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2023 (9) TMI 26 - AT - Income TaxAddition on account of waiver of loan - business income OR capital receipt - waiver of loan which was for acquiring plant and machinery - AO treated the waiver of loan amount and waiver of Purchase Price as Income of the Assessee u/s 28(iv) - assessee had claimed depression on the plant and machinery purchased from Kennametal Inc. However, the assessee has not paid for the said Plant and Machinery, but claimed depreciation on it without paying for it - HELD THAT:- Hon’ble Supreme Court IN Mahindra & Mahindra Ltd [2018 (5) TMI 358 - SUPREME COURT] has held that to invoke Section 28(iv) the benefit which is received has to be in some form other than in the shape of money. In the Case of Mahindra & Mahindra, the company Mahindra & Mahindra had received cash loan. However, in the case of the assessee, the assessee had received Equipment valuing US $3,66,000/- due to purchase of equipment. The assessee had not received any cash Loan of US $ 3,66,000/-. In this case, the assessee had purchased the equipment, for which assessee had not paid. Thus, what actually, assessee had received was equipment, for which, the assessee had not paid anything. Thus, receipt of equipment, is a benefit, which is not in the form of cash. The assessee has also received benefit in the form of depreciation. Therefore, the amount of US$ 3,66,000/- which is the Purchase Price of the Machinery, equipment is a benefit received by the assessee, hence, it is taxable u/s. 28(iv) of the Act. Thus, we uphold the order of the AO with reference to US $366000/-, in principle, that US $ 3,66,000/- is taxable u/s 28(iv) of the Act. The assessee had claimed that it was a loan, however, we have held that it was not a loan but assessee had received Machinery and Equipment. Hence, Ground No.3 of the assessee is dismissed. Loan - Kennametal Inc USA had advanced Cash Loan of Rupees equivalent to US $5,00,000/- to Assessee DHL. There was a promissory note.This Loan is independent of the Equipment sold by Kennametal Inc USA to assessee valuing US$ 3,66,000/-. The Loan was in addition to the equipment sold. Vide, the Master Agreement Kennametal Inc has waived the cash Loan of US $5,00,000/- which was advanced to the assessee vide Loan Agreement dated 13th March, 1995. The AO has treated the said cash loan of US $5,00,000/- also as income u/s 28(iv). The said Loan of US $ 500000/- was a cash Loan. Therefore it is held that the waiver of cash Loan of Rupees equivalent to US $5,00,000/- is not income within the purview of Section 28(iv) of the Act. Hence, the AO is directed to delete the impugned addition qua US $ 5,00,000/-. Adoption of exchange rate - Assessee has entered in its books of account the value of equipment in Rupees based on the exchange rate applicable on the date of receipt of equipment. The benefit received by the assessee is equipment, hence, while arriving at the value of the said benefit, the exchange rate applicable on the date of receipt of the equipment is to be considered. The AO shall take the Conversion rate on the date of receipt of the Equipment and not the date of waiver. Therefore, while converting the US $3,66,000/-into Rupees, the AO shall consider the rate of exchange applicable on the date of receipt of the equipment. Accordingly, the Ground number 4 is allowed for statistical purpose.
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