2017 (11) TMI 1052 - AT - Income Tax

Assessment of waiver of principle amount of loans - assessee s claim that the waiver of loan cannot be construed to be income under Section 28(iv) and it is also not an income under Section 41(1) - Held that - As gone through the judgment of Madras High Court in Iskraemeco Regent Ltd. (2010 (11) TMI 43 - Madras High Court) found that the loan was borrowed for purchase of a capital asset, hence, the waiver of loan is not an income assessable to tax. The High Court further found that it cannot be treated as income either under Section 28(iv) of the Act or under Section 41(1) of the Act. The High Court further found that since the loan borrowed was used for purchase of capital asset, it is a capital receipt. Thus this Tribunal is of the considered opinion that the loan amount waived by ICICI Bank has to be necessarily considered as revenue receipt, hence, it is taxable. Therefore, this Tribunal do not find any reason to interfere with the orders of the lower authority and accordingly the same are confirmed. Allowance of pre-operative expenses - Held that - CIT(Appeals) found that the assessee showed the pre-operative expenses to the extent of ₹ 2,36,27,733/- in the balance sheet as on 31.03.2003. However, what was written off is only ₹ 1,81,54,653/- as per the Profit & Loss account for the financial year 2003-04. The CIT(Appeals) further found that the commercial business operation was not commenced. The CIT(Appeals) has found that the business operation of the assessee was suspended since September, 1999 and no activity was undertaken thereafter. There is no material available on record to suggest that the assessee has commenced the business operation. Hence, the business operation was not commenced and hence, the expenditure like interest, losses due to exchange rate fluctuation cannot be allowed. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.

Summary

Issues:
1. Delay in filing appeals and condonation of delay.
2. Assessment of waiver of principle amount of loans.
3. Disallowance of pre-operative expenses.
4. Disallowance of depreciation.

Delay in filing appeals and condonation of delay:
The appeals were filed with a delay of 2 days, and the assessees sought condonation of the delay, which was granted by the tribunal after finding sufficient cause for the delay. The appeals were admitted for further proceedings.

Assessment of waiver of principle amount of loans:
The main issue was whether the waiver of loan amount should be considered as income under Section 28(iv) of the Income-tax Act, 1961. The assessees argued that the waiver of loan should be treated as a capital receipt and not taxable income, citing judgments of the Madras High Court. On the other hand, the Departmental Representative contended that the waiver of loan constitutes a benefit arising out of business and should be assessed as income. The tribunal considered the arguments and upheld the CIT(Appeals) decision that the waiver of loan amount constitutes income under Section 28(iv) of the Act.

Disallowance of pre-operative expenses:
The assessee claimed deduction for pre-operative expenses amounting to &8377;1,81,54,653/-, which was disallowed by the Assessing Officer. The contention was that the expenses were claimed to reduce book profits, but the tribunal found that the business operation had not commenced, and hence, the expenses could not be allowed. The CIT(Appeals) decision to confirm the disallowance was upheld by the tribunal.

Disallowance of depreciation:
The issue of disallowance of depreciation amounting to &8377;20,89,639/- was raised by the assessee, but it was informed that the CIT(Appeals) had already deleted the disallowance, and no further appeal was filed by the Revenue. Therefore, this issue did not arise from the order of the CIT(Appeals) in the assessee's appeal.

In conclusion, the tribunal dismissed both appeals of the assessees, upholding the decisions made regarding the assessment of waiver of loan amount and the disallowance of pre-operative expenses. The issue of disallowance of depreciation was not pursued further as the CIT(Appeals) had already ruled in favor of the assessee on that matter.