SREE HARI AGRO INDUSTRIES LIMITED,ADM. OFF. AT ALWAR V. ACIT, CENTRAL CIRCLE, ALWAR

ITA 1236/JPR/2024

AI Insights

The case involves Shree Hari Agro Industries Limited, the appellant, contesting the addition of Rs. 7,48,65,268.00 to their income, which was confirmed by the CIT(A) and related to the waiver of secured and unsecured loans. The loans were argued to be utilized for capital expenditure, and thus, their waiver should not attract tax under section 41(1) of the Income Tax Act, 1961. The Tribunal examined the utilization of the loans and the supporting documents, including balance sheets and cash flow statements, and found a direct correlation between the loans and the capital expenditure, leading to the decision in favor of the appellant.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 315380 (ITAT-JAIPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Other Referred Cases: CIT Vs. Mahindra & Mahindra Ltd., HDFC Bank Ltd. Vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR; LD
• Assessee Lawyers: P.C. PARWAL; LD
• Keywords: Set aside; Capital asset; Additional evidence; Revenue expenditure; Depreciation; Capital expenditure
• Section: 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH “A”, JAIPUR BEFORE SHRI GAGAN GOYAL, ACCOUNTANT MEMBER AND SHRI NARINDER KUMAR, JUDICIAL MEMBER ITA No. 1236 (A.Y 2009-10)/JPR/2024 Shree Hari Agro Industries Limited, 20, 21 and 22, Old Industrial Area, Alwar 301001 PAN No. AADCS 7756H ...... Appellant Vs. ACIT Central Circle, Alwar …...Respondent Appellant by : Mr. P. C. Parwal, CA, Ld. AR Respondent by : Mr. Manoj Kumar, JCIT, Ld. DR Date of hearing : 13/05/2025 Date of pronouncement : 13/05/2025 O R D E R PER GAGAN GOYAL, A.M: This appeal by assessee is directed against the order of CIT(A), Jaipur -04, dated 20.08.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2009-10. The assessee has raised the following grounds of appeal: 1.0 That the learned. Commissioner of Income Tax-(Appeals), has in law as well as on the facts and circumstances of the case in confirming the addition of Rupees 74865268.00 being written off of the secured loans of Rupees 480.00 Lakhs and unsecured loans of Rupees 268.65 Lakh by - 2 1.1 in giving a factually incorrect/erroneous finding on page number 46 in second para \"The natural corollary is that these documents already stand not accepted and thus rejected by the order of the learned Commissioner of Income Tax, Appeal in the first appeal order against the original assessment order, in as much as these finding are contrary to the finding on page number 5 in para number (ii) of the ITAT, bench- Jaipur, Jaipur Kolkata’s order dated 16.10.2015, wherein it was quoted from the order of CIT (A), Kolkata that \"However neither any sanction letter nor any other evidence to support the contention that these loans were taken for the acquisition of capital assets was filed\". Thus the documents submitted before the present CIT- (Appeals)-IV, Jaipur were not before the earlier CIT-(Appeals), Kolkata and the findings given by the present CIT (Appeals)- IV, Jaipur is out of his own presumption, assumption and surmises and thus the order under appeal is based upon factually incorrect facts. 1.2 in giving an adverse and misleading finding on page number 46 in second para that \"and thus also these documents were also not accepted to substantiate and prove that the funds were utilized only for the purposes of acquisition of capital assets in the order of the honourable Tribunal\" these finding are contrary to the finding of the ITAT, Bench-Kolkata Bench order dated 16.12.2015 on page number 8 in para number 11 that “it is no doubt true that these loans (loan from IDBI and IRBI) refers to the project finance thereby it can be sent that these loans were mean for meeting the capital expenditure\" Thus the order under appeal is again based upon factually incorrect facts. 1.3 In giving a misleading, incorrect and contradictory finding on page number 46- 47 that \"However the appellant has not filed any documents other than the balance sheets. In the special facts of the case, whereby the case was set aside by the honourable Tribunal with the specific direction regarding the purpose of the loan, the appellant was required to file additional documents to prove its case. However the appellant has not filed any additional documents.