MIPCO SEAMLESS RINGS( GUJ) LTD,MUMBAI vs. ASST CIT 6(3), MUMBAI

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.

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.

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.

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:-

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.

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.