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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED&
PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the revenue and a cross objection by the assessee are against the order dated 10.11.2014 passed by the Commissioner of Income Tax (Appeals)-6, Ahmedabad arising out of the order dated 27.01.2014 for the Assessment
- 2 - ITA No.176/Ahd/2015 & CO No.47/Ahd/2015 M/s. Accelaris Technologies ltd. Asst.Year – 2011-12 Year 2011-12 passed by the ITO, Ward - 1(1), Ahmedabad under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to “The Act”).
The assessee company filed his return of income on 14.03.2013 showing total income Nil. Upon scrutiny a notice u/s 143(2) of the Act was issued on 12.08.2013 followed by a notice u/s 142(1) dated 04.09.2013 due to change of incumbent in office against the assessee. Further notice u/s 142(1) of the Act dated 10.09.2013 calling for details was also served. During the assessment proceeding, upon verification of the Profit and Loss account it was found that the assessee has disclosed the loan amount of Rs.2,56,86,457/- as written off and Rs. 38,001/- as interest others. After deduction of expenses net loss was shown of Rs.5,27,86,067/-, while computing the total income, the assessee has deducted Rs.2,56,86,457/- being loan written off stating that income considered separately as capital receipt. The assessee, however, has not considered this receipt separately and offered for tax. A show-cause notice was issued on 10.09.2013 directing the assessee as to whether the income of Rs.2,56,86,457/- as capital receipt was offered to tax or not, if not then to explain the reason thereof. In reply to the said notice the assessee explained that the said amount of Rs.2,56,86,457/- was the unsecured loan taken for purchase of fixed assets in preceding years from Metrix Logistic Co. Ltd. and now no longer payable and hence written off in year under review. Thus, the said capital receipt is not taxable. It was contended by the assessee that the amount so received from one Metrix Logistic Co. Ltd. is no longer payable since Metrix Logistic Co. Ltd. was wound up under the provisions of Companies Act, 1956 by and under the order passed by the Hon’ble Gujarat High Court and thus the same was written off as deposit received no longer payable. It was submitted by the assessee that no interest on this amount has been given by the assessee company since its receipt in earlier year. Such contention made by the assessee was again reiterated by a further reply dated 16.01.2014 where it was stated that the winding up proceeding of Metrix Logistic Co. Ltd. were at the advance stage and the loan was written off on 31.03.2011. The entire amount was utilized for financing the
- 3 - ITA No.176/Ahd/2015 & CO No.47/Ahd/2015 M/s. Accelaris Technologies ltd. Asst.Year – 2011-12 cost of capital expenditure was also sought to be established by documentary evidences filed by the assessee before the Learned Assessing Officer. However, though the said fact was admitted by the Learned AO he further observed that while computing the total income, the assessee has deducted such amount being loan written off stating that income considered separately as capital receipt but the said receipt was not offered to tax. According to the Learned AO if the said income is treated as capital receipt then the same should have been offered for taxation as capital gain. Otherwise it should be treated as revenue income as gathered during the year under consideration. It was further pointed out by the Learned AO that when the said loan was obtained from Metrix Logistic Co. Ltd. it was rightly accounted for in the balance sheet of the assessee company as unsecured loan but as and when the same was written off, the assessee ceased to have any obligation to repay the same. Thus the amount changed its character into income of the assessee during the year of such write off since the receipt has been written off in the books of accounts of the assessee. The amount becomes assessee’s own money and was rightly brought in the Profit and Loss Account and therefore the same ought have been offered as income of the assessee during the year Under Section 28(i) of the Act. With such observation, the claim of the assessee that it is not taxable income was rejected by the Learned AO and the same was added to the total income of the assessee. In appeal, the Learned CIT(A) deleted such addition. Hence, the instant appeal filed by the revenue before us.
At the time of hearing of the appeal, the Learned Counsel appearing for the assessee argued before us that the loan amount so written off was taken for the purpose of acquisition of capital assets and was utilized for that purpose and thus such amount is purely capital receipts. The loan which has been written off had at all point of time remains to be capital in nature and the same was never revenue in nature and thus not offered to tax. In support of his argument he has relied upon the judgment passed by the Jurisdictional High Court in the case of CIT-vs-Chetan Chemicals Pvt. Ltd. [2004] 267
- 4 - ITA No.176/Ahd/2015 & CO No.47/Ahd/2015 M/s. Accelaris Technologies ltd. Asst.Year – 2011-12 ITR 771 (Guj) where it was held that the benefit arising as a result of remission of unsecured loans was not taxable u/s 41(1) as admittedly there had been no allowance or deduction of the loans in any of preceding years. Further that, it was held that if the company is not in the business of obtaining and giving loans, remission of loans by the creditor of the company is not taxable u/s 28(iv) of the Act. Reliance was also made upon the judgment passed in the matter of Mahindra & Mahindra Ltd.-vs-CIT (261 ITR 501) passed by the Hon’ble Bombay High Court holding that the loan taken for acquiring capital assets when waived by the lender, either in whole or in part, the amount of loan waived cannot be taxed as income since it does not have any semblance of revenue nature. He thus prayed for confirmation of the order passed by the Learned CIT(A). On the other hand, Learned Representative of the Revenue relied upon the order passed by the Learned AO.
