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2021 (9) TMI 504 - AT - Income TaxAdditions u/s 28(iv) - Business perquisite - Waiver of ECB loan - Addition invoking the provisions of section 28(iv) OR Capital receipt - assessee has credited in its reserve account an amount which was waived on External Commercial Borrowings (ECB) loan account - HELD THAT - Assessee has received ECB in convertible foreign exchange for acquiring assets in the earlier years. During the year under consideration due to heavy losses the ECB loan has been waived by the holding company and same has been credited to capital reserve. The facts remain undisputed by the appellantrevenue that the ECB loans were accepted to acquire capital assets. The waiver off loan having capital in nature cannot change its nature to revenue only because of such waiver by the holding company. As discussed above, the assessee has transferred the waiver of principal amount consisting of ECB directly to its capital. Hon ble Supreme Court held in order to invoke the provisions u/s. 28(iv) of the Act, the benefit which is received has to be in some other form rather than in the shape of money. The very first condition of section 28(iv) of the Act is any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money and held an amount received as cash receipt due to the waiver of loan can be in no circumstances taxed under the provisions of section 28(iv) of the Act. ECB loan as received from the holding company by the assessee in convertible foreign exchange for the purpose of acquiring assets in the earlier years. The said loan has been waived and credited to the capital reserve to an extent of ₹ 25,19,15,516/-. Therefore, there is no benefit or perquisite other than in the shape of money to invoke the provisions of section 28 (iv) of the Act, thus, in our opinion, the ratio laid down by the Hon ble High Court of Bombay in the case of Mahindra Mahindra Ltd. 2003 (1) TMI 71 - BOMBAY HIGH COURT which has been affirmed by the Hon ble Supreme Court in the case of Mahindra and Mahindra Ltd. 2018 (5) TMI 358 - SUPREME COURT is applicable to the facts and circumstances of the case and in view of the same, we do not find any reason to interfere with the order of CIT(A) and it is justified. Thus, the grounds raised by the appellant-revenue are dismissed.
Issues:
Whether the CIT(A) was justified in deleting the addition made under section 28(iv) of the Act regarding the waived ECB loan amount. Detailed Analysis: Issue 1: Addition under section 28(iv) of the Act The appellant-revenue challenged the CIT(A)'s decision to delete the addition made under section 28(iv) of the Act regarding the waived ECB loan amount. The assessee, a private limited company engaged in manufacturing lead-acid batteries, credited a waived amount of &8377;25,19,15,516 from an External Commercial Borrowings (ECB) loan to its reserve account. The AO treated this amount as income under section 28(iv) of the Act, while the CIT(A) considered it a capital receipt not liable to tax due to the loan being used for acquiring capital assets. The appellant-revenue contended that the waiver of a loan, even for capital assets, yields a business benefit assessable under section 28(iv) of the Act. The appellant-revenue relied on a judgment from the Hon'ble High Court of Madras, while the assessee cited the decision of the Hon'ble Supreme Court in a similar case. The Tribunal noted that the ECB loans were used for acquiring capital assets, and the waiver of the loan, being capital in nature, did not change its character to revenue. The Tribunal also emphasized that the waiver did not provide a benefit other than in the form of money, which is a requirement under section 28(iv) of the Act. Therefore, the Tribunal dismissed the grounds raised by the appellant-revenue and upheld the CIT(A)'s decision to delete the addition under section 28(iv) of the Act. In conclusion, the Tribunal found that the waived ECB loan amount, being capital in nature and not providing a benefit other than in the form of money, was not taxable under section 28(iv) of the Act. The Tribunal relied on the decision of the Hon'ble Supreme Court and the Hon'ble High Court of Bombay to support its judgment. As a result, the appeal of the Revenue was dismissed, and the order of the CIT(A) was upheld.
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