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TMI Blog2014 (1) TMI 1840X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was again revised by filing the revised return on 12-11-2009, declaring total income at Rs. NIL after setting off the income for the current year of Rs. 4,84,67,199/- against losses of the preceding years. The assessee's case was selected for scrutiny and assessment has been completed u/s. 143(3) of the Income-tax Act. 4. So far as the issue in respect of write off of principal portion of cash credit loan waived by Banks, the facts which are revealed from the assessment order as under. The assesse is entered into one time settlement with the consortium and accordingly the assessee has written back Rs. 13,00,10,550/-. The assessee stated before the Assessing Officer that based on the settlement, the applied interest and the principal amount were written back by the assessee in the books of account as under: (a). The Principal waiver written back of Rs. 13,00,10,550/- (b). Interest waiver written back of Rs. 5,81,69,874/- 5. The assessee further stated before the Assessing Officer that no allowance or deduction was made in the assessment for any year in respect of principal loan amount and thus the same is not liable to be included as income. More so the said principal amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision of Nath Seeds Ltd. Now vests in the applicant company. The applicant company from the effective date is bound and liable for payment of all debts, liabilities, contingent liabilities, duties and obligations of every kind and description, pertaining to the seeds division of Nath Seeds Ltd. As per the provisions of the said scheme. vi. By virtue of the said scheme, the secured creditors of the seeds division have become the secured creditors of the applicant company. vii. The applicant company has facilities for research, breeding, production, processing and marketing of hybrid seeds of different crops at Aurangabad, Maharashtra and various other locations. viii. The applicant company by virtue of this scheme is entering into an arrangement with the secured creditors including debenture holders. The Board of Directors of the applicant company has approved the scheme at their meeting held on 30th January, 2009 and recommended the same for the approval of the equity shareholders and secured creditors including debenture holders. ix. Background to the Scheme of arrangement/rational/objects for the scheme. a) During 1999-2002 the company suffered financial setback. Company pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 308 ITR 417 (Bom). As the assessee has not bifurcated the element of the term loan and the cash credit loan waived by the Bank in one time settlement, he proceeded to apply the ratio of term loan vis-a-vis cash credit loan and held that to the extent of Rs. 1,27,53,855/- which attributes to the waiver of the cash credit loan in indisputably to be taxed u/s. 41(1) of the Act and he accordingly made the addition. The assessee challenged the said addition before the Ld. CIT(A) but did not find favour. The Ld. CIT(A) put his stamp of approval on the addition made by the Assessing Officer even though he gave the relief to the assessee in respect of the amount waived towards the term loan. The operative part of the finding of the Ld. CIT(A) is as under: 8.5.4. In view of the above legal propositions, I proceed to decide Ground Nos. 4 & 5. In respect of waiver of cash credit loan in the case of the appellant it has been observed that the A.O. has held that the said loan has been utilized for trading purpose and the appellant has not rebutted this fact claimed by the A.O. The appellant has simply claimed that the cash credit facility granted by the bank is not trading activity and the out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if this loan was for trading purpose and was treated as such from the very beginning in the books of account, as per T.V. Sundaram Iyengar and Sons Ltd. [1996] 222 ITR 344 (SC), the waiver thereof may result in the income more so when it was transferred to the profit and loss account". In our opinion, the Ld. CIT(A) has rightly confirmed the addition made by the Assessing Officer to the extent of waiver to the cash credit loan. We do not find any merit in the appeal filed by the assessee. Accordingly, the ground taken by the assessee is dismissed. 8. In the result, the assessee's appeal is dismissed. 9. Now we take up the Revenue's appeal being ITA No. 417/PN/2012. The Revenue has taken following grounds in the appeal: 1. Whether in the facts and circumstances of the case, the Ld. CIT(A) was right in deleting the addition on account of section 35(2AB) even though, the assessee has not approved by prescribed authority in the Form No. 3CM. 2. Whether in the facts and circumstances of the case, the Ld. CIT(A) was right in deleting the addition on account of waiver of interest on loan even though the assessee has claimed the same as expenditure in earlier years. 3. Whether on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule, incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then their shall be allowed a deduction of a sum equal to one and one half times of the expenditure so incurred. ................... (4) The prescribed authority shall submit its report in relation to the approval of the said facility to the Director General in such form and within such time as may be prescribed." The Prescribed Authority referred to in the above section is Secretary, Department of Scientific & Industrial Research, Government of India. 