ITO, WARD-2(1)(1), AHMEDABAD vs. ECHON INDUSTRIES LTD., AHMEDABAD

During the assessment, the ld.AO observed that as per one time settlement scheme with the IDBI Bank, the assessee company has paid a sum of Rs.441 lakhs towards loan taken from the bank, and received a relief of Rs.2,47,88,187 in the form of wavier towards principal portion of loan as per the order of the BIFR. However, no concession or relief was allowed by the BIFR on the receipt of Rs.2,47,88,187/- being waiver of principal portion of the loan. It was further observed by the AO that the assessee shown the amount of Rs.2,47,88,187/- as income from other sources and credited the same to the profit & loss account. However, in the return of income and computation of income, the assessee has claimed the waiver portion of the principal amount as deductible income, which claim, according to the AO, was not justifiable. The ld.AO, therefore, show-caused the assessee as to why the same should not be disallowed and added to the income of the assessee. It was explained by the assessee that since the loan was taken for the purpose of setting up of a unit, they are capital expenditure and not a trading liability, and waiver of part of principal portion of the amount loan would not be taxable in the hands of the assessee. The ld.AO did not accept this contention of the assessee, and held that since the character of receipt has been changed from capital to revenue as the assessee has credited the amount in the profit & Loss account, and the amount of waiver principal amount has not 3 been spent wholly and exclusively for the purposes of earning business profit, no relief or deduction is allowable, because assessee has no liability to pay back that receipt. He accordingly made addition of Rs.2,47,88,187/- being waiver of portion of principal loan, and added to the total income of the assessee. Dissatisfied with the action of the AO, the assessee went in appeal before the first appellate authority. The ld.CIT(A) allowed the claim of the assessee by relying the decision of Hon’ble Supreme Court in the case of CIT Vs. Mahindra & Mahindra Ltd. 93 taxamnn.com 32 (SC), by holding that waiver of loan amount could not be brought to tax, as the same was on capital account and not in the nature of income. Aggrieved Revenue is in appeal before the Tribunal.

The ld.DR relied upon order of the AO, while the ld.counsel for the assessee supported the order of the ld.CIT(A).

On due consideration of facts and circumstances, and perusal of the impugned orders, we find that the issue in dispute is about taxability of amount of loan waived by the financial institution, on account of one time settlement. The assessee had outstanding loan liability of Rs.6,88,90,057/- with the IDBI Bank, which was settled under OTS at Rs.441 lakhs, and the balance amount of Rs.2,47,88,187/- representing principal portion of the loan waived by the Bank has been shown as income. The assessee credited the sum as income in the profit & loss account and shown it in the return of income, at the same time, claimed the same deductible income. The ld.AO did not accept treatment of waiver amount by the assessee, and held that since the assessee has shown the relief by way of waiver of part of principal amount of loan in the profit & loss account, the character of loan changed from capital to revenue, and therefore, the same liable to be taxed in the hands of the assessee. However, when the matter carried in appeal before the ld.first appellate authority, claim

In the result, appeal of the Revenue is dismissed. Order pronounced in the Court on 24th August, 2021 at Ahmedabad.