\", which is an incorrect and contradictory finding in as much as the appellant has submitted several additional documents, for which an application dt. 04.01.2019 under rule 46A was filed and accepted by appellate authority and the remand report was also sought from Assessing Officer, to prove and establish the correlation and purpose of loan taken from financial institutions. 1.4 not giving any finding/ignoring the various additional evidences submitted during the appellate proceedings as listed down in index to paper book and additional written submissions dated 12.06.2024 for establishing the correlation between loans taken from IDBI (Deepak Vegpro (P) Limited) and IRBI (IIBI) and acquisition of fixed assets and the purpose of loan. 3 1.5 not accepting the audited Balance Sheet of the assessee co. for the financial years 1996-97, 1997-98 and 1998-99 for raising the loans from the IRBI (340.00 Lakh) and IDBI (450.00 Lakh) to establish the loans raised and their investment in the acquisition of fixed assets, which is against the underlying purpose of preparing the Balance Sheet and also against the basic philosophy of the accounting principles. 1.6 utterly failing to give any finding as to where the loans taken from IRBI and IDBI in the financial year 1996-97, 1997-98 and 1998-99 have been invested/utilized, if the same have not been invested in the acquisition of the fixed assets, which the learned CIT-(Appeals)-IV, Jaipur has concluded in the order under appeal. 1.7 the factum that there is no adverse finding of the Assessing Officer for the investment of the loans raised from IDBI and IRBI in the acquisition of fixed assets with reference to tabular presentation of loans raised and their investment as mentioned/given on page number 6 of the assessment order and his ground of rejection have been revisited/reverted by him, in his remand report dated 05.02.2019, which also accepted by learned CIT-(Appeals)-IV, Jaipur on page 45 in para number 4.8 of the order appealed against. 1.8 in not confining himself within the directions of hon.ble ITAT, bench- Kolkata, and also erred in not accepting/considering the findings of the Assessing Officer in his assessment order r.w. his remand report with regard to the secured loans taken from IDBI and IRBI 1.9 not deleting the disallowance of Rupees 7,48,65,268.00 being written off of the secured loans of Rupees 480.00 Lakhs and unsecured loans of Rupees 268.65 Lakh on the basis of written submissions, additional written submissions and various evidences submitted during the course of appellate proceedings. 1.10 rejecting the application under rule 46A dated 11.08.2024 and not admitting the additional evidences in the form of audited cash flow statements for the financial year 2007-08 and 2008-09, to establish the raising of the unsecured loans and their investment in the acquisition of the fixed assets, which have remain uncontroverted. 1.11 giving a contradictory finding in as much as, has referred the Balance Sheet on page number 48 and 49 for capitalized expenses but in the earlier part of the order has rejected the Balance Sheet for the acquisition and investment in fixed assets of the loans raised from financial institutions. 2.0 The assessee reserves its right to add, alter, modify, and amend all or any of the grounds of appeal before or at the time of hearing of appeal. 4 2. All the grounds relates to only one addition of Rs. 7,48,65,268/- confirmed by CIT(A) u/s. 41(1) of the Act and therefore they are considered and disposed off together. Initially matter was heard on 26.03.2025 and later on same was fixed for clarification. Matter finally discussed today and treated as heard. 3. The brief facts of the case are that the assessee is engaged in the business of manufacturing of refined edible oil and extraction of solvent oil. The original assessment order u/s. 143(3) of the Act was made on 29.12.2011 at total income of Rs.7, 80, 56,213/-. This includes addition made by AO on account of amount credited to capital reserve account of Rs. 14,58,61,553/-. The Ld. CIT(A) deleted addition of Rs. 7,09,96,285/- out of this amount holding that addition on account of waiver of interest at the time of one-time settlement of the loan cannot be sustained either u/s. 28(iv) or u/s. 41(1) of the Act but confirmed the balance addition of Rs. 7,48,65,268/-. Against the order of CIT (A) both assessee and department filed appeal before Hon’ble ITAT. The Hon’ble ITAT vide order dt. 16.10.2015 sustained the order of CIT(A) deleting the addition of Rs. 7,09,96,285/- on account of waiver of interest but in respect of remaining addition of Rs. 7,48,65,268/- on account of waiver of loans, remanded the issue to the AO for fresh consideration by giving following directions at Para 11 & 12 of its order:- “11. We have perused the documents filed by the assessee in support of its contentions that the amount of loan that was waived by the creditors was for meeting the capital requirements. At the time of hearing it was noticed that the evidence filed by the assessee in this regard does not conclusively establish the assessee’s case. For example the assessee had availed two major loans which are the subject matter of waiver. The first loan is one which is availed from IDBI on 13.06.1996. The other major loan is one availed by the 5 assessee from IRBI on 22.01.1997. Copy of the loan sanctioning letters is at pages 76 and 83 of the assessee’s paper book. It is no doubt true that these loans refer to project finances thereby it can be seen that these loans were meant for meeting capital expenditure. It is however seen that the loan amount waived was by one Deepak Vegpro Pvt Ltd. When this was pointed out by the ld. Counsel for the assessee it was submitted that IDBI had assigned the loans to M/s. Deepak Vegpro Pvt Ltd. A copy of the assignment agreement is placed at pages 15 to 31 of the assessee’s paper book no.2. this does not correlate with the loan borrowed by the assessee from IDBI, as a person referred to therein is Stressed Assets Stabilization Fund which is stated to be a trust formed by IDBI, to whom IDBI is stated to have assigned the loan given by it to the assessee. 12. We are of the view that the correlation of the loans borrowed by the assessee and the purpose for which they were borrowed and the loans waived at Rs.7,48,65,268/- to the assessee has to be established by the assessee. It is only when the purpose of the loan is ascertained it can be decided as to whether the provision of section 41(1) of the Act will be attracted or not. We therefore set aside the order of the CIT (A) in so far as the addition of Rs.7, 48, 65,268/- sustained by the CIT (A) and remand the issue to the AO for fresh consideration in the light of the observations made above. The assessee is at liberty to file the required documents to substantiate its case regarding non applicability of the provision of section 41(1) of the Act or section 28(iv) of the Act.” 4. In pursuance to the above directions of Hon’ble ITAT, the AO at page 7 to 9 of the order held that (i) assessee has not filed any evidence to support that name of IRBI was changed to IIBI, therefore in the absence of specific and conclusive evidence, the claim of the assessee that loan was for capital expenditure is rejected (ii) assessee failed to prove that loan written off by M/s. Deepak Vegpro Pvt. Ltd. was the same loan which was sanctioned by IDBI and thus claim of the assessee that loan was for capital expenditure is rejected (iii) the contention of 6 the assessee that unsecured loan raised was utilized towards purchase of fixed asset cannot be accepted in the absence of any specific and conclusive evidence (iv) in the next F.Y. 2008-09 unsecured loans decreased but inventories and sundry debtors have increased. Hon’ble ITAT has observed that it was necessary for the assessee to establish the purpose of the loan but the assessee failed to do so and therefore he again made addition of Rs. 7,48,65,268/- to the income of the assessee u/s. 41(1) of the Act. 5. The Ld. CIT (A) at Pg 44 Para 4.6 admitted the additional evidences filed on 16.01.2019 but the additional evidences filed on 13.08.2024 was rejected on the ground of delay and the same being not useful on merit. Thereafter on Pg 45 Para 4.8, the Ld. CIT (A) by referring to the remand report of the AO accepted that loan written off of Rs. 480 lacs is the same loan which was earlier taken by the assessee from NBFCs. However as regard to utilisation of loan initially taken from NBFCs but later on taken over by Deepak Vegpro Pvt. Ltd. and the unsecured loans raised, the Ld. CIT(A) at Para 4.10 Pg 45 to 50 held that (i) the documents filed i.e. Balance Sheet was already available in the initial round of assessment, in first appeal and in appeal before Hon’ble ITAT, no other document like bank statement to show the movement of loan funds for utilisation towards capital expenditure was filed and therefore the appeal is liable to be dismissed on this finding itself (ii) with respect to the unsecured loan assessee has not filed any agreement and in hearing dt. 13.08.2024 expressed inability to produce date wise details of loan utilisation (iii) no matching has been shown inspite of direction of Hon’ble ITAT (iv) the Cash Flow Statement