2017 (10) TMI 311 - AT - Income Tax

Tax Appeal Dismissed: Principal Waiver Deemed Capital, Not Taxable

The Revenue's appeal against the CIT (A) order for the A.Y 2008-09 regarding the taxability of a principal waiver was dismissed. The waiver amount was ... Reopening of assessment - waiver of loan on subsequent dates - Held that:- Having regard to the rival contentions and the material on record, we find that the present proceedings are consequent to the proceedings of the CIT (A) dated 24.12.2012 who deleted the addition by following the decision of the Hon'ble Supreme Court in the case of Tata Iron & Steel Co. Ltd (1997 (12) TMI 5 - SUPREME Court) wherein it was held that the waiver of loan on subsequent dates will not affect the cost of assets, which has since been negated by the Tribunal vide order dated 29.07.2015. In view of the same, we hold that the assessment proceedings and also the consequential appellate proceedings are not sustainable. Issues:Appeal by Revenue against CIT (A) order for A.Y 2008-09 on principal waiver taxability, capital nature of received amounts, and depreciation disallowance.Analysis:1. The appeal by Revenue was against the CIT (A) order for the A.Y 2008-09 concerning the taxability of a principal waiver claimed by the assessee. The assessee contended that the waived amount was capital in nature and should not be taxed. However, as the claim was not made in the return of income, it was rejected by the Assessing Officer, citing the decision of the Apex court in Goetze India Ltd. Vs. 284 ITR 323. The CIT (A) directed the Assessing Officer to consider the cost of acquisition of the capital assets connected to the loan amount as zero and disallow depreciation from the year of asset acquisition.2. The assessee appealed the assessment under section 143(3) r.w.s. 147 of the Act, and the CIT (A) deleted the addition based on the decision of the Supreme Court in Tata Iron & Steel Co. Ltd (281 ITR 285), stating that the waiver of loan on subsequent dates does not affect the cost of assets. The Revenue appealed this decision, while the assessee filed a cross objection, arguing that the decision in Saharanpur Electric Co. Ltd vs. CIT, 194 ITR 294, was not applicable to their case.3. During the hearing, the assessee's counsel referred to previous proceedings challenged before the Tribunal, where the Tribunal upheld the assessee's contention based on the decision of the Bombay High Court in Mahindra & Mahindra Ltd vs. CIT, 261 ITR 501. It was held that the waiver amount was not assessable under relevant sections, and therefore, did not reduce the cost of acquisition of Plant & Machinery, leading to no reduction in depreciation. Consequently, the Revenue's appeal was deemed unsustainable.4. Considering the arguments and records, it was found that the present proceedings were a result of previous proceedings that were overturned by the Tribunal. Therefore, the assessment and subsequent appellate proceedings were deemed unsustainable. As a result, the Revenue's appeal and the assessee's cross objection were both dismissed.