TMI Blog2021 (6) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the assessee, which shows that the loan amount has been paid by Tabcorp Ltd to GE capital services India Ltd on behalf of the assessee, and further the original loan was credited to the overdraft account of the assessee. CIT A has categorically stated that assessee has not produced any evidence that the assessee has purchased any terminals. There was no evidence available that whether the loan was used for the acquisition of any capital asset or not. Moreover, the learned assessing officer while making the addition has also not stated that under which provisions of the act the above income is treated as business income of the assessee. Therefore, we set-aside the whole issue back to the file of the learned assessing officer with a direction to the assessee to justify its claim in view of the decision of MAHINDRA AND MAHINDRA LTD. THRG. M.D. AO may examine the claim of the assessee and decide the issue afresh.Disallowances on depreciation on assets in the premises sealed by the government of India due to ban of lottery business. Addition on account of interest on inter corporate deposit given to MAC Solution Pvt Ltd.- HELD THAT:- We have carefully considered that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them together, therefore both these appeals are disposed of by this common order. 2. ITA number 1883/Del/2013 is an appeal filed by the assessee against the order of the Commissioner Of Income Tax (Appeals) XIII, New Delhi (the learned CIT A) dated 29th of January 2013 for assessment year 2008 09 wherein by that order the learned CIT A disposed of the appeal filed by the assessee against the order of assessment passed u/s 143 (3) of The Income Tax Act, 1961 (The Act) dated 21 December 2010 by the Asst Commissioner of income tax, Circle 10 (1), New Delhi (the learned AO) p partly allowing that appeal. However the learned CIT A confirmed the addition of ₹ 99,512,500, upheld the disallowance of depreciation of ₹ 89,311 and upheld the addition of ₹ 1,654,200 on account of interest income. Therefore assessee is aggrieved and has preferred this appeal raising following grounds of appeal:- 1. a) In upholding the addition of ₹ 99,512,500/- merely on the basis of presumptions and suspicions, treating the amount as revenue in nature, ignoring the various judicial pronouncements and material on record. b) in upholding that the amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his receipt is revenue in nature. b. Upheld the disallowances on depreciation on assets in the premises sealed by the government of India due to ban of lottery business. c. upheld the addition of ₹ 16,54,200/- on account of interest on inter corporate deposit given to MAC Solution Pvt Ltd. 4. On the first ground of appeal with respect to the sum received ₹ 99,512,500/- from Tabcorpon, only argument of the ld AR is that issue is squarely covered by the decision of the Hon‟ble Supreme Court in case of Mahindra and Mahindra Ltd and therefore the matter may be set aside to the file of the ld AO to decide the issue in accordance with that decision. 5. The ld DR vehemently supported the orders of the lower authorities and submitted that the whole of the amount received on account of waiver of loan is revenue receipt in nature. 6. We have carefully considered the rival contentions and peruse the orders of the lower authorities. Coming to the Ground No. 1 the ld AO noted that in the tax audit report in form 3CD the assessee has disclosed that sum of ₹ 9,95,12,500/- as capital receipt which is not credited in the profit and loss account. The facts rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case. It is seen that appellant is a subsidiary of Apollo International which was set to run E-Business under the name Encorp E- Services with an authorized capital of ₹ 5.0 Crore. On 28th May 2002, AIL entered into a business agreement with M/s Jupiter International Pvt.ltd., an Australian company to establish its new online business. Business operation of Encorp E- Services were started and M/s Jupiter International Supplied and installed Lottery Terminals in India as retail outlets of AIL. Encorp E-Services commenced its business operations w.e.f 01.12.2003. During the course of business operations it came to the notice of the appellant company that the Lottery terminals installed by M/s Jupiter International Pvt.ltd have failed due to one hardware and software fault or the other. The problem of failure of the terminals was discussed in detail at the meeting held between M/s Jupiter International and Encorp at Sydney on 29.04.2004 and 30.04.2004 at Melbourne. Both the parties agreed to take actions to rectify the situations. As per Para-2 of Minutes of dated 30.4.2004 it was agreed by M/s Jupiter International Pvt.ltd that under the current circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties under the loan facility including the NAB stand by letter of credit. The standby credit amount of US$ 51,25000 was paid by the Tabcorp to the National Australian Bank and the appellant company has been discharged of its liability from the loan amount to the extent of ₹ 9,95,12,500/-. The appellant company credited this amount to the reserve and surplus account in its books. The auditors have mentioned in the Audit Report that the amount represents capital receipts and has been credited to the capital reserve account. The appellant claims that loan was taken from GECSI for capital purposes i.e. installation of additional POS terminals and repayment of existing debts. The loan from GECSI was not connected with the running of business of the appellant. It is not a trading transaction. Any surplus arising out of capital transactions would necessarily be capital in nature. Therefore, such receipts have been treated as capital receipts. The submission of the appellant as well as the copy of the loan agreement entered into with G.E. Capital Services India Ltd. has been gone through, it is seen that loan was raised to re-finance the existing debt and to make payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a