filed in hearing dt. 13.08.2024 is not eligible for admission due to delay and such Cash Flow Statement is otherwise 7 very general representation (v) the genuineness and the bonafide of writing off of unsecured loan is not established (vi) the assessee has not established that other funds have not been utilised in acquisition of capital asset (vii) the assessee has capitalised revenue expenditure to the extent of Rs. 99,74,624/- which per se is not capital asset (viii) Hon’ble Mumbai Tribunal in case of HDFC Bank Ltd. Vs. DCIT has held that comparison of funds vis-a-vis the utilisation should be made as on the date of utilisation/ investment and not as on the date of Balance Sheet and accordingly the appeal of the assessee is dismissed. 6. The Ld. A/R of assessee during the course of hearing vehemently argued that the loans which are waved off during the year under consideration has been utilized for meeting the capital expenditure and therefore the same is not taxable u/s. 41(1) of the Act. He referred to the written submissions filed by him and relied on the decision of Hon’ble Supreme Court in case of CIT Vs. Mahindra & Mahindra Ltd. where it was held that where loan has been utilized for acquisition of capital asset which has not been debited to the Trading A/c or to the P&L A/c, section 41(1) which particularly deals with the remission of trading liability would not attract chargeability u/s. 41(1) of the Act on waiver of such loan. 7. On the other hand, the Ld. D/R argued that assessee has not established that the loans which have been waived off have been utilized in acquisition of the fixed asset. All the facts brought on record by the Ld. A/R of assessee were available in the first round of appeal before the Hon’ble ITAT and therefore the assessee was directed to establish the correlation of the loans borrowed and the purpose for which they were borrowed. The assessee has not proved such 8 correlation and therefore the addition made by AO and confirmed by Ld. CIT (A) are upheld. 8. We have gone through the rival contentions and perused the material available on record. We note that during the course of appellate hearing the Ld. CIT (A) called remand report from the AO w.r.t change of name of IRBI to IIBI and assignment of loan by IDBI to M/s. Stressed Assets Stabilization Fund (SASF) and further by SASF to M/s. Deepak Vegpro Pvt. Ltd. The AO considering the evidences filed, in its remand report dt. 05.02.2019 accepted the secured loan borrowed by the assessee from IRBI and IDBI and change of the name and the assignment of the loan to the resultant entity. Thus waiver of loan of Rs.165 lacs by IIBI and Rs. 315 lacs by Deepak Vegpro Pvt. Ltd. to whom the loan raised from IDBI was assigned through SASF vide agreement dt. 17.01.2007 has been accepted by the AO in the remand report and also by the CIT (A) at Pg 45 Para 4.8 of the order. We note that secured loan amount waived by IIBI and by M/s. Deepak Vegpro Pvt. Ltd. to whom the loan raised from IDBI was assigned, the Hon’ble ITAT at para 11 of the order has specifically stated by referring to the loan sanctioning letters that it is true that these loans refers to project finances thereby it can be seen that these loans were meant for meeting capital expenditure. Therefore considering the remand report of the AO and the finding of the Hon’ble ITAT, it is proved beyond doubt that loan taken from these two financial institutions has been utilised for meeting the capital expenditure and therefore waiver of the loan amount of Rs. 480 lacs (Rs. 165 Lacs + Rs. 315 Lacs) cannot be charged to tax u/s. 41(1) of the Act. 9 9. From the perusal of the financial statements placed on record, we note that the correlation of loan borrowed from IRBI and IDBI with the investment in acquisition of fixed asset is evident from the following financial information available in the Balance Sheet for F.Y. 1996-97, 1997-98 and 1998-99. The summarized position of Balance Sheet for these years is as under:- (Rs. in lacs) Particulars As on 31.03.1997 As on 31.03.1998 As on 31.03.1999 Share Capital 406.38 515.35 578.35 Secured Loan • From IDBI • From IIBI • From PNB • From SBBJ • Interest Accrued 380.00 170.00 - - - 425.00 325.00 98.61 82.38 - 450.00 340.00 150.81 122.09 65.27 Sub-total 550.00 930.99 1128.17 Unsecured Loan - - 146.72 Total 956.38 1441.34 1853.24 Fixed Assets less Depreciation 949.23 1139.32 1098.40 Net Current Assets & debit balance of Profit & Loss A/c 7.15 302.02 754.84 Total 956.38 1441.34 1853.24 10 Thus when the nexus of loan