TMI Blog2020 (12) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... amount in their books of accounts. In the absence of any particulars pertaining to the previous years books of accounts, it is difficult to arrive at a decision and therefore, in order to grant one more opportunity for production of books and accounts to substantiate their case, we are inclined to remit the matter back to the Assessing Officer. Accordingly, the order of the Income Tax Appellate Tribunal is set aside and the matter is remitted back to the Assessing Officer and the appellants/assessees are directed to submit the entire particulars including books of accounts for the year 2003-2004 and also of the previous years. ICICI bank also shall submit the entire particulars regarding the loan transaction with the assessees. The Assessing Officer, after giving reasonable opportunity to the assessees as well as the Bank, for submission of the entire particulars, is directed to consider all the particulars and pass orders. - T.C.A.Nos.133 And 135 of 2019 - - - Dated:- 10-11-2020 - Hon'ble Mr. Justice N. Kirubakaran And Hon'ble Mr. Justice P. Velmurugan For the Appellants : Mr.R.Vijayaraghavan for Subbaraya Aiyar Padmanabhan For the Respondent : Mr.Karth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... represents money lent in the ordinary course of business of banking or money lending which is carried on by the assessee. The amount written off includes principal amount of ₹ 151.28 lakhs due from Sivananda Steels and ₹ 27.10 lakhs due from Nutech Organics Ltd., The A.O. neither called for the account copies of these persons or examined how the amount of principal could be allowed as deduction under Section 36(1)(vii). He also failed to examine whether the interest portion has been taken into account in the computation of income of earlier years. 2.2 Insofar as TCA.135 of 2019 M/s.Kothari Biotech Limited, is concerned, the reasons for issue of notice u/s.263 are as under:- (i) The assessee has claimed preoperative expenses of ₹ 1,81,54,653 which was accepted by the assessing officer without any verification and details of the same. The preoperative expenses as on 31.3.2003 was ₹ 2,36,27,733 and as on 31.3.2004 was Nil. (ii) The assessing officer erred in not bringing to tax the amount of ₹ 2,83,94,314 being the relief to the assessee under one time settlement by the banks. The A.O., failed to verify the details of the write off and how the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fils the conditions laid down under the Act. 5. Likewise, in respect of assessee/M/s.Kothari Biotech Ltd., (i) Preoperative expenses of ₹ 1,81,54,653/-, (ii) Debts written back in the profit and loss account deducted from the total income of ₹ 2,83,94,314/- and (iii) Depreciation of machinery and other aspects not put to use, the CIT by proceedings dated 27.03.2009, directed the Assessing Officer to call for necessary details and examine the claim. 6. (a) The Assessing officer, on 30.11.2009 and 13.11.2009, after reconsidering the issue, passed the Assessment Order. As far as Waiver of loan is concerned, the assessee company/M/s.Kothari International Trading Ltd., claimed that waiver of loan does not constitute income as it is a capital receipt. While the Assessing Officer considering the claim and the decisions relied on by the assessee, held that the case quoted by the assessee has no relevance to the assessee's case and held that as per Section 28(iv) of the Act, the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable as income under the head Profit and Gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Aggrieved by the said order of Assessment passed by the Assessing Officer, the assessees filed appeal to the Commissioner of Income-tax (Appeals)-III. 9. The CIT (Appeals)-8, by order dated 24.11.2016, for the two issues (a) disallowance of Principal amount waived by Bank ₹ 2,72,10,113/- and (b) disallowance of write off advances ₹ 3,68,76,832/-, confirmed the findings of the assessing officer and rejected the ground raised by the assessee and dismissed the appeal filed by the assessee/Kothari International Trading Ltd. 10. Secondly, the CIT (Appeals)-8, by order dated 24.11.2016, partly allowed the appeal filed by assessee/Kothari Biotech Ltd. The CIT (Appeals), answered the three issues in the appeal viz., a) Disallowance of Principal amount waived by Bank ₹ 1,73,66,319. (b) Disallowance of depreciation for ₹ 20,80,639/- and (c) Disallowance of pre operative Exps.₹ 1,81,54,653. 11. (a) In respect of issue (a), disallowance of waiver of principal amount of loan, is concerned, the CIT (Appeals) followed the decision of this court in the case of Ramaniyam Homes (P) Lrs, [2016]384 ITR 530 (Mad) and held that even the waiver of principa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter. The assessee has been earning only interest income and agricultural income ever since the suspension of its business activities in September 1999, there is no way the appellant claim deduction of pre-operative expenses as per the provisions of the Income Tax Act; even if certain preliminary expenses as enumerated in section 35D(2) are involved they can only be allowed to be amortised after the commencement of the business, as rightly observed by the Assessing Officer, hence, disallowance of pre-operative expenses of ₹ 1,81,54,653/- made by the Assessing Officer is confirmed. 