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TMI Blog2018 (5) TMI 1590X X X X Extracts X X X X X X X X Extracts X X X X ..... of Bulk drugs and pharmaceutical formulations, filed its return of income for the AY 2007-08 on 28/10/2007 declaring loss of ₹ 1,54,71,478/-. The AO completed the assessment u/s 143(3) rws 147 of the Income-tax Act, 1961 (in short the Act ) by treating the waiver of the loan amount of ₹ 4,78,30,167/- as business income and added the same to the loss returned. 2.1 The assessee s case was reopened u/s 147 to verify the taxability of cessation of liability consequent to one time settlement with the bank and also the claim of loss. In response to the notice u/s 148, the assessee filed return on 25/10/2011. In responses to the notices u/s 143(2) and 142(1) of the Act, assessee s AR furnished the information called for. 2.2 From the information provided, the AO noticed that the loan of ₹ 1,21,15,341/- and ₹ 7,67,14,826/- was outstanding towards packing credit and working capital respectively. The assessee during the FY relevant to AY under consideration, negotiated one time settlement with Catholic Syrian Bank as per which assessee agreed to pay ₹ 4,10,00,000 in full settlement of loans. This amount constitutes ₹ 1,41,84,263 towards principal an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n thereon is not a benefit or perquisite taxable u/s 28(iv) of the Act. 6. The ld. DR submitted that the CIT(A) is not justified in holding that the loan amount is only capital account and hence cannot be brought to tax as trading receipt. He relied on the decision of the Hon ble Madras High Court in the case of CIT Vs. Ramaniyam Homes (P) Ltd., 68 Taxmann.com 289 (Madras). 7. The ld. AR, on the other hand, submitted that for applicability of section 41, there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then only the assessee will be liable to pay tax under Section 41 of the IT Act. Further, he submitted that the objective behind this Section is to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. He also submitted that it is an undisputed fact and imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be in the nature of income. The Division Bench noted that the loan was advanced to the assessee Mahindra and Mahindra, the assessee paid interest at 6% per annum for ten years being the period of contract, and it never got deductions for payment of interest under Section 36(1)(iii) or under Section 37 of the Act. The Division Bench held that there was a waiver of the principal amount and not the interest. In that case also the Assessing Officer held that when there was a waiver of the loan, the credits became part of business income and that prior to such waiver, they represented liability. Here also these are the findings and overlooking the aspect of payment of interest which has not been waived and in regard to which no relief was claimed. The loan agreement, in its entirety, was not obliterated in the present case as well. Therefore, we are of the opinion that in the present case Section 28(iv) was not attracted. 8.2 In the case of CIT Vs Santogen Silk Mills Ltd [2015]57 taxmann.com 208 (Bombay), the Hon ble Bombay High Court has held as under: 11. It is this order of the First Appellate Authority which was challenged by the revenue in appeal before the tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest component due from the assessee. Equally, the loan sanctioned by ADCB and subsequently waived off has also been offered to tax. It is only in the ICICI bank's case that the tribunal took the above view and which we do not find as perverse or vitiated by a error of law apparent on the face of record. As a result of the above discussion, the appeal fails and is dismissed. There will be no order as to costs. 8.3 In the case of CIT Vs. Santogen Silk Mills ltd., [2015] 57 Taxmann.com 208 (Bombay), the Hon ble High Court of Bombay has held as under: 11. It is this order of the First Appellate Authority which was challenged by the revenue in appeal before the tribunal. The argument of both sides have been referred in details in paragraph 6 of the tribunal's order and it has held that on perusal of the loan agreement insofar as loan from ICICI Bank is concerned (subject matter and part of this appeal) that was for purchasing machinery and availed by the assessee. As far as loan from ADCB is concerned, it was conceded that the same was against hypothecation of stock and not a term loan. Weare not concerned with that part of the order of the tribunal, however, it is m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bombay High Court has held as under: 8. We have considered the submissions. The issue arising in this case stand covered by the decision of this Court in the matter of Mahindra Mahindra Ltd. (supra ). The decision of this court in the matter of Solid Containers Ltd. (supra) is on completely different facts and inapplicable to this case. In the matter of Solid Containers Ltd. (supra ) the assessee therein had taken a loan for business purpose. In view of the consent terms arrived at, the amount of loan taken was waived by the lender. The case of the assessee therein was that the loan was a capital receipt and has not been claimed as deduction from the taxable income in the earlier years and would not come within the purview of Section 41 (1) of the Act. However, this Court by placing reliance upon the decision of the Apex Court in the matter of CIT v. T. V Sundaram Iyengar Sons Ltd. [1996] 222 ITR 344 / 88 Taxman 429 held that the loan was received by the assessee for carrying on its business and therefore, not a loan taken for the purchase of capital assets. Consequently, the decision of this Court in the matter of Mahindra Mahindra Ltd. (supra) was distinguished as i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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