ACIT CENT. CIR5(4) , MUMBAI vs. M/S. INFINITE BUILDCON PVT. LTD, MUMBAI

The effective grounds of appeal urged by the Revenue read as under :-

Facts relating to the case are stated in brief. The assessee is a private limited company and it has derived income from house property and

The first issue relates to deletion of addition of Rs. 2,15,21,467/- made by the Assessing Officer under section 28(iv) of the I.T. Act.

The facts relating to the issue are that the Assessing Officer noticed that the assessee has written back certain loans received by it to the tune of Rs. 265 lakhs and credited the same directly to the capital reserve account i.e. the above said amount was not routed through the profit and loss account. The assessee explained that it had received loan of Rs. 22.50 crores from M/s. Uttam Galva Metallics Ltd. on 27.6.2014 relevant to A.Y. 2015-16. During the year under consideration it was agreed that the above said loan was to be assigned to Mr. Sunil Dalal for a sum of Rs. 20 crores and the remaining amount of Rs.2.50 crores was waived of. Accordingly, the assessee transferred the above said amount Rs. 2.50 crores to the “Capital Reserve” account, since it was a capital receipt. The assessee had also taken loan of Rs. 15 lakhs from M/s. V. Raheja Design Construction Pvt. Ltd. on 8.10.2014 relevant to A.Y. 2015-16. During the year under consideration it was agreed by the parties that the above said loan need not be paid by the assessee, i.e., the above said amount of Rs.15.00 lakhs was also waived of. Accordingly, the assessee transferred the above said sum of Rs. 15 lakhs also to the “Capital Reserve” account. In aggregate, the assessee has credited the Capital Reserve account with Rs. 2.65 crores during the year under consideration.

The assessee claimed that the above said amount is not taxable under section 41(1) of the Act, since the above said amount was not claimed as expenditure in any of the years. It is pertinent to note that the interest payable on the above said loans was also waived of. The assessee had claimed interest expenditure in the earlier years and hence the assessee

The Assessing Officer further took the view that the loan waiver amount of Rs.2.65 crores is in the nature of benefit accrued to the assessee during the course of carrying on of the business and accordingly held that the same is assessable as income of assessee under section 28(iv) of the Act. Since the AO had assessed Rs.49,79,533/- u/s 41(1) of the Act, he assessed the difference amount of Rs.2,15,21,467/- (Rs.2,65,00,000/- (less) Rs.49,78,533/-) u/s 28(iv) of the Act.

During the appellate proceedings, the Ld CIT(A) noticed that the amount of Rs. 49,78,533/- assessed u/s 41(1) of the Act actually represents TDS deducted from interest provision and remitted by the assessee to the credit of the government on behalf of the lender i.e. the above said amount has already been paid by the assessee, meaning there, the said TDS amount should be treated as having already been paid to the assessee. Hence the question of waiver of the same does not arise. Hence the assessee has correctly offered interest amount of 4,48,06,804 as its income. Hence, learned CIT(A) deleted the addition of Rs. 49,78,533/- made under section 41(1) of the Act. We notice that the Revenue has also accepted the same and hence did not challenge this decision of Ld CIT(A).

With regard to the amount of Rs. 2,15,21,467/- assessed under section 28(iv) of the Act, learned CIT(A) deleted the addition following the decision rendered by Hon'ble Supreme Court in the case of Mahindra & Mahindra Ltd. (261 ITR 501), wherein it was held that the provisions of section 28(iv) shall

We have heard the parties on this issue and perused the record. It is pertinent to note that the amount that should have been considered u/s 28(iv) by the AO is Rs.2.65 crores, which represented principal portion of loan waived of by the lenders. The assessment of interest u/s 41(1) is nothing to do with the above said amount. We are making this observation only for the purpose of clarification.

