2014 (5) TMI 1168 - AT - Income Tax

Addition on account of write off of the principal portion of cash credit loan waived by Banks - Held that - As decided in assessee s own case A.Y. 2008- 09 2014 (1) TMI 1840 - ITAT PUNE the answer would depend upon the purpose for which the said loan was taken. If the loan was taken for acquiring the capital asset waiver thereof would not amount to any income exigible to tax. On the other hand if this loan was for trading purpose and was treated as such from the very beginning in the books of account as per 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) - approval is not in prescribed Form No. 3CM - Held that - As decided in assessee s own case A.Y. 2008- 09 2014 (1) TMI 1840 - ITAT PUNE the finding of the Ld. CIT(A) are acceptable 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. CIT(A) has rightly allowed the claim of the assessee - Decided in favour of assessee Addition on account of principal amount of waiver of loan - Held that - As decided in assessee s own case A.Y. 2008- 09 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

Summary

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 for A.Y. 2009-10.
2. Deletion of addition on account of section 35(2AB) for A.Y. 2008-09.
3. Deletion of addition on account of principal amount of waiver of loan for A.Y. 2008-09.

Issue 1: Addition of Rs. 1,27,53,855 on account of write off of principal portion of cash credit loan waived by Banks for A.Y. 2009-10:
The Appellate Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) and the Assessing Officer regarding the addition made on account of the waiver of cash credit loan. The Tribunal referred to various legal precedents, including decisions by the High Courts and the Supreme Court, which concluded that the waiver of a loan amount depends on the purpose for which the loan was taken. If the loan was for acquiring a capital asset, the waiver would not be taxable. However, if the loan was for trading purposes and was treated as such in the books of account, the waiver could result in taxable income. The Tribunal found no merit in the appeal filed by the assessee and dismissed it, confirming the addition made by the Assessing Officer.

Issue 2: Deletion of addition on account of section 35(2AB) for A.Y. 2008-09:
The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to delete the addition made on account of section 35(2AB) for the relevant assessment year. The Tribunal noted that the approval received from the competent authority, although not in the prescribed Form No. 3CM, was considered sufficient for allowing the deduction under section 35(2AB) of the Income Tax Act. Citing a previous order and following similar reasoning, the Tribunal upheld the deletion of the addition made by the Assessing Officer, finding no grounds for interference.

Issue 3: Deletion of addition on account of principal amount of waiver of loan for A.Y. 2008-09:
The Tribunal affirmed the decision of the Commissioner of Income Tax (Appeals) to delete the addition made on account of the waiver of the principal amount of the loan. The Tribunal referred to a relevant judgment by the High Court of Bombay, which clarified that the taxability of a waived loan amount depends on the purpose for which the loan was taken. If the loan was for trading activities, the waiver could result in taxable income. However, in this case, the nature of the loan waived in a one-time settlement was for the acquisition of assets, and hence, the waiver was not taxable. The Tribunal found no reason to interfere with the decision of the Commissioner of Income Tax (Appeals) and upheld the deletion of the addition made by the Assessing Officer.

In conclusion, the Appellate Tribunal dismissed the appeals filed by both the assessee and the revenue, maintaining the decisions made regarding the addition of the waived cash credit loan amount, section 35(2AB) deduction, and the principal amount of the loan waiver for the respective assessment years.