2019 (9) TMI 1062 - AT - Income Tax

Waiver of loan - Addition u/s 41 or 28 - HELD THAT - Funds from the cash credit facility were diverted to purchase capital asset. We note the chart given by the assessee shows utilization of fund for acquisition of capital assets vis-a-vis source of fund for the last 6 years prepared on the basis of the Audited Annual Accounts. It is evident from the chart that the cash credit and term loan was utilized for the purpose of acquiring capital assets. Even if the borrowing was in the nature of cash credit, it was not utilized for working capital. Therefore it is clear from the chart that no part of it is falling within the domain of current asset. Thus, it cannot be said that the loan was not utilized for the purpose of capital asset. We note that these receipts i.e. cash credit facility and term loan were utilized for capital assets and these receipts being capital receipts are not taxable, for that we rely on the judgment of the Hon'ble Supreme Court of India in the case of Commissioner vs. Mahindra Mahindra Ltd. 2018 (5) TMI 358 - SUPREME COURT Depreciation for the fixed assets acquired in view of observation that assets was not acquired before 31.03.2010 - HELD THAT - As assessee submitted copies of the invoices towards purchase of fixed assets and contended that the machineries were received well before 31/03/2010. It is further submitted that the machineries were duly installed within 31/03/2010 as the same was in knock down condition. TheldCounsel further submitted that the A.O. misunderstood the facts that RC date mentioned on the face of the invoice as date of receipt. In fact the RC date is the date of receipt of invoice at Head office. It is evident from the details of addition to fixed assets that the concern machineries were received within 31st March, 2010. After considering and going through the submission along with supporting documents furnished, we are inclined to agree with the order of ld CIT(A). That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid addition. His order on this addition is therefore, upheld and the grounds of appeal of the Revenue are dismissed. Addition towards interest subsidy received - HELD THAT - As submitted that the annual accounts of the company are prepared as per accounting standards and accounting policies as prescribed by the Companies Act. The company follows mercantile system of accounting. A.O. without going to the facts of the case added interest subsidy received during the year to the total income of the assessee. It is clear from the note no. 5 of the schedule 17 (Note on Accounts) of the Annual Accounts for the previous year 2009-10, that the assessee company had shown ₹ 345.36 lacs as recoverable on the basis of claim lodged with appropriate authorities in the earlier year and ₹ 293.69 lacs had been shown as recoverable for the previous year ended 31st march, 2010 after adjusting ₹ 51.67 lacs received during the year. As such the subsidy received during the year has already taxed in earlier years. Hence the same cannot be taxed twice.We note that ld CIT(A) has rightly deleted the addition on this account.

Summary

Issues Involved:
1. Waiver of loan as taxable income.
2. Depreciation on fixed assets acquired before 31.03.2010.
3. Addition towards interest subsidy received.

Detailed Analysis:

1. Waiver of Loan as Taxable Income:
The primary issue was whether the waiver of a loan amounting to ?1,26,93,133/- should be treated as taxable income. The assessee company entered into a one-time settlement with Catholic Syrian Bank, resulting in the waiver of a portion of its loan. The Assessing Officer (AO) treated this waiver as taxable income under Sections 28(iv) and 41(1) of the Income Tax Act, relying on the Delhi High Court decision in Logitronics Pvt. Ltd. The CIT(A) disagreed and deleted the addition, leading to the Revenue's appeal.

The Tribunal upheld the CIT(A)'s decision, noting that the waiver of the principal amount of the loan does not constitute income. It referenced the Supreme Court's ruling in Commissioner vs. Mahindra & Mahindra Ltd., which clarified that such waivers are not taxable under Section 28(iv) as they do not represent a benefit or perquisite arising from business. Additionally, Section 41(1) was deemed inapplicable as the waiver did not pertain to a trading liability and the assessee had not claimed any deduction for interest payments under Section 36(1)(iii).

2. Depreciation on Fixed Assets Acquired Before 31.03.2010:
The second issue concerned the disallowance of depreciation on fixed assets acquired by the assessee. The AO disallowed depreciation on the grounds that the assets were not installed and put to use before 31.03.2010. The CIT(A) deleted this addition, which was contested by the Revenue.

The Tribunal agreed with the CIT(A), noting that the assessee had provided invoices and evidence showing that the machinery was received and installed before 31.03.2010. The Tribunal found that the AO had misunderstood the facts, particularly the "RC date" on the invoices, which was the date of receipt at the head office, not the installation date. Consequently, the Tribunal upheld the CIT(A)'s order, allowing the depreciation claim.

3. Addition Towards Interest Subsidy Received:
The third issue was the addition of ?51,66,613/- towards interest subsidy received by the assessee. The AO treated this subsidy as taxable income for the relevant assessment year. The CIT(A) deleted this addition, leading to the Revenue's appeal.

The Tribunal upheld the CIT(A)'s decision, noting that the interest subsidy had already been accounted for and taxed on an accrual basis in earlier years. The Tribunal emphasized that taxing the subsidy again would result in double taxation. The Tribunal referenced the company's accounting policies, which followed the mercantile system, and noted that the subsidy receivable had been accounted for in previous years. Thus, the Tribunal found no basis for the AO's addition and upheld the CIT(A)'s order.

Conclusion:
The Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s decisions regarding the waiver of loan, depreciation on fixed assets, and the treatment of interest subsidy. The judgments emphasized adherence to established accounting principles and legal precedents, ensuring that the assessee was not subjected to double taxation or arbitrary disallowances.