We have heard the respective parties and perused the relevant materials available on record. It appears from the record that the assessee had obtained unsecured loan from Metrix Logistic Co. Ltd. in the F.Y. 2004-05 and there were transactions of fresh loans and also repayment of above during the period of F.Y. 2004-05 to F.Y. 2010-11. Such loan was interest free and was unsecured which was obtained for the purpose of acquiring fixed assets by the company from time to time. The balance outstanding of loan amount to the tune of Rs. 2,56,86,457/- during the year under appeal was written off by the company on account of outstanding unsecured loan taken from Metrix Logistic Co. Ltd. from the books of account of the appellant company and corresponding accounting entries were passed. Such written off amount credited to the Profit and Loss account of the company is capital in nature the same was not included as income in the return of income for the year under appeal but the same was added to the total income of the assessee since not offered to tax though characterized as capital income as observed by the Learned AO. In appeal, the Learned CIT(A) relying upon the judgment passed by the
- 5 - ITA No.176/Ahd/2015 & CO No.47/Ahd/2015 M/s. Accelaris Technologies ltd. Asst.Year – 2011-12 Hon’ble Bombay High Court in the matter of Mahindra & Mahindra Ltd. (supra) observed as follows: “In the light of the above judicial pronouncements, the law is fairly settled that if the loan obtained for capital purposes was written off, it is not taxable either under the provisions of Sec. 41(1) or under the provisions of Sec. 28. However, if the loan obtained was for trading or revenue purposes, write off of such loan would be assessable as income under the provisions of Sec. 28(iv), [though it is not assessable u/s 41(1)]. In the instant case, the loans were obtained from F.Y. 2005- 06 to F.Y. 2010-11. Though the appellant contended before the AO that the loans were utilized for acquiring fixed assets, there is no discussion on this aspect in the assessment order. Therefore AO is directed to verify this contention. If it is found to be correct, impugned addition shall be deleted to the extent of the loans utilized for capital purposes. Thus, subject to verification, this ground of appeal is treated as partly allowed.”
We have gone through the judgment passed by the Hon’ble Bombay High Court. The Relevant portion of the said judgment is as follows: “15. On a perusal of the said provision, it is evident that it is a sine qua non that there should be a:: allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. It is undisputed fact that the Respondent had been paying interest at 6 % per annum to the KJC as per the contract but the assessee never claimed deduction for payment of interest under Section 36 (1) (iii) of the IT Act. In the case at hand, learned CIT (A) relied upon Section 41 (1) of the IT Act and held that the Respondent had received amortization benefit. Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time, hence, it is nothing else than depreciation. Depreciation is a reduction in the value of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the Respondent in previous assessment years was due to the deprecation of the machine and not on the interest paid by it.
Moreover, the purchase effected from the Kaiser Jeep Corporation is. in respect of plant, machinery and tooling equipments which are capital assets of the
- 6 - ITA No.176/Ahd/2015 & CO No.47/Ahd/2015 M/s. Accelaris Technologies ltd. Asst.Year – 2011-12 Respondent. It is important to note that the said purchase amount had not been debited to the trading account or to the profit or loss account in any of the assessment years. Here, we deem it proper to mention that there is difference between 'trading liability' and 'other liability'. Section 41 (1) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, we find no force in the argument of the Revenue that the case of the Respondent would fall under Section 41 (1) of the IT Act. 17. To sum up, we are not inclined to interfere with the judgment and order passed by the High court in' view of the following reasons:
(a) Section 28(iv) of the IT Act does not apply on the present case since the receipts of Rs 57,74,064/- are in the nature of cash or money. (b) Section 41(1) of the IT Act does not apply since waiver of loan does not amount to cessation of trading liability. It is a matter of record that the Respondent has not claimed any deduction under Section 36 (1) (iii) of the IT Act qua the payment of interest in any previous year.
In view of above discussion, we are of the considered view that these appeals are devoid of merits and deserve to be dismissed. Accordingly, the appeals are dismissed. All the other connected appeals are disposed off accordingly, leaving parties to bear their own cost.”
Taking into consideration the ratio laid down by the judgment as mentioned hereinabove we are of the opinion that such waiver of loan for acquiring capital assets cannot be taxed as perquisite u/s 28(iv) as receipt in the hand of the assessee in the form of cash on money neither can be taxed as a remission of liability under section 41(1) since such waiver of loan was not account of liability other than trading liability as rightly followed by the Learned CIT(A). However, whether such loan were utilized for acquiring fixed assets or not no such discussion was not available in the assessment order. Therefore, the Learned CIT(A) directed the Learned AO to verify this particular aspect of the matter by the order impugned before us with a further direction thus in the event it is found to be correct the impugned addition to be deleted to the extent of loans utilized for capital purposes.
- 7 - ITA No.176/Ahd/2015 & CO No.47/Ahd/2015 M/s. Accelaris Technologies ltd. Asst.Year – 2011-12 7. In the light of the above we do not find any infirmity in the impugned order passed by the first appellate authority so as to warrant interference. The question is accordingly answered in the affirmation i.e. in favour of the assessee and against the revenue. Hence, the same is confirmed.
Now caming to Cross Objection No. 47/Ahd/2015 for Asst. Year 2011-12: 8. At the time of hearing of the appeal Learned Counsel appearing for the assessee submitted before us that he does not want to proceed with the matter. Hence, the Cross Objection filed by the assessee is dismissed as not pressed.
In the result, revenue’s appeal is dismissed on merit and assessee’s appeal is dismissed as not pressed. This Order pronounced in Open Court on 31/01/2019
Sd/- Sd/- ( WASEEM AHMED ) ( Ms. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 31/01/2019 Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-6, Ahmedabad. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad