DCIT, CORPORATE CIRCLE-1(1), BHUBANESWAR vs. M/S. THE INDUSTRIAL DEVELOPMENT CORPORATION OF ORISSA LTD, BHUBANESWAR

1 ITA No .124/ CTK/ 2017 Asse ssment Year : 20 10- 201 1

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No.124/CTK/2017 Assessment Year : 2010-2011

DCIT, Corporate Circle-(1), Vs. The Industrial Development Bhubaneswar. Corporation of Orissa Ltd.,IDCOL House, Ashok Nagar, Bhubaneswar. PAN/GIR No.AAACI 4821 L (Appellant) .. ( Respondent)

Assessee by : Shri S.C.Bhadra, AR Revenue by : Shri D.K.Pradhan, DR

Date of Hearing : 27 /02/ 2018 Date of Pronouncement : 28/02/ 2018

O R D E R Per Pavan Kumar Gadale, JM This is an appeal filed by the assessee against the order of the

CIT(A)- 1 Bhubaneswar dated 2.12.2016 for the assessment year 2010-

2011.

deleting the addition of Rs.50,00,000/- on account of disallowance of

cessation of loan.

Government company engaged in industrial development in orissa and

filed the return of income for the assessment year 2010-2011 on

28.9.2010 with NIL total income and subsequently filed the revised

2 ITA No .124/ CTK/ 2017 Asse ssment Year : 20 10- 201 1 return on 29.6.2011 with total business loss of Rs.6,56,56,115/-. The

return was processed u/s.143(1) of the Act. During the course of

assessment proceedings, the Assessing Officer found that out of total

amount of Rs.24,21,39,000/- credited to the profit and loss account, the

assessee has deduced a sum of Rs.50,00,000/- as exempt income while

computing the total income. When asked by the Assessing Officer as to

why the amount of Rs.50,00,000/-was claimed as exempt, the assessee

furnished its explanation with written submission on 26.2.3013 as under:

"During the construction period prior to 1990, OPGC had advanced some amount to IDCOL for supply of products/rendering of services by the subsidiary companies of IDCOL Group i.e. HIWL and IPEWL. After adjustment of advances against supplies and services, a sum of Rs.50 lakhs was lying outstanding on the said loan. In anticipation of claim for repayment of loan by OPGC, interest totaling Rs.56.16 lakhs were provided for the said loan in earlier years to the financial year 2002-03. Since then no interest was charged and there was no communication by OPGC for repayment of above loan. Considering the preliminary observation of A.G. Audit, the amount of loan along with interest provided on the above loan was unilaterally written back in the accounts of 2009-10 without any confirmation from OPGC.

In the return of income, the .amount of interest written back amounting to Rs.56.16 lakhs were offered to tax as the same was claimed as business expenses in earlier years. However, the amount of Rs.50 lakhs written back towards loan was not offered to tax as the same was in the nature of capital receipt not taxable either under section 28(iv)/or under section 41(1).

It is well settled that unilateral action cannot bring about a cessation or remission of the liability because a remission can be granted only by the creditor. In the instance case, the liability for repayment of loan subsisted and did not cease nor was remitted by the creditor (OPGC) and the liability was enforceable in a court of law. Hence, the amount was not assessable u/s.41(l) as decided by Apex Court in the case of (CIT vs. Sugauli Sugar Works Pvt. Ltd.(1999) 236 ITR 518 (SC) and by Delhi High Court in the case of CIT V. Shri Vardhman Overseas Ltd. (343 ITR 408).

3 ITA No .124/ CTK/ 2017 Asse ssment Year : 20 10- 201 1

In view of above clarification, the amount of unilateral write back of principal amount of Rs.50 lakhs of OPGC loan is not liable to be taxed."

the satisfaction of Assessing Officer and, therefore, in view of the

provisions of section 41(l)(a) of the Act. Accordingly, he made addition of

Rs.50,00,000/- to the total income of the assessee and passed order

u/s.143(3) of the Act dt.5.3.2013. Aggrieved with the assessment order,

the assessee filed appeal before the CIT(A).

same was sent to the Assessing Officer for comments. The Assessing

Officer in response to the assessee's written submission filed comments

dated 24.2.2016 are as under:

"Assessment in this case was completed on dt.05.03.2013 determining the total income at Rs.NIL and book profit u/s 115JB Rs.18,51,18,000/-. The impugned assessment was completed u/s 143(3) by way of addition u/s 41(1) of IT Act 1961 to the extent of Rs.50 lakhs to the total income. The said amount of Rs.50 lakhs was debited to the profit and loss account of the assessee during the previous year ending on 31.03.2010 relevant to the asst. year 2010-11 under the head "Written back OPGC Loan".

