling its earlier order dated 6-9-2013 is unsustainable, which ought to have been set aside by the High Court. MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 16 of 20 5. From the impugned judgment and order passed by the High Court, it appears that the High Court has dismissed the writ petitions by observing that (i) the Revenue itself had in detail gone into merits of the case before the ITAT and the parties filed detailed submissions based on which the ITAT passed its order recalling its earlier order; (ii) the Revenue had not contended that the ITAT had become functus officio after delivering its original order and that if it had to relook/revisit the order, it must be for limited purpose as permitted by Section 254(2) of the Act; and (iii) that the merits might have been decided erroneously but ITAT had the jurisdiction and within its powers it may pass an erroneous order and that such objections had not been raised before ITAT. 6. None of the aforesaid grounds are tenable in law. Merely because the Revenue might have in detail gone into the merits of the case before the ITAT and merely because the parties might have filed detailed submissions, it does not confer jurisdiction upon the ITAT to pass the order de hors Section 254(2) of the Act. As observed hereinabove, the powers under section 254(2) of the Act are only to correct and/or rectify the mistake apparent from the record and not beyond that.” 15. The Hon’ble Supreme Court in the case of CIT Vs. Saurashtra Kutch Stock Exchange case 219 CTR (SC) 90 has held that non-consideration of the decision of the jurisdictional high court/Supreme Court constitutes mistake apparent from record and is rectifiable within the meaning of section 254(2) of the Act. 16. In Honda Siel Power Products Ltd. v. CIT 295 ITR 466, the Hon’ble Supreme Court explained the scope of rectification powers u/s/254(2) of the Act, as follows: “Scope of the Power of Rectification 12. As stated above, in this case we are concerned with the application under section 254(2) of the 1961 Act. As stated above, the expression "rectification of mistake from the record" occurs in section 154. It also finds place in section 254(2). The purpose behind enactment of section 254(2) is based on the fundamental principle that no party appearing before the Tribunal, be it an assessee or the Department, should suffer on account of any mistake committed by the Tribunal. This fundamental principle has MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 17 of 20 nothing to do with the inherent powers of the Tribunal. In the present case, the Tribunal in its Order dated 10.9.2003 allowing the Rectification Application has given a finding that Samtel Color Ltd. (supra) was cited before it by the assessee but through oversight it had missed out the said judgment while dismissing the appeal filed by the assessee on the question of admissibility/allowability of the claim of the assessee for enhanced depreciation under section 43A. One of the important reasons for giving the power of rectification to the Tribunal is to see that no prejudice is caused to either of the parties appearing before it by its decision based on a mistake apparent from the record. 13. "Rule of precedent" is an important aspect of legal certainty in rule of law. That principle is not obliterated by section 254(2) of the Income-tax Act, 1961. When prejudice results from an order attributable to the Tribunal's mistake, error or omission, then it is the duty of the Tribunal to set it right. Atonement to the wronged party by the court or Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review. In the present case, the Tribunal was justified in exercising its powers under section 254(2) when it was pointed out to the Tribunal that the judgment of the coordinate bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record. The Tribunal has acknowledged its mistake, it has accordingly rectified its order. In our view, the High Court was not justified in interfering with the said order. We are not going by the doctrine or concept of inherent power. We are simply proceeding on the basis that if prejudice had resulted to the party, which prejudice is attributable to the Tribunal's mistake, error or omission and which error is a manifest error then the Tribunal would be justified in rectifying its mistake, which had been done in the present case.” 17. Now the question is how to reconcile the above conflicting rulings. It can be said that in the case of Reliance Telecom (supra), the Hon’ble Supreme Court based its conclusion by holding that a detailed order was passed and issue decided and such order cannot be recalled in exercise of powers of rectification u/s.254(2) of the Act. By doing so, it has not diluted the ration laid down in the case of Saurashtra Stock Exchange (supra) or Honda Siel (supra) and the power to rectify orders which do not follow binding decision of Supreme Court or High Court or earlier order of Tribunal in Assessee’s own case. MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 18 of 20 18. The mistake apparent on the record of the tribunal is in not distinguishing the nature of loan waived in AY 2005-06 from the one waived in AY 2006-07, which mistake is apparent from the details of the loan waived, which are given in page 107 & 108 & 109, 110 and 111 of the Assessee’s paper book. 19. In the given facts and circumstances, we are of the view that there is a mistake apparent on the face of record which requires to be rectified. The same is rectified by deleting the existing paragraph 6, 7 and 8 of the order dated 21.1.2022 and substituting the same with the following paragraph 6, 7 and 8 viz., “6. In AY 2005-06 the waiver of principal of loan availed was for capital account