12. Before the Income Tax Appellate Tribunal, the two independent assessees M/s.Kothari International Trading Ltd., and M/s.Kothar Biotech Ltd., filed appeals against the order of the CIT (Appeals) dated 24.11.2016, pertaining to the assessment year 2004-05. The Income Tax Appellate Tribunal, considered the identical issue in Ramaniyam Homes (P) Ltd. ,wherein the Madras High Court, referring to earlier judgment in Iskraemeco Regent Ltd., observed in para 42 and 43 held that the loan amount waived by ICICI Bank has to be necessarily considered as revenue receipt, hence it is taxable. (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Assessing Officer that the waiver of the loan by the bank does not constitute income and it is a capital receipt, therefore, it is not taxable in the hands of the assessees. All the receipts in connection with the business are not Trading Receipts. Since the assessee company has not utilized the amount for business purpose, waiver of the loan cannot be considered to be income either under Section 41(1) of the Act or Section 28(iv) of the Act. 17. The learned counsel for the assessees would submit that the controversy in the present case is covered by the decision in CIT Vs. Mahindra and Mahindra Limited ((2018) 404 ITR 1 (SC) in which the Honourable Supreme Court has held that waiver of the loan by the Bank is not taxable either under Section 28(iv) of the Act or under Section 41(1) of the Act as it is not a trading liability on which some deduction was claimed in the earlier year which is being remitted or waived by the Bank. 18. The learned Standing counsel for the Revenue would submit that the assessee borrowed loan and loan was waived by the ICICI/lender. The assessees claimed that it is a capital receipt in the hands of the assessee. Further it was claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest is an income taxable u/s.28(iv) of the Act and also Section 41(1) of the Income Tax Act. 20. The only ground raised in the present appeals is that the waiver of the loan cannot be considered to be an income either u/s.28(iv) or under Section 41(1) of the Act. The learned counsel for the assessees has placed reliance on the following decisions:- (i) CIT Vs. Mahindra and Mahindra Limited ((2018) 404 ITR 1 (SC)) (ii) Tirunelveli Motor Bus Service Co Ltd., Vs. CIT 78 ITR 55 SC (iii) CIT VS Rayala Corporation Ltd 218 Taxman 11 (Mad) (iv) CIT Vs. Bhawan Va Path Nirman (Bohra) Co. 258 ITR 440 Raj (v) CIT R.Radhika TCA 1224 of 2008 (Mad) (vi) Narayan Chettiar Indutries Vs ITO 277 ITR 426 Mad. 21. A careful perusal of the entire materials placed before this court, would go to show that the appellants are Income Tax assessees. The return of income was submitted by the assessees on 29.10.2004. The case was selected for scrutiny under Computer Aided Scrutiny Selection (CASS) and notice u/s.142(1) calling for certain information was sent and the Assessing Officer completed the assessment on 30.08.2006 u/s.143(3) of the Act and since the assessment complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the extent of waiver. Alternatively, the amount representing the waived portion of the loan is shown as a capital receipt in the profit and loss account itself. In view of the above, the waiver of principal amount would constitute income falling under Section 28(iv) being the benefit arising for the business. Thus, the CIT (Appeals) held that even the waiver of principal amount would constitute income falling under Section 28(iv) being a benefit arising for the business. Accordingly, the CIT (Appeals) confirmed the order of the Assessing Officer including the waiver amount to the income of the assessees and dismissed the appeal in respect of disallowance being deduction claimed as debts written back in the Profit Loss account. 22. The said dismissal order was challenged before the Income Tax Appellate Tribunal. The Tribunal also found that the waiver of the interest by the ICICI was benefitted by the assessee and so, taxable and waiver of the loan can be construed to be income under Section 28 (iv) of the Act and also it is income under Section 41(1) of the Act. Challenging the same, the assessee has filed the present appeal. 