During the course of scrutiny assessment proceedings when it was asked that why the assessee has debited such amount from the net profit under the head "Written back OPGC Loan" thereafter, it is submitted by the assessee that:- "During the construction period to 1990, OPGC had advanced some amount to IDCOL for supply of products/rendering of services by the subsidiary companies of IDCOL Group, i.e. HIWL and IPEWL. After adjustment of demands against supplies and services, a sum of Rs.50 lakhs was lying outstanding on the said loan. In anticipation of claim of repayment of loan by OPGC, interest totallying to Rs.56.16 lakhs were provided for the said loan in

4 ITA No .124/ CTK/ 2017 Asse ssment Year : 20 10- 201 1 earlier years up to the financial year 2002-03. Since then no interest was charged and there was no communication by OPGC for repayment of above loan. Considering the preliminary observation of A.G. audit the amount of loan along with interest provided on the above loan was unilaterally written back in the accounts of 2009-10 without any confirmation from OPGC.

However, the amount of Rs.50 lakhs written back towards loan was not offered to tax as the same was not in the nature of capital receipt nor taxable either under section 28(iv) or under section 41(1)."

The said amount of cessation of liability in any assessment year will be chargeable to tax as the income of the a previous year. Assessee could not be able to file any documentary evidence, nor could able to put forth any reasonable explanation to prove that the loan was capital in nature or a term loan taken for acquisition of a capital asset. As above from its explanation it is reiterated from its submission that "During the construction period prior to 1990 OPGC had advanced some amount to IDCOL: for supply of products/rendering of services ... This statement itself connotes that the said loan was not advanced for any capital asset but for supply products/rendering services which are trading/revenue nature. Therefore, the claim of the assessee that the write back of Rs.50 lakh was not offered to tax as the same was in the nature of capital receipt cannot be accepted on merit for claiming deduction from its P/L account. Furthermore, the claim of the assessee that unilateral action cannot bring about a cessation or remission of the liability it is important to the intent of section 41(1) of IT Act which is reproduced verbatim as under: - "Explanation 1 - For the purpose of this sub-section, the expression 'loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause(a) or the successor in business under clause(b) of that section by way of writing off such liability in his accounts."

It is crystal clear from the above explanation that any unilateral act by the assessee is also inclusive in the purview of section 41(1) of the IT Act 1961 and is within the meaning of that section to which the assessee admitted suo motu through its explanation as above.

As observed from the explanation on written submission produced during the course of remand proceedings at SI No. 1.3 it is

5 ITA No .124/ CTK/ 2017 Asse ssment Year : 20 10- 201 1 submitted that in the context of waiver of loan, taxability would depend upon the purpose of which the loan was taken.

Also a few documents in shape of Xerox copies have been produced with the written submission filed by the appellant assessee during the course of appeal proceedings. Primafacie scrutiny of those documents it appears to be those relates to transaction of loan by the party with IB Thermal Power Station, OPGC during the period 1999, 2000 to 2004. The explanation offered by the assessee in the rejoinder do not describe the details as claimed by it in the enclosures annexed with the rejoinder. The details of contents brought by the assessee in the post assessment proceedings are not verifiable in the light of the submission made by the assessee in the rejoinder. Also the documents appear to be older than for a period of 10-12 years ago. This is an additional evidence adduced by the assessee u/s.46A of IT Act, Assessee could not substantiate its claim through out the assessment proceedings and remand proceedings for exemption of its claim that such write off of loan amounting to Rs.50,00,000/- is capital in nature or a term loan taken for acquisition of a capital asset, rather from its explanation produced during the course of assessment proceedings it was stated that 'during the construction period prior to 1990, OPGC had advanced some amount to IDCOL for supply of products/rendering of service. Hence, the issues raised by the assessee during remand appeal proceedings is an afterthought only for which the addition made by the AO is liable to sustained without granting any relief on this issue.””

