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TMI Blog2022 (9) TMI 1514X X X X Extracts X X X X X X X X Extracts X X X X ..... unt waived was claimed as not taxable in the return of income, the interest component that was waived on the loans were offered to tax by the Assessee u/s.41(1) of the Act. 3. The Assessing Officer (AO) as well as the CIT(A) did not accept the claim of the Assessee that the waiver of principal amount of loan/borrowings is not chargeable to tax as income and brought to tax the same in AY 2005-06 & 2006-07. The Assessee filed appeals before the Tribunal for both AY 2005-06 & 2006-07, being ITA No. 140/Bang/2020 for AY 2005-06 and ITA No.1317/Bang/ 2018 for AY 2006-07. 4. ITA No.140/Bang/2020 for AY 2005-06 was decided by the Tribunal by order dated 27.12.2021 whereby the claim of the Assessee was accepted. However in ITA No.1317/Bang/2018 for AY 2006-07 by order dated 21.1.2022, the Tribunal did not accept the claim of the Assessee. The relevant observations of the Tribunal, in doing so, is contained in paragraph 6 and 7 of the order of tribunal, which reads as follows: "6. We have carefully gone through the above order of the Tribunal. In that order, the Tribunal specifically observed in para 20 that "However, in the present case, the principal portion of the loan which was rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the other hand, it is used as a circulating capital not as a fixed capital and the money was used in ordinary course of business in carrying the day-to-day affairs of the assessee. Being so, writing off the over draft cash credit, letter of credit, pre-shipment advance and export bills, etc. which was received for carrying out the day-to-day operation of the assessee and waiver of the same to be treated as income of the assessee u/s 28(iv) of the Act. Similarly, interest waiver, if any and if it is allowed as a deduction in any earlier assessment years, then only the waiver of such interest could be treated as revenue receipt liable to tax u/s 41(1) of the Act. With this observation, we remit this issue in dispute to the file of AO for reconsideration." (underlining for emphasis) 5. In this MP filed against the order dated 21.1.2022, the Assessee has submitted that it had taken both term loans as well as working capital loans from banks, in respect of which the Assessee entered into onesettlement with banks in the financial years relevant to Asst. Years 2005- 06 and 2006-07. These one-time settlements involved the waiver of not only the interest charged by the banks in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in its order dated 21.1.2022 that loan taken in the ordinary course of business is a trading receipt, though it is repayable by the Assessee and such observations are directly contrary to the judgment of the Hon'ble Surpeme Court in the case of The Peerless General Finance & Investment Co.Ltd. Vs. CIT 416 ITR 1 which holds that any loan received by an Assessee which is repayable by him can never be considered to be a revene receipt. It has further been contended that the above observations of the Tribunal are contrary to the plain language of Sec.41(1) of the Act, which provides that a liability waiver benefit received by an Assessee can be taxed only if the amount had been allowed as a deduction in the IT assessment of the Assessee for any earlier Assessment year. Since this basis condition is not fulfilled, Sec.41(1) in fact acts as a bar or prohibition against such a waiver being treated as taxable income. 7. It has further been contended that in the order of the Tribunal dated 27.12.2021 for AY 2005-06 it has been expressly held, following the Judgments of the Supreme Court in Saraswati Industrial Syndicate vs C.I.T (186 ITR 278) and C.I.T vs Mahindra & Mahindra Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial institutions are available in pages 110 to 130 of Assessee's paper book. A copy of reconciliation of payment made under OTS and write back for AY 2005-06 & 2006-07 is available at page 107 to 108 of the Assessee's paper book. The computation of total income for AY 2005-06 and 2006-07 is also available at pages 70 to 72 and 83-85 of the Assessee's paper book, respectively. 