TMI Blog2018 (11) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... lanning and business philosophy which resulted in providing more remuneration to the employees. The assessee has also provided comparative details of salary payment during the year under consideration compared to the preceding years. AO has not found any defect in the books of accounts and bills and vouchers furnished by the assessee in support of its claim. CIT(A), we observe that AO has disallowed these expenses on presumption basis without disproving the evidences and document/ material furnished by the assessee.- Decided against revenue - ITA No. 2479 & CO No. 272/Ahd/2014 - - - Dated:- 6-9-2018 - Shri Rajpal Yadav, Judicial Member And Shri Amarjit Singh, Accountant Member For the Assessee : Shri Vartik Chokshi, AR For the Revenue : Dr. Banwarilal, CIT-D.R. ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- This revenue s appeal and assessee s cross objection for A.Y. 2011-12, arise from order of the CIT(A)-VIII, Ahmedabad dated 13-06-2014, in proceedings under section 143(3) of the Income Tax Act, 1961; in short the Act . 2. The revenue has raised following grounds of appeal:- 1. a) The Ld. CIT(A) has erred in law and in facts in deleting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer noticed that assessee has shown an amount of ₹ 3,21,66,204/- being liability ceased to exist. The assessing officer has asked the assesssee to explain why the aforesaid amount should not be treated as income u/s. 28(iv) of the act. The assessee explained that there was an outstanding loan liability due to M/s. Adani Agro Pvt. Ltd of ₹ 7,00,25,697/- out of this outstanding loan an amount of ₹ 3,21,66,204/- was no longer required to be paid therefore the same was credited to Profit and Loss Account for the year ending on 31st March, 2011. It was also submitted that the said amount was written back as loan and it was never routed through the profit and loss account in any preceding years . The assessee has also placed reliance on the decision of Hon ble Gujarat High Court in the case of CIT vs. Chetan Chemical Pvt. Ltd. 267 ITR 770. The assessing officer has not accepted the explanation of the assessee and treated the ceased liability as its income. 5. Aggrieved assessee filed appeal before eh ld. CIT(A). The ld. CIT(A) has deleted the addition made by the assessing officer. Relevant part of the decision of ld. CIT(A) is reproduced as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endum Group from Adani Group and in such process balance loan of ₹ 3.22 crores was waived off and liability was no longer required to be paid. Hence such amount was shown as income in audited profit and loss account filed along with Return of Income. However, while computing total income, this amount was considered as capital receipt which was assessed as Revenue Receipt by Assessing Officer invoking Provisions of Section 28(iv) r.w.s. 41(1) of the Act. If is an undisputed fact that loon taken by Appellant was for capital purposes. When loan was not taken for meeting trading liability, remission of such loan cannot be taxed as revenue receipt in the hands of Appellant Company. The character of loan at the time of borrowing as well as at the time of writing off has not changed. It remained capital in nature. The appellant has also not claimed any deduction on account of that loan from the income. The loan was not taken for trading purposes. The appellant company is also not in the business of borrowing and lending money in normal course. The Hon'ble Gujara't High Court in the case of Chetan Chemicals 267 ITR 077 has held that if no allowance of deduction has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be termed as a trading transaction and it cannot a/so be construed in the course of business. Indisputably, the assessee obtained the loan for the purpose of investing in its capital assets. A part of that loan amount along with the interest was waived by way of an agreement between the parties. Therefore, the facts involved in the instant case were totally different in the facts involved in T.V. Sundaramyengar Sons Ltd. 's case 'supra', in the said case, admittedly, there was a trading transaction whereas, in the instant case, it was rot so. What had been done in the instant case was a mere waiver of loan. It was only a waiver which had been effected by the bank in favour of the assessee. There was no change of character with regard to the original receipt which was capital in nature into that of a trading transaction. [Para 22] it is a well-established principle of law that every deposit of money would not constitute a trading receipt. Broadly speaking, even though a receipt may be -in connection with the business, it cannot be said that every such receipt is a trading receipt. Therefore, the amount referable to the loans obtained by the assessee toward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ceased loan liability of ₹ 3,21,66,204/- as income of the assessee. It is undisputed fact that the amount written back was actually an outstanding loan which was never routed through the P L account of any previous year. The ld. CIT(A) has deleted the addition stating that waiver of loan amounted to capital in nature. During the year under consideration management of the assessee company was taken over by Ascendum Group form Adani Group and in such process balance loan of ₹ 3.22 crores was waived off and liability was no longer required