scenario, the waiver of loan to the extent ₹ 7,61,37,634/- (99512500 - 23373866) would be an item of revenue receipt as the amount of loan to the extent of ₹ 16,45,00,000/-( ₹ 12,15,00,000/- repayment of OD facility taken for business purposes + ₹ 43000000/-loan to Sister concern ) is used for the repayment of the loan and giving loan for the purposes of business and not for acquiring any capital assets. In view of the above discussion, it is held that appellant has not produced any evidence to show that an amount of ₹ 5,05,00,000/- was used for repayment of term loan of Bank of Rajasthan. Accordingly, the whole of the amount of ₹ 9,95,12,500/-received on account of waiver of loan is treated as revenue receipt in the hands of the appellant which was on account of loan taken for business purposes. It is also seen that remission of loan was in-connection with the business agreement entered with the Tabcorp and the discharge was related to the non functioning of the lottery business properly. Therefore, the surplus received on account of remission was intriguingly connected with the business of the appellant and such receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was earned in the course of doing such business. Admittedly, the assessee had discontinued its business of printing and publishing newspapers from 1969 onwards and the business of publishing newspapers done by the sister concerns could not be considered to be the business done by the assessee. Therefore, the income derived by the assessee by letting out the machinery and the motor vehicles would be as the owner of the same and the letting would not in any way relate to the business. When the income was not earned in the course of the business, it could not be assessed under the head Business income . It could not also be said that the assessee was doing any business and exploiting the assets in the said business. Therefore the printing machinery and the motor vehicles could not be considered to be commercial assets. The income derived by letting the machinery and the motor vehicles was income from other sources. In the course of the assessee s business as a dealer in shares, the assessee borrowed moneys from various sharebrokers. The interest provided for in the accounts in respect of such borrowals was claimed as a deduction and was allowed as such in computing the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re separately reckoned and offered by the assessee as business income, whereas the balance was treated as rental income, assessable under the head Property . The assessee's claim that the air-conditioning charges should be taxed as business income was rejected. This was confirmed by the Tribunal. On a reference: Held:-that the assessee was not doing business in letting out the premises. There was no separate agreement for payment for the supply of air conditioning facility. In the common rental receipt, the charges for supplying air-conditioning facility were shown separately. The air-conditioning facility was supplied along with other amenities, like electricity, lifts, water, etc. When premises are let, the various amenities provided by the owner of the premises cannot be considered to be under a separate business venture. The supply of airconditioning facility alone could not be separated from other amenities provided by the assessee to the tenants and considered as a business venture done by the assessee. The charges received for supplying the air-conditioning facility had to be assessed under the head Other sources , instead of under the head Business income . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly culled out the principle laid down from the various judgments and had given an opportunity to the assessee to prove its case before the Assessing Officer. Therefore, there was no reason or occasion for the assessee to feel aggrieved by the order of the Tribunal. The assessee was an investment company engaged in the business of sale/purchase of shares and business of taking loans and further providing loans to parties. The Assessing Officer made an addition of ₹ 25 lakhs on account of unsecured loan written back relating to the assessment year 2004- OS. The Commissioner (Appeals) confirmed this. The Tribunal deleted the addition on the ground that since the assessee had not claimed any deduction in respect of the loan, section 41(1) would not be attracted. On appeal : Held:- dismissing the appeal, that in pursuance of the business of financing, the assessee advanced loans at interest. Such loans were advanced out of interest free own funds available with the assessee in the form of share capital and reserves or out of borrowed funds in the form of loans. The loans borrowed were to augment the funds available with the assessee to be advanced on interest. Such loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and offered the same as income. However, the principal amount of loan waived by the bank to the extent of ₹ 2.91 crore was not taken to the profit and loss account but was taken directly to the balance sheet by creating a capital reserve. The principal outstanding loan amount of ₹ 4.76 crore was settled for ₹ 1.85 crore, and the balance outstanding principal amount of ₹ 2.91 crore had been written off by the bank after accepting the payment of ₹ 1.85 crore against total outstanding principal amount of ₹ 4.76 crore. It was claimed by the assessee that this principal amount written off by the bank did not fall within the ambit of ‗cessation of liabilities as contemplated under section 41 and, therefore, it was not chargeable to tax. The Assessing Officer held that since loan amount was related to the business of the assessee, the same would be assessable under the head ‗business . He, therefore, brought the amount of₹ 2.91 crore to tax as income includible in the assessee s total income. On appeal, the Commissioner (Appeals) decided this issue in favour of the assessee by holding that the provisions of section 28(i) or 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank in cash credit account. On the other hand, the material available on