TMI Blog2019 (11) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... mination of taxability of principal amount of working capital loan waived by Dena Bank. Nothing was brought on record to justify the conclusion that the provisions of Section 41(1) were not applicable to the case of the assessee overlooking the fact that the assessee was claiming as well as allowed deduction of interest on working capital loans in earlier years. Rather onus was placed on Ld. AO to establish this fact. Therefore, we find ourselves unable to subscribe to the view of learned first appellate authority, in this regard. Proceeding further, it transpires that the assessee obtained certain loans in the shape of non-convertible debentures and working capital loans in earlier years from Dena Bank. The working capital loan was secured by hypothecation of inventories, book debts and documentary DA bills and third-party cheques drawn in assessee s favor. The assessee has claimed as well as allowed the deduction of interest on working capital loan, which is evident from its financial statements for various years, as placed on record. As submitted that total expenditure on capital expansion was ₹ 1880 Lacs which was financed out of NCD, term loan, working capital l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of utilization of working capital towards capital expenditure in respect of waiver of loans relying upon the decision of Padamaraje R. Kadam bande Vs CIT 195 ITR (SC) which is different to the fact of the assessee . 2. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition made on account of waiver of interest on borrowing on the basis of statement and submissions received from Dena Bank stating that the waiver of interest to the tune of 148.33 lacs unilaterally levied by the Dena Bank and company had not provided the same in the books of accounts . 2.1 Facts in brief are that the assessee being resident corporate assessee was assessed u/s 143(3) r.w.s. 263 on 16/08/2012 wherein the income of the assessee was determined at ₹ 809.14 Lacs as against income of ₹ 195.59 Lacs determined as per order u/s 154 dated 21/11/2011. The assessment was originally framed u/s 143(3) on 24/12/2009 which was subjected to revisional proceedings u/s 263 by the order of Ld. Commissioner of Income Tax-1 on 29/02/2012 in view of the fact that- (i) waived-off interest of ₹ 851.54 Lacs as claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available in the shape of unsecured loans / internal accruals etc. and all these funds were diverted for capital expansion. 2.4 To verify assessee s claim, notice u/s 133(6) was issued to Dena Bank who furnished the details of one-time settlement as follows: - Ledger Outstanding (including amount prudentially written off) amount pertains to working capital limits at our New Marine Lines Branch, Mumbai. ₹ 729.81 Lacs Investments (NCDs) ₹ 600.00 Lacs TOTAL ₹ 1329.81 Lacs Interest not charged from 30/03/1999 to 31/08/2005 on working capital limits 742.18 Lacs Interest not charged from 30/03/1999 to 31/08/2005 on NCDs 236.50 Lacs TOTAL 978.69 Lacs TOTAL DUES (Principal + Interest payable) 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that NCD loan of ₹ 600 Lacs from Dena Bank and fixed period term loan of ₹ 550 Lacs was taken in the year 1996-97 for setting-up of projects for manufacturing and the said loan was taken for the purpose of acquisition of capital assets. The total cost of the project was estimated to be ₹ 1500 Lacs as against actual expenditure of ₹ 1880 Lacs. The balance funding was stated to have come from working capital loan as promoters contribution. Therefore, it was the submissions of the assessee that since all the funds (NCD, term loan as well as working capital loans) were diverted for capital projects, the waiver thereof would constitute waiver-off of capital liability not taxable either u/s 28(iv) or u/s 41(1) as per the decision of Hon ble Bombay High Court rendered in Mahindra Mahindra Ltd. (2003 261 ITR 501). 3.2 Regarding addition of interest differential of ₹ 148.33 Lacs, the assessee submitted that the said amount was never provided for in the books of accounts and therefore, the question of claiming the deduction of the same would not arise. 3.3 The Ld. CIT(A), after considering factual matrix, concurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an taken in the year 1997-98 and 1998-99 to finance the capital projects. The relevant record proving such nature of loans i.e. for capital projects and for non-convertible debenture is available in the instruments of sanction, auditor's report and such other material, which was available before the AO also. It has been clarified and distinguished in the decision in the case of Mahindra and Mahindra Ltd. Vs. CIT (2003) 261 ITR 501 (Bom), relied by the appellant also that waiver of loan is a capital receipt and cannot be brought to tax u/s 28 r.w.s. 41 of the I.T. Act. I would also observe that under the facts and circumstances of the case, there is no material and evidence brought on record by AO to disprove the prima-facie nature of transaction that (i)the One Time Settlement Scheme and waiver of loan by the bank