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2016 (3) TMI 582 - ITAT CHENNAI

2016 (3) TMI 582 - ITAT CHENNAI - TMI - Waiver of loan amount - Scope of section 28(iv) - Addition under the regular provisions of the Act and under section 115JB on account of waiver of loans by the National Housing Bank - waiver of principal portion of the refinance loan by the National Housing Bank - Held that:- Under a one-time settlement entered into between the assessee and the bank, the bank accepted the ad-hoc payment of ₹.5 crores made by the assessee and waived a sum of ₹.5 .....

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f National Housing Bank, resulting in a profit of ₹.1,58,99,125/-. However, the amount of ₹.5,77,40,964/- representing waiver of refinance loan of National Housing Bank has not been considered both for normal computation and for the purpose of computation of book profit under section 115JB of the Act. Since the waiver of loan is nothing but income of the assessee within the meaning section 28(iv) of the Act, and the same was availed during the course of regular business, the waiver o .....

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uvvuru RL Reddy, Judicial Member For The Appellant : Shri S. Swaminathan, C.A. For The Respondent : Dr. B. Nischal, JCIT PER DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals)-II, Chennai, dated 11.03.2014 relevant to the assessment year 2005-06. The only effective ground raised in the appeal of the assessee is with regard to confirmation of addition of ₹.5,77,40,964/- under section 28(iv) of th .....

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Act issued on 31.07.2009. 3. In the assessment order, the Assessing Officer has observed that the assessee has shown a loss after depreciation and tax at ₹.4,18,41,839/- on a total receipt of ₹.2,65,18,784/-. Against the above loss of ₹.4,18,41,839/-, the assessee has adjusted a sum of ₹.5,77,40,964/- which represents waiver of refinance loan of National Housing Bank, resulting in a profit of ₹.1,58,99,125/-. However, the amount of ₹.5,77,40,964/- representing .....

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filed detailed written submissions, wherein, it was stated as under: We have entered into a one-time settlement of our refinance loan with National Housing Bank. We have made a payment of ₹ 27,50,00,000/- against interest arrears of ₹ 3,48,88,779/- and principal due of ₹ 29,78,52,184/-. The net waiver of ₹ 5,77,40,964/- which represents waiver of the principal was credited to the profit and loss account. As this was an exceptional item the same was credited below the lin .....

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expenditure or trading liability which was allowed as deduction in the computation of income of any of the earlier year and it represents only the waiver of principal amount which was not allowed as deduction in the assessment of any previous years. It is submitted that the same is not income under section 41(1) of the Income Tax Act, 1961. 4. After considering the submissions of the assessee, the Assessing Officer has held that the income of ₹.5,77,40,964/- by way of waiver of refinance .....

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amount of ₹.5,77,40,964/- representing waiver of refinance loan of National Housing Bank. 5. The assessee carried the matter in appeal before the ld. CIT(A) and submitted that it had taken refinance loan from National Housing Bank after negotiations and finally agreed for waiver of ₹.5,77,40,964/- in the principal portion. Accordingly, the loan liability payable by the assessee bank has been reduced by ₹.5,77,40,964/-. Since it was only a reduction in the liability, it will not .....

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in terms of money. This concept was recognized by various High Courts by considering the provisions of section 40C and 40A(5) for determination of perquisites in the hands of the directors and held that benefit normally should be in the nature of benefit provided and not in terms of monetary items. Therefore, it was submitted that what was received is reduction in value of loan and is not a benefit derived by the assessee and hence, the provisions of section 28(iv) is not applicable to the natur .....

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her hand, the ld. DR strongly supported the order passed by the authorities below. 9. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The Assessing Officer has made addition of ₹.5,77,40,964/- both under the regular provisions of the Act and under section 115JB of the Act on account of waiver of loans by the National Housing Bank. The National Housing Bank, during the financial year 2004- 05 waived a refinance loan of ₹.5,77 .....

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ring the submissions of the assessee and also considering the facts of the case, the ld. CIT(A) has observed as under: 4.2. I have considered the assessee's submissions as well as the contents of the assessment order. It is well settled law that if the loan was taken for acquiring the capital asset, waiver thereof would not amount to any income exigible to tax. On the other hand, if this loan was for trading purpose and was treated as such from the very beginning in the books of account, as .....

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ising funds for the purpose of advancing loans under house financing. In other words, the loan received from National Housing Bank, by way of re-finance, was during the course of business and for the purposes of business of the assessee. Since the transaction of receiving re-finance loan from National Housing Bank was part of the business activities and during the course of business, any loss or gain from the said transactions, is directly assessable to tax under the head 'income from busine .....

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t, cease to exist by way of remission or waiver, etc., the same will become the income of the assessee u/s.28(iv) of the Act. Thus, the waiver of principal portion of the re-finance loan by the National Housing Bank is a value of benefit accrued to the assessee u/s.28(iv) of the Act. 4.5. As claimed by the assessee, cessation of liability may not be assessable u/s.41(1) of the Act, as the receipt was never debited to P&L account or claimed as deduction in any of the assessment years. However .....

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mes liable for tax u/s.28(iv) of the Act. In addition, since it was a trading loan transaction, the waiver also can be brought to tax u/s.41(1) of the Act. For this purpose, reliance is placed on the decision of the Bombay ITAT in the case of Bombay Gas C. Ltd v. Addl. CIT (54 SOT 13)(Mum.), where it was held that waiver of loan taken for business purposes is liable for tax u/s.41(1) of the Act. The head note of the said decision is as under - Bombay Gas Co. Ltd. v. Addl. CIT [2012] 54 SOT 13 (M .....

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n the decision of the Delhi High Court in the case of Rollatainers Ltd. v. CIT [2011] 339 ITR 54 (Delhi), where it was held that the loan received during the ordinary course of business, if waived, will become the benefit accrued to the assessee and liable for tax. The head note of the said decision is as under - Rollatainers Ltd. v. CIT' [2011] 339 ITR 54 (Delhi) Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability - Assessment year 2010-11 - Assessee-comp .....

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espect of term loans, Tribunal concluded that these monies did not come in possession of assessee on account of any trading transaction; receipts were capital in nature, being loan payable over a period of time alongwith interest - Thus, waiver of said loans was not treated as income of assessee - However, waiver of loan taken in course of carrying on business was regarded as benefit in revenue field and, accordingly, addition made by Assessing Officer was confirmed - Assessee filed instant appe .....

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ssion thereof will result in benefits exigible to tax not only u/s.28(iv) of the Act but also u/s 41(1). If the loan was for acquiring capital assets or for some other purposes, the waiver or remission of such loans will not be liable to tax u/s.28(iv). Since, in the instant case, the loans, which are raised by way of re-finance from the National Housing Bank, are for the purpose of regular business of the assessee and during the course of regular business, the present waiver of the principal po .....

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)(vii) or under section 28 of the Act, as the said loans are during the course of ordinary business of the assessee. Similarly, any refinancing loans received by the assessee, as the source for loans advanced by it, ceases to exist by way of remission or waiver, etc., the same will become the income of the assessee under section 28(iv) of the Act. Thus, the waiver of principal portion of the refinance loan by the National Housing Bank is a value of benefit accrued to the assessee under section 2 .....

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