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TMI Blog2025 (4) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... hed by the fact that the assessee himself has declared the disputed amount as his income for the AY 2011-12. 3. The Ld CIT(A) ought to have appreciated the fact that the AO has established that all the crucial conditions pursuant to the settlement agreement dated 13.01.2010 happened during FY 2009-10 itself and hence the income should be taxed in AY 2010-11 only. 4. The Ld. CIT(A) erred in ignoring the fact that the lenders themselves have confirmed that they have written off the debts that are to be received from the assessee during the relevant AY 2010-11 itself. 5. The Ld.CIT(A) erred in not appreciating the fact that "forgiveness of debt" is nothing but cessation of trading liability and ought to have confirmed as such. 3. The Additional ground raised by the Revenue in ITA No.1897/Hyd/2018 reads as under: "The Ld.CIT(A) erred in not appreciating the fact that the income should be assessable as business income u/s 28(i) of the Income Tax Act, 1961 as the amount of trade advances were appropriated by the assessee for the work already done by him of arranging 453 acres of land and other works as mentioned in the clause 2.3.1 of the Financial Terms, Conditions and Timeline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Smith Reality Private Limited and M/s. Amsri Partridge Advisory Services Pvt. Ltd. M/s. Amsri Partridge Advisory Services Pvt. Ltd never carried on any activity after its incorporation and it was a dormant company, in respect of the land transaction in question, which is subject matter of dispute in the present appeal. The Joint Venture Companies have been floated with different kinds of share capital, which is having voting rights and no voting rights. As per the Joint Venture 1 - Terms and conditions, M/s. Amsri Spire Constructions Pvt. Ltd., shall procure approximately 142 acres of land at Veerapalli Village, Kothur Mandal, Andhra Pradesh. As per the Joint Venture 2 - Terms and conditions, M/s. Amsri Reality Pvt. Ltd, shall procure approximately 156 acres of land at Veerapalli Village, Kothur Mandal, Andhra Pradesh. Both parties agreed to infuse the funds required to meet the project work from time to time by issuing further share capital of the company. The assessee firm has procured lands for the above entities for the purpose of felicitating the purchase of land in the first leg of the transaction. The firm procured the land from various landowners on the strength of register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer called upon the assessee to explain as to why benefit derived from 'debt forgiveness' on account of Settlement Agreement dt.13.01.2010 with Smith Group of Companies should not be brought to tax under Section 28(iv) of the Act ? In response, the assessee submitted that the cessation of liability in the case of M/s. Amsri Builders on account of Settlement Agreement and capital gain tax in the case of Shri P. Amruth Prasad and Uppu Srinivas on account of transfer of their shareholdings in Smith Group are duly brought to tax in A.Y. 2011-12. The assessee had also explained the terms and conditions of Settlement Agreement and the purpose of debt waiver by the Smith Group and argued that Section 28(iv) of the Act has no application, because as per the said provisions, the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall alone be treated as income. Since the assessee has derived the benefit by way of 'debt forgiveness' which is a monetary benefit, the provisions of Section 28(iv) of the Act, cannot be applied. The assessee also relied upon the decision of Hon'ble Gujarat High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had also filed additional ground in light of the decision of the Hon'ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra Ltd. reported in (2018) 404 ITR 1(SC) and argued that benefit accrued to the assessee by virtue of Settlement Agreement dt.13.01.2010, is not taxable under Section 28(iv) of the Act. 9. The LD.CIT(A), after considering the submissions of the assessee and also taking note of provisions of Section 28(iv) of the Act and Section 41(1) of the Act, and also by following the decision of Hon'ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra (supra), held that the amount received by the assessee as advance was in terms of money and not as any non-monetary benefit. Further, the same is not held as cession of liability by the Assessing Officer himself. In view of the factual position as above, applying the ratio as laid down by the Hon'ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra (supra), has held that an amount of Rs. 26,84,71,235/-, forgone as debt forgiveness is not taxable in the hands of the assessee and therefore, directed the Assessing Officer to delete addition made towards benefit derived in the form of 'debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm rather than in the shape of money. In the present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in our view, in no circumstances, it can be said that the amount of Rs. 