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2016 (5) TMI 49 - ITAT MUMBAI

2016 (5) TMI 49 - ITAT MUMBAI - TMI - Disallowance u/s 14A - Held that:- We find that the assessee had not claimed any expenditure in its books of accounts for earning tax free income, that it had not earned exempt income during the year under consideration, that the investment was made in purchasing shares of one of the group concerns and of a cooperative bank, that such investments were made long back. In our opinion if the assessee had not claimed any expenditure, no disallowance can be made .....

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ccount the waiver thereof may result in income more so when it was transferred to the profit and loss account. We find that in the case under consideration, this very basic aspect has not been looked into by the AO or the FAA. Before the AO the assessee had stated that there was no reduction of liability and that it was a capital restructuring exercise. The assessee had not produced the documents with regard to sanction or waiver of the loan and the AO had not called for such details. The FAA al .....

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opinion, that provisions of section 28 are not applicable to the facts of the case. But, same cannot be held for the provisions of section 41(1)of the Act, as proper investigation about the real nature of the waived amounts have not been carried out. Considering the peculiar facts and circumstances of the case, we are of the opinion that the matter needs further verification . Therefore, in the interest of justice, matter is being restored back to the file of the AO to decide the issue afresh a .....

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oned appeals/cross objections(CO) raising various grounds of appeal. As the issues involved in the appeals/CO. s are almost identical, so, for sake of convenience we are passing a common order for all of them. The details of dates of filing of returns, assessed incomes etc. can be summarised as under: Assessee ROI Filed on Returned Income Assessment dt. Assessed Income M/s. Rama Industries Ltd. 30. 09. 2009 Nil 14/03/2011 Nil M/s. Rama Petrochemicals Ltd. 29. 09. 2009 (-)1, 21, 84, 669/- 15/03/2 .....

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stment made and to explain as to why the expenses incurred and claimed in respect of investments should not be disallowed as per the provisions of section 14 A r. w. Rule 8D of the income-tax, rules, 1962(Rules). The assessee contended that no borrowed funds had been used for purpose of investment, that it had nil exempt income. After considering the submission of the assessee the AO held that assessee had made investment in shares from the interest-bearing funds, that it had failed to substanti .....

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sessee and the assessment order the FAA observed that the assessee had invested ₹ 11. 39 lakhs in equity shares of one of the group companies and ₹ 22, 000 in shares of BMC bank Ltd long back, that the investments were made at the time out of the own funds and not out of the borrowed funds, that during the year under consideration it had not received any income from those investments. He further held that rule 8D r. w. s. 14A (2) could be invoked only if the AO was not satisfied with .....

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managerial expenses could not be ruled out in earning exempt income. He directed the AO to restrict the disallowance of earning exempt income to the extent of 0. 5% of ever is of the value of investment. 2. 2. Before us, the Departmental Representative (DR)supported the order of the AO. The Authorised Representative(AR)contended that no expenditure was incurred by the assessee for earning exempt income, that investments were made long back, that the investments were made in the group companies. .....

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made u/s. 14 A read with rule 8D of the rules. In the case of Cheminvest Ltd. (378ITR33), the Hon ble Delhi High Court has held as under: The expression does not form part of the total income in section 14A of the Income-tax Act, 1961, envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the income. In other words, section 14A will not appl .....

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crores) and Unit Trust of India (Rs. 6. 25 crores). He observed that the assessee had taken loans from the banks in the normal course of the business, that for the year under appeal it got a benefit of waiver of such loans, that it had no liability to pay such loan. He directed the assessee to explain as to why the benefit derived by way of waiver of outstanding loan amounting to ₹ 7. 45 crores should not be considered as income and added to its total income. The assessee contended that th .....

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f Solid Containers Ltd. (308 ITR 417), delivered by the Hon ble position High Court and held that assessee had acquired benefit of waiver of principal amounts, that it had no liability to make payment of ₹ 7. 45crores, that the amount in question received by the assessee, being waiver, was chargeable to tax. Accordingly, he made an addition of ₹ 7, 45, 64, 838/- to the total income of the assessee. 3. 1. During the appellate proceedings before the FAA, the assessee contended that tha .....

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that in both the cases the waiver of loan or amount received was from regular customers/suppliers during the course of trade, that those facts had been clearly discussed in both the cases, in those cases the loan was taken for trading activity, that the facts of the Mahindra and Mahindra Ltd. (128 Taxmann 394) were applicable to the facts of the case under appeal, that the Hon ble Bombay High Court had laid down the ratio in the case of Mahindra and Mahindra (supra), that no deduction was claime .....

