9911796707
TMI Blog2023 (6) TMI 1209X X X X Extracts X X X X X X X X Extracts X X X X ..... is fully justified in upholding the action of the AO in bringing the same amount to tax in the hands of the assessee. The grounds raised by the assessee are accordingly dismissed. - ITA No. 430/Hyd/2020 - - - Dated:- 12-6-2023 - Shri R. K. Panda , Accountant Member And Shri K. Narasimha Chary , Judicial Member For the Assessee : Shri A.G. Sitaraman, CA For the Revenue : Shri Jeevan Lal Lavidiya, DR ORDER Per R. K. Panda, A.M This appeal filed by the assessee is directed against the order dated 23003.2020 of the learned CIT (A)-3, Hyderabad relating to A.Y.2016-17. 2. There is a delay of 5 days in filing of this appeal by the assessee for which the assessee has filed a condonation application along with an affidavit explaining the reasons for such delay. The reasons given therein is due to the prevailing Covid 2019 pandemic. After considering the contents of the condonation application explaining the reasons filed along with the affidavit, the delay in filing of the appeal by the assessee is condoned and the appeal is admitted for adjudication. 3. Facts of the case, in brief, are that the assessee is a company engaged into providing financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... waiver of the loan by the creditor is not taxable as a pre-requisite u/s 28(iv) of the Act or taxable out of the cessation/remission of the liability u/s 41(1) of the Act. The decision of the Hon ble Supreme Court in the case of CIT vs. Mahindra Mahindra (404 ITR 1) was relied upon. 5. However, the CIT (A) was not satisfied with the arguments advances by the assessee and upheld the action of the Assessing Officer by observing as under: 7.7 I have carefully considered the submissions and the contentions of the assessee, and examined the same in the light of the facts and circumstances of the case. Also, I have perused the relevant provisions of the statute and the case laws on this subject. 7.8 At the outset, the moot question involved in this appeal is framed as under: Whether, in the given facts and circumstances of the case, as per the provisions of the statute applicable to the impugned AY 2016-17, the principal portion of the loan waived under the 0TS agreement is assessable to tax as business income of the assessee? 7.9 Before adjudicating the legal issue/ moot question, it is worthwhile to understand the background facts of the case, including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est payable, the assessee credited a sum of Rs.18,25,77,061/- to the Profit Loss a/c under the head Income from other sources' towards gain on OTS of the term loan barrowing, which included the interest component of Rs.3,20, 78,579/-, apart from the loan / principal component of Rs.14,89,99,689/-. 7.14 Now, coming to the nature of the loan barrowed by the assessee, it is clearly evident from the documentary evidence placed on the record that the same has not been barrowed towards the acquisition of the capital assets of the assessee company. On the other hand, as seen from the Master Facility. Agreement dated 09.10.2009, at Para No.3, the assessee, being the barrower, shall apply the loans for the purpose of making micro loans. As such, it is an admitted fact that the assessee has utilized the loans for the purpose of working capital, though the nomenclature of the loan is stated to be a term loan. 7.15 At this juncture, it may be noted that the issue of taxability of the waiver of the loan has been the subject matter of judicial scrutiny for a quite some time. To be precise, the Department took a viewpoint that the waiver of the loan was chargeable to tax either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l taxable u/s. 28(iv) of the Act. At this juncture, I have carefully perused all the other decisions relied upon by the assessee, including the decision of Hon'ble ITAT, Hyderabad, but | am of the considered view that, due to distinguishable facts and circumstances of the case, the same are not applicable to the instant case. 7.19 In this regard, I would like to place the reliance upon the decisions of various High Courts and the Hon'ble Supreme Court involving identical set of facts and legal issues, as given below. 1. (Emphasis supplied) CIT VS. Ramaniyam Homes P. Ltd (2016) 384 ITR 530 (Mad.) 2. Solid Containers Ltd Vs. DCIT (2009) 178 Taxman 192 (Bom.) 3. Logitronics P. Ltd Vs. CIT (2011) 333 ITR 386 (Del) 4. Roll Containers Ltd Vs. CIT (2011) 339 ITR 54 (Del): and 5. CIT Vs. TV Sundaram lyengar Sons Ltd (1996) 88 Taxman 429 (SC) 7.20 As seen from the above, it is clearly evident that the waiver of the loans other than loans barrowed for acquiring the capital assets is subject to the tax u/s. 28(iv) of the Act. 7.21 Be that as it may, even otherwise the waiver of the loan is subject to tax by virtue of newly inserted cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case the learned CIT(Appeals) has erred in law, by confirming the addition of Rs. 14.89,99,689/- representing one time settlement arising out of waiver of dues of term loan by the lender, overlooking the fact that the receipt is of capital in nature. 2. The Ld CIT(A) has erred in invoking provisions of Section 2(24)(xvii), which is neither a part of assessee grounds of appeal nor arising out of AOs order nor following due process legally contemplated. Hence addition confirmed on such basis is legally wrong and has to be deleted. 3. That in any case the provisions of Section 2(24)(xvii) are not at all applicable to the facts and circumstances of the assessee case, hence the addition made invoking Section 2(24)(xviii) is wrong and bad in law and to be deleted. 4. That the provisions of section 28(iv) are not at all applicable to the facts and circumstances of the assessee case, as there is no benefit or perquisite arising to the assessee hence the addition made invoking Section 28(iv) is wrong and bad in law and to be deleted. 