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Income Tax Appellate Tribunal, “B” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)& Shri Ravish Sood (JM)
Both the appeals filed by the assessee are directed against the orders passed by Ld CIT(A)-12, Mumbai and they relate to the assessment years 2008- 09 and 2009-10. Both the appeals were heard together and hence they are being disposed of by this common order, for the sake of convenience.
We shall first take up the appeal relating to AY 2008-09. The assessee was engaged in the business of manufacture and sale of rolled/forged rings for bearings. The issue contested in AY 2008-09 relates to the assessment of Rs.5,11,29,000/- relating to cessation of liability towards loan taken from bank. The facts relating to the same are that the assessee had taken loan from a bank. (In the assessment order, the bank’s name is given as Union Bank of India.
2 M/s. Mipco Seamless Rings(Guj) Ltd.
However, the assessee has stated the bank’s name as ICICI Bank before Ld CIT(A)). The assessee was declared as Sick Industrial company and accordingly referred to BIFR in the earlier years. Later the banker assigned the loan to Asset Reconstruction Company (India) Ltd (ARCIL), which in turn, sold the assets of the company by inviting bids. After adjusting the sale proceeds against the outstanding loan, the balance amount of outstanding aggregating to Rs.884.90 lacs was waived by the bank. According to the assessee, the amount so waived consisted of principal portion of Rs.511.29 lakhs and interest portion of Rs.348.65 lakhs. The assessee offered the interest portion waived by the bank as its income u/s 41(1) of the Act. It did not offer the principal component of waiver of Rs.511.29 lakhs as it income by claiming the same to be Capital receipt. The AO did not accept the claim of the assessee and accordingly assessed the above said amount of Rs.511.29 lakhs as income of the assessee u/s 28(iv) of the Act, by treating the same as benefit obtained by the assessee from exercise of business. The Ld CIT(A) also confirmed the same and hence the assessee has filed this appeal before us.
The Ld A.R submitted that the question of treating the impugned amount as a benefit derived by the assessee does not arise in the facts of present case, since the same represents the shortage amount between the loan liability and sale proceeds of asset. He further submitted the Ld CIT(A) was not justified in following the decision rendered by the Hon’ble Bombay High Court in the case of Solid Containers Ltd (308 ITR 417)(Bom), since the said decision was rendered in the context of working capital loan. The Ld A.R submitted that the assessee had obtained loan for acquiring capital assets and hence the above said decision of Hon’ble Bombay High Court will not apply to the instant case. He further relied upon various case laws to contend that the principal portion of loan waived by a bank cannot be assessed u/s 41(1) of the Act.
3 M/s. Mipco Seamless Rings(Guj) Ltd.
On the contrary, the Ld D.R submitted that the assessee has not proved about actual utilisation of loan taken from the bank, i.e., it did not substantiate its claim that the loan was used for purchasing capital assets. She submitted that the Ld CIT(A) has also made specific observation on this line in paragraph 3.4 of his order. She further submitted that the amount so waived would fall under the scope of sec. 28(iv) of the Act.
The Ld A.R submitted that the loan amount was used to purchase capital assets only and the assessee would be in a position to substantiate the said claim, if one more opportunity is given.
Having regard to the submissions made by the parties, we are of the view that, in the interest of natural justice, the assessee may be given one more opportunity to prove actual utilisation of loan. Further, as observed by us in the earlier paragraphs, there is confusion about the name of bank from which the loan was obtained. Further we are of the view that the assessee should be given an opportunity to explain as to why the provisions of sec. 28(iv) will not be applicable in this case. Accordingly we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for examining the same afresh. The assessee is directed to clarify about the name of the bank, demonstrate the actual utilisation of loan with necessary evidences to the satisfaction of the AO and to show as to how the provisions of sec. 28(iv) are not applicable. After hearing the assessee, the AO may take appropriate decision in accordance with the law.
We shall now take up the appeal filed by the assessee for AY 2009-10. The only issue urged in this appeal relate to the quantum of unabsorbed depreciation & business loss brought forward from the earlier years that is eligible for set off.