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tion of applying the provisions of the above mentioned two sections, it could not be said that the assessee was carrying on business of obtaining loans and the waiver of such loan by banks/financial institution was a benefit arising from such business. He referred to the case of Mahindra and Mahindra Ltd. (supra) and held that waiver of principal amount of debentures was a capital surplus arising out of waiver of principal liability was a capital receipt. 3. 2. Before us, the DR contended that f .....

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on Holdings Private Limited (90 DTR 205). 3. 3. We have heard the rival submissions and barriers the material before us. We find that the State bank of Hyderabad and unit trust of India had waived ₹ 7. 45 crores during the year under consideration, during the assessment proceedings the assessee had claimed that there was no reduction of liability and therefore it was not a taxable receipt, that the waiver of preference capital was a capital restructuring exercise, that the AO had made the .....

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liability to pay a loan of ₹ 29. 17 lakhs taken towards the purchase of a car was taken over by the holding company, that the motor car for which the loan was taken continued to be a part of the schedule of assets of the assessee and depreciation thereon was also claim, that the AO added back an amount of ₹ 29. 7 lakhs to the income of the assessee as being taxable u/s. 41 (1) of the Act. The FAA allowed the appeal of the assessee holding that the liability to repay a loan taken towa .....

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ment of Mahindra and Mahindra Ltd. (supra) and held that the amount of ₹ 29. 17 lakhs was not taxable either u/s. 41 (1) or 28 (iv)of the act. Before the Hon ble High Court it was contended on behalf of the revenue that the decision in the matter of Mahindra and Mahindra Ltd. (supra) was not applicable in view of the subsequent decision delivered in the case of Solid Containers Ltd. (supra), that in the case of Solid Containers Ltd. the court had distinguished the decision rendered in the .....

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ble High Court held as under: 8. We have considered the submissions. The issue arising in this case stand covered by the decision of this court in the matter of Mahindra and Mahindra (supra). The decision of this court in the matter of Solid Containers (supra) is on completely different facts and in applicable to this case. In the matter of Solid Containers (supra) the assessee therein had taken a loan for business purposes. In view of the considered terms arrived at, the amount of loan taken w .....

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the purchase of capital assets. Consequently, the decision of this court in the matter of Mahindra and Mahindra Ltd (supra) was distinguished as in the said case the loan was taken for the purchase of capital asset and not for trading activities as in the case of Solid Containers Ltd (supra). In view of the above the decision of this court in the matter of Solid Containers Ltd (supra) will have no application to the facts of the present case and the matter stands covered by the decision of this .....

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covered by the decision of this score in the matter of Mahindra and Mahindra Ltd (supra), no substantial question of law arises and both the questions are dismissed. We are of the opinion that if the judgments of Mahindra and Mahindra Ltd. (supra) and Solid Containers Ltd. (supra)are analysed in light of the decision of Xylon Holdings private Ltd. , it becomes clear that the basic issue to be decided for invoking the provisions of section 41 (1) of the Act is to decide the nature of the transact .....

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treated as such from the very beginning in the books of account the waiver thereof may result in income more so when it was transferred to the profit and loss account. We find that in the case under consideration, this very basic aspect has not been looked into by the AO or the FAA. Before the AO the assessee had stated that there was no reduction of liability and that it was a capital restructuring exercise. The assessee had not produced the documents with regard to sanction or waiver of the lo .....

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as not been discussed either by the AO/FAA. We are of the opinion, that provisions of section 28 are not applicable to the facts of the case. But, same cannot be held for the provisions of section 41(1)of the Act, as proper investigation about the real nature of the waived amounts have not been carried out. Considering the peculiar facts and circumstances of the case, we are of the opinion that the matter needs further verification . Therefore, in the interest of justice, matter is being restore .....

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, 76, 92, 213 and the remaining sum of ₹ 1, 90, 42, 295/-was waived, that the AO taxed the principal amount of loan waived as income, that the FAA deleted the addition holding that the provisions of sections 2(24), 28(i), (iv) and 41(1) were not applicable and that the AO was not justified in making the addition of ₹ 2, 91, 42, 213/-being the principal amount of loan waived. The Tribunal reversed the order of the FAA. On further appeal, the Hon ble High Court held as under: The Tribu .....

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business activity or trading operations. On the question whether the whole amount of the loan had been utilised either for the purpose of acquiring a capital asset or for the purpose of business activity or trading activity the Tribunal remitted the matter to the Assessing Officer for fresh adjudication. The Tribunal had rightly culled out the principle laid down from the various judgments and had given an opportunity to the assessee to prove its case before the Assessing Officer. Therefore, th .....

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