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The Assistant Commissioner of Income Tax, Company Circle II (3) , Chennai. Versus M/s. India Cements Capital and Finance Limited

2016 (9) TMI 946 - ITAT CHENNAI

Addition made on account of cessation of bank liability - Held that:- Since there is a categorical findings of the Tribunal that there was a cessation/remission of liability u/s.41(1) of the Act, on earlier occasion confirming the order of ld. CIT passed u/s.263 of the Act, wherein the Ld.CIT directed the AO to verify from the assessment records whether interest/depreciation/hire charges or any other expenditure related to bank liability has been claimed and allowed by the AO in the earlier year .....

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of URMP. We are not in a position to uphold the argument of the ld.A.R as held by the Tribunal on earlier occasion. There is a remission of liability in favour of assessee company and the liability payable to the bank has been reduced to ₹ 43 crores and it has to be brought to tax in the hands of assessee only u/s.41(1) of the Act. Accordingly, the ground raised by the Revenue is allowed. - I.T.A.No.1626/Mds./2012 - Dated:- 11-8-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND Shri Duvvu .....

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ent of ₹ 46.05 crores. 3. The facts of the issue are that in the previous year, relevant to the assessment year under appeal, the assessee had assigned all its receivables to M/s.Unique Receivable Management Private Limited (URMPL) on the basis of a tripartite agreement executed on 28-6- 2006 between the assessee, URMPL and the consortium of banks, who had advanced finance to the assessee company. The total receivables as per accounts were ₹ 93.45 crores and the bank loan liabilities .....

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is ₹ 89.86 crores, against which the said URMPL has to make a payment of ₹ 43 crores alone to the consortium of banks, resulting in remission of liability. The Assessing Officer has not considered the taxability of the above remission of liability. Based on the above findings, the Commissioner of Income-tax issued notice under section 263, proposing to revise the order of assessment passed under section 143(3). After examining the detailed reply filed by the assessee company, the Com .....

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differential amount between ₹ 89.86 crores and ₹ 43 crores is a very predominant issue that should have been meticulously examined in the assessment order. The tripartite agreement entered into between the assessee, the Special Purpose Vehicle URMPL and the State Bank of Mysore, as the representative of the consortium of lending banks, entered into on 28-6-2006, lists out the terms and conditions of the assignment of receivables to the Special Purpose Vehicle and the repayment of loa .....

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59 crores is shown as receivables in the accounts of the assessee company. The exact nature of this amount, whether it subsists as recoverable or already included in the bad debts written off or is in the nature of income, etc. have not been examined by the Assessing Officer, if not discussed in the assessment order. The amount of receivables assigned to the Special Purpose Vehicle URMPL was ₹ 89.86 crores. It is stated in the tripartite agreement that the agreement was executed to crystal .....

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sortium of banks. 12. Clause 7 of the tripartite agreement reads as below:- 7. The Parties agree that on the SECOND PART paying the THIRD PART the aforesaid sum of ₹ 43 crores in terms of Clause 5 above and interest in terms of Clause 6 above, all dues, claims, demands and liabilities of the THIRD to FOURTEENTH PARTS against the SECOND PART shall cease and the same shall constitute a full and final settlement and absolute release of the SECOND PART from any obligation whatsoever to the THI .....

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settled. Thereafter, the banks do not have any option for legal proceedings against the assessee or the Special Purpose Vehicle. Therefore, it is clear that prima facie there is a remission of liability in favour of the assessee company. This paramount issue ought to have been examined by the assessing authority in the assessment order. 14. The learned counsel appearing for the assessee has invited our attention to clause 5(d) of the Tripartite agreement which states that any amount collected ov .....

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contingent. 15. For the purpose of section 263, it is not necessary for the Commissioner of Income-tax to make a final adjudication of the issues. If he finds prima facie that certain relevant aspects of the assessment have not been examined by the assessing authority, which has made the assessment order erroneous and prejudicial to the interests of the Revenue, the Commissioner of Income-tax is within his competence to invoke section 263. 16. As far as the present case is concerned, the assess .....

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nt, there is a remission of liability to the tune of ₹ 46.05 crores and accordingly, AO brought into tax. Against this, the assessee carried the appeal before the Ld.CIT(A). 4. On appeal, the Ld.CIT(A) observed that the tripartite agreement dated 28.06.2006 among the assessee (FIRST PART), Unique Receivable Management Pvt.Ltd, the SPV (SECOND PART) and the consortium of banks (THIRD to FOURTEENTH PART), Lead Bank being State Bank of Mysore (THIRD PART), as per clause (2) of the agreement, .....

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of the appellant together with all the receivables and bank liabilities were transferred to the SPV. Accordingly, the appellant did not have any assets or bank liabilities relating to the fund based activities in its book. Therefore, there was no reduction on the liability in the hands of the assessee. The liability was on the transferee SPV which is clear from clause (5) of the aateent which states that The SECOND PART agrees to pay the aforesaid sum of ₹ 43 crores to the THIRD PART in t .....