4 M/s. Mipco Seamless Rings(Guj) Ltd.
We heard the parties on this issue. The brought forward unabsorbed depreciation claimed by the assessee consisted of Rs.62,21,149/- pertaining to AY 2000-01. As per the provisions then existing, the unabsorbed depreciation relating to AY 2000-01 can be carried forward for eight succeeding years. Accordingly the AO took the view that the unabsorbed depreciation relating to AY 2000-01 can be carried forward up to AY 2008-09 only. Accordingly he rejected the claim for set off of Rs.62,21,149/-, referred above. The Ld CIT(A) also confirmed the same.
We notice that an identical issue was considered by the co-ordinate bench in the case of Archfine Chemicals P Ltd (ITA No.2414 & 2415/M/2012 dated 26-09- 2013) and the Co-ordinate bench, by following the decision rendered by Hon’ble Gujarat High Court in the case of General Motors India P Ltd (Special Civil Application No.1773 of 2012 dated 23.08,2012), has decided the issue in favour of the assessee. For the sake of convenience, we extract below the operative portion of the order passed by the co-ordinate bench in the above said case:-
“15. We have carefully considered the submissions of the ld. Representatives of the parties and the orders of authorities below. We have also gone through the decision of the Hon'ble Gujarat High Court in the case of General Motors India Pvt.(supra) wherein Their Lordships have stated that the amendment made by Finance (No.1) Act was clarified by CBDT vide circular No.14 of 2001. The said amendment is applicable from assessment year 2002-03 and subsequent years. That unabsorbed depreciation available to an assessee on first day of April 2002 (assessment year 2002-03) will be dealt with in accordance with the provisions of section 32(2) of the Act as amended by Finance (No.01) Act, 2001 and not by provisions of section 32(2) as it stood before the said amendment. Their Lordships have stated had the intention of the legislature being to allow unabsorbed depreciation allowance worked out in assessment year 1997-98 only for 8 subsequent assessment years even after the amendment to section 32(2) by Finance (No.1) Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Their Lordships have held that the provisions
5 M/s. Mipco Seamless Rings(Guj) Ltd. of section 32(2) as amended by Finance (No.1) Act, 2001 would allow the unabsorbed depreciation allowance available in the assessment years 1997-98, 1999- 2000, 2000-01 and 2001-02 to be carried forward to the succeeding years and if any unabsorbed depreciation or part thereof could not set off till the assessment year 2002-03, then it would be carried forward till the time it is set off against the profits and gains of subsequent years without any limit whatsoever. In view of above decision of the Hon'ble Gujarat High Court and also considering the decision of ITAT, Mumbai Bench in the case of Graham Firth Steel Products (I) Ltd (supra), we hold that ld. CIT(A) is not justified in not allowing set off of unabsorbed depreciation for the assessment years 1997-98 and 1998-99 against the profit for the assessment years 2005-06 and 2006-07. Hence, we vacate the orders of authorities below and direct the AO to allow unabsorbed depreciation for the assessment years 1997-98 and 1998-99 against the profit for the assessment years under consideration and if any amount is left unabsorbed, the same should be allowed to be carried forward and be set off against the profit and gains of subsequent years till the entire amount of unabsorbed depreciation is set off. Hence, grounds of appeal taken by assessee are allowed for both the assessment years under consideration by reversing the orders of authorities below.”
Respectfully following the decision rendered by Hon’ble Gujarat High Court in the case of General Motors India P Ltd (supra), we hold that the unabsorbed depreciation pertaining to AY 2000-01 should be allowed to be set off during the year under consideration.
We have noticed that the AO had assessed the capital portion of loan waived by the bank as income of the assessee in AY 2008-09 and accordingly a part of brought forward unabsorbed depreciation was set off by the AO in AY 2008-09. Since the matter relating to assessment of capital portion of loan has been set aside by us to the file of the AO, we are of the view that the AO should decide the quantum of unabsorbed depreciation eligible for set off in AY 2009-10 after passing the assessment order for AY 2008-09 in the set aside proceedings. Accordingly this issue is restored to the file of the AO.
6 M/s. Mipco Seamless Rings(Guj) Ltd.
In the result, both the appeals of the assessee are treated as allowed for statistical purposes. Order has been pronounced in the Court on 20.3.2017.