2018 (2) TMI 55 - HC - Income Tax

Addition on account of remission of Principal amount of loan - whether remission of Principal amount of loan obtained from financial institution and banks constitutes a benefit or perquisite arising from business and would fall within the ambit of section 28(iv)? - Held that - Even otherwise the loan which was taken was capital investment and always treated in the capital account as liability and if it is so, it will naturally go as wiping out the capital liability. The contention taken by the appellant is required to be accepted. See Modern Syntex (india) Ltd. case 2018 (1) TMI 1298 - RAJASTHAN HIGH COURT - Decided in favour of assessee

Summary

Issues:
1. Deletion of additions on account of remission of principal amount of loan.
2. Whether remission of principal amount of loan constitutes a benefit arising from business under section 28(iv) of the Act.
3. Deletion of additions on account of excise duty leviable on closing stock.
4. Treatment of employees' contribution to PF and ESI under section 43B versus section 36(1)(va) r.w.s. 2(24)(x) of the I.T. Act.

Analysis:

1. The appellant challenged the Tribunal's decision confirming the CIT(A)'s order regarding the additions made by the Assessing Officer on account of the remission of the principal amount of a loan. The Court referred to a previous decision where it was held that the loan taken was a capital investment and treated as a liability in the capital account, leading to the wiping out of the capital liability. Consequently, the Court accepted the appellant's contention, restored the CIT(A)'s view, and reversed the Tribunal's decision, ruling in favor of the assessee and against the department.

2. The Court addressed whether the remission of the principal amount of the loan obtained from financial institutions and banks constitutes a benefit or perquisite arising from business under section 28(iv) of the Act. It referred to various judgments, including those of the Bombay High Court and the Madras High Court, to analyze the nature of income taxable under section 28(iv). The Court emphasized that the benefit or perquisite must arise from business and not be in cash or money. It highlighted the interpretation of similar clauses in different judgments to support its decision.

3. The issue of excise duty leviable on closing stock was also examined. The ITAT had deleted the additions made under section 145A, and the department contested this decision. The Court considered the observations of the Supreme Court in a previous case and upheld the Tribunal's decision, supporting the deletion of the additions on excise duty leviable on closing stock.

4. Regarding the treatment of employees' contribution to PF and ESI, the Court held that it would be governed by the decision of the Supreme Court. While issues 1 to 3 were answered in favor of the assessee and against the department, the matter concerning PF & ESI contributions was left to be determined based on the Supreme Court's decision. The appeal was disposed of accordingly, with the issues in both appeals being resolved in favor of the assessee and against the department.