2015 (2) TMI 1102 - AT - Income Tax

Addition on account of credit in partners capital account due to remission of loan liability considered as income of the firm U/s. 2(24) r.w.s. 28(iv) - CIT(A) deleted the addition - Held that - CIT(A) while granting relief to the Assessee has given a finding that the Assessee was not carrying on the business of obtaining loans and therefore the remission of loan cannot be considered to be a benefit arising out from the business. We find that ld. CIT(A) while deciding the issue in favour of the Assessee had relied on the decisions cited therein and also the decision of Hon ble Gujarat High Court in the case of CIT vs. Chetan Chemicals Pvt. Ltd. 2001 (10) TMI 12 - GUJARAT High Court . Before us Revenue has not brought any contrary binding decision in its support nor could point any distinguishable feature of the decisions relied by A.R. We therefore find no reason to interfere with the order of ld. CIT(A) and thus this ground of Revenue is dismissed. - Decided in favour of assessee

Summary

Issues:
Taxability of written back amount of loan under Section 2(24) r.w.s. 28(iv) of the Income Tax Act for A.Y. 2006-07.

Analysis:

1. Background:
The appeal was filed by the Revenue against the order of CIT(A)-XIV, Ahmedabad for the assessment year 2006-07. The Assessee, a partnership firm engaged in trading of grain items and acting as a general commission agent, had filed its return declaring a total income of &8377;6,42,718, which was later revised by the assessing officer to &8377;41,54,983.

2. Taxability of Written Back Loan Amount:
During the assessment proceedings, the assessing officer noticed that the Assessee had credited &8377;35,08,765 as capital receipts in the partners' capital account without offering it to tax. The assessing officer considered the entire amount as income of the Assessee under Section 2(24) read with clause (iv) of Section 28 of the Act. However, the CIT(A) granted relief to the Assessee, holding that the remission of the loan cannot be considered a benefit arising from the business of obtaining loans.

3. CIT(A)'s Decision:
The CIT(A) rejected the assessing officer's contention and referred to a judgment by the jurisdictional High Court of Gujarat, stating that the remission of unsecured loans could not be taxed under Section 28(iv) of the Act. The CIT(A) emphasized that the Assessee was not engaged in the business of obtaining loans, and the remission of the loan did not constitute a taxable benefit or perquisite.

4. Appellate Tribunal's Decision:
The Revenue appealed the CIT(A)'s decision, arguing that the written back amount of the loan should be taxable. However, the Appellate Tribunal upheld the CIT(A)'s order, stating that the Assessee was not involved in the business of obtaining loans, and there was no justification to interfere with the CIT(A)'s findings. The Revenue failed to provide any contrary binding decision to support its appeal.

5. Conclusion:
The Appellate Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition of &8377;35,08,765 made under Section 28(iv) read with Section 2(24). The Tribunal found no reason to interfere with the CIT(A)'s order based on the lack of contrary binding decisions or distinguishable features presented by the Revenue.

In summary, the judgment focused on the taxability of a written back amount of a loan under specific sections of the Income Tax Act, ultimately ruling in favor of the Assessee based on the nature of the business activities and legal interpretations provided by the CIT(A) and the Appellate Tribunal.