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TMI Blog2023 (8) TMI 1067X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act is not sustainable, he has erred in bringing to tax the said sum by invoking the provisions of section 28(iv) of the Act that too without issuing any notice to the appellant to invoke the provisions of section 28(iv) of the Act. 3. That the learned CIT(A) has erred both in law and on fact in failing to appreciate that advance received from M/s Deserts Sands General Trading of Rs. 31,34,418/- and Rs. 6,87,500/- from M/s Gajpati Oversea which was shown as liability in the books of account is not in nature of benefit or perquisite within meaning of section 28(iv) of the Act and hence provisions of section 28(iv) of the Act would not get triggered." 2. Briefly stated facts of the case are that in this case, the assessee filed its return of income on 24.11.2016, declaring loss of INR 38,41,211/-. Subsequently, the case was selected for limited scrutiny through Computer Aided Scrutiny Selection ("CASS"). In response to the statutory notices, Ld. Ld. Authorized Representative ("AR") of the assessee attended the proceedings. During the course of assessment proceedings, the assessee was asked to furnish the address and confirmation of creditors from credit amounting to INR 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Ltd. reported in [2022] 446 ITR 238 (Bombay) 5. As regards second question of law is concerned, it was argued by the Appellant-Revenue that since the Respondent-Assessee had around 25 creditors whose payments were outstanding for more than three years and some transactions which are eight to nine years old, the same were barred by the provisions of the Limitation Act, 1963 and, therefore, they will have to be treated as Assessee's income and to be added under section 41(1) of the Income-tax Act. This issue has been dealt with by both the Commissioner (Appeals) and the Tribunal relying upon the decision of the Gujarat High Court in the case of CIT v. G.K. Patel & Co. [2013] 29 taxmann.com 248/212 Taxman 384 and the decision of the Delhi High Court in the case of CIT v. Jain Exports (P.) Lid. [2013] 35 taxmann.com 540/217 Taxman 54 (Mag.). 6. The Delhi High Court in the case of Jain Exports (P.) Ltd. (supra) has relied upon the decisions of the Supreme Court in the case of Bombay Dyeing and Manufacturing Co. Ltd. v. State of Bombay AIR 1958 SC 328 and CIT v. Sugauli Sugar Works (P) Ltd. [1999] 102 Taxman 713/236 ITR 518. In Sugauli Sugar Works (P.) Ltd. (supra), the Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Mahindra & Mahindra Ltd. (supra), for invoking the provisions of section 28(iv) of the Act, benefit received has to be in some form other than in shape of money. Observing, that as the waiver of loan for acquiring a capital asset in the case before them represented cash/money, the Hon'ble Apex Court in its aforesaid order had concluded that the provisions of section 28(iv) of the Act would not be applicable. For the sake of clarity the relevant observations of the Hon'ble Supreme Court are culled out as under: '(12) The first issue is the applicability of section 28(iv) of the IT Act in the present case. Before moving further, we deem it apposite to reproduce the relevant provision herein below:- "28. Profits and gains of business or profession. The following income shall be chargeable to income-tax under the head "Profits and gains of business profession". (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; (13) On a plain reading of section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be sustained and is liable to be struck down on the said count itself." b. Further in the case of Assistant Commissioner of Income-tax. v. Sunil B Dalal [2022] 145 taxmann.com 313 (Mumbai - Trib.), it has been held as under: 6. The first ground of appeal is with respect to the deletion of addition of Rs. 42,45,000/- by the learned CIT(A). Brief facts of the addition shows that assessee has received a loan of Rs. 1,40,00,000/- from M/s Singhi Associates on 11th November, 2011. This loan was repaid up to calendar year 2015 to the extent of Rs. 97,55,000/-. The balance amount of Rs. 42,55,000/- was outstanding. This amount was written back by the assessee as per mutual agreement during F.Y. 2017-18. The above loan amount was undisputedly did not carry any interest. The learned Assessing Officer asked the assessee to show cause why the above amount should not be taxed as revenue receipt during the year. The assessee submitted the copy of account of the lender, details of the receipt of the loan, partial repayment of the same, confirmation of loan by the lender. It was stated that the write off the amount of Rs. 42,50,000 cannot be charged under section 41(1) of the Act. Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in Mahindra and Mahindra (supra) held that the Provisions of Section 28(iv) of the Act apply only in case where the benefit of perquisite is received in kind and not in cash. He also noted that the undisputed fact is the waiver of unsecured loan, which is not received in kind, and section 28(iv) of the Act does not get attracted. Thus, the addition of Rs. 42,45,000/- was deleted. 8. The learned Departmental Representative agitating the ground no. 1 submitted that the decision of the Hon'ble Bombay High Court in case of Solid Containers Ltd. (supra) squarely covered the issue as loan taken for business purposes is written back. Thus, the learned CIT(A) has wrongly deleted the above addition. 9. The learned Authorized Representative submitted that the issue is squarely covered by the decision of Hon'ble Supreme Court. He submitted that the Provision of section 28(iv) of the Act are applicable only when income is arising from business or profession and the benefit is received in some other form other than in the shape of money. He submitted that the benefit is firstly not arising from business as the same received from M/s Singhi and Associates is not used for busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Honourable Supreme court in Mahindra & Mahindra Ltd. (supra) 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 interest amounts. Hence, waiver of loan by the creditor results in the debtor having extra cash in his hand. It is receipt in the hands of the debtor/assessee. The short but cogent issue in the instant case arises whether waiver of loan by the creditor is taxable as a perquisite under section 28 (iv) of the IT Act or taxable as a remission of liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the said case the loan was taken for the purchase of capital assets and not for trading activities as in the case of Solid Containers Ltd. (supra). In view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.CIT(A) out of various creditors, sustained the addition of INR 7,02,059/- in respect of Green Press Pvt.Ltd., treating the same as cessation of liability. However, in respect of Gajpati Overseas, amounting to INR 6,87,500/- and Desert Sands General Trading amounting to INR 31,34,418/- confirmed the addition u/s 28(iv) of the Act, For the sake of clarity, relevant contents of the order passed by Ld.CIT(A) are reproduced as under:- 4.1.10 "In the following cases the purchases were made but the payment was subsequently made before the year under consideration: S.No. Particulars Opening Balance Nature of Transaction Receipt Sales Balance as on 31.03.15 Remark 1. Green Press Pvt.Ltd. -4,00,000 Purchases 11,02,059 - 7,02,059 Advance was given to sister concern and adjusted in 16-17 2. Jay Kay Enterprises 1,26,000 Purchases - - 1,26,000 Payments made in 16-17 3. R.K. Enterprises 92,316 Purchases - - 92,316 Payments made in 16-17 4. Overnite Express Ltd. - Courier 4,487 3,578 906 Payments made in 16-17 5. Kashyap & Company - Purchases 53,145 - 53,145 Payments made in 16-17 6. Ved engineers & Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n off on 01.04.2022. This is the ongoing current year and the return of this period has not been filed yet. There is no doubt that these liabilities have ceased to exist long back but it is noteworthy to mention that they were never debited to the profit & loss account of the appellant. Since these liabilities have not been debited to the profit & loss account, application of section 41(1) of Income Tax Act cannot be considered appropriate. 4.1.12 At this stage, Section 28(iv) of Income Tax Act is reproduced as under: "Profits and gains of business or profession. 28. The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession".- (iv) the value of any benefit or perquisite, whether convertible into money or not arising from business or the exercise of a profession;" 4.1.13 This is a case where the appellant has received advances during the course of business and neither returned them nor provided goods or services in lieu of such advances. These advances where ultimately retained by the appellant for its benefit and one of the advance from Desert Sands General Trading have even been written off during the current year. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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