2022 (7) TMI 890 - AT - Income Tax

Addition for the Term Loan taken waiver of secured loan from ICICI Bank which was credited to the Capital Reserve Account - addition on account of Loan settlement with ICICI Bank by invoking the provisions under section 28(i) r.w.s. 2(24) and even rejected the assessee contention that loan are used for capital Goods and not for other business activity - HELD THAT - It is pertinent to note that the assessee has used the loan amount for capital assets and this fact was never disputed by the Revenue. The waiver of principal amount of loan which was made by the Bank has been deducted by the assessee from the outstanding loan and credited to reserves surplus. CIT(A) has relied upon the decision in the case of TV Sundaram Iyengar Sons ( 1996 (9) TMI 1 - SUPREME COURT and decision in case of Ramniyam Homes Pvt. Ltd. 2016 (4) TMI 954 - MADRAS HIGH COURT It is seen that in case of TV Sundaram Iyengar (supra) money was received by the said assesse for carrying on trading activities. But in the present assessee s case the loan was utilized only for the purpose of obtaining capital assets. Thus, the decision of the Hon ble Apex Court in case of Mahindra Mahindra (supra) is applicable in the present case as in the said case it was categorically held that when the assessee had not claimed deduction under Section 36(1)(iii) of the Act for interest on loan and loan was taken for acquiring capital asset then the waiver was on account of liability other than trading liability and thus provisions of Section 41(1) does not apply in such cases. Section 28(iv) will not be applicable in the present assessee s case as the receipts are in the nature of cash or money. The waiver of loan amounts to cessation of liability other than trading liability, thus, the said amount cannot fall under Section 28(iv) will not be applicable. Therefore, the Assessing Officer as well as the CIT(A) was not right in making the said addition and confirming the same. Hence, appeal of the assessee is allowed.

Summary

Issues involved:
1. Addition for term loan waiver of secured loan from ICICI Bank credited to Capital Reserve Account.
2. Application of provisions under section 28(i) r.w.s. 2(24) for loan settlement with ICICI Bank.

Detailed Analysis:
1. The appellant, engaged in manufacturing organic chemicals, challenged the addition of Rs.1,29,78,902 as income due to waiver of a principal loan from ICICI Bank credited to the Capital Reserve Account. The Assessing Officer treated the waiver as income under section 28(iv) of the Income Tax Act, 1961. The CIT(A) upheld this addition, leading to the appeal.
2. The appellant argued that the waiver amount was credited to the capital reserve account, making section 28(iv) inapplicable. They contended that the loan was utilized for capital assets, not other business activities. The appellant cited relevant legal precedents, including decisions by the Hon'ble Supreme Court and the Delhi Tribunal, to support their case.
3. The Departmental Representative supported the Assessing Officer's decision, asserting that the waiver constituted income under section 28(iv) of the Act. Both parties presented their arguments before the tribunal.
4. The tribunal noted that the loan amount was used for acquiring capital assets, a fact undisputed by the Revenue. Citing legal precedents, the tribunal concluded that the waiver did not fall under section 28(iv) as it was a cessation of liability other than a trading liability. Therefore, the addition made by the Assessing Officer and upheld by the CIT(A) was deemed incorrect, and the appeal of the assessee was allowed.
5. The tribunal pronounced the order in favor of the appellant on July 7, 2022, overturning the addition made based on the waiver of the principal loan amount from ICICI Bank.