was discretionary and compassionate thereby liable to be considered as Capital in the hands of the appellant which is non-taxable unless specifically provided under the provisions of the computation of 'Profit and gains of business or profession', u/s 41 of the I.T. Act, in reference to decisions of Hon. Apex Court cited above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is confined to trading liability particularly section 41(1) and section 41, is not applicable to the waiver of loan because as such no allowances or deduction are admissible and allowed for such loans in the computation of income under the head 'Profit and gains of business or profession' except the interest on such loans after commencement of business which is claimed in such way and had been allowed as such. However, such interest amounts falling within the waiver of loan or included therein has been already accounted in the profit and loss account of the appellant which is also not disputed by the Revenue. The appellant has submitted such bifurcations and accounting in its books of accounts, as reproduced above. Such bifurcation is not disputed and is accepted by AO, as noted in the assessment order also. 4.8 In context of addition made by AO in respect of principal amount of such loan, the other requirement is that it must be proved that allowance or deduction was given in an earlier year in assessment. It, is not open to the-revenue to refer to section 41(1) for charging the tax on receipts . Tirunelveli Motor Bus Service Co. Pvt. Ltd. Vs. CIT 78 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, the assessee 'had credited only an amount of ₹ 830.35 lacs to its profit and loss account whereas, as per the reply received from M/s Dena Bank, the actual amount of interest waived off was ₹ 978.68 lacs. Thus, the difference in the amount of interest waived off by the bank and the interest credited by the assessee to its profit and loss account has to be treated as income of the assessee. Thus, an amount of ₹ 148.33 lacs is being treated as income of the assessee. 5.1 The relevant submissions on this issue submitted during the appellate proceedings as reproduced in para-4.3 of this order is also further supplemented that- Assessee has reflected all these years the principle and interest on these loans in its books of accounts. To the extent of liability booked towards interest same is accounted as waiver of interest in profit and loss account and principal waiver is shown as capital reserve in the balance sheet. The assessing officer overlooked the facts and wrongly added difference in the interest based on bankers' letter and assessee's books of accounts. The balance in the company's bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired that the balance amount of interest ₹ 148.33 lacs, sought to be taxed should have been verified and proved to be debited and allowed to the appellant in the current year or in the earlier assessments, as also discussed in detail in the foregoing paragraphs of this order. Briefly, it is held that the 'onus' has not been discharged by the AO for this purpose. In fact, prima-facie there is no such case of allowance of this amount as it was not taken in the books of the appellant and was taken unilaterally by Bank towards penal interest' etc. as explained by appellant. Accordingly, under the facts and circumstances of the case and in view of the discussions as above, Ground No.2 3 of appeal is allowed. Aggrieved, the revenue is under appeal before us. 4. We have carefully heard the rival submissions advanced by respective representatives, perused relevant material on record including documents placed in the paper-book and deliberated on various judicial pronouncements as cited before us. 5. Upon perusal of impugned order, we find that learned first appellate authority failed to clinch the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r attention has been drawn to the financial documents of various years as placed in the paper-book. It has been submitted that total expenditure on capital expansion was ₹ 1880 Lacs which was financed out of NCD, term loan, working capital loan and internal accruals etc. as evidenced by addition to fixed assets, cash flow statements, statement of utilization of funds for capital expansion etc. This is contrary to the observation of Ld. AO that the assessee failed to prove such nexus despite being provided with adequate opportunity. Regarding differential interest amount of ₹ 148.33 Lacs, Ld. Sr. Counsel has submitted that such amount was never provided for in the books of accounts and therefore, the cessation of the same would not be covered u/s 41(1). 7. Keeping in view the entirety of facts and circumstances, we deem it fit to set-aside the order of Ld. CIT(A) on stated issues and direct Ld. AO to re-adjudicate the same de novo in the light of submissions made by Ld. Sr. Counsel, before us. The assessee, in turn, is directed to substantiate his stand, in this regard with documentary evidences including reconciliation of the interest differential. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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