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of the agreement, any amount collected from the related receivables transferred together with the liability to SPV which is in excess of the net accepted liability should also be passed on to the bank. Therefore, there is no reduction of liability in the true sense because whatever is collected from the client receivable has to be passed on to the banks to the extent of ₹ 89.86 crores. It is thus clear from the terms and conditions stipulated in the tripartite agreement that there was no .....

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banks were used for acquisition of capital assets which were given on hire or on lease to customers. This is confirmed by the fact that the hire purchase and leasing transactions were hypothecated against bank liability and both were transferred together to the SPV. In this regard, the Id.AR has relied on the decisions in the cases of lskraemeco Regent Ltd, Jindal Equipment and Leasing Services Ltd, Mahindra & Mahindra, Chetan Chemicals Ltd, MindTek India P Ltd, Elscope and Nectar Beverages .....

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g receipt, the amount related to capital account. In Mahindra & Mahindra Ltd (supra), it was held to be not taxable for the same reason that the decision in T.V.Sundram Iyengar s case has no application. The argument that it would be taxable u/s 28(iv) was also dismissed s iti1oftanaaction not coming within the purview of sec 2(24). The Hon bie Delhi High Court in the case of CIT v. Tosha International Ltd, 331 ITR 440 has also dismissed the appeal of revenue by holding that the amount of &# .....

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edominant issue. The tripartite agreement entered Into between the assessee, the Special Purpose Vehicle URMPL and the State Bank of Mysore, as the representative of the consortium of lending banks, entered into on 28.06.2006, lists out of the terms and conditions of the assignment of receivables to the Special Purpose Vehicle and the repayment of loans by the Special Purpose Vehicles to the consortium of lending banks. The consortium of banks is having a first and prior charge on all receivable .....

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ts as recoverable or already included in the bad debts written off or is in the nature of income. The amount of receivables assigned to the Special Purpose Vehicle URMPL was ₹ 89.86 crores. It is stated in the tripartite agreement that the agreement was executed to crystallise the liabilities of the assessee company to the consortium of banks. In paragraph 3 of the tripartite agreement it is stated as below:- 3. The dues of the FIRST PART amounting to ₹ 89.05 crs to the THIRD to FOUR .....

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erms of Clause 6 above, all dues, claims, demands and liabilities of the THIRD to FOURTEENTH PARTS against the SECOND PART shall cease and the same shall constitute a full and final settlement and absolute release of the SECOND PART from any obligation whatsoever to the THIRD TO FOURTEENTH PARTS and the THIRD to FOURTEENTH PARTS shall not be entitled to commence any legal proceedings against the SECOND PART either in the Debt recovery Tribunal or elsewhere . Further, ld.D.R submitted that from t .....

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f liability in favour of the assessee company. Further, ld.D.R submitted that the case law relied on by the assessee company i.e. in the case of M/s.Iskraemeco Regent Ltd., reported in 331 ITR 317 (Mad.) cannot be applied to the facts of the case. In that case, assessee engaged in the business of development, manufacturing and marketing of electro-Mechanical and State Energy Meters. It had taken a loan from the bank for purchase of capital assets. A one-time settlement with the Bank is reduced t .....

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he following points for our consideration. a) India Cements Capital Ltd (ICCL) transferred its fund based business with the corresponding liabilities to M/s Unique receivables (URL) with the approvaL of consortium of Banks. b) ICCL transferred Receivables worth ₹ 93.45 Crores and Bank Liabilities worth ₹ 89.85 Crores. Balance ₹ 3.60 Crores was shown as receivable from the transferee URL. c) The transfers were reflected in the Books of ICCL and URL (Notes on accounts Sch 14(2) a .....

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L from 1.10.2005. Clause 3: ICCL liability, in spite of transfer would be ₹ 43 Crores. Clause 4: Once trasfer is complete ICCL does not have any liability. Clause 5: URL shall pay ₹ 43 Crores to the Banks. Clause 6: URL to pass on further collections, after settling outside liabilities, realised from receivables to the banks. Clause 7: On payment of ₹ 43 Crores, Banks will not proceed to realize further amounts. But whatever is realized from the receivables shalL be passed on t .....

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as Liability to Banks in its books. h. Total amount of ₹ 43 Crores were paid by URL to Banks till Aug 2009. i. This amount was reduced from the Bank liability in the books of URL. j. At the time of transfer no Bank has indicated any waiver or reduction. k. Anyway waiver if any wilt have to be considered in the hands of URL. l. ICCL transferred the business of fund based financing. The entire assets and Liabilities were transferred to URL. There was no reduction of Liability in the hands o .....

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ld be only ₹ 43 Crores resulting in loss of the differential amount of appx ₹ 50 Crores arising from transfer in the hands of ICCL. Finally, ld.A.R empahsised that the agreement is subject to payment of ₹ 43 crores which was completed only in August, 2009. Furhter, ld.A.R placed reliance in the case of M/s.Iskraemeco Regent Ltd., reported in 331 ITR 317 (Mad.). 7. We have heard both the parties and perused the material on record. In this case, an earlier occasion the assessee c .....

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