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the IT Act. 14) Another important issue which arises is the applicability of the Section 41 (1) of the IT Act. The said provision is re-produced as under: "41. Profits chargeable to tax. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year, (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other liability'. Section 41(1) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, we find no force in the argument of the Revenue that the case of the Respondent would fall under Section 41(1) of the IT Act. 17) To sum up, we are not inclined to interfere with the judgment and order passed by the High court in view of the following reasons: (a) Section 28(iv) of the IT Act does not apply on the present case since the receipts of Rs 57,74,064/- are in the nature of cash or money. (b) Section 41(1) of the IT Act does not apply since waiver of loan does not amount to cessation of trading liability. It is a matter of record that the Respondent has not claimed any deduction under Section 36 (1) (iii) of the IT Act qua the payment of interest in any previous year." 5.4 From the facts of the case, it is seen that the amount was received by assessee as advance was in terms of 'money' and not as any non-monetary benefit. Further, the same is not held as cessation of trading liability by the Assessing Officer himself also. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngements between Smith Group and M/s. Amsri Principals and has received advance from Smith Group for procurement of land. It is also an admitted fact that because of dispute between the parties, a Settlement Agreement dt.13.01.2010 was entered into between Smith Group and M/s. Amsri Principals and as per the said Settlement Agreement, M/s. Amsri Principals shall transfer the shareholdings to Smith Group for a consideration to be paid, as specified in the agreement and further, Smith Group will forgive advance receivable from M/s. Amsri Group of Companies, including the assessee. The assessee has given effect to said Settlement Agreement upon fulfillment of conditions as specified therein by handing over the land documents of Kondapur in the month of June, 2010 and upon receipt of consideration for transfer of equity shares of Smith Group of companies, and has given effect to said transactions in the books of accounts for the F.Y. 2010-11 relevant to assessment year 2011-12. Further, the advances due to Smith Group of Companies have been converted into loans with interest vide Call Option Agreement dt.24.05.2008 and as per the said agreement, the amount received from Smith Group of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rangement between Smith Group of Companies and M/s. Amsri Principals and as part of the arrangement between the parties, the assessee has received interest free advances from Smith Group of Companies for procurement of land. As a result, the unutilized advance received from Smith Group of Companies as on 31.03.2010 was at Rs. 26,84,71,235/-. The assessee has derived benefit on account of 'debt forgiveness' by Smith Group of Companies in pursuant to Settlement Agreement dt.13.01.2010. The assessee has given effect to said transactions and recorded the entries in books of accounts in F.Y. 2010-11 and relevant to assessment year 2011-12 and credited the benefit derived from Smith Group of Companies into profit and loss account. The Assessing Officer assessed 'debt forgiveness' received from Smith Group of Companies in pursuant to Settlement Agreement dt.13.01.2010, as business profits in terms of Section 28(iv) of the Act for AY 2010-11 and held that the assessee has derived benefit on account of 'debt forgiveness' which is for the business connection of the assessee firm had with Smith Group of Companies and its transactions and therefore, any benefit derived in pursuant to business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght of the decision of Hon'ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra Ltd (supra), is in accordance with the law going by the facts of the present case because whatever the benefit derived by the assessee firm on account of debt forgiveness in pursuant to the Settlement Agreement dt.13.01.2010, is not a value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of a profession. In order to invoke provisions of Section 28(iv) of the Act, there should be a business connection between the benefit and the business and further, the benefit which is received should be in kind or some other form other than the shape of money. Since the benefit derived by the assessee in the form of money is monetary benefit, in our considered view, the provisions of Section 28(iv) of the Act, cannot be applied and this principle is supported by the decision of Hon'ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra Ltd (supra). 