record including the notes to the accounts indicated that the assessee had obtained the loan or credit facility by way of hypothecation of finished goods, semi-finished goods, raw material, book debts, receivable claims, securities, and rights by way of first charge, which indicated that the assessee had obtained the loan facility for its business activity or trading operations. However, this aspect of the matter, whether the whole of the loan amount had been utilized either for the purpose of acquiring capital asset or for the purpose of business activity or trading activity, had neither been looked into nor examined by the authorities below nor the assessee had established that the loan amount was utilized only for the purpose of acquiring capital asset. In the aforesaid circumstances, the issue was to be restored to the file of the Assessing Officer for his fresh adjudication with a direction to the assessee to furnish all the details and particulars of loan, and the purpose for which the loan taken from bank was utilized. All these informations were within the control and specific knowledge of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any capital asset or not. Moreover, the learned assessing officer while making the addition has also not stated that under which provisions of the act the above income is treated as business income of the assessee. Therefore, we set-aside the whole issue back to the file of the learned assessing officer with a direction to the assessee to justify its claim in view of the decision of the honourable Supreme Court in 404 ITR 1. Learned assessing officer may examine the claim of the assessee and decide the issue afresh. Accordingly, ground number 1 of the appeal is allowed with above direction. 8. The second ground of appeal is with respect to the depreciation on assets lying in the premises, which has been sealed by the government of India. The ld AR stated that identical issue arose in case of the assessee for assessment year 2007-08 wherein this claim was allowed on identical facts and circumstances of the case hence; this issue is squarely covered in favour of the assessee. The ld DR supported the orders of the lower authorities. We have carefully considered that the above issue is squarely covered in favour of the assessee by the decision of the coordinate bench in IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed interested the rate of 8% on the amount of loan given to this company of ₹ 180 lakhs and also 9% on the amount due from another company the total interest amount accrued to the assessee is of ₹ 1,654,200 is the income accrued to assessee in financial year 2007 08 and same is to be taxed during this year only therefore he confirmed the action of the AO. Thus, assessee is aggrieved. 10. The ld AR stated that assessee is governed by the proposition of accounting standard and accounting standard 9 which relates to revenue recognition which clearly says that where the ability to assess the collection with reasonable certainty is lacking at the time of receiving the claim, but the revenue recognition is required to be postponed to the extent of uncertainty involved. Therefore, as there is no certainty looking to the facts and circumstances of the case of the above income, it was not recognized and it is not taxable as no revenue accrued to the assessee. Per Contra, the ld DR submitted that assessee is following mercantile system of accounting, which is not permitted. According to mercantile system of accounting, the assessee is duty bound to recognize the income of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above interest income has accrued to the assessee might not have been received. Assessee being a company is required to maintain its books of accounts only on accrual basis. The receipt of the consideration/interest is irrelevant as far as accrual of the interest income is concerned. We have also considered the agreement dated 8 July 2005 between assessee and other parties wherein as per clause number 3 (d) there is a stipulation of interest. Therefore, it cannot be said that there was no stipulation of payment of interest on loan given to the maximum is private limited. There cannot be two meanings of the word accrual when interpreting for maintaining the books of accounts which is also amended of the law of the companies act u/s 209 of the companies act 1956, as well as for the purpose of taxation. 13. Assessee before us and stated that there is an uncertainty of recovery of the original amount of advances (ICD) and therefore in absence of any reasonable certainty of the recovery of the principal sum the interest cannot be said to be accrued to the assessee. The assessee has not produced any document/resolution/financial position of the companies to move the assessee has g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l)(c) of the Income Tax Act, 1961 by the Ld. AO. 19. In view of our decision in appeal of the assessee for assessment year 2008 09 wherein respectfully following the decision of the coordinate bench in assessee‟s own case we have directed the lower authorities to delete the disallowance of depreciation on assets lying in the premises sealed by the government due to ban on lottery business, we allow ground number one of the appeal and direct the lower authorities to delete the disallowance of depreciation of ₹ 75,914/ . 20. Ground number 2 is with respect to the chargeability of interest on intercorporate deposits given to various parties, the identical issue has been dealt with us in the appeal of the assessee for assessment year 2008 09 wherein we have upheld the action of the lower authorities. For similar reasons we uphold the actions of the lower authorities in bringing to tax the sum of ₹ 1,654,200/ on account of interest given on ICDS which is accrued to the assessee but not received. 21. The ground number 3 is with respect to the initiation of penalty proceedings, which is premature at this particular stage, and hence it is dismissed. 22. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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