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2016 (10) TMI 530 - ITAT MUMBAI

2016 (10) TMI 530 - ITAT MUMBAI - TM - Addition of principal amount of loan waived by the lender on account of one time settlement of loan - Held that:- CIT (A) has considered the depth of the stand taken by the assessee and the facts of the case and has rightly come to the conclusion that the said loan was taken for the purpose of long term investments and the learned CIT (A) has also taken note of the decisions of the Hon’ble jurisdictional High Court rendered in the case of (i) Solid Containe .....

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- Disallowance of interest - Held that:- In the absence of any valid explanation/evidence supporting the assessee’s claim, the learned CIT (A) has rightly confirmed the action of the AO The learned CIT (A) while reaching to this conclusion has also appreciated the detailed submission of the assessee wherein it has been specifically recorded that the loan amount has been advanced to the assessee’s sister concerns can be treated as investment made with deposit with the sister concerns. Since, it .....

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assessee has advanced interest-free loans to its subsidiaries without showing that there was any business exigency for the same. In view of this, we find no reason to interfere with the findings of the learned CIT (A). - ITA No.4466/Mum/2012, C. O. No.155/Mum/2013 - Dated:- 19-8-2016 - SRI JASON P. BOAZ, AM AND SRI SANDEEP GOSAIN, JM For The Revenue : Mr. S. S. Kumaran, DR For The Assessee : Ms. Arti Vissanji, AR ORDER PER SANDEEP GOSAIN, (JUDICIAL MEMBER): The present appeal by the Revenue bein .....

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loan waived off by the lender on account of one time settlement of loan with Mafatlal Finance Company Ltd., holding that the loan was acquired for acquisition investment of capital assets as such its waiver cannot be termed as revenue receipt, without appreciating that in the course of assessment proceedings assessee failed to furnish any evidence to show that the loan was acquired for the purpose of acquiring/investment in capital assets. Therefore the benefit of remission of loan amounts to be .....

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es, bonds and debentures filed its return of income for assessment year 2008-09 on 30-09-2008 declaring total income at ₹ 3,77,24,331/-. The return was selected for scrutiny and the AO after issuing statutory notices and receiving replies passed the assessment order u/s 143 (3) of the Act on 06-10-2010 assessing the total income of the assessee at ₹ 12,33,24,300/- after disallowing ₹ 8,41,34,321/- in respect of waiver of loan and ₹ 14,65,654/- in respect of interest. The .....

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ding that the assessee had advanced interest-free loans to its subsidiaries/sister concerns. Aggrieved by this order of the learned CIT (A), the Revenue as well as the assessee, both is now in appeal before us on the grounds mentioned hereinabove. 3. The sole effective ground raised by the Revenue before us is that the learned CIT (A) has erred in deleting the addition of ₹ 8,41,34,321/- being disallowance of principal amount of loan waived by the lender on account of one time settlement o .....

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iable to be taxed as held in the case of Solid Container Ltd. Vs. DCIT reported in 308 ITR 417. 4. We have heard both the parties and have also perused the materials placed on record as well as the orders of the authorities below. Before we decide the merits, it is necessary to analyze the order of the learned CIT (A). The relevant part of the order of the learned CIT (A) is reproduced herein below:- 4.7 I have considered the A.O. s order as well as the appellant s A/R submission. Having conside .....

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lant as revenue receipt u/s 41(1) r. w. s. 28(iv) of the IT Act keeping on the jurisdictional High Court decision in the case of Solid Container Ltd. (supra). 4.8 Having considered the appellant s submission, wherein the appellant s A/R specifically drawn my attention to the observation of Bombay High Court s judgment (supra) referred by the A. O., which is given on page no.421 of the decision, which is reproduced as under:- The facts of the present case are entirely different as much as it was .....

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.9 The appellant s A/R, having drawn my attention to the aforesaid observation of jurisdictional High Court decision submits that virtually the case and observation of jurisdictional High Court support the case of the appellant, as the appellant loan was acquired on account of making investment/acquisition of capital asset, hence the waiver of such loan account cannot be termed by any stretch of imagination as revenue receipt, as the said loan was not acquired on trading receipt, but on account .....