5.2.2. The letter of recognition/approval issued by the Prescribed Authority to the appellant vide letter dated 01/09/2006 is reproduced below - "This has reference to your application for recognition of your In-House R&D unit(s) by the Department of Scientific and Industrial Research. This is to inform you that it has been decided to accord recognition to the In-House R&D unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him to the extent of Rs. 3,84,67,141/- as this amount is include in the deduction claimed by the appellant at Rs. 5,82,83,547/-. Ground No. 1 stands allowed". 11. In sum and substance the Ld. CIT(A) held that how to issue the certificate is not in the hands of the assessee but it is the Prescribed Authority who has to issue the certificate in prescribed form. Now, the Revenue is in appeal before us. 12. We have heard the parties and also perused the reasons given by the Ld. CIT(A). The only reservation of the Assessing Officer was in respect of the "form" in which the Prescribed Authority has given the recognition which in this case is Secretary, Department of Scientific & Industrial Research, Government of India. The assessee filed the copy of the approval received from the competent authority. It is true that it is not in clear terms in Form No. 3CM which has been prescribed under the Income-tax Rule, 1962. We concur with the finding of the Ld. CIT(A) that if the approval is not in prescribed Form No. 3CM is not a serious discrepancy which should result in disallowance of the deduction to the assessee u/s. 35(2AB) of the Act. In this case, it is not disputed that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not claimed the deduction in respect of above amount, the same cannot be disallowed u/s. 43B nor the addition u/s. 41(1) can be made as the said amount of the interest has never been claimed as an expenditure. At the same time we find that there is a contradiction in the fact noted by the Assessing Officer as well as the Ld. CIT(A). We, therefore, for the limited purpose of the verification, remit this issue to the file of the Assessing Officer whether the assessee has claimed deduction in respect of the element of the amount of the interest waived in one time settlement. The Assessing Officer is directed to verify the record for the A.Ys. 2004-05, 2005-06 and 2006-07 and if the assessee has not claimed any deduction then no addition should be made and if the assessee has claimed the deduction in the profit and loss account then to that extent only the addition should be made. The Assessing Officer should give opportunity to the assessee to represent his case before arriving at a final conclusion. Accordingly, Ground No. 2 is allowed for the statistical purposes. 14. Ground No. 3 is in respect of the addition made by the Assessing Officer towards waiver of the principal amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt on the above facts held that the said amount credited to profit & loss account was received by the assessee in the course of carrying on his business and hence is a trading receipt. The Court held that the said waiver is liable to tax as the claim of the depositor having become barred by time, though the deposits were treated as capital receipt initially. (2) Solid Containers Ltd. Vs. DCIT 308 ITR 417 (Bom.): In this case, the assessee has taken loan from M/s Jain Motors of Rs. 6,86,071/- for business purposes and interest on the said loan was payable to the extent of Rs. 2,83,819/-. The loan was undisputedly taken for trading activity. The party filed a suit for recovery and assessee company filed counter claims and the matter was settled out of the Court whereby the assessee company was not to pay any amount. The assessee company has credited the amount of Rs. 6,86,071/- to the reserve account considering the same to be the capital receipt. The assessee company has claimed the waiver of loan is not liable to tax under the provisions of section 28 or 41(1). In support of this contention, the assess has relied on the decision in the case of Mahindra & Mahindra Ltd. Vs. CIT [20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claimed depreciation @100% in respect of bottles and crates purchased by the assessee. In the subsequent year the assessee company has sold scrap of the said bottles and crates and claimed the sale proceeds as capital receipts. On these facts the Hon'ble Bombay High Court has held that the receipt on account of scrap sale of bottles and crates on which 100% depreciation was availed is trading receipt which constituted profit chargeable to tax u/s 41(1) of the Act. 8.5.2. The brief facts of the cases and ratio laid down by the major decisions relied on by the appellant are noted as under - (1) Mahindra & Mahindra Ltd, vs. CIT (2003) 182 CTR (Bom) 34 : (2003) 261 ITR 501 (Bom) - In this case the assessee company has obtained loan which has been utilized to acquire capital asset i.e. machinery/dies used in manufacturing activity. The principal amount loan of Rs. 57,74,064/- has been