2023 (10) TMI 189 - AT - Income Tax

Unexplained expenditure u/s 69C - documents which were seized during a search/survey on UPDA and its Secretary General Shri R. K. Miglani - HELD THAT - Whether the documents seized from the searched party are held as belonging to or pertaining to , it does not materially effect the findings rendered by the Tribunal, in the batch of appeals decided on this issue and categorical findings have been rendered on the evidentiary value of the documents seized/impounded wherein it has been held by the Tribunal that such documents are dumb documents. Hence no mileage can be availed on this difference between belonging to or pertaining to as has been observed by AO/CIT(A) in their orders. Since the documents relied upon by the department or the statement of Sh. R. K. Miglani remains the same having no evidentiary value as per the factual findings recorded in the said order of ITAT and already relevant paras from the said order have already been extracted above in this order, which, in our considered opinion, are very much relevant to put the issue as rest. Therefore, we hold that no addition of any alleged unexplained expenditure u/s 69C can be made in the hands of the assessee and the additions made u/s 69C respectively are hereby directed to be deleted. Waiver of loan amount arising out of NCDs which were allotted by the assessee to M/s. Morgan Stainley in the public offer made in F. Y. 1993-94 - Such kind of waiver of loan on utilization of capital asset has now been set at rest in the case of Mahindra Mahindra 2018 (5) TMI 358 - SUPREME COURT after discussing the various provisions as contained in section 41(1) of the Act and also u/s 28, held that there is a difference in trading liability and other liability. The provisions of section 41(1) are attracted only if some trading liability is written back. If the amount of loan is utilized towards acquisition of capital assets, then the provisions of section 41(1) of the Income Tax Act are not attracted. Thus, respectfully following the judgment of Hon ble Supreme Court, we hold that no addition can be made u/s 41(1) of the Income Tax Act and the amount being the amount waived by M/s. Morgan Stanley, cannot be brought to tax. This is more so especially when factum of having utilising this amount towards the capital expansion of the assessee s business is not in dispute and remains unchallenged. This ground of appeal is, accordingly allowed.

Summary

Issues Involved:
1. Addition under Section 69C of the Income Tax Act.
2. Waiver of loan amount under Section 41 of the Income Tax Act.
3. Validity of assessment framed under Section 143(3) instead of Section 153C of the Income Tax Act.

Issue 1: Addition under Section 69C of the Income Tax Act

The appeals pertain to the assessment years 2004-05, 2005-06, and 2006-07, where the Assessing Officer (AO) made additions under Section 69C based on documents seized during a search on UPDA and its Secretary General, Mr. R. K. Miglani. The Tribunal had previously held these documents as "dumb documents" and unreliable for making any additions. The Tribunal reiterated that these documents neither belonged to nor pertained to the assessee. The Tribunal also found that the statement of Mr. R. K. Miglani, used by the AO, was inadmissible as the assessee was not given the opportunity for cross-examination, violating principles of natural justice. Consequently, the Tribunal directed the deletion of additions made under Section 69C for the assessment years 2004-05, 2005-06, and 2006-07.

Issue 2: Waiver of Loan Amount under Section 41 of the Income Tax Act

For the assessment year 2005-06, the AO added the waiver of the principal loan amount from Morgan Stanley under Section 41. The Tribunal noted that the loan was utilized for capital expenditure, and the waiver was related to the principal amount. Citing the Supreme Court's judgment in Mahindra & Mahindra, the Tribunal held that the waiver of a loan used for capital expenditure does not attract Section 41(1). Therefore, the addition of Rs. 5,37,12,480/- was deleted.

Issue 3: Validity of Assessment Framed Under Section 143(3) Instead of Section 153C

For the assessment year 2006-07, the assessee argued that the assessment should have been framed under Section 153C instead of Section 143(3). The Tribunal noted that since relief was already granted on the merits of the additions, this issue was of academic interest and did not require independent adjudication.

Conclusion:

The appeals for the assessment years 2004-05 and 2005-06 were allowed, and the appeal for the assessment year 2006-07 was partly allowed. The order was pronounced on 26th July 2023.