5. On the facts and circumstances of the case the Ld. CIT(A) has erred on facts in confirming the order of the AO making an addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue whether the loan was applied for capital or revenue expenditure is not relevant in so far as Sec 28(iv) is concerned. It was accordingly held that section 28(iv) is not applicable because benefit is in cash and not in kind. 8. Referring to the provisions of section 41(1)(a), he submitted that the same is also not applicable to the facts of the present case. So far as various decisions relied on by the Revenue are concerned, he submitted that all these decisions were relating to the period before the pronouncement of the decision in the case Mahindra Mahindra (Supra) by the Hon'ble Supreme Court. He submitted that as per the provisions of section 41(1) of the Act, the profits are chargeable to tax only when the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof. He submitted that the term loan borrowed by the assessee cannot be equated to the assessee claiming any loss, expenditure or trading liability as deduction in any of the earlier years. It is not the case of the Assessing Officer or the CIT (A) that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by both sides. We find the assessee in the instant case had borrowed loan of Rs.25.92 crores from Citibank for which the BOMF stood as guarantor. Since the assessee could not meet the liabilities, the Citibank invoked the guarantee clause and the BOMF made the payments and accordingly stood in the shoes of the lender. Since the assessee company suffered heavy losses, the company entered into a scheme of merger/demerger, arrangement with Asmitha Microfin Limited (AML) by which there was a transfer of assets/liabilities between the two companies and the liability of the assessee was determined at Rs.24.23 crores consisting of principal outstanding at Rs.19.09 crores and interest of Rs.5.14 crores. The assessee and the BOMF arrived at a One-Time Settlement (OTS) on 25th Nov.2015 for an amount of Rs.4.20 crores for principal and Rs.5.14 crores for interest. We find that out of the total principal of Rs.19.09 crores, the assessee paid an amount of Rs.4.20 crores, but the balance principal amount of Rs. 14,89,99,689/- which was waived was not brought to tax by treating the same as capital in nature. 12. We find the CIT (A) upheld the action of the Assessing Officer, the reasons of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e principal component of Rs.14,89,99,689/- was reduced and the interest component of Rs.3,20,78,579/- was retained as forming part of the income . 15. We find the Hon ble Supreme Court in the case of T.V. Sundaram Iyengar Sons Ltd (Supra) while holding that if an amount is received in the course of trading transaction, even though it is not taxable in the year of receipt being of revenue character, the amount changes its character when the amount becomes the assessee s own money because of limitation or by any other statutory or contractual right. When such a thing happens, commonsense demands that the amount should be treated as income of the assessee. The relevant observation of the Hon ble Supreme Court reads as under: The principle laid down by Atkinson, J. applies in full force to the facts if this case. If a common sense view of the matter is taken, the assessee; because of the trading operation, had become richer by the amount which if transferred to its profit and loss account. The moneys had arisen out if ordinary trading transactions. Although the amounts received originally was not of income nature, the amounts remained with the assessee for a long period unc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss account 17. We find the Hon ble Madras High Court in the case of CIT v. Ramaniyam Homes (P) Ltd (384 ITR 530) has held that the waiver of principal amount would constitute income falling u/s 28(iv) of the Act being benefit arising from the business and accordingly would be taxable. The relevant observation of the Hon ble Madras High Court reads as under: 39. Therefore, it is not the actual receipt of money, but the receipt of a benefit or perquisite, which has a monetary value, whether such benefit or perquisite is convertible into money or not, which is what is covered by Section 28(iv). Say for instance, a gift voucher is issued, enabling the holder of the voucher to have dinner in a restaurant, it is a benefit of perquisite, which has a monetary value. If the holder of the voucher is entitled to transfer it to someone else for a monetary consideration, it becomes a perquisite convertible into money. But, irrespective of whether it is convertible into money or not, it should have a monetary value so as to attract Section 28(iv). A monetary transaction, in the true sense of the term, can also have a value. Any number of instances where a monetary transaction confers a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is allowed as deduction under Section 36(1)(iii), in computing the income referred to in Section 28. But, the proviso thereunder states that any amount of interest paid in respect of capital borrowed for acquisition of an asset for extension of existing business or profession, whether capitalised in the books of account or not for any period beginning from the date on which the capital was borrowed for the acquisition of the asset, till the date on which such asset was put to use, shall not be allowed as deduction. 43. Therefore, it is clear that the moment the asset is put to use, then the interest paid in respect of the capital borrowed for acquiring the asset, could be allowed as deduction. When the loan amount borrowed for acquiring an asset gets wiped off by repayment, two entries are made in the books of account, one in the profit and loss account where payments are entered and another in the balance sheet where the amount of unrepaid loan is reflected on the side of the liability. But, when a portion of the loan is reduced, not by repayment, but by the lender writing it off (either under a one time settlement scheme or otherwise), only one entry gets into the books, as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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