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2016 (9) TMI 946 - AT - Income TaxAddition made on account of cessation of bank liability - Held that - Since there is a categorical findings of the Tribunal that there was a cessation/remission of liability u/s.41(1) of the Act on earlier occasion confirming the order of ld. CIT passed u/s.263 of the Act wherein the Ld.CIT directed the AO to verify from the assessment records whether interest/depreciation/hire charges or any other expenditure related to bank liability has been claimed and allowed by the AO in the earlier years and if Yes the taxability of the remission of bank liability should be examined by the AO under relevant provisions of the Act. The ld. Assessing Officer consequent to this examined the issue and observed that there is remission of bank liability accrued to the assessee at 46.05 crores. Contrary to this Ld.CIT(A) observed that there was no cessation of liability in the hands of assessee and it was only in the hands of URMP(SPV) and if any cessation is to be considered in the hands of URMP. We are not in a position to uphold the argument of the ld.A.R as held by the Tribunal on earlier occasion. There is a remission of liability in favour of assessee company and the liability payable to the bank has been reduced to 43 crores and it has to be brought to tax in the hands of assessee only u/s.41(1) of the Act. Accordingly the ground raised by the Revenue is allowed.
Issues Involved:
1. Deletion of addition made on account of cessation of bank liability to the extent of ?46.05 crores. 2. Taxability of remission of liability under Section 41(1) of the Income Tax Act. 3. Consideration of whether the differential amount between ?89.86 crores and ?43 crores constitutes income. Detailed Analysis: 1. Deletion of Addition Made on Account of Cessation of Bank Liability to the Extent of ?46.05 Crores: The primary grievance of the Revenue was the deletion of the addition made on account of cessation of bank liability amounting to ?46.05 crores. The facts reveal that the assessee had assigned all its receivables to M/s. Unique Receivable Management Private Limited (URMPL) through a tripartite agreement involving the assessee, URMPL, and a consortium of banks. The total receivables were ?93.45 crores, and the bank loan liabilities were ?89.86 crores. The Commissioner of Income-tax observed that the differential amount of ?3.59 crores was shown as recoverable in the assessee's accounts but was not considered as income by the Assessing Officer. Additionally, the Commissioner noted that URMPL was to pay ?43 crores to the banks, resulting in a remission of liability, which the Assessing Officer failed to consider for taxability. 2. Taxability of Remission of Liability Under Section 41(1) of the Income Tax Act: The Tribunal observed that the differential amount between ?89.86 crores and ?43 crores was a significant issue that should have been meticulously examined. The tripartite agreement indicated that the liability of ?89.05 crores was crystallized and fixed at ?43 crores, with the remaining liability being waived. Consequently, the Tribunal held that there was a remission of liability in favor of the assessee company, which should have been examined by the assessing authority. The Tribunal upheld the revision order by the Commissioner of Income-tax, directing the Assessing Officer to re-examine the issue. 3. Consideration of Whether the Differential Amount Between ?89.86 Crores and ?43 Crores Constitutes Income: The Tribunal noted that the liability to the consortium of banks was crystallized at ?43 crores, and any amount collected over this sum would be paid to the banks. The Tribunal emphasized that the liability of the assessee was contingent and that the Commissioner of Income-tax was within his competence to invoke Section 263 if the assessment order was erroneous and prejudicial to the interests of the Revenue. The Tribunal upheld the Commissioner's order, noting that the assessment order lacked discussion on vital issues. Further Proceedings and Final Judgment: The Assessing Officer, following the Tribunal's order, observed that there was a remission of liability amounting to ?46.05 crores and brought it to tax. The assessee appealed to the Commissioner of Income-tax (Appeals), who observed that the liability was transferred to URMPL, and there was no waiver of loan or remission of bank liability in the hands of the assessee. The Commissioner of Income-tax (Appeals) concluded that the amount could not be added under Section 41(1) or Section 28(iv) of the Act, as the liability was on the transferee URMPL. However, the Tribunal, upon further appeal by the Revenue, held that there was a remission of liability in favor of the assessee company. The Tribunal noted that the liability payable to the bank had been reduced to ?43 crores and should be brought to tax in the hands of the assessee under Section 41(1) of the Act. Consequently, the Tribunal allowed the Revenue's appeal. Conclusion: The Tribunal concluded that the remission of liability amounting to ?46.05 crores was taxable in the hands of the assessee under Section 41(1) of the Income Tax Act, thereby allowing the Revenue's appeal. The assessment order was revised to include this remission of liability as taxable income.
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