2019 (2) TMI 1266 - AT - Income Tax

Loan waivers not taxable under Section 41(1) - Tribunal affirms CIT(A)'s decision

Income Tax officer, Corporate Ward-2, Madurai. Versus M/s. Madras suspensions Ltd.

The Tribunal upheld the CIT(A)'s decision, relying on a Supreme Court judgment that Section 41(1) does not apply to loan waivers as they do not result in ... Addition invoking Section 41(1) - amount waived by TamilNad Mercantile Bank Limited representing Term Loan for the purchase of machinery and for building construction - HELD THAT:- In view of the principles laid down in the cases of Commissioner Vs. Mahindra And Mahindra Ltd.[2018 (5) TMI 358 - SUPREME COURT] wherein as categorically held that Section 41(1) of the IT Act does not apply since waiver of loan does not amount to cessation of trading liability, the Tribunal is of the considered opinion that the findings of the Ld.CIT(A) on this issue stand confirmed. - Decided against revenue Issues involved: Appeal against CIT(A)'s order deleting addition under Section 41(1) for waived amount by a bank, reliance on previous court decisions, applicability of Section 41(1) in case of loan waiver, settlement of issue by Supreme Court judgment.Analysis:1. The appeal was filed by the Revenue against the order of the Commissioner of Income-tax (Appeals)-1, Madurai for the assessment year 2013-14. The issue revolved around the deletion of an addition made under Section 41(1) by the Assessing Officer regarding a loan amount of Rs. 2 crores waived by a bank for machinery and building construction. The Revenue contended that the CIT(A) erred in relying on a previous decision of the Madras High Court, which was subsequently reversed by another High Court decision. The Revenue argued that the CIT(A) order should be reversed.2. The Assessee, represented by Mr.N.V.Balaji, argued that the issue was settled by a Supreme Court judgment in the case of Commissioner Vs. Mahindra And Mahindra Ltd., where it was held that Section 41(1) does not apply to loan waivers as it does not amount to cessation of trading liability. The Assessee prayed for upholding the CIT(A) order based on this Supreme Court ruling.3. The Tribunal considered the submissions from both sides and referred to the Supreme Court judgment in the case of Commissioner Vs. Mahindra And Mahindra Ltd. The Tribunal noted that the Supreme Court had categorically held that Section 41(1) does not apply to loan waivers as they do not lead to the cessation of trading liability. Therefore, the Tribunal confirmed the findings of the CIT(A) on this issue and dismissed the Revenue's appeal.4. In conclusion, the Tribunal upheld the CIT(A)'s decision based on the settled principles established by the Supreme Court judgment. The appeal of the Revenue was dismissed, and the order was pronounced on January 2, 2019, in Chennai.