2014 (7) TMI 1244 - AT - Income Tax

Waiver of Principal amount of long term loans - revenue receipt OR capital receipt - nature of receipt - Held that - The waiver of amount represents waiver of the principal amount of loan utilized for acquisition of capital assets and not for the purposes of trading activity and accordingly the issue is covered in favour of the assessee by the judgement of the Hon ble Bombay High Court in the case of Mahindra and Mahindra Ltd. (2003 (1) TMI 71 - BOMBAY High Court ). Following it has to be held that the waiver of the 10 principal amount of loan granted by the DEG, Germany to the extent of ₹ 29,63,27,000/- in terms of OTS Scheme is in the nature of capital receipt not chargeable to tax. - Decided in favour of assessee. Suo-motu disallowance by the assessee in the computation of income - assessee had voluntarily offered an amount under the heading other disallowances in the computation of income - Held that - No doubt a claim of deduction or disallowance is to be worked out on the basis of the prevalent legal position and is not dependent on what stand the parties may profess. Therefore, any error or omission made in the return of income or any wrong claim in the return of income can be subject to rectification as per law. So however, in the present case, the CIT(A) has clearly established that assessee has not brought out the details of any discrepancy in anticipation of which the impugned disallowance was made by the assessee. There is no material before us, apart from generalized assertions, that the aforesaid disallowance was under any particular misconception of law or facts. The onus on this aspect is entirely on the assessee which has not been discharged, therefore, we find no reasons to interfere with the order of the authorities below. Thus, on this Ground assessee fails.

Summary

Issues Involved:
1. Addition of Rs. 29,63,27,000/- treating it as revenue receipt.
2. Disallowance of Rs. 5,75,925/- being part of the total gratuity fund contribution.
3. Disallowance of Rs. 5,00,000/- made in the statement of Computation of Income.

Issue-wise Detailed Analysis:

1. Addition of Rs. 29,63,27,000/- treating it as revenue receipt:
The primary issue revolves around whether the waiver of Rs. 29,63,27,000/- should be treated as a capital receipt or revenue receipt. The assessee contended that the amount represented a waiver of the principal amount of a long-term loan used for acquiring fixed assets and should thus be considered a capital receipt. The CIT(A) upheld the addition by the Assessing Officer, concluding that the loan was not acquired for the specific purpose of acquiring capital assets but for repaying existing current liabilities, thus treating the waiver as a revenue receipt.

The Tribunal found that the term loan from DEG, Germany, was indeed utilized for repaying liabilities arising from the acquisition of capital assets (plant and machinery), and thus, the waiver of the principal amount should be considered a capital receipt. The Tribunal referred to the RBI approval and the loan agreement, which indicated that the loan was for financing the import of capital equipment for manufacturing textile spinning machinery and components. Consequently, the Tribunal held that the waiver of Rs. 29,63,27,000/- is a capital receipt not chargeable to tax, following the precedent set by the Hon'ble Bombay High Court in the case of Mahindra and Mahindra Ltd. The addition of Rs. 29,63,27,000/- was thus deleted.

2. Disallowance of Rs. 5,75,925/- being part of the total gratuity fund contribution:
This ground was not pressed by the assessee during the hearing and was accordingly dismissed as "Not Pressed."

3. Disallowance of Rs. 5,00,000/- made in the statement of Computation of Income:
The assessee had voluntarily offered a disallowance of Rs. 5,00,000/- in the computation of income under the heading 'other disallowances.' During the assessment proceedings, the assessee requested the deletion of this ad-hoc disallowance, arguing that it was initially made in anticipation of probable adjustments on account of transfer pricing analysis, which eventually did not materialize. Both the Assessing Officer and the CIT(A) rejected this plea.

The Tribunal upheld the decision of the lower authorities, noting that the assessee had not provided any detailed justification or evidence to support the claim for deletion of the disallowance. The Tribunal emphasized that any error or omission in the return of income can be rectified as per law, but in this case, the assessee failed to discharge the onus of proving any discrepancy or misconception of law or facts. Therefore, the disallowance of Rs. 5,00,000/- was sustained.

Conclusion:
The appeal was partly allowed. The addition of Rs. 29,63,27,000/- was deleted, the disallowance of Rs. 5,75,925/- was dismissed as not pressed, and the disallowance of Rs. 5,00,000/- was upheld.