2019 (10) TMI 88 - HC - Income Tax

Addition as income u/s 41(1) OR u/s 28 - cessation of loan liability - HELD THAT - The Supreme Court in the case of Commissioner v/ s. Mahindra and Mahindra Ltd. 2018 (5) TMI 358 - SUPREME COURT has held that sine-qua-non for application of Section 41(1) is that there should have been allowance or deduction claimed by the Assessee in any Assessment Year as a loss, expenditure or trading liability incurred by the Assessee. Subsequently, if any remission or waiver is granted in respect of which such an allowance/deduction has been claimed, then the Assessee is liable to pay t ax on the amount waived/ remitted under Section 41(1) of the Act. This, as the Court held is only to ensure that Assessee does not keep double benefit one by way of deduction and another by waiver of the amount, which has already been deducted in computing the tax; In this case admittedly, no benefit in respect of the loan has been claimed by the Respondent in respect of ₹ 4.11 Crores, in an earlier Assessment Year. Addition u/s 28 - at no point of time before the authorities under the Act, was it the Revenue s case that the waiver of loan should be brought to tax under Section 28 (iv) of the Act. No such claim was made either as a principal submission or even in the alternative. Therefore, it is not open for the Revenue to urge an issue which was not urged before the Tribunal. On this limited ground, the two questions as proposed are liable to be dismissed. The issue now stands concluded by the decision of the Apex Court in Mahindra and Mahindra (supra). In the above case, the Apex Court has held that, Section 28 (iv) of the Act can only apply where any benefit arises from a business or profession and such benefit is received other then in the shape of money. In this case, the waiver of loan is, in fact, found is on capital account. - Decided against revenue.

Summary

Issues involved:
1. Whether the Tribunal was justified in deleting the addition of income under Section 41(1) of the Income Tax Act?
2. Whether the Tribunal erred in not upholding the addition of taxable income under Section 28 of the Act on account of cessation of loan liability?
3. Whether the Tribunal was justified in not examining the unproven credit entries in the Balance-Sheet and not invoking the correct provision of Section 28(iv) of the Act?

Analysis:

Issue 1:
The case involved a dispute regarding the addition of a waived loan amount to the income of the Respondent under Section 41(1) of the Income Tax Act. The Assessing Officer had determined the income of the Appellant based on this addition. However, the CIT(A) held that Section 41(1) would not apply as the loan was on capital account and not claimed as a deduction in any earlier returns. The Tribunal also dismissed the Revenue's appeal, stating that Section 41(1) only applies to trading liabilities with deductions claimed in previous years. The Court further referenced the Supreme Court's ruling, emphasizing that the section aims to prevent double benefits for the taxpayer.

Issue 2 & 3:
The Revenue raised new arguments before the High Court, suggesting that the waived loan should be taxed under Section 28(iv) of the Act. However, the Court noted that these arguments were not presented earlier and could not be entertained at this stage. Additionally, the Court clarified that the precedents cited by the Revenue did not apply to the current case, as both the CIT(A) and the Tribunal had found the loan to be on a capital account, not a trading account. The Court also referenced the Apex Court's decision, highlighting that Section 28(iv) applies when a benefit arises from a business or profession in a non-monetary form. Since the waiver of the loan was on a capital account, the Court concluded that no substantial legal questions arose from these new arguments.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision and emphasizing that no costs were awarded in this matter.