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2014 (1) TMI 1840 - AT - Income TaxAddition on account of write off of principal portion of cash credit loan waived by Banks - whether waiver of the cash credit loan is not liable to tax as the said amount was not received in the course of trading transaction? - Held that - This issue has been considered by the Hon ble High Court of Delhi in the case of Logitronics P. Ltd. Vs. CIT and CIT Vs. Jubilant Securities P. Ltd. (2011 (3) TMI 607 - DELHI HIGH COURT) as considered the decision of the Hon ble Supreme Court in the case of CIT Vs. T.V. Sundaram Iyengar and Sons Ltd. 1996 (9) TMI 1 - SUPREME Court the waiver thereof may result in the income more so when it was transferred to the profit and loss account - CIT(A) has rightly confirmed the addition made by the AO to the extent of waiver to the cash credit loan - Decided against assessee. Addition on account of section 35(2AB) - assessee has not approved by prescribed authority in the Form No. 3CM - Held that - The assessee filed the copy of the approval received from the competent authority. It is true that it is not in clear terms in Form No. 3CM which has been prescribed under the Income-tax Rule, 1962. We concur with the finding of the Ld. CIT(A) that if the approval is not in prescribed Form No. 3CM is not a serious discrepancy which should result in disallowance of the deduction to the assessee u/s. 35(2AB) of the Act. In this case, it is not disputed that the assessee has applied to the competent authority for getting the approval/recognition and only after the verification of all the details the Prescribed Authority have issued the approval letter. In our opinion, the Ld. CIT(A) has rightly allowed the claim of the assessee Addition of write-off of interest portion of amount waived by Banks - Held that - Though we agree with the CIT(A) that if the assessee has not claimed the deduction in respect of above amount, the same cannot be disallowed u/s. 43B nor the addition u/s. 41(1) can be made as the said amount of the interest has never been claimed as an expenditure. At the same time we find that there is a contradiction in the fact noted by the Assessing Officer as well as the Ld. CIT(A). We, therefore, for the limited purpose of the verification, remit this issue to the file of the Assessing Officer whether the assessee has claimed deduction in respect of the element of the amount of the interest waived in one time settlement. Waiver of the principal amount of the loan which the assessee had claimed towards the capital account - Held that - In this case the nature of the loan which has been waived in one time settlement is not disputed. In our opinion, the assessee s case is squarely covered by the decision in the case of M/s. Xylon Holdings Pvt. Ltd. (2012 (9) TMI 449 - BOMBAY HIGH COURT) as the amount waived pertains to the term loan which was taken by the assessee for acquition of the assets. CIT(A) rightly deleted the addition made by the Assessing Officer on account of principal amount of waiver of loan.- Decided in favour of assessee
Issues Involved:
1. Addition of Rs. 1,27,53,855 on account of write-off of principal portion of cash credit loan waived by banks. 2. Deduction claimed under Section 35(2AB) of the Income Tax Act. 3. Waiver of interest on loan and its taxability under Section 41(1) of the Income Tax Act. 4. Waiver of the principal amount of loan and its taxability under Section 41(1) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Addition of Rs. 1,27,53,855 on account of write-off of principal portion of cash credit loan waived by banks: The assessee, a public limited company engaged in seed production and processing, entered into a one-time settlement (OTS) with a consortium of banks, resulting in the waiver of Rs. 13,00,10,550 in principal and Rs. 5,81,69,874 in interest. The Assessing Officer (AO) added Rs. 1,27,53,855 to the assessee's income under Section 41(1) of the Income Tax Act, considering it as waiver of cash credit loan utilized for trading purposes. The CIT(A) upheld this addition, stating that the waiver of cash credit loan used for trading activities is taxable under Section 41(1). The Tribunal concurred with the CIT(A), citing precedents such as CIT Vs. T.V. Sundaram Iyengar & Sons Ltd. and Solid Containers Ltd. Vs. Dy. CIT, and dismissed the assessee's appeal. 2. Deduction claimed under Section 35(2AB) of the Income Tax Act: The AO disallowed the weighted deduction claimed by the assessee under Section 35(2AB) for in-house scientific research and development, as the approval was not in the prescribed Form No. 3CM. However, the CIT(A) allowed the deduction, reasoning that the form of approval is beyond the assessee's control and that the approval from the Department of Science & Industrial Research suffices. The Tribunal upheld the CIT(A)'s decision, stating that the non-compliance with Form No. 3CM is not a serious discrepancy warranting disallowance of the deduction. 3. Waiver of interest on loan and its taxability under Section 41(1) of the Income Tax Act: The AO added Rs. 3,55,37,725 to the assessee's income, representing the interest waived by banks, under Section 41(1), asserting that the interest had been claimed as an expenditure in earlier years. The CIT(A) deleted the addition, finding that the assessee had not claimed the said interest as a deduction in the earlier years. The Tribunal remitted the issue back to the AO for verification, instructing that if the interest was not claimed as a deduction, no addition should be made, and if it was claimed, the addition should be limited to that extent. 4. Waiver of the principal amount of loan and its taxability under Section 41(1) of the Income Tax Act: The AO added Rs. 11,72,56,695 to the assessee's income, representing the waiver of the principal amount of the term loan, under Section 41(1). The CIT(A) deleted the addition, distinguishing between loans for capital assets and trading activities, and citing precedents such as Mahindra & Mahindra Ltd. Vs. CIT. The Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's ruling in CIT Vs. M/s. Xylon Holdings Pvt. Ltd., which clarified that waiver of loans taken for acquiring capital assets is not taxable under Section 41(1) or Section 28(iv). Conclusion: The Tribunal dismissed the assessee's appeal regarding the addition of Rs. 1,27,53,855 for the waiver of cash credit loan. It upheld the CIT(A)'s decision allowing the deduction under Section 35(2AB) and remitted the issue of waiver of interest back to the AO for verification. The Tribunal also upheld the CIT(A)'s deletion of the addition of Rs. 11,72,56,695 for the waiver of the principal amount of the term loan. The Revenue's appeal was partly allowed for statistical purposes.
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