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TMI Blog2023 (9) TMI 1016X X X X Extracts X X X X X X X X Extracts X X X X ..... f income-tax (Appeals) has erred is not appreciating that floating Rates notes is a loan raised by the assessee for trading purpose and waiver thereof is taxable. 3. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in .deleting addition in violation of following judicial pronouncements. i) Solid Containers Ltd. V. Dy. CIT (178 Taxmann. 192- Bombay High Court) ii) Logitronics (P) Ltd. V. CIT [197 Taxmann. 394(Delhi HC)] iii) Rollatainers Ltd. V. CIT (339 ITR 54 Delhi HC)] iv) CIT V. Ramaniyam Homes (P) Ltd. [(239 Taxmann. 486 (Madras H.C)]. v) CIT V. T.V. Sundram Iyengar & Sons Ltd. [(222 ITR 344 (Supreme Court)]. 3. For these and such other reasons as may be urged at the time of hearing, the order of the Id. CIT (A) may be vacated and that of the Assessing Officer be restored. 4. The appellate craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the Hon'ble ITAT." 2. Brief Facts of the Case : The brief facts of the case as mentioned in the assessment order are as under : The assessee is a Domestic Company. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet submitted as on 31-03-2014 for AY 2014-15. ......... 4.12 In view of the above the amount of waiver of loan of Rs. 143,71,02,003/- is held to be taxable under the provisions of Section 28(i)and 28(iv) and 41(1) of the Act.." 2.1 The Assessing Officer(AO) in the assessment order held that the amount of waiver of loan of Rs. 143,71,02,0038/- was taxable under section 28(i) and 28(iv) and 41(1) of the Act. Aggrieved by the order of the AO, the assessee filed appeal before the ld.CIT(A). 3. The ld.CIT(A) in para 5.3.12 and para 5.3.13 held as under "5.3.12 The Assessing Officer, in order to support the findings, relied on the decisions related to waiver of trading unsecured loan and forfeiture of business trade security deposit credited to P & L A/c, however, on the other hand, the appellant relied on various judgements which are directly related to redemption of debentures below Face Value. In the instant case, I am concerned with surplus on redemption of Floating rate notes which are similar to debentures, hence in my opinion the ratio of decisions relied upon by the appellant discussed hereinabove are squarely applicable to the facts of the case. Once, it is clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant accounted in the "Capital Reserve Account". Therefore, the facts involved in the present case are totally different in the facts involved in COMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. There is no change of character with regard to the original receipt which was capital in nature. Section 28(iv) of the Income Tax Act speaks about the benefit or perquisite received in kind. Such a benefit or perquisite received in kind other than in cash would be an income as defined under Section 2(24) of the Income Tax Act. In other words, to any transaction which involves money, Section 28(iv) has got no application. Hence, Section 28(iv) has no application whatsoever. Therefore, the transaction in the present case being a redeemed value of FRN transaction having no application with respect to Section 28 (iv) of the Income Tax Act, the same cannot be termed as an income within the purview of Section 2(24) of the said Act. In other words, in as much as Section 28(iv) is not applicable to the transactions on hand, it cannot be termed as income which can be made taxable as receipt. Hence, such a receipt which does not have any character of an income being that of a loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akin to debentures. The FRNs in the present case had Face Value of $5,00,000 each. The same were redeemable within the period of 3 years to 6 years and interest at floating rate of LIBOR + 3.4% p.a. was payable on six monthly basis to the holder of these FR Notes. The FRNs bore an ISIN [International Securities Identification Number] and the same were freely transferable/ tradable by the Flolder upon completion of certain formalities. 4] The capital funds raised vide issuance of FRNs in international market on 30.01.2007, were utilized during F.Y.2007 - 08 for acquisition of 3 land parcels around Pune with the purpose of setting up three Integrated Township projects on such lands adm. more than 100 acres each. Apart therefrom, funds of Rs. 143.24 Crs. were utilized to give 'Advances for Development Activity etc.' and these advances were directly reflected in the Balance Sheet without debiting the same to the P&L A/c. This fact has also been stated in Note 39 of Tax Audit Report on page 241 of Paper Book and the same was also stated before A.O. vide Submission dated 14.10.2016 [page 3 of the asst, order]. 6] However, in the month of October, 2007 itself, Litigation regarding Tit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reliance Industries Ltd. v. ACIT[9 NYP TTJ1668 (Mum)][ 57-65 8 CIT v. Reliance Industries Ltd. (Bombay High Court) affirming ITAT decision 66-73 9 CITv. Industrial Credit & Development Syndicate Ltd. [285 ITR 310 (Ker)] 74-79 10 CITv. Phool Chand Jiwan Ram [131 ITR 37 (Del)] 80-81 11 Comfund Financial Services (I) Ltd.v. DCIT [67 ITD 304 (Bang)] 82-93 12 Govindbhai C. Patel v. DCIT [ITA No. 1675/Ahd/2009] 94 - 1L 13 PCITv. Gujarat State Financial Corporation [(2020) 426 ITR 47 (Guj)] 116- 12 14 ITO v. Sri Vasavi Polymers [(2020) 183 ITD 586 (Vizag)] 123-12 15 PCIT v. Colour Roof (India) Ltd. [ITA No. 896/2017][Bom HC[ 127-13 16 ITAT Mumbai decision in case of DCIT v. Colour Roof (India) Ltd. 133-13 Findings &Discussion : 7. We have heard both the parties and perused the records. There is no dispute in the facts that assessee company had issued Floating Rate Notes (FRN) on 30.01.2007 in the International Market, named as "USD 100 million Floating Rate Guaranteed Secured Notes Due 2013". These FRNs are debt instruments. The assessee company actually received Rs. 332 crores in Financial Year 2006-07. These floating rate notes were carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y due under Notes as per Balance Sheet Rs. 278,71,02,003/- was reduced to Rs 135 Crores. The difference of Rs 143,71,02,003/- being Capital Receipt was created to Capital Reserve. There was no remission of Interest, it was remission of only Principal amount due under Notes so the captioned amount was not claimed as deduction/expenditure in any previous years. The AO has made addition of Rs 143,71,02,003/-." 10. Thus, it is a fact that assessee has repaid only Rs. 135 crores. The difference amount of Rs. 143,71,02,003/- was credited to Capital Reserve. The AO has taxed it under section 28 and 41 of the Act. 11. The Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs. Mahindra & Mahindra 404 ITR 001(SC) has decided the similar kind of issue as under : "13. On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 allocating the cost of an asset over a period of time, hence, it is nothing else than depreciation. Depreciation is a reduction in the value of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the Respondent in previous assessment years was due to the deprecation of the machine and not on the interest paid by it. 16. Moreover, the purchase effected from the Kaiser Jeep Corporation is in respect of plant, machinery and tooling equipments which are capital assets of the Respondent. It is important to note that the said purchase amount had not been debited to the trading account or to the profit or loss account in any of the assessment years. Here, we deem it proper to mention that there is difference between 'trading liability' and 'other liability'. Section 41 (1) of the IT Act particularly deals with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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