16. Further, as held by the Hon'ble Supreme Court in the above case, there is no scope for applicability of Section 41(1) of the Act, because in order to apply provisions of Section 41(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement where the agreement clearly specifically quantifies the amount of loan and accrued interest up to a certain date. Therefore, in our considered view, the provisions of Section 28(i) of the Act cannot be pressed into service, as contended by the learned CIT-DR in light of the additional grounds filed by the Revenue. 18. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the benefit derived by the assessee on account of debt forgiveness in pursuant to Settlement Agreement dt.13.01.2010, is not a business profit, as specified in Section 28(iv) of the Act i.e., the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession and therefore, in our considered view, there is no error in the findings recorded by the LD.CIT(A) to delete the addition made by the Assessing Officer towards benefit derived by the assessee on account of 'debt forgiveness' as business profits under Section 28(i) of the Act. Thus, we are inclined to uphold the findings of LD.CIT(A) and dismiss the appeal filed by the Revenue. 19. In the result, the appeal of Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items. Since the proceedings under section 153A of the Act are analogous to proceedings under section 147 of the Act to the extent that these proceedings are for the benefit of Revenue and not of the assessee." 22. In this assessment year, the assessee has filed a return of income, in response to a notice issued u/s 153A of the Act, on 07.08.2015 declaring a loss of Rs. 70,85,093/-. In the said return of income, the assessee has considered additional income being 'forgiveness of debts" of Rs. 26,75,04,477/- on account of Settlement Agreement dt.13.01.2010 with Smith Group. The assessee also claimed certain expenses from two projects amounting to Rs. 27,55,09,803/- against income credited to profit and loss account and declared net loss of Rs. 70,85,093/-. The Assessing Officer assessed 'forgiveness of debts' for A.Y. 2010-11 on substantive basis and therefore, income declared by the assessee being 'forgiveness of debts' for A.Y. 2011-12 has been assessed protectively. The Assessing Officer has also rejected the additional claim of expenses, in respect to two projects amounting to Rs. 27,55,09,803/- on the ground that the assessee cannot make a fresh claim of expenditure in the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot survive under the law, therefore, he submitted that the addition made by the Assessing Officer towards expenditure cannot be sustained. 27. We have heard both the parties, perused the material on record and gone through the orders of authorities below. It is an admitted fact that a search and seizure operation under Section 132 of the Act was conducted on 09.04.2014 and as on the date of search, the assessment for A.Y. 2011-12 has been completed/ unabated, because the time limit for issuance of notice under Section 143(2) of the Act, has expired on 30.09.2012 i.e., before the date of search on 09-04-2014. Once the assessment is unabated / concluded as on the date of search, the assessee cannot make any fresh claim of deduction towards expenditure, unless the said claim is based on incriminating material found as a result of search and this principle is supported by the decision of ITAT Hyderabad Special Bench in the case of DCIT Vs. M/s. Sew Infrastructure Limited (supra), where the Tribunal has held as under : "33. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the assessee cannot make a fresh claim of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see cannot make fresh claim of deduction towards any expenditure, if such claim is not based on any incriminating material found as a result of search. Since the fresh claim made by the assessee is not based on any incriminating material found as a result of search, in our considered view, the fresh claim towards expenditure cannot be allowed as deduction. Similarly, the Assessing Officer also cannot make any addition on the basis of a fresh claim made by the assessee in the return of income filed in response to notice under Section 153A of the Act. In other words, income reported by the assessee and expenditure claimed and disallowed by the AO need to be ignored. If, income and expenditure, both are ignored, then the loss declared by the assessee becomes Nil and income reported in the return filed u/s 153A goes back to income returned in the original return filed by the assessee. Further, in the present case, the assessee has treated 'debt forgiveness' as income and as against this income claimed various expenditure and reported net loss in the return of income filed on 07.08.2015. Since, income pertaining to 'debt forgiveness' has been assessed for A.Y. 2010-11 on substantive bas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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