2016 (2) TMI 750 - AT - Income Tax

Income on account of remission of principal amount of loan - CIT(A) confirmed addition as income of the assessee - Held that - The assessee company is manufacturing of woolen yarn and other wool items and taken loan from bank and financial institutions. The assessee company had become sick company and before BIFR the banks/financial institutions had settled its outstanding loan whereby the principal loan amount of ₹ 29,40,94,000/- was written back. The loan was taken long time back for installing plant and machinery and same was on account of capital account. The case laws referred by the ld CIT(A) i.e. decision of CIT Vs. Sundaram Iyengar (T.V.) and Sons Ltd. (1996 (9) TMI 1 - SUPREME Court ) is not squarely application as wherein the assessee got the benefit of depreciation and on the other hand remission of the principal, which is covered U/s 28(iv) of the Act. As per Section 28(iv) the value of any benefit or prerequisite whether converted into money or not arising from business or the exercise of the profession can be taxed. Even the Hon ble Supreme Court in the case of Nectar Beverages Pvt. Ltd. Vs. DCIT (2009 (7) TMI 5 - SUPREME COURT ) has held that depreciation is neither a loss nor an expenditure nor a trading liability, therefore, settlement of principal amount by the bank/financial institution cannot be assessed U/s 41(1) of the Act. The other case laws referred by the AR particularly the decision in the case of Mahindra & Mahindra Ltd. Vs. CIT (2003 (1) TMI 71 - BOMBAY High Court ) and CIT Vs. Tosha International Ltd. (2008 (9) TMI 31 - HIGH COURT DELHI ) and others are squarely applicable. Therefore, we delete the addition confirmed by the ld CIT(A). - Decided in favour of assessee Addition made U/s 145A on account of excise duty leviable on closing stock - Held that - The goods are lying in the warehouse and on production, excise duty is not payable it is payable at the time of goods cleared from the warehouse, therefore, no adjustment U/s 145A on account of excise duty is required to be made as per law.- Decided in favour of assessee

Summary

Issues Involved:
1. Treatment of Rs. 29,40,94,000/- as income on account of remission of principal amount of loan.
2. Deletion of addition of Rs. 16,41,000/- made under Section 145A on account of excise duty leviable on closing stock.

Issue-Wise Detailed Analysis:

1. Treatment of Rs. 29,40,94,000/- as Income on Account of Remission of Principal Amount of Loan:
The primary issue in the assessee's appeal is the confirmation by the CIT(A) of the Assessing Officer's action in treating Rs. 29,40,94,000/- as income due to the remission of the principal amount of the loan. The assessee contended that this amount should not be considered as income, relying on case laws such as Mahindra & Mahindra Ltd. Vs. CIT and CIT Vs. Chetan Chemicals P Ltd., which state that remission of principal amount is not taxable under Section 41(1) of the Income Tax Act, 1961.

The Assessing Officer, however, argued that the remission of both principal and interest amounts should be considered as income, drawing on the principles established in CIT Vs. Sundaram Iyengar (T.V.) and Sons Ltd., which posits that amounts received in the course of trading transactions, even if initially capital in nature, become taxable income when they become the assessee's own money. The CIT(A) upheld the Assessing Officer's view, referencing a similar adjudication by the ITAT, Jaipur in the case of Modern Syntex India Ltd.

Upon appeal, the assessee's representative argued that Section 28(iv) only taxes cash benefits and that the remission of loan used for capital assets should not be taxable, citing the Supreme Court decision in Nectar Beverages Pvt. Ltd. Vs. DCIT and other relevant case laws. The Tribunal found merit in the assessee's arguments and case laws cited, particularly Mahindra & Mahindra Ltd. Vs. CIT and CIT Vs. Tosha International Ltd., leading to the conclusion that the remission of the principal amount of a loan used for acquiring capital assets is not taxable under Section 41(1). Consequently, the addition of Rs. 29,40,94,000/- was deleted, and the assessee's appeal on this ground was allowed.

2. Deletion of Addition of Rs. 16,41,000/- Made Under Section 145A on Account of Excise Duty Leviable on Closing Stock:
The revenue's appeal concerns the deletion of an addition of Rs. 16,41,000/- made under Section 145A for excise duty on closing stock. The Assessing Officer had included this amount in the closing stock valuation, arguing that excise duty becomes payable when goods are manufactured, regardless of whether they are cleared from the warehouse.

The CIT(A) deleted this addition, referencing the Central Excise Act, which stipulates that excise duty is payable only upon the removal of goods from the warehouse. This position was supported by the decision in CIT vs. Loknete Balasaheb Desai SSK Ltd., which asserts that the relevant date for duty liability is the date of clearance of goods.

The Tribunal upheld the CIT(A)'s decision, agreeing that excise duty is not payable at the time of production but at the time of clearance from the warehouse. Therefore, no adjustment under Section 145A was required, leading to the dismissal of the revenue's appeal.

Conclusion:
The assessee's appeal regarding the remission of the principal loan amount was allowed, and the addition of Rs. 29,40,94,000/- was deleted. The revenue's appeal concerning the addition under Section 145A for excise duty on closing stock was dismissed, upholding the CIT(A)'s deletion of Rs. 16,41,000/-. The order was pronounced in the open court on 22/01/2016.