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ourt was dealt on which the A. O. relied upon and then after in both the decision it has been specifically held that the remission or reduction of liability, which is created on capital account as the case of the appellant. Hence in the given aforesaid fact of the appellant s case, the same cannot result in a revenue receipt making it taxable u/s 28 or u/s 41 of the IT Act. Further I find that the Madras High Court in aforesaid case (supra) has held specifically that once the loan was obtained f .....

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recent judgment of Hon ble Delhi High Court in the matter of Jubiliant Securities Pvt. Ltd. in ITA No.503 of 2010 reported in 197 Taxman 394/9, where3in the Hon ble High Court has held that once the loan taken was utilized to generate capital asset and i.e. investment in shares, hence on the waiver of such loan, the character of loan will not change and will remain capital receipt itself, as the purpose of loan, which was utilized by the appellant was for investment in shares. 4.12 Thus having t .....

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Securities Pvt. Ltd. (supra), I consider it proper and appropriate to hold that the A. O. was not correct in taxing the aforesaid waiver of loan as revenue receipt. Accordingly on the basis of aforesaid facts of the appellant s case and also having taken note of the legal position pronounced by various courts as extracted above, I consider it proper and appropriate to hold that the aforesaid waiver of loan is capital receipt and hence t he same is not taxable. Accordingly the addition made by th .....

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le Bombay High Court in the case of Solid Containers Pvt. Ltd. reported in 308 ITR 417 (Bom.). As per the said judgment also the Hon ble High Court has considered the provisions of Section 28 (iv) which reads as under:- Section 28 (iv) of the Income-tax Act, 1961 - Business income - value of any benefit or perquisite arising from business or exercise of profession - Assessee had taken a loan from p during previous year for business purpose which was written back in relevant assessment year as a .....

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am Iyengar & Sons Ltd. (1996) 88 Taxman 429, upheld the order of Assessing Officer - Whether order of Tribunal was in accordance with settled position of law and, therefore, it was to be upheld - Held, yes . 5.1 The learned DR while relying upon the aforesaid judgment has categorically pointed out that since the facts of the aforementioned case are similar to the present case, therefore, following the decision of the Hon ble Supreme Court in CIT v. T. V. Sundaram Iyengar & Sons Ltd. (199 .....

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, therefore, it is crystal clear that the amount received by the assessee being waiver is chargeable to tax and hence, the same has rightly been added by the AO to the total income of the assessee. 6. On the other hand, the learned AR submitted that during the previous year the assessee had entered into One Time Settlement agreement with M/s. Mafatlal Finance Co. Ltd. in respect of amount payable against outstanding loan. Consequently, an amount of ₹ 12,17,18,379/- being no longer payable .....

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t. However, the provision of section 41(1) of the Act is not applicable in respect of principle loan amount. In this regard the learned AR relied upon the decision of the Hon ble Bombay High Court rendered in the case of Mahindra & Mahindra Ltd. Vs CIT reported in 261 ITR 501 (Bom.) and the decision of the Hon ble Delhi High Court rendered in the case of CIT Vs Tosha International Ltd. reported in 176 Taxman 187 (Del.). Further, the learned AR submitted that regarding taxability u/s 2 (24) f .....

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was further submitted by the learned AR that waiver is capital account as the loan was utilized in shares of subsidiaries and in other companies. As the said loan was not taken for assessee s trading, the write back thereof does not give any rise to any tradeable receipts. In this connection, he relied upon the decision rendered in the case of Accelerated Freeze & Drying Co. Ltd. Vs DCIT reported in 31 SOT 442 (Coachin). It was further submitted by the learned AR that whenever on account of .....

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ents as well as the orders of the authorities below we are of the view that the moot question for consideration before us is as to whether the receipt is capital or revenue in nature and whether the assessee was in the business of financing or trading. In this respect we have appreciated the submissions of the learned AR and have also noted that in this regard the assessee has already taken a specific stand before the AO which is already mentioned in the submissions made by the assessee before t .....

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ctional High Court rendered in the case of (i) Solid Containers Ltd. Vs. DCIT [308 ITR 417] and (ii) Mahindra & Mahindra Ltd. Vs. CIT [261 ITR 501 (Bom.)] and the learned CIT (A) after considering the submissions recorded from Para 4.1 to 4.12 of his order has rightly come to the conclusion that the AO was not correct in taxing the aforesaid waiver of loan by treating the same as revenue receipt. No new material has been brought on record by the revenue to rebut/controvert the findings of th .....

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