2018 (12) TMI 570 - AT - Income Tax

MAT computation - Addition towards not deducting the waived interest amount of under one time settlement for computing book profit u/s 115JB - sick industrial company - Held that - In the case of Vista pharmaceuticals (2012 (6) TMI 569 - ITAT HYDERABAD), the coordinate bench has held that when this impugned interest is not actually allowed as deduction in earlier years while computing the book profit in those years, the same can t be brought to tax in this asst. year while computing book profit U/s. 115JB of the Act. In the case of assessee, AR has brought to our notice that the assessee has not charged the interest waived by the bank as interest in the earlier years and interest was never allowed as deduction while computing book profit in the earlier years and hence the said decisions are squarely applies to the case of the assessee. Further, the assessee s case falls under clause (vii) of explanation (1) to section 115JB. Therefore, we do not find any infirmity in deleting the addition made on this count. This ground of appeal of the revenue is dismissed. Addition towards waiver of working capital term loan - Held that - We notice that the Hon ble Delhi High Court Decision in the case of Tosha International Ltd. (2008 (9) TMI 31 - HIGH COURT DELHI) is similar to the facts of the present case held that remission of the principal amount of loan didn t amount to income - remission would become income u/s 41(1) only if assessee has claimed deduction in respect of expenditure or trading liability - CIT(A) correct in deleting the addition made by the AO towards waiver of capital treating as revenue in nature - decided against revenue

Summary

Issues:
1. Whether the waiver of interest amount under the one-time settlement scheme for computing book profit under section 115JB of the IT Act is allowable.
2. Whether the waiver of the principal loan amount by the bank under the one-time settlement scheme is taxable.
3. Whether the waiver of the principal loan amount constitutes income under section 28(iv) of the Income Tax Act.

Issue 1: The appeal concerns the Revenue challenging the deletion of an addition made towards the waiver of interest under a one-time settlement scheme for computing book profit under section 115JB of the IT Act. The assessee, a sick company, had the interest amount waived by banks, fulfilling conditions under clause (vii) of Explanation (1) to section 115JB. The CIT(A) allowed the appeal, and the tribunal upheld the decision, citing relevant legal precedents. The tribunal concluded that the waiver of interest was allowable as the assessee met the conditions specified.

Issue 2: The second issue revolves around whether the waiver of the principal loan amount by the bank under the one-time settlement scheme is taxable. The AO added the waived amount to the profit & loss account, considering it revenue in nature. However, the CIT(A) disagreed, stating that the waived amount represented a working capital term loan and should not be credited to the profit & loss account. The tribunal upheld the CIT(A)'s decision, emphasizing that the waiver was capital in nature and not revenue, citing various legal cases to support its conclusion.

Issue 3: Lastly, the question arises whether the waiver of the principal loan amount constitutes income under section 28(iv) of the Income Tax Act. The tribunal analyzed the nature of the waiver under the scheme of revival and determined that it was a capital receipt, not revenue. By distinguishing relevant legal precedents and considering the specifics of the case, the tribunal dismissed the appeal of the Revenue, upholding the CIT(A)'s decision to delete the addition made by the AO.

In conclusion, the tribunal's judgment addressed the issues comprehensively, clarifying the tax treatment of waived amounts under the one-time settlement scheme and emphasizing the distinction between revenue and capital transactions in the context of income tax assessment. The decision provided detailed reasoning supported by legal principles and case law, resulting in the dismissal of the Revenue's appeal.