23. Now the point for consideration is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be paid back along with the interest decided mutually by the parties. In other terms, the debtor is under a liability to pay back the principal amount along with the agreed rate of interest within a stipulated time. 11. It is a well-settled principle that creditor or his successor may exercise their ''Right of Waiver'' unilaterally to absolve the debtor from his liability to repay. After such exercise, the debtor is deemed to be absolved from the liability of repayment of loan subject to the conditions of waiver. The waiver may be a partly waiver i.e., waiver of part of the principal or interest repayable, or a complete waiver of both the loan as well as interest amounts. Hence, waiver of loan by the creditor results in the debtor having extra cash in his hand. It is receipt in the hands of the debtor/assessee. The short but cogent issue in the instant case arises whether waiver of loan by the creditor is taxable as a perquisite under Section 28(iv) of the IT Act of Taxable as a remission of liability under Section 41 (1) of the IT Act. 12.The first issue is the applicability of Section 28(iv) of the It Act in the present case. Before moving further, we deem i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxx'' 15. On a perusal of the said provision, it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year. if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. ''It is undisputed fact that the Respondent had been paying interest at 6% per annum to the KJC as per the contract but the assessee never claimed deduction for payment of interest under Section 36(1) (iii) of the IT Act. In the case at hand, learned CIT (A) relied upon Section 41(1) of the IT Act and held that the Respondent had received amortization benefit. Amortization is an accounting term that refers to the process of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for the payment of interest in respect of plant, machinery and tooling equipments which are capital assets of the assessee viz., Mahindra and Mahindra. The facts therein are very clear that the interest amount was paid regularly from time to time and also the said purchase effected had not been debited to the trading account or to the profit or loss account in any of the assessment years. The loan amount has been shown in the balance sheet in the heading of loans unsecured . Hence, it is submitted that the said sum cannot be brought to tax as it represents the loan and also not in the nature of income. 27. So based on the above said factual aspects, the Honourable Supreme Court held that it is not income under Section 28(iv) or Section 41(1) of the IT Act. But whereas in the present cases on hand, the Commissioner of Income Tax, Chennai I, who considered the assessment completed was erroneous and prejudicial to the interest of revenue, issued notice under Section 263 of the IT Act and in his order dated 27.03.2009, while setting aside the order of the assessing officer, remitted back the issues to the assessing officer to reconsider the issues with a direction to the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly upheld by the High Court and when the appeals along with Reference filed as Special Leave Petition, the Honourable Supreme Court has held that Section 28(iv) of the IT Act and Section 41(1) of the IT Act does not apply since waiver of loan does not amount to cessation of trading liability. 30. However, in this case, as already stated, the Assessing Officer has given opportunity to the assessee. But the assessee has not furnished the books and also details of the accounts in the previous year. Moreover, the Bank also not supplied any information in this regard. Therefore, in the absence of the particulars, the Assessing Officer, under Order u/s.143(3) read with Section 263 of the Act, found that it is taxable income. 31. In any event, the decision in the case of CIT Vs.Mahindra Mahindra was held on 24th April 2018. The Income tax Appellate Tribunal, by order dated 06th September 2017, while dismissing the assessees appeals, confirmed the order of the CIT (Appeals) and held in Paragraph 9 as follows:- 9. The Madras High Court subsequently had another occasion to consider an identical issue in Ramaniyam Homes P.Ltd (supra). After referring to its earlier judgment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks, as a natural entry. When a portion of the loan is waived, the total amount of loan shown on the liabilities side of the balance sheet is reduced and the amount shown as capital reserves, is increased to the extent of waiver. 32. A careful perusal of the Assessment order and the subsequent orders of the Appellate Authority show that in the absence of particulars sought for by the Assessing Officer and substantiating records and books of accounts with regard to the previous assessment orders for the previous years, they have arrived at the decision that waiver of the loan is based on the receipt and the income is taxable under section 28(iv) and 41(i) of the Act. Therefore, it is the duty of the assessees to furnish all the particulars including the accounts of the previous years. Unless the entire books of accounts of the assessees are submitted in the previous years, it is difficult to say how the assessees had treated the amount in their books of accounts. Therefore, under these circumstances, the decision relied on by the Honourable Supreme Court based on the factual aspects involved in that case, cannot be applied to the cases on hand. Here, the assessees have not submi ..... 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