2017 (8) TMI 618 - HC - Income Tax

Disallowance of depreciation - no business activity and the plant and machinery are not in use - Held that - The orders of the authorities were perused, including the Tribunal s order in the assessee s own case for the previous Assessment Years 2004 -05 and 2005 -06 wherein the Tribunal has allowed the claim of depreciation holding that the assets said to have been put to use as the claim of depreciation allowed in the earlier years and the facts are no different in the order under consideration. Thus, when the Tribunal allowed the claim of depreciation holding that the assets said to have been put to use were identical, the depreciation on assets was directed to be allowed. Goodwill as held to be an asset eligible for depreciation. See Commissioner of Income Tax Vs. Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT Addition on surplus on one time settlement with Banks - application of Sections 28(iv) and 41(1) - Held that - As overlooking the aspect of payment of interest which has not been waived and in regard to which no relief was claimed. The loan agreement, in its entirety, was not obliterated in the present case as well. Therefore, we are of the opinion that in the present case Section 28(iv) was not attracted.overlooking the aspect of payment of interest which has not been waived and in regard to which no relief was claimed. The loan agreement, in its entirety, was not obliterated in the present case as well. Therefore, we are of the opinion that in the present case Section 28(iv) was not attracted. As far as Section 41(1) is concerned, the act of remission was attributable to the creditor and it could not be unilaterally attributed to the debtor himself declaring that he would not pay. There was no material which suggested any act or omission on the part of the creditor which resulted in extinguishment of the liability of the assessee on its account. Writing off such liability in the books of account by the debtor only conveyed the intention of the assessee not to pay. The Revenue relied on the circumstances stated by the Income Tax Officer that claims had not been filed before the Board by Creditors. However, as rightly observed by the Division Bench of the Rajasthan High Court that, there is no provision in the Sick Industrial Companies (Special Provisions) Act, 1985 permitting lodging or raising of claims by the creditor before the BIFR. Before us as well, the BIFR issued notices to those whose debts are secured and equally those whose stakes are involved. As far as the company is concerned, the BIFR could have recommended winding up but it took on record a scheme of rehabilitation and revival of the company. In that process, the arrangements as carved out have been made. Therefore, as held by the Tribunal, in the present case the ingredients of subsection (1) of Section 41 are not attracted. The liability remains and because under the scheme of the BIFR the principal sum was waived, the assessee has not enjoyed any actual benefit of remission of liability in the nature of trading. It is in these circumstances that the claim of deduction in respect of the waiver of loan amounting to ₹ 8,36,99,463/ was granted. The Assessing Officer was directed to allow it. Addition being increase in the value of land hived off - matter restored to the file of the First Appellate Authority - Held that - To our mind, reliance placed by Mr. Pinto on Solid Containers 2008 (8) TMI 156 - BOMBAY HIGH COURT is misplaced. The Tribunal has neither misdirected itself in law nor its order can be termed as perverse when it took assistance of the Division Bench Judgment of Rajasthan High Court in the case of Commissioner of Income Tax Vs. Shree Pipes Limited (2006 (4) TMI 70 - RAJASTHAN HIGH COURT) as also the Division Bench Judgment of this Court in Mahindra and Mahindra 2003 (1) TMI 71 - BOMBAY High Court . In the facts and circumstances, the view taken by the Tribunal is imminently possible. Revenue appeal dismissed.

Summary

Issues Involved:
1. Allowability of depreciation on goodwill.
2. Applicability of Sections 28(iv) and 41(1) of the Income Tax Act, 1961, regarding the waiver of loan liability.
3. Deduction claims made without filing a revised return.

Detailed Analysis:

1. Allowability of Depreciation on Goodwill:

The respondent/assessee filed its e-return for the Assessment Year 2006-07, declaring a total loss, which was later revised to Nil income. The case was selected for scrutiny, and notices under Sections 143(2) and 142(1) of the Income Tax Act, 1961, were issued. The Assessing Officer (AO) noted that the assessee had no business activities during the year under assessment but claimed depreciation, including on goodwill. The AO disallowed the depreciation on goodwill, stating it was not allowable under Section 32(1)(ii) of the I.T. Act. However, the Tribunal allowed the claim by relying on the Supreme Court's judgment in the case of Smifs Securities Limited, holding that goodwill is an asset eligible for depreciation.

2. Applicability of Sections 28(iv) and 41(1) of the Income Tax Act, 1961, Regarding the Waiver of Loan Liability:

The AO disallowed the assessee's claim for additional deduction on the grounds that the waiver of loan liability amounted to a benefit arising out of business, thus taxable under Sections 28(iv) and 41(1) of the I.T. Act. The AO argued that the remission of the principal amount of the loan was a benefit derived from business activities and should be taxed. The Tribunal, however, disagreed, stating that the waiver of the principal amount of the loan does not result in a remission or cessation of liability under Section 41(1). The Tribunal relied on the Rajasthan High Court's judgment in Shree Pipes Limited and the Bombay High Court's judgment in Mahindra and Mahindra, concluding that the waiver of the principal amount of the loan did not attract Sections 28(iv) and 41(1).

3. Deduction Claims Made Without Filing a Revised Return:

The AO also disallowed the assessee's claim for additional deduction made during the assessment proceedings, arguing that it was not made through a revised return but only in the form of a letter. The Tribunal set aside this finding by relying on the Supreme Court's judgment in Goetze (India) Ltd., which allows claims for deductions to be made during assessment proceedings without necessarily filing a revised return.

Conclusion:

The High Court dismissed the Revenue's appeal, holding that the Tribunal's findings were correct. The Court upheld the Tribunal's decision that depreciation on goodwill is allowable, and the waiver of the principal amount of the loan does not attract Sections 28(iv) and 41(1) of the I.T. Act. The Court also agreed with the Tribunal that the assessee's claim for additional deduction could be entertained even if not made through a revised return. The appeal was dismissed without any order as to costs.