waived. The appellant has claimed depreciation of Rs. 27,29,585/- on the said machinery/dies. It has been argued by the Department that on waiver of the loan the assessee has realized benefit of waiver of its liability which is taxable u/s 28(iv)/41(l) of the Act. Alternatively, it was argued that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction having been allowed in respect of loan taken by assessee for purchase of capital assets, s. 41(1) was not attracted to remission of principal amount of loan. In the instant case, the assessee has not got any deduction on account of acquisition of capital assets as the. same has been reflected' in the balance sheet and not in the P&L a/c, and also the remission of the principal amount of loan so obtained from the bank and financial institution had not been claimed as expenditure or trading liability in any of the earlier previous year. So far as waiver of interest is concerned, the assessee company itself has treated the same either as income or has not claimed the same as expenditure in the computation of income filed before the lower authorities." We see no reason to interfere with the Tribunal as the same have been rendered on a correct appreciation of law. The principles enunciated in Mahindra & Mahindra Ltd. vs. CIT (2003) 182 CTR (Born) 34 : (2003) 261 ITR 501, are fully applicable and we see no reason to take a different view". (3) Iskraemeco Regent Ltd. Vs. CIT (2011*) 331 ITR 317 (Mad) In this case, the State Bank of India has waived principal amount of outstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deposited amount had its character changed, when it becomes the money of the assessee due to the operations of law of limitation, such an amount would become an income exigible to tax at the hands of the assessee. In view of the above facts the Hon'ble Apex Court in the said judgement has clearly held that when in the course of trading transaction, the assessee becomes entitled to the money such an amount would become a taxable income at the hands of the assessee. The Hon'ble Madras High Court observed that in the case before it the assessee was not trading in money transactions and a grant of loan by a bank cannot be termed as trading transaction and it cannot also be construed in the course of business. Indisputably, the assessee obtained loan for the purpose of investing in its capital assets and the said loan has been waived by the bank. The Hon'ble Madras High Court has held that therefore, the facts involved in the present case are totally different in the facts involved in CIT Vs. T.V. Sundaram lyengar & Sons Ltd. (1996) 222 ITR 344 (SC). In the said case, admittedly there was trading transaction whereas in the present case it is not so. There is no change i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to tax. (5) The issue decided in the case of Polyflex India Ltd. is totally different. In the said case Excise Duty paid on the goods traded has been claimed as expenditure and in subsequent year it has been refunded by Excise Department as the first Appellate Authority and CEGATE & Hon'ble High Court has decided the appeals in favour of the assessee. Against the said decisions, Excise Department has preferred appeal and hence the appellant claimed that the issue was pending determination by Hon'ble Supreme Court. It was undisputed fact in the said case that the receipt of Excise Refund is trading receipt; the issue raised by the appellant is that in view of appeal of the Excise Department pending in Supreme Court, the refund of Excise Duty has not reached finality and hence section 41(1) is not applicable. (6) The facts of the case decided by Nectar Beverages Pvt. Ltd. Vs. DCIT (Supra) are totally different. In the said case, the assessee is engaged in the business of soft drinks and the assessee has received sale proceeds of scrap of bottles and crates on which the appellant has claimed 100% depreciation. The said receipt on account of scrap is held to be trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed from the various decisions relied on by the A.O. and the appellant that even if the appellant has claimed depreciation on the capital asset acquired out of term loan then also the provisions of section 41(1) or section 28 of the Act do not become applicable and the waiver of the term loan cannot be taxed under the said sections. In view of the above facts and discussion and respectfully following the ratio laid down by the above referred decisions, I am of the considered view that the A.O. is not justified in making addition of Rs. 11,72,56,695/- on account of waiver of term loan which has been utilized for acquiring capital assets. The addition of Rs. 11,72,56,695/- is, therefore, deleted. Ground No.5 stands allowed". 15. We have heard the parties. We find that the Ld. CIT(A) has discussed the relevant precedents on this issue. Admittedly, there is no dispute about the fact that the said amount pertains to the term loan. In this respect we may like to referred to the decision of the Hon'ble High Court of Bombay in the case of CIT-3, Mumbai Vs. M/s. Xylon Holdings Pvt. Ltd., Income Tax Appeal No. 3704 of 2010 judgment dated 13-09- 2012. The Hon'ble High Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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