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TMI Blog2019 (6) TMI 1481X X X X Extracts X X X X X X X X Extracts X X X X ..... any benefit in respect of waiver of such liability that the provisions of Section 41(1) can be invoked. Unless, therefore, it is shown that the assessee has been allowed any deduction in past, section 41(1) cannot be invoked. Similarly, as regards the taxability under section 28(iv) it can only come into play only in case of benefits other than the receipt of cash or money. On both the counts, the case of the Revenue fails Respectfully following the esteemed views of Hon ble Supreme Court in the case of Mahindra and Mahindra Ltd [ 2018 (5) TMI 358 - SUPREME COURT] we approve the line of reasoning adopted by the CIT(A). The Assessing Officer was clearly in error in invoking the provisions of Section 41(1) on the facts of this case, and the CIT(A) was perfectly justified in reversing the stand of the Assessing Officer. X X X X Extracts X X X X X X X X Extracts X X X X ..... cured interest free loans taken from M/s. Matrix Logistics Pvt. Ltd. invoking the provisions of Section 41(1) of the Act for the reason that the same has been written off in the profit and loss account but not offered the same for taxation in the computation of income. 2.4. It has been noticed that the appellant company has the main objects for carrying out business of providing technological support services and the business of manufacture and trading of medical equipments but from A.Yrs.2009-10 to 2013-14 onwards the appellant did not have any business activities and therefore no business income had been offered for taxation in the returns of income filed for the respective years. During the year the appellant had shown the income from dividend at ₹ 93,06,240/- and interest income on FDRs with Bank of ₹ 15,15,954/- which were taxable under the head of income from other sources. The AO alleged that the appellant has not started its regular business mentioned in its objects as per the Memorandum of Association but it was engaged in business of purchase and sale of shares of the group company and investment in mutual funds. Therefore the business of the assessee was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4207 2008-09 9,307,140 - __ 2009-10 2,482,564 533,026 1 ,675,000 2010-11 9,006,240 -4434600 2011-12 9,306,240 159,006 - 2012-13 9,306,240 1,515,954 - 2.6. The above nature of income was verifiable from the profit and loss account and balance sheet submitted by the appellant to the department. As can be noticed from the above that the appellant did not have any business income from A.Y. 2009-10 onwards till the year under consideration because of absence of any business activity carried out within the meaning of section 28 of the Act so there is no question of computation of income from business and accordingly the taxation of the unsecured loan written off under the head of income from business is not correct. 2.7. The AO's observation in this regard that the appellant had the share trading business was factually incorrect. It has been submitted that in appellant's own case in the preceding years, the scrutiny assessment u/s.143(3) have been finalized and the business activity of the appellant as providing technological support services and manufacturing and trading of medical equipments have been accepted without any dispute. 2.8. The appellant als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and since no allowance or deduction of the loan has been granted in any of the preceding years, therefore, the provisions of Section 41 (1) of the Act is also not applicable. In view of the aforesaid decision and discussion, the provisions of Section 28(iv) as well the basic condition of Section 41 (1) does not get fulfilled. 2.9. It has also been argued that that the unsecured loans so written off was utilized for the purpose of acquisition of investment by way of shares and the appellant did not carry out any trading activity of shares, therefore, it was not the regular business activity of the appellant and hence the same cannot be held to be the business income u/s.28(iv) of the I.T. Act. It has also been argued that the capital gain arises only when there is a transfer of the capital asset by the assessee. But the unsecured loan from the aforesaid party was a liability and not the capital asset. Further there was no transfer of any capital asset therefore the question of any capital gain does not arise. Just because there was no capital gain it does not automatically follow that the receipt should be treated as the revenue income. Since there was no obligation to pay the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m income as per Section 2(24) (xvi) (I) of the I.T. Act. Since the unsecured loan written off did not fall under the scope of income as per the aforesaid provision, therefore, merely the written off of the unsecured liability in the profit and loss account as taken place in the year under consideration would not automatically be treated as income of the appellant. Since the amount was not chargeable u/s.4 or Section 5 of the Act for which every person is liable to pay the taxes and also in absence of any demonstration that the written off of the loans was the income as per the Section 2(24)(i)to(x), the same cannot be liable to be chargeable as revenue receipts in the hands of the appellant. This contention of the appellant is also found correct and accepted in view of the judgements of Hon'ble Supreme Court cited above. 2.11. The appellant has also given the detailed submission with the rebuttal of the various judgements cited by the AO in the show cause notice during the course of assessment proceedings which has been reproduced in the assessment order itself. Hence, applicability of the decisions on which AO relied does not support the observations of the AO. 2.12. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including the year under consideration the taxability of income under the head of business by the AO is found not correct. In this regard reliance has been placed on the judgement of Hon'ble Bombay High court in the case of Mahindra & Mahindra Ltd. Vs. CIT (supra) whereby it has been held that waiver of loan and interest by the bank is not taxable u/s.28(iv) as the perquisite or the benefit was not in kind but in cash. Further Hon'ble Madras High Court In the case of Iskraemeco Gegent Ltd. Vs. CIT 331 ITR 317 has held that Section 28(iv) speaks the benefit or perquisite received in kind and it does not have any application to any transaction which involves money. The written off of a loan is a transaction which involves of money and no benefit in kind as such. This view is also supported by Hon'ble Gujarat High Court in the case of CIT Vs. Alchemic Pvt. Ltd., 130 ITR 166. 2.14. The appellant has also objected to the AO's observation that there is no object clause in the Memorandum of Association of Company which authorizes the company to carry out the business of trading in shares. Therefore, the appellant has never carried out business of trading in shares. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2012-13 & 2013-14 respectively. However, the AO on the one hand has accepted the written off of the unsecured loans in A, Y. 2012-13 as capital receipts and no such addition u/s. 41(1) / 28(iv) has been made in the assessment completed u/s. 143(3) of the I. T. Act on 09/03/2015. But in the assessment of A. Y. 2013-14, taking a different view without any basis and difference on facts, the addition for the written off of the unsecured loans has been made. It amply proves that the AO has taken dual stand in his approach on the issue and once it has accepted the same as capital receipts in A. Y. 2012-13, then without any reasons the same could not have been held to be revenue receipts in A. Y. 2013-14. 2.18. In view of the aforesaid discussion, it has been noticed that the provisions of Section 41 (1) and 28(iv) of the Act are not applicable over the facts of the case in view of the facts as well as various judgements of Hon'ble Courts. Since the unsecured loans were in the nature of capital and not the trading liability and more so no deduction thereof has been claimed in the profit arid loss account of the appellant in the year under consideration or any of the preceding year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay only in case of benefits other than the receipt of cash or money. On both the counts, the case of the Revenue fails, and both of these issues are now directly covered by Hon'ble Supreme Court's judgment in the case of CIT Vs Mahindra & Mahindra Ltd [(2018) 302 CTR 213 (SC)], wherein Hon'ble Supreme Court has, inter alia, observed as follows: 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 interest amounts. Hence, waiver of loan by the creditor results in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or ** ** **" 15. On a perusal of the said provision, it is evident that it is a sine qua non that 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 the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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