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TMI Blog2023 (11) TMI 991X X X X Extracts X X X X X X X X Extracts X X X X ..... Special Bench, Mumbai in the case of M/s. Times Guaranty Limited in ITA Nos. 4917 & 4918/Mum/2008. The CIT(A) taking support from the decision of Hon'ble Supreme Court in the case of Petrofils Co-operative Ltd. reported in (2021) 130 taxmann.com 191 (SC), wherein, the Hon'ble Supreme Court dismissed the SLP filed by the Revenue and upheld the decisions of Hon'ble High Court of Delhi, Gujarat, Madras and Bombay, wherein, it was held the unabsorbed depreciation pertaining to A.Ys. 1997-98 to 2000-01 is to be dealt in accordance with the provisions of section 32(2) of the Act as amended by the Finance Act, 2001 by holding that the carry forward unabsorbed depreciation is to be allowed and set off against the profits and gains of subsequent years without any limit whatsoever. For better understanding, the relevant portion in paras 5.3 to 5.5 of the impugned order is reproduced here-in-below : "5.3 I have considered the facts of the case as well as the submission of the appellant, which has been reproduced above. Briefly, the facts are that during the course of assessment proceedings, the AO observed that the appellant had unabsorbed depreciation of Rs. 19,89,09,661/- as per the retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbed depreciation allowance worked out in A.Y. 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken. While construing taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable construction to the language of the section without leaning to the side of assessee or the revenue. But if the legislature fails to express clearly and the assessee becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assessee cannot be denied. However, Circular No. 14 of 2001 had clarified that under Section 32(2), in computing the profits and gains of business or profession for any previous year, deduction of depreciation under Section 32(2), shall be mandatory. Therefore, the provisions of section 32(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Petrochem Ltd. (2020) 115 taxmann.com 222 (SC) and Petrofils Co0operative Ltd. (2021) 130 taxmann.com 191 (SC), wherein the SLP filed by the Department has been dismissed. In the case of Petrofils Co-operative Ltd., the Hon'ble Supreme Court observed while dismissing the SLP that in view of the judgments on the interpretation of section 32(2) of the Income-tax Act delivered by Delhi High Court, Gujarat High Court, Madras High Court and Bombay High Court, upheld by the Apex Court by special leave petitions being dismissed, the Hon'ble Court did not agree with the learned Additional Solicitor General that the question of law has to be determined in those special leave petitions, and the SLPs were dismissed. In view thereof, it is a settled position of law that the unabsorbed depreciation pertaining to A.Y. 1997-98 to A.Y. 2000-01 is to be dealt in accordance with the provisions of section 32(2) of the Act, as amended by Finance Act, 2001, and therefore, it would be allowed to be carried forward and set off against the profits and gains of subsequent years, without any limit whatsoever. In view thereof, this ground raised by the appellant is found correct and therefore, allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured loan and principal amount of Rs. 1,03,84,640/- as unsecured loan. It was explained by the assessee that the BIFR declared the assessee as seek unit and written back of Rs. 33,81,64,668/- as per the sanctioned scheme which was borrowed funds in earlier years contended the written back amount is consist of principal amount, treating the same as capital in nature, not chargeable to tax. The AO asked the assessee to submit details of the same. The assessee submitted details which were reproduced at page 8 of the assessment order. The AO was of the opinion on an examination of balance sheet that the interest accrued which was credited to term loans, by debiting to profit and loss accounts claimed the same as deduction, the AO held the assessee used the same for working capital and cannot be termed as loan used for capital goods. Thereby, considering the provisions u/s. 28(iv) of the Act where no relief was provided in the sanctioned scheme, the claim of deduction restricted to Rs. 1377.34 lacs and excess of Rs. 20,04,30,668/- was disallowed. The CIT(A) considered various decisions and by relying the decision of Hon'ble High Court of Karnataka in the case of Compaq Electric Ltd. rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btained by the assessee were capital in nature and do not represent any trading liability, the deduction of which has been allowed to assessee. Since addition u/s. 41 (1) can be made only in respect of remission or cessation of trading liabilities, the allowance or deduction of which has been made in the assessment for any year, the provisions of section 41 (1) are not applicable. The Hon'ble High Court of Bombay upheld the same in its decision in ITA no. 896 of 2017 and held that neither provisions of section 41 (1) nor section 28(iv) are applicable on waiver of such liabilities and dismissed the appeal of the Department. Similarly, in the case of Essar Shipping Ltd. 273 Taxman 49, it was held by the Hon'ble High Court of Bombay that no taxable income arose on write back of loan received from the Government of Karnataka and a loan was considered to be not of a revenue nature." 7. In the light of the above, we note that the assessee made vehement contention before the CIT(A) rebutting the finding of AO in restricting the claim. We note that the assessee made many submissions before the CIT(A) which were reproduced and discussed by the CIT(A) in detail in the impugned order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich reads "Whether on the facts and in the circumstances of the case, the appellate Tribunal is right on law in deleting the addition made by the Income Tax Officer representing unclaimed sundry credit balances written back to the Profit & Loss Account by the assessee during the previous year relevant for the assessment year under consideration". The Hon'ble Supreme Court was pleased to observe the money was received by the assessee in the course of carrying on his business, although it was treated as deposit and was of capital nature at the point of time it was received, by influx of time the money had become the assessee's own money. The said deposits had not been claimed by the customers and become barred by limitation. The assessee itself has treated the money as its own money and taken the amount in its