2022 (11) TMI 963 - AT - Income Tax

Addition u/s. 28(iv) - waiver of loan - value of benefit arising from business of the assessee - principal portion of loan waived of by the lenders - HELD THAT - CIT(A) has followed the decision rendered in the case of Mahindra Mahindra 2018 (5) TMI 358 - SUPREME COURT in arriving at the conclusion that the provisions of sec.28(iv) will not apply to waiver of loan. AR also placed reliance on the decision rendered in the case of ACIT Vs. Sunil B. Dalal 2022 (7) TMI 999 - ITAT MUMBAI wherein the Tribunal has held that the provisions of section 28(iv) of the Act will not apply to waiver of loan and in this regard the Tribunal has also taken support of the decision rendered by Hon'ble Supreme Court in the case of Mahindra Mahindra Ltd. (supra). In the grounds of appeal, the Revenue has taken support of the decision rendered in the case of T.V.Sundaram Iyengar Sons Ltd. 1996 (9) TMI 1 - SUPREME COURT in order to contend that the loan taken by the assessee was for the purpose of carrying on of the financing business and hence the decision rendered by Hon'ble Supreme Court in the case of Mahindra Mahindra Ltd. (supra) will not apply. We notice that the decision has been rendered by Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar Sons Ltd. (supra) on a different set of facts, i.e. in the case before Hon ble Supreme Court, the assessee had received deposits from its customers (Debtors) in the course of carrying on of its business and the said deposits was written off in the books of account on the reasoning that there was no claim from debtors. Since the deposits were received during the course of carrying on regular trading activities, the Hon ble Supreme court held that the write off amount available in the said debtors account is assessable as income. In the instant case, the assessee has received loan from certain parties for the purpose of using it in the business of lending of money. The lenders are not the customers of the assessee. There should not be any dispute that the loan transaction is a capital account trasaction. Hence waiver of loan cannot take the colour of trading transactions as per the decision rendered in the case of Mahindra Mahindra Ltd (supra). Accordingly in our view the decision rendered by Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar Sons Ltd. (supra) cannot be applied to the facts of the present case. Impugned amount should have been assessed an income of the assessee u/s 56(2)(x) - HELD THAT - There is no dispute with regard to the fact that the assessee had received loans in the year 2014 i.e., the money has been received in the year relevant to AY 2015-16. There is no further receipt of any money from the lender during the year under consideration. The amount of Rs. 2.65 crores credited by the assessee to Capital Reserve account represents waiver of loan made during this year. The loan itself was received by the assessee in the earlier years - waiver of the loan cannot be equated with the actual receipt of money contemplated under section 56(2)(x) - Accordingly, we find merit in the contentions of the learned AR that the provisions of section 56(2)(x) of the Act are not attracted since there is no receipt of money during the year under consideration. Accordingly, we reject the ground urged by the Revenue.

Summary

Issues Involved:
1. Deletion of addition under section 28(iv) of the Income Tax Act.
2. Alternative contention of assessing waived off unsecured loan as income under section 56(2)(x) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 28(iv) of the Income Tax Act:

The primary issue pertains to the deletion of an addition amounting to Rs. 2,15,21,467/- made by the Assessing Officer (AO) under section 28(iv) of the Income Tax Act. The AO observed that the assessee had written back certain loans amounting to Rs. 2.65 crores and credited this amount directly to the capital reserve account, bypassing the profit and loss account. The assessee contended that this amount was not taxable under section 41(1) as it was not claimed as expenditure in any preceding years. The AO, however, assessed Rs. 49,78,533/- under section 41(1) for unpaid interest and the remaining Rs. 2,15,21,467/- under section 28(iv) as the value of benefit arising from business.

The CIT(A) deleted the addition of Rs. 49,78,533/- under section 41(1), noting that this amount represented TDS already paid by the assessee. The Revenue accepted this decision. Regarding the Rs. 2,15,21,467/- assessed under section 28(iv), the CIT(A) deleted the addition, citing the Supreme Court's decision in Mahindra & Mahindra Ltd. (261 ITR 501), which held that section 28(iv) applies only to benefits or perquisites received in kind, not in money. The Tribunal upheld this view, noting that the loan waiver was a money transaction and thus did not constitute a benefit or perquisite under section 28(iv).

2. Alternative Contention of Assessing Waived Off Unsecured Loan as Income under Section 56(2)(x) of the Income Tax Act:

The AO alternatively contended that the waived-off unsecured loan should be treated as income under section 56(2)(x) of the Act, arguing that the CIT(A) has co-terminus power with the AO. The Tribunal, however, rejected this contention, emphasizing that the CIT(A) cannot be compelled to exercise this power without due process and opportunity for the assessee to respond.

The Tribunal further clarified that section 56(2)(x) applies when a person receives any sum of money without consideration during a particular year. In this case, the loans were received in 2014, relevant to A.Y. 2015-16, and not during the year under consideration (A.Y. 2018-19). The Tribunal agreed with the assessee's argument that loan waiver does not equate to the actual receipt of money as contemplated under section 56(2)(x). Consequently, the Tribunal concluded that the provisions of section 56(2)(x) were not applicable, and thus, rejected the Revenue's alternative ground.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition under section 28(iv) and rejecting the alternative contention under section 56(2)(x). The Tribunal emphasized the distinction between benefits received in kind versus money and clarified the non-applicability of section 56(2)(x) to loan waivers received in earlier years. The order was pronounced in the open court on 20.09.2022.