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TMI Blog2020 (2) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... this Ground no. 2 of the appeal is allowed for statistical purposes. - ITA No.3402/Del/2016 (Assessment Year: 2011-12) - - - Dated:- 13-1-2020 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER Appellant by Shri Gautam Jain, Adv. And Shri Lalit Mohan, CA Respondent by Ms. Pramita M. Biswa, Sr. DR ORDER PER O.P. KANT, AM: This appeal by the assessee is directed against order dated 31/03/2016 passed by the ld. Commissioner of Income-tax (Appeals)-1, Gurgaon [in short the ld. CIT(A) ] for assessment year 2011-12 raising following grounds: 1 That the learned Commissioner of Income Tax (Appeals) 1, Gurgaon has grossly erred both in law and on facts in upholding an addition of ₹ 9,46,73,015/- representing discount on buy back on Foreign Currency Convertible Bonds ( FCCB ) 1.1 That the learned Assessing Officer has failed to appreciate that the loan raised by way of FCCB was for capital purposes and therefore any discount on buy back is capital receipt and thus not taxable. 1.2 That the conclusion of the learned Commissioner of Income Tax (Appeals) that FCCB was neither debt and nor shares in the instant ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 4,80,480/- made by invoking section 194C read with section 40(a)(ia) of the Act. It is therefore prayed that addition/disallowances made and sustained by the learned Commissioner of Income Tax (Appeals) may kindly be deleted and appeal of the appellant company be allowed. 2. Briefly stated facts of the case are that the assessee was engaged in manufacturing and trading of plastic moulded toys, school furniture, playground equipment, infrastructure and automotive products etc. The assessee filed return of income on 26/09/2011, declaring loss of ₹ 9,10,87,560/-. The case was selected for scrutiny assessment. The scrutiny assessment under section 143(3) of the Income-tax Act, 1961 (in short the Act ) was completed on 07/03/2014, wherein certain addition/disallowance were made. Aggrieved, the assessee filed appeal before the ld. CIT(A), who partly allowed the appeal of the assessee. Aggrieved with the addition sustained by the Ld. CIT(A), the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 3. The first ground raised by the assessee is against upholding the addition of ₹ 9,46,70,015/- for a discount on buy-back of Foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not amount to any income exisable to tax, but on the other hand, if the loan was taken for trading purposes and was treated as such from very beginning in the books of accounts, the waiver may result in the income. 3.2 The ld. CIT(A) also relied on the decision of the Hon ble Bombay High Court in the case of Solid Containers Ltd. versus Dy. CIT (2009) 308 ITR 417 (Bom.) and decision of the Hon ble Madras High Court in the case of CIT Vs. Aries Advertising Private Limited (2002) 255 ITR 510. 3.3 In view of the decisions relied upon, the ld. CIT(A) held that amount of gain on discount of FCCB has to be subjected to tax in the year in which such instrument has been discounted and consequent gain resulted would be income. 3.4 Before us, the Ld. counsel of the assessee filed paper-book in two Volumes, containing pages 1 to 132 and 133 to 310. The Ld. counsel refered to page 235 -241 to demonstrate how the FCCB has been utilized for acquisition of capital assets. He submitted that in view of the FCCB utilized for capital expenditure, the amount received on discount of such FCCB was not taxable even according to the decisions relied upon by the ld. CIT(A). 3.5 The Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We, therefore, restore this issue back to the file of the Assessing Officer for his fresh adjudication with a direction to the assessee to furnish all the details and particulars of loan, and the purpose for which the loan taken from Bank was utilized. All these information are within the control and specific knowledge of the assessee and, therefore, it would be the duty of the assessee to prove and establish that the amount of loan taken from the Bank was utilized for the purpose of acquiring capital assets in case the assessee wants to have the benefit of decision of Hon ble Delhi High Court in the case of Tosha International Ltd. (supra) as well as the decision of Hon'ble Bombay High Court in the case of Mahindra Mahindra Ltd. (supra). If on an enquiry and verification, it transpires that the assessee has utilized the loan for the purpose of its business activity or trading activity, the amount of loan to the extent it has been waived by the bank shall be deemed to be the assessee s income chargeable to tax as per the decision of Hon ble Bombay High Court in the case of Solid Containers Ltd. (supra), where the principle laid down by the Hon ble Supreme Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount on FCCB falls in the nature of capital receipt not exigible to tax. The Ld. CIT(A) has given his finding on wrong assumption of the fact that FCCB funds were utilized for trading or revenue expenditure, without verifying the books of account of the assessee. 3.10 The Hon ble Apex Court in the case of CIT Vs. Mahindra and Mahindra Ltd. (supra) on the issue of benefit taxable under section 28(iv) has held as under: 10. The term loan generally refers to borrowing something, especially a sum of cash that is to be paid back along with the interest decided mutually by the parties. In other terms, the debtor is under a liability to pay back the principal amount along with the agreed rate of interest within a stipulated time. 11. It is a well-settled principle that creditor or his successor may exercise their Right of Waiver unilaterally to absolve the debtor from his liability to repay. After such exercise, the debtor is deemed to be absolved from the liability of repayment of loan subject to the conditions of waiver. The waiver may be a partly waiver i.e., waiver of part of the principal or interest repayable, or a complete waiver of both the loan as well as intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct for non-deduction of tax at source on certain payments made. 4.1 Out of the disallowances made by the Assessing Officer on this account, the ld. CIT(A) upheld disallowance of ₹ 98,41,570/- for payment to Indian overseas Bank (IOB) Hong Kong and payment ₹ 2,28,370/- to HSIIDC Ltd. According to the Assessing Officer, the payment made to IOB Hong Kong in India or through any branch of IOB in India, was liable for tax at source in India under section 195 of the Act. Regarding payment to HSIIDC, the Assessing Officer held that payment was for services and HSIIDC is not a financial company/corporation established by the state and was not exempt from TDS under section 194A of the Act. The ld. CIT(A) upheld the disallowances observing as under: 7.2 I have considered each and every disallowance above in the light of contention in respect of each expense as under:- a) Payment to Indian Overseas Bank Hong Kong:- The assessing Officer contended that TDS was to be deducted u/s 195 on interest of ₹ 58,79,570/- and processing fees payment of ₹ 39,62,000/- The appellant contends that the Learned Assessing Officer has erred in disallowing a sum of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance be reversed. I have given careful consideration and find that appellant has not explained the nature of transaction with HSIIDC because if the same is processing charges paid, then TDS provision would apply and disallowance of expense for non-deduction of TDS was justified. 4.2 Before us, the Ld. counsel of the assessee submitted that lower authorities has adjudicated the issue without proper appreciation of the facts. He submitted that interest payment has been made to the bank, on which the assessee is not required to deduct payments. He submitted that the matter may be restored to the file of the Assessing Officer and before him the assessee can submit all the necessary documentary evidence to support that the assessee was not liable for deduction of tax at source on those payments. 4.3 On the other hand, Ld DR though relied on the order of the lower authorities, did not object for restoring matter to the Assessing Officer for verification of nature of payment and entities in accordance with the provisions of the Act. 4.4 We have heard the rival submission and perused the relevant metal on record. The issue involved is regarding liability of deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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