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2021 (10) TMI 736 - AT - Income TaxTaxability of write back of 'Non-Plan Government Loans' claiming the same to be capital receipts not chargeable to income-tax - reference to the relevant section to make such addition - CIT(A) rejected the contention of the assessee and held the same to be taxable in the hands of the assessee - loans were earlier granted by Government of India to assessee from time to time from 1993 to 2006 for meeting regular and normal business expenses towards Salary, PF, Gratuity, VRS etc. and to recoup cash losses incurred by assessee in the regular course of business, which now stood waived/written off by Government of India in order to revive and rehabilitate the assessee as it was continuously incurring losses and was referred to BIFR as a sick company - Whether Commissioner of Income Tax (Appeals) has erred in law and on facts to confirm the impugned addition without making any reference to the relevant section of the Income Tax Act, 1961 under which he has made such addition which is a mandatory practice for making any such disallowances or additions? - HELD THAT - AO has categorically held the said waiving off of Non Plan Government Loan by Government of India, which loans were earlier granted by GOI in favour of assessee to meet regular business expenses, as an income in the hands of the assessee as the said loans were granted for trading purposes and not for acquiring capital assets, and the AO held that the assessee has rightly credited the same to Profit and Loss Account which is to be brought to tax as the assessee did not offer the same for taxation in the return of income filed with Revenue. AO has followed the ratio of judgment in the case of T.V. Sundaram Iyenger and Sons Limited 1996 (9) TMI 1 - SUPREME COURT and case of Solid Containers Limited 2008 (8) TMI 156 - BOMBAY HIGH COURT while bringing to tax the said waiver of Non Plan Government Loan as income from business of the assessee being a revenue receipts. Thus, we do not find fault with the assessment order passed by the AO that merely because relevant provision of the 1961 statute is not mentioned in assessment order, will take otherwise taxable receipt out of taxation purview merely on the ground that relevant Section is not mentioned by the AO. Thus, this contention raised by assessee lacks merit and deserves to be rejected. Thus, Ground No. 1 is adjudicated against the assessee Whether such writebacks are not ordinary trading transactions or revenue receipts either? - Loan was obtained by the assessee from Government of India on revenue field to meet day to day business expenses, its working capital requirements and to recoup cash losses, and its waiver in our considered view will be chargeable to tax within the provisions of Section 28(iv) and 41(1) of the 1961 Act, as the assessee availed deduction of interest expenses on these loans from its income as well normal business expenditure were incurred by assessee from the proceeds of these loans which were claimed as deduction as business expenditure while computing income chargeable to tax. The unabsorbed expenditure were carried forward to subsequent years for being set off against the income of the subsequent years within the provisions of Section 72 of the Act. Thus, it could not be said that the assessee has not obtained or derived benefit from the waiver of these loans which were earlier obtained on revenue field by assessee from GOI from time to time as now the assessee will not be required to repay these loans to GOI and infact it has become its own money which in our considered view is chargeable to tax, and hence the assessee is definitely hit by provisions of Section 28(iv) and 41(1) of the 1961 Act - thus we hold that the waiver of Non Plan Government Loan to the tune of ₹ 72.9272 crores is an income of the assessee for the impugned assessment year chargeable to tax and we decide Ground No. 2 and 3 against the assessee and in favour of Revenue.
Issues Involved:
1. Taxability of waiver of Government Non-Plan Loans. 2. Applicability of specific sections of the Income Tax Act, 1961. 3. Treatment of waived loans as capital or revenue receipts. 4. Charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961. 5. General challenge to the legality and factual correctness of the CIT(A) order. Issue-wise Detailed Analysis: 1. Taxability of Waiver of Government Non-Plan Loans: The primary issue was whether the waiver of Government Non-Plan Loans amounting to ?72.9272 crores should be treated as taxable income. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the waiver should be considered taxable income as it was credited to the Profit and Loss Account and was not used to acquire capital assets but to meet revenue expenses. The AO relied on the Supreme Court judgment in *CIT v. T.V. Sundaram Iyengar and Sons Ltd.* and other High Court judgments to conclude that the waiver of loans taken for trading purposes constitutes taxable income. 2. Applicability of Specific Sections of the Income Tax Act, 1961: The assessee argued that the AO did not specify the relevant sections under which the waiver was taxed, making the addition invalid. However, the Tribunal observed that the AO had clearly treated the waiver as income under the normal provisions of the Act, following the principles laid down in judicial precedents. The Tribunal dismissed the contention that the absence of specific section references invalidated the addition. 3. Treatment of Waived Loans as Capital or Revenue Receipts: The Tribunal upheld the AO's and CIT(A)'s view that the waived Non-Plan Government Loans were revenue receipts. These loans were used for meeting regular business expenses like salaries, PF, gratuity, and VRS, and not for acquiring capital assets. The Tribunal distinguished the case from *Mahindra and Mahindra Ltd.*, where the loan waiver was not treated as income because the loan was used for acquiring capital assets, and no deduction was claimed on interest. The Tribunal concluded that the waiver of loans used for revenue purposes should be taxed as income under Sections 28(iv) and 41(1) of the Income Tax Act, 1961. 4. Charging of Interest under Sections 234A, 234B, and 234C: The Tribunal found this ground to be consequential, meaning that the interest charges under Sections 234A, 234B, and 234C would follow automatically based on the taxability of the waived loans. Since the Tribunal upheld the taxability of the waived loans, the interest charges were also upheld. 5. General Challenge to the Legality and Factual Correctness of the CIT(A) Order: The Tribunal dismissed this ground as general in nature without specific arguments or evidence to support the claim that the CIT(A) order was bad in law or on facts. Conclusion: The Tribunal dismissed the appeal filed by the assessee, upholding the taxability of the waiver of Government Non-Plan Loans as income under the provisions of the Income Tax Act, 1961. The Tribunal relied on judicial precedents and the nature of the loans to conclude that the waiver constituted taxable income. The grounds related to the applicability of specific sections and the charging of interest were also dismissed. The decision was pronounced in the open court on 07/10/2021 through virtual court via video conferencing.
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