purposes as well as for working capital purposes. The Tribunal in its order in Assessment Year 2005-06 has in para – 20 held that waiver of principal of term loan is not taxable. The Tribunal has not mentioned anywhere in its order regarding waiver of principal of working capital loan and interest thereon. The Tribunal has therefore proceeded on the basis that the question in Assessment Year 2005-06 was only with regard to the waiver of term loan and interest thereon. However, the law with regard to taxability of waiver of principal portion of loan availed for working capital purpose and interest thereon was not noticed. On the question whether waiver of working capital loan can be taxed u/s.41(1)/28(iv) of the Act or not, the law laid down in the case of Solid Containers Ltd v. DCIT (2009) 308 ITR 417 (Bom) was that waiver of principal portion of working capital is taxable. When the position of taxability came up before the Bombay High Court in the case of Mahindra & Mahindra Ltd. v. CIT (2003), 261 ITR 501 (Bom) (HC), where the waiver was of loan availed for the purpose of acquiring capital equipments, it was held that when no deduction was claimed by the assessee in earlier years and the utilisation of loan went into acquiring capital assets, s.28(iv) or s.41(1) cannot be made applicable. However in the case of Solid Containers Ltd v. DCIT (2009) 308 ITR 417 (Bom) (HC), the Hon’ble court deviated from the earlier decision and held that application of the funds would decide the nature of treatment to be given to the remission of liabilities. The court held that if the loans were utilised for trading purposes, remission of such liabilities would be in the nature of income, whereas if the loans were utilised for capital purposes, remission of loan could not be treated as income. Court further observed that a receipt, which is capital in nature in the earlier year, by efflux of time, can change its character as revenue receipt. The Supreme Court in the case MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 19 of 20 of Mahindra and Mahindra Ltd. [2018] 404 ITR 1 (SC) upheld the Bombay High Court view but the same was again in the context of waiver of loan for acquisition of capital assets and it held that the provisions of section 28(iv) and 41(1) are not applicable in the event of waiver of loan. In the case of CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344 (SC), the court observed that the moneys had arisen out of ordinary trading transactions. The assessee had received certain deposits from customers in the course of carrying on his business, which were originally treated as capital receipts. Since these credit balances, standing in favour of assessee’s customers, were not claimed by the customers, the assessee transferred such amounts to its profit and loss account. The assessee did not include such amounts in its total income. The Court held that although the amounts received originally were not of income nature, the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the deposit became time barred and the amount attained a totally different quality. It became a definite trade surplus. Although it was treated as deposit and was of capital nature at the point of time it was received, by efflux of time the money has become the assessee’s own money. What remains after adjustment of the deposits has not been claimed by the customers. The claims of the customers have become barred by limitation. Here we see the concept of ‘changing of character of receipt by efflux of time’ and the action of the assessee of crediting it to profit & loss account which shows that the assessee treats it as revenue, as in the present case, where receipts have been shown as extraordinary items in the profit and loss account (Note 14 of notes to Profit & Loss Account). We therefore hold that waiver of principal portion of loan to the extent the loan relates to working capital/trading purposes is taxable as held in the case of Solid Containers Ltd v. DCIT (2009) 308 ITR 417 (Bom). To the extent the waiver of the principal portion of loan availed for capital account purposes, the same is not taxable as held in the case of Mahindra & Mahindra Ltd. v. CIT (2003), 261 ITR 501 (Bom). 7. Similarly, interest waiver, if any and if it is allowed as a deduction in any earlier assessment years, then only the waiver of such interest on term loan as well as on working capital loan could be treated as revenue receipt liable to tax u/s 41(1) of the Act. Since this exercise has not been carried out either by the AO/CIT(A), we deem it fit and proper to remand the issue to the AO for consideration afresh to examine the purpose of the loan availed by the Assessee and in the light of the observations as made above, after affording Assessee opportunity of being heard. In this regard, we also find from page 109 of the Assessee’s paper book that the loans on which principal was waived included both term loan as well as other loan. From copy of the loan waiver letters of the Banks, copies of which are at pages 110 to 130, it is not clear as to what was the purpose for which the loans were availed by the Assessee. Hence, it is not possible for us to decide the issue and the AO has to necessarily carry out the exercise of finding out the purpose of the loan. 8. In the result, the appeal by the Assessee is treated as allowed for statistical purpose.” MP No.47/Bang/2022 (in ITA No.1317/Bang/2018) Page 20 of 20 20. In the result, the MP filed by the assessee is partly allowed. Order pronounced in the open court on 5 th Sept, 2022 Sd/-/- Sd/-/- (N. V. VASUDEVAN) (CHANDRA POOJARI) VICE PRESIDENT ACCOUNTANT MEMBER Bangalore, Dated : 05.09.2022. /NS/VG/SPS* Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.