the remand report furnished by the Assessing Officer, deleted the

addition by observing at para 11 page 5 as under:

“I have considered the matter. The whole issue revolves around the application of section 41(1) of the Act. Sub-section 1 of section 41 provides as under:

"Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,— (a) the first-mentioned person has obtained—, whether in cash or in any other manner whatsoever, any amount in respect of such10 loss or expenditure13- or some benefit in respect of such trading liability13 by way of remission or cessation thereof13, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax

6 ITA No .124/ CTK/ 2017 Asse ssment Year : 20 10- 201 1 as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or. (b) the successor in business has obtained13, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the. first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof13, the amount obtained13 by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year."

A plain reading of the above section makes it clear that only such remission or cessation of liability can be taxed as profits in respect of which an allowance or deduction has been allowed in the assessment for any earlier year. It is clear from this that only trading liabilities or liabilities which have arisen having been debited the P&L account in earlier years can be taxed as profits u/s.41(l). In the case of the assessee, the facts indicate that the amount written-off (written back by the assessee in its accounts) represents a part of the loan from OPGC which was taken long back. There is perhaps no dispute about this. The AO has not brought any materials on record to show that a deduction or allowance in respect of this amount of Rs.50,00,000/- was allowed to the assessee in any earlier assessment year or years. On the facts of the case, the provisions of section 41(1) are found not applicable so far as the loan amount of Rs.50,00,000/- is concerned. In view of this, the addition of Rs.50,00,000/- is directed to be deleted.

deleting the addition due to cessation of loan liability and the Assessing

Officer in the course of assessment proceedings has dealt on this issue of

written back of OPGC loan where the assessee has disclosed these facts in

the profit and loss account and was claimed exempt. The assessee filed

explanation on 26.2.2013 and the Assessing Officer having considered the

explanation and the provisions of section 41(1) of the Act found that the

assessee’s explanations are without the satisfaction and the case laws

relied are distinguishable as the assessee has written back the loan

amount of Rs.50,00,000/- and claimed the same as capital receipt and

7 ITA No .124/ CTK/ 2017 Asse ssment Year : 20 10- 201 1 was not offered for taxation. Hence, the Assessing Officer was having no

alternative but to make the addition. Whereas the CIT(A) based on the

written submissions of the assessee and remand report has granted relief

which is not tenable and prayed that the order of the CIT(A) be set aside

and that of the order of the Assessing Officer be restored.

and the materials.

authorities and materials available on record. The sole dispute raised by

the revenue is with respect to written off of loan from OPGC. The

contention of ld D.R. is that the CIT(A) is not justified in deleting the

addition. Ld A.R. submitted a certificate of adjustment of loan dated

24.2.2000 and also supported with the financial statement and annual

report for the financial year ending 31.3.1995, where the assessee has

disclosed the loan from OPG of Rs.1,50,00,000/- in the said financial year.

The findings of the CIT(A) indicate that the amount written-off (written

back by the assessee in its accounts) represents a part of the loan from

OPGC which was taken long back, we find that the facts are not

controverted by ld D.R and also the revenue not place cogent material on

record to suggest that the deduction or allowance in respect of this

amount of Rs.50,00,000/- was allowed to the assessee in any earlier

assessment year or year. Accordingly, considering the facts and

circumstances of the case and ld CIT(A) has dealt on the issue and after

8 ITA No .124/ CTK/ 2017 Asse ssment Year : 20 10- 201 1 enquiring the materials available on record vis-à-vis explanation of the

assessee, we do not see any reason to interfere with the order of the

CI(A) and uphold the same.

Order pronounced on 28/02/2018. Sd/- sd/- (N.S Saini) (Pavan Kumar Gadale) ACCOUNTANT MEMBER JUDICIALMEMBER Cuttack; Dated 28/02/2018 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : DCIT, Corporate Circle-(1), Bhubaneswar 2. The Respondent. The Industrial Development Corporation of Orissa Ltd.,IDCOL House, Ashok Nagar, Bhubaneswar 3. The CIT(A)-1, Bhubaneswar 4. Pr.CIT-1, Bhubaneswar BY ORDER, 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// SR.PRIVATE SECRETARY ITAT, Cuttack