profit and loss account. In our opinion, the facts and circumstances of the present case is different from the facts before the Hon'ble Supreme Court as far as, no claim by the customers in the present case for adjustment of deposits and such claims becoming barred by limitation. Here in the present case, the lenders have waived of principal loan amounts, whether such waive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is placed at page 426 of the paper book. The facts of the case therein is discussed in para 3 of the said judgment. On perusal of the same, we note that the assessee therein, Mahindra & Mahindra Ltd. decided to expand its jeep product line and entered into an agreement with Kaiser Jeep Corporation (for short "the KJC"), wherein KJC agreed to sell the dies, welding equipments and die models for $6,50,000 including cost, insurance and freight (CIF). Later on, the said KJC has been taken over by American Motor Corporation, wherein, it was agreed to waive the principal amount of loan advanced by the KJC to the assessee. The assessee claimed cessation of its liability towards the American Motor Corporation. The ITO concluded, that with the waiver of the loan amount, the credit represented income and not a liability and held taxable u/s. 28 of the Act. The CIT(A) upheld the order of ITO. The Tribunal quashed the order of CIT(A). The Revenue filed reference before the Hon'ble High Court of Bombay, which in turn, was pleased to confirm the order of Tribunal. The Revenue preferred an appeal before the Hon'ble Supreme Court. The Hon'ble Supreme Court was pleased to hold the purchase effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , loans were availed from ARCIL, Bank of India, Corporation Bank and Canara Bank, details of which are at page 20 of the impugned order, wherein, the assessee contended it has got waiver of the said loans to an extent of Rs. 3277.80 lacs. The AO allowed waiver of loan amount to an extent of Rs. 1377.34 lacs availed from ARCIL stating it to be utilized for acquisition of capital assets. For remaining, he held used for working capital. The contention of the assessee is that, the loans were obtained for the said financial institutions for acquisition of fixed assets from 1997-98 to 2002-03 and contended the AO erred in stating the remaining amount as working capital. On perusal of the impugned order at page 48, held the same as capital receipt and not a revenue receipt. Therefore, in our opinion, the provisions u/s. 41(1) of the Act is not applicable for the reason that the assessee did not have the benefit of any allowance or deduction in respect of the said amount which is evident from page 48 of the impugned order. 16. Coming to the provisions u/s 28(iv) of the Act, the AO asked the assessee to submit details in respect of breakup of utilization of loans availed from banks/financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt, remaining amount of Rs. 7,71,58,000/- was written back by reflecting in profit and loss account. The assessee submitted its details of provisions of disallowance before the CIT(A) which were reproduced in page 96 of the impugned order. Further, we note that the details of outstanding liabilities were also furnished to the CIT(A) which were reproduced in page 97 and 98 of the impugned order. The CIT(A) examined the same by referring it to tax audit report and found the said outstanding liabilities record in pages 97 and 98 of the impugned order consisting of liabilities incurred over the years which were made towards wages, leave encashment, PF, bonus, gratuity etc. for Thane workers. At the outset, we agree with the ld. AR that the amount of contingent liability provided against ongoing Labour Court case with respect to Thane workers liability was disallowed while computing the total income for the respective assessment years. More specifically from Page Nos. 319 and 320 of the Paper Book-I, the assessee disallowed an amount of Rs. 1,96,19,488/- r.w. Note No. 1 appended thereto for the A.Y. 2005-06. A similar amount of disallowance was also made while computing the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The CIT(A) asked the assessee to give details as to how the same has been accounted in the profit and loss account and disallowed in the earlier years. Since, we are concerned with the interest accrued but not due to an extent of Rs. 654.38 lakhs regarding which the assessee submitted that the lenders ICICI Bank, Bank of India, State Bank of India, Canara Bank and Corporation Bank approved restructuring package (CDR) to the assessee in 2005-06 proof of which have filed before the CIT(A). In pursuance of the same deferment of interest payment was provided with reduction in the rate of interest. The said deferment interest was payable from the year 2013 and the assessee started accruing/making provision of interest from F.Y. 2005-06 as per agreed terms with Banks. The CIT(A) examined the ledger account for interest accrued in the First Appellate proceedings, the details of which reproduced at page 104 of the impugned order. We observe the interest accrued but not due of Rs. 6.54 crore was not part of BIFR order which was clubbed under the current liability. The CIT(A) discussed the same in para 18.5 of the impugned order and held when there is no deduction in the earlier years an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en specified in the sanctioned scheme nor in the replies furnished by the assessee. Taking into account the CIT(A) while allowing the ground raised by the assessee but directed the AO to verify whether such waiver is not allowed earlier and it is not on capital account as mandated by the DIT(R). This amount of sundry creditors beyond the iota of doubt represents a outstanding payment towards the expenditure incurred, claimed and allowed in the preceding assessment years. Therefore, the subsequent remission thereof which is credited in the books of account rightly, fails to prove the test of non-taxability. We also note that alongwith preceding two claims (i.e. ground Nos. 3 and 4) the claim for this additional amount, the assessee made Miscellaneous Application before the CBDT which was ultimately rejected. Therefore, the CIT(A)'s action in allowing the same would be in contravention of the order passed by the higher authority u/s. 119 of the Act. For this reason and aforesaid discussion, ground No. 5 raised by the Revenue is allowed.
23. In the result, the appeal of Revenue is partly allowed.
Order pronounced in the open court on 20th October, 2023. X X X X Extracts X X X X X X X X Extracts X X X X
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