We noticed that learned CIT(A) has deleted the addition made u/s 28(iv) of the Act with following observation :-

We notice that the Ld CIT(A) has followed the decision rendered by Hon’ble Supreme Court in the case of Mahindra & Mahindra (supra) in arriving at the conclusion that the provisions of sec.28(iv) will not aply to waiver of loan. The Learned AR also placed reliance on the decision rendered by the Coordinate Bench in the case of ACIT Vs. Sunil B. Dalal (ITA No. 2239/Mum/2021 dated 12.7.2022), wherein the Tribunal has held that the provisions of section 28(iv) of the Act will not apply to waiver of loan and in this regard the Tribunal has also taken support of the decision rendered by Hon'ble Supreme Court in the case of Mahindra & Mahindra Ltd. (supra).

We notice that, in the grounds of appeal, the Revenue has taken support of the decision rendered by Hon'ble Supreme Court in the case of T.V.Sundaram Iyengar & Sons Ltd. (supra) in order to contend that the loan taken by the assessee was for the purpose of carrying on of the financing business and hence the decision rendered by Hon'ble Supreme Court in the case of Mahindra & Mahindra Ltd. (supra) will not apply. We notice that the decision has been rendered by Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra) on a different set of facts, i.e. in the case before Hon’ble Supreme Court, the assessee had received deposits from its customers (Debtors) in the course of carrying on of its business and the said deposits was written off in the books of account on the reasoning that there was no claim from debtors. Since the deposits were received during the course of carrying on regular trading activities, the Hon’ble Supreme court held that the write off amount available in the said debtors account is assessable as income. In the instant case, the assessee has received loan from certain parties for the purpose of using it in the business of lending of money. The lenders are not the customers of the assessee. There should not

The Next ground urged by the Revenue is an alternative proposition raised by the AO, i.e., it is the contention of the AO that the learned CIT(A) should have held that the impugned amount should have been assessed an income of the assessee under section 56(2)(x) of the Act. The AO has raised this alternative contention on the ground that the power of learned CIT(A) is co-terminus with the power of the Assessing Officer.

We have heard the parties on this issue and perused the record. There is no dispute with regard to the fact that the power of learned CIT(A) is coterminus with the power of the Assessing Officer. However the question is whether the Assessing Officer can compel the learned CIT(A) to exercise that power, when the learned CIT(A) has only addressed the ground urged before him, that too when such contention of the assessee is debatable one. Further, if the Ld CIT(A) is intending to examine the issue from different angle, then the natural justice would warrant that he should put the same before the assessee seeking his explanations. Nothing of that sort has happened. In our view, it is the prerogative of appellate authority to examine the issue from different angle after affording adequate opportunity to the assessee. Before us, no authority was cited that the AO in support his ground that the Ld CIT(A) ought to have examined the issue from different angle. Accordingly, we do not find any merit in the alternative ground raised by the AO.

Be that as it may, we notice that the provisions of section 56(2)(x) of the Act are attracted when any person “receives” any sum of money without consideration from any other person during a particular year. The contention of learned AR is that the assessee had received the loan in 2014 relevant to A.Y. 2015-16 and it has not received any money during the year under consideration i.e. A.Y. 2018-19. The Ld A.R submitted that, by applying strict rule of construction, provisions of section 56(2)(x) cannot invoked in AY 2018-19, when the assessee has not received any sum of money during that year. He further submitted that the assessee has only got waiver of loan, which was received in the earlier years and such waiver does not result in fresh receipt of any money.

The Learned DR, on the contrary, submitted that the character of the loan has changed during the year under consideration from loan funds to own funds and hence it should be construed that the assessee has received money during the year under consideration.

We have heard the parties on this issue. There is no dispute with regard to the fact that the assessee had received loans in the year 2014 i.e., the money has been received in the year relevant to AY 2015-16. There is no further receipt of any money from the lender during the year under consideration. The amount of Rs. 2.65 crores credited by the assessee to Capital Reserve account represents “waiver of loan” made during this year. The loan itself was received by the assessee in the earlier years. In our considered view, ‘waiver of the loan’ cannot be equated with the ‘actual receipt of money’ contemplated under section 56(2)(x) of the Act. Accordingly, we find merit in the contentions of the learned AR that the provisions of section 56(2)(x) of the Act are not attracted since there is no receipt of money during the year under consideration. Accordingly, we reject the ground urged by the Revenue.

In the result, appeal filed by the Revenue is dismissed. Order pronounced in the open court on 20.09.2022.