10. From a perusal of reconciliation of payments made under OTS and the claim of the Assessee that the principal amount waived is not taxable, the position that emerges is as follows: PAYMENT DURING 2005-06 UNDER OTS Rs.in Lacs Paid by Spinaker Paid Direct Total Bank of India 2828.76 1466.25 4295.01 Canara Bank 1691.78 1691.78 ICICI/ARCIL 2144.00 60.00 2204.00 United Bank of India 1304.91 1304.91 Bank of Baroda 2727.54 1073.00 3800.54 Dena Bank 1273.23 81.77 1355.00 LIC 616.47 616.47 SASF 2910.00 190.00 3100.00 Standard Chartered Bank 80.00 80.00 Total 12500.00 5947.71 18447.71 PAYMENT DURING 2006-07 UNDER OTS BANK OF INDIA 54.94 ICICI/ARCIL 1056.00 UNITED BANK OF INDIA 200.00 BANK OF BARODA 200.00 DENA BANK ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the context of waiver of loan for acquisition of capital assets and it held that the provisions of section 28(iv) and 41(1) are not applicable in the event of waiver of loan. In the case of CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344 (SC), the court observed that the moneys had arisen out of ordinary trading transactions. The assessee had received certain deposits from customers in the course of carrying on his business, which were originally treated as capital receipts. Since these credit balances, standing in favour of assessee's customers, were not claimed by the customers, the assessee transferred such amounts to its profit and loss account. The assessee did not include such amounts in its total income. The Court held that although the amounts received originally were not of income nature, the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the deposit became time barred and the amount attained a totally different quality. It became a definite trade surplus. Although it was treated as deposit and was of capital nature at the point of time it was received, by efflux of time the money has bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed by the ITAT dated 18-11- 2016 recalling its earlier order dated 6-9-2013. Therefore, as such, the order passed by the ITAT recalling its earlier order dated 6-9- 2013 which has been passed in exercise of powers under section 254(2) of the Act is beyond the scope and ambit of the powers of the Appellate Tribunal conferred under section 254 (2) of the Act. Therefore, the order passed by the ITAT dated 18-11-2016 recalling its earlier order dated 6-9-2013 is unsustainable, which ought to have been set aside by the High Court. 5. From the impugned judgment and order passed by the High Court, it appears that the High Court has dismissed the writ petitions by observing that (i) the Revenue itself had in detail gone into merits of the case before the ITAT and the parties filed detailed submissions based on which the ITAT passed its order recalling its earlier order; (ii) the Revenue had not contended that the ITAT had become functus officio after delivering its original order and that if it had to relook/revisit the order, it must be for limited purpose as permitted by Section 254(2) of the Act; and (iii) that the merits might have been decided erroneously but ITAT had th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertainty in rule of law. That principle is not obliterated by section 254(2) of the Income-tax Act, 1961. When prejudice results from an order attributable to the Tribunal's mistake, error or omission, then it is the duty of the Tribunal to set it right. Atonement to the wronged party by the court or Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review. In the present case, the Tribunal was justified in exercising its powers under section 254(2) when it was pointed out to the Tribunal that the judgment of the coordinate bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record. The Tribunal has acknowledged its mistake, it has accordingly rectified its order. In our view, the High Court was not justified in interfering with the said order. We are not going by the doctrine or concept of inherent power. We are simply proceeding on the basis that if prejudice had resulted to the party, which prejudice is attributable to the Tribunal's mistake, error or omission and which error is a manifest error then the Tribunal woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. CIT (2003), 261 ITR 501 (Bom) (HC), where the waiver was of loan availed for the purpose of acquiring capital equipments, it was held that when no deduction was claimed by the assessee in earlier years and the utilisation of loan went into acquiring capital assets, s.28(iv) or s.41(1) cannot be made applicable. However in the case of Solid Containers Ltd v. DCIT (2009) 308 ITR 417 (Bom) (HC), the Hon'ble court deviated from the earlier decision and held that application of the funds would decide the nature of treatment to be given to the remission of liabilities. The court held that if the loans were utilised for trading purposes, remission of such liabilities would be in the nature of income, whereas if the loans were utilised for capital purposes, remission of loan could not be treated as income. Court further observed that a receipt, which is capital in nature in the earlier year, by efflux of time, can change its character as revenue receipt. The Supreme Court in the case of Mahindra and Mahindra Ltd. [2018] 404 ITR 1 (SC) upheld the Bombay High Court view but the same was again in the context of waiver of loan for acquisition of capital assets and it held that the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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