to be paid. He has also placed reliance on the decision of Hon ble Gujarat High Court in the case of Chetan Chemical 267 ITR 077 wherein it is held that if no allowance of deduction has been claimed in any of the preceding years in respect of liability cases to exist then there is no question of applying the provisions of section 28(iv) r.w.s. 41(i) of the act. In the light of the above facts, it is noticed that the assesse company has taken a loan from Adani Agro Pvt. Ltd for the purpose of investment in capital assets and a part of the loan as mentioned above was written off during the year under consideration. The Ld. Counsel ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever in the case of the assesse the loan was taken in the initial year of the company for capital expansion and the loan was written off as capital in nature and assessee had also not claimed any deduction on account of that loan from the income. After considering the above facts and the findings, we do not find any infirmity in the decision of the ld. CIT(A). Therefore, the appeal of the Revenue is dismissed. Ground No. 2 (Deleting the disallowance of ₹ 3,44,78,600/- on account of employee s benefits) 7. During the course of assessment proceedings, the assessing officer observed that assessee had debited an amount of ₹ 6,09,24,425/- being payment and provisions for employee s as against such expenditure incurred for last year was amounting to ₹ 2,14,06,378/-. Accordingly, the assessing officer has issued show cause notice to the assessee to justify the increase in the provision for the employees during the year under consideration as compared to the preceding years. The assesssee has explained the same by giving year wise comparative break-up of the expenses and increase in salary, wages and bonus and staff welfare expenses for the year under considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and provision for employees which works out to ₹ 2,64,60,231/- and balance expenditure of ₹ 3,44,78,600/- was disallowed. On the other hand, appellant has submitted that during the course of assessment proceedings, it has submitted, breakup of payment towards employees, salary register, ledger accounts of IDS on salary, challan of IDS payments, stipend salary and staff training register, bank payment to prove genuineness of expenditure. It was also explained that it had acquired new client- Idea cellular as well as it had acquired new export projects from its existing clients in export business of its accounting domain U.K. and Mortgage Loan processing domain in USA, for which it had to hire new employees-, trainees etc, and therefore, there was an increase in payment towards salary. It was also argued that revenue generated during the year was from different clients in comparison with immediately preceding years and nature of work carried out by required more manpower hence it had to employ more employees trainees and Apprentice which has led to increase in salary other expenditure and such expenditure cannot be disallowed merely on presumption without pointin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, the AO was not justified in making an estimate by comparing proportion of expenses to income and compare it with that of earlier year. The margins in each contract of outsourcing are different and in this very line, one contract may require more employees and another contract may require lesser employees and even by employing lesser employees, Assessee can earn huge revenue or margin. The observation of Assessing Officer that Appellant is paying a meager salary to number of employees which is unlikely in the business of outsourcing cannot be accepted as requirement of employees in outsourcing business solely depends upon the nature of work carried out by Assessee as discussed herein above. During the year under consideration Appellant has employed more employees towards ICL project and in such contract Appellant has to employ more employees on shift basis and they may not be professionals like CAs or MBAs but employees with basic communication skills and education qualifications also meet the requirements. Even during the course of Appellate Proceedings Appellant has given complete details of entire salary payment including salary register, TDS payment, stipend and staf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the revenue. But it must not suffer from the vice of collusiveness or colourable devices. In view of the above discussion the disallowance of ₹ 3,44,78,600/- made by Assessing Officer is directed to be deleted. This ground of appeal is accordingly, allowed. 9. We have heard the rival contentions and perused the material on record carefully. On perusal of the detailed furnished by the assessee, we find that assessee had demonstrated that increase in salary and other related expenditure was because of the business requirement of the assessee during the year under consideration. The main factors connected to the increase in the impugned expenditure are briefly described that assessee has received new contract Idea Cellular which require more manpower as compared to earlier years. There is a change of management of the company which resulted in different business planning and business philosophy which resulted in providing more remuneration to the employees. The assessee has also provid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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