borrowed with its utilization in acquisition of fixed asset is evident from the Balance Sheet, only because assessee could not furnish the bank statement to prove the nexus of borrowed funds with its utilization in fixed asset is not relevant particularly when the Balance Sheets are duly audited. Also the fact that the secured loans has been utilized in incurring the capital expenditure is evident from the Director’s Report of F.Y. 1996-97 where it is stated that the means of finance of the project which initially included Public issue of Rs. 325 lacs had to be reviewed in the context of prevailing depressed Capital Market condition. With the concurrence of Industrial Development Bank of India (IDBI) the means of finance was changed on the basis of Debt Equity Ratio. Consequently, the Promoters contribution increased to Rs.515 lacs and the Institutional Term Loan was increased to Rs. 790 lacs. IDBI having already sanctioned Term Loan of Rs. 450 lacs, balance 340 lacs was sanctioned by Industrial Investment Bank of India Ltd (IIBI). The Company had so far availed Rs. 380 lacs from IDBI and Rs. 280 lacs from IIBI. As on date paid up Equity Capital amounted to Rs. 4, 36, 57,900/-. Arrangement for working capital was finalised with Punjab National Bank (PNB) and the State Bank of Saurashtra, Jaipur. They agreed to provide Fund based Working Capital to the extent of Rs. 530 lacs and non-fund based Rs. 15 lacs under consortium arrangement. During the period under review, since the project was under implantation and commercial production was yet to commence, no Profit & Loss account has been prepared. Also in the Director’s Report of F.Y. 1997-98 it is stated that commercial production in the refinery section started on 11.06.1997 whereas Solvent Extraction plant started on 01.07.1997. Thus it proves beyond that waiver of loan taken from IRBI of Rs. 165 lacs and by Deepak Vegpro Pvt. Ltd. of Rs. 315 lacs 11 which was assigned to it through M/s. Stressed Assets Stabilization Fund is for acquisition of capital asset not chargeable to tax u/s. 41(1) of the Act and therefore, addition to the extent of Rs. 480 lacs confirmed by Ld. CIT (A) is deleted. 10. We further find that during F.Y. 2007-08 & 2008-09 assessee made expansion & renovation of the existing plant for which it raised unsecured loan of Rs. 285 lacs from M/s. Deepak Vegpro Pvt. Ltd. apart from Rs. 50.81 lacs received earlier from M/s. Kedarnath Ravindra Kumar HUF, Anita Agarwal, Shree Hari Industries and Varsha Trading Co. The total of these loans is Rs. 335.81 lacs. The utilization in fixed asset during F.Y. 2007-08 & 2008-09 was of Rs. 528.80 lacs as per the following information available in the Balance Sheet:- (Amounts in Rs.) Particulars 2007-08 2008-09 Total Building 26,34,708 66,76,755 93,11,463 P&M 42,74,512 3,87,33,284 4,30,07,796 Computers 1,18,752 82,000 2,00,752 Office Equipment 0 1,69,378 1,69,378 Furniture & Fixtures 7,500 1,41,299 1,48,799 Vehicles 0 42,115 42,115 Capital WIP 1,05,68,069 -1,05,68,069 0 Total 1,76,03,541 3,52,76,762 5,28,80,303 The utilization of the above unsecured loans in acquisition of fixed asset is supported by the cash flow statement furnished by the assessee who has 12 incorrectly been not considered by the Ld. CIT (A) as these are not additional evidences but the information extracted from the Balance Sheet available on record. Therefore, waiver of 80% of the unsecured loan amount of Rs. 335.82 lacs, i.e. Rs. 268.65 lacs is also for acquisition of capital asset which is not taxable u/s. 41(1) of the Act. Hence the addition of Rs.268.65 lacs confirmed by Ld. CIT (A) is deleted. 11. In the result, appeal of the assessee is allowed. The Order is pronounced in the open court on the 13th Day of May 2025. Sd/- Sd/- (NARINDER KUMAR) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Jaipur, िदनांक/Dated: 13/05/2025 Copy of the Order forwarded to: 1. अपीलाथ /The Appellant , 2. \u000eितवादी/ The Respondent. 3. आयकर आयु\u0015 CIT 4. िवभागीय \u000eितिनिध, आय.अपी.अिध., Sr.DR., ITAT, 5. गाड फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar) ITAT, Jaipur 13 Details Date Initials Designation 1 Draft dictated on PC on 13.05.2025 Sr.PS/PS 2 Draft Placed before author 13.05.2025 Sr.PS/PS 3 Draft proposed & placed before the Second Member JM/AM 4 Draft discussed/approved by Second Member JM/AM 5. Approved Draft comes to the Sr.PS/PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS/PS 7. File sent to the Bench Clerk Sr.PS/PS 8 Date on which the file goes to the Head clerk 9 Date of Dispatch of order "