2021 (6) TMI 1016 - AT - Income Tax

Tax Tribunal: Waiver of Loan Not Taxable Income

The Tribunal held that the Commissioner of Income Tax (CIT) did not have jurisdiction to invoke Section 263 of the Income Tax Act, 1961, as the assessment ... Revision u/s 263 by CIT - Whether waiver of loan has been held to be capital receipt and cannot be taxed u/s. 28(iv)? - HELD THAT:- While framing the assessment u/s. 143(3) of the Act, pursuant to the order u/s. 263 of the Act, the Assessing Officer has not made any addition in so far as interest part is concerned and in so far as waiver of principal amount is concerned, the issue is highly debatable, in as much as, there are direct decisions in favour of the assessee and against the revenue. We are of the considered view that the basis for assuming jurisdiction u/s. 263 of the Act is Note II to Schedule XIIIB of the balance sheet was very much examined by the Assessing Officer while framing assessment order u/s. 143(3) of the Act and, therefore, it cannot be said that there was no application of mind by the Assessing Officer. AO has taken a plausible view after going through the relevant balance sheet, profit and loss account, audit report and notes thereon. After considering the facts, the Assessing Officer has taken a plausible legal view that waiver of loan by joint promoters by way of corporate guarantee for strengthening net worth was capital receipt. Waiver of loan has been held to be capital receipt and cannot be taxed u/s. 28(iv) of the Act as mentioned above, This view has been taken by the Hon'ble Bombay High Court in the case of Mahindra and Mahindra [2003 (1) TMI 71 - BOMBAY HIGH COURT] This shows that the view taken by the Assessing Officer is a plausible view in line with the decision of the Hon'ble High Court and, therefore, by no stretch of imagination, the assessment order dated 22.12.2006 can be said to be erroneous and prejudicial to the interest of the Revenue. We find that in the case of CIT Vs. Anil Kumar [2010 (2) TMI 75 - DELHI HIGH COURT] has held that where it was discernible from record that the A.O has applied his mind to the issue in question, the ld. CIT cannot invoke section 263 of the Act merely because he has different opinion. Thus we are of the considered opinion that the assessment order framed u/s. 143(3) of the Act is neither erroneous nor prejudicial to the interest of the Revenue. - Decided in favour of assessee. Issues Involved:1. Jurisdiction of CIT under Section 263 of the Income Tax Act, 19612. Erroneous and prejudicial nature of the assessment order3. Applicability of Section 41(1) and Section 28(iv) of the Income Tax Act, 19614. Treatment of waiver of loan as capital receiptIssue-wise Detailed Analysis:1. Jurisdiction of CIT under Section 263 of the Income Tax Act, 1961:The primary issue is whether the Commissioner of Income Tax (CIT) had the jurisdiction to invoke Section 263 of the Income Tax Act, 1961. The CIT issued a notice under Section 263, believing that the assessment order passed under Section 143(3) was erroneous and prejudicial to the interest of the Revenue. The Tribunal examined whether the CIT's assumption of jurisdiction was valid based on the facts and legal precedents.2. Erroneous and prejudicial nature of the assessment order:The CIT argued that the assessment order dated 22.12.2006 was erroneous and prejudicial to the interest of the Revenue because it did not properly consider the cessation of liabilities amounting to Rs. 5,10,83,475/-. However, the Tribunal noted that the Assessing Officer (AO) had examined the computation of income, balance sheet, profit and loss account, tax audit report, and notes to the accounts, particularly the note regarding the waiver of loans. The AO had taken a plausible view that the waiver of loan by joint promoters was a capital receipt, which was supported by judicial precedents.3. Applicability of Section 41(1) and Section 28(iv) of the Income Tax Act, 1961:The CIT believed that the amount received by way of cessation of liabilities should be treated as revenue receipt under Sections 41(1) and 28(iv) of the Act. The Tribunal found that during the assessment proceedings, the AO had considered the relevant details and concluded that the waiver of loan was a capital receipt, not taxable under Sections 41(1) or 28(iv). The Tribunal supported this view by referencing the Bombay High Court decision in Mahindra and Mahindra, which held that the waiver of a loan utilized for the purchase of a capital asset is a capital receipt.4. Treatment of waiver of loan as capital receipt:The Tribunal emphasized that the AO's view that the waiver of loan was a capital receipt was plausible and in line with judicial decisions. The Tribunal cited the Supreme Court's confirmation of the Bombay High Court's decision in Mahindra and Mahindra, which stated that the waiver of a loan for acquiring a capital asset cannot be taxed as a perquisite under Section 28(iv) or as remission of liability under Section 41(1). The Tribunal also referenced other judicial decisions that supported the AO's view and highlighted that the CIT cannot invoke Section 263 merely because he has a different opinion.Conclusion:The Tribunal concluded that the assessment order dated 22.12.2006 was neither erroneous nor prejudicial to the interest of the Revenue. The AO had taken a plausible view after examining the relevant records, and the CIT's assumption of jurisdiction under Section 263 was not justified. The Tribunal set aside the CIT's order dated 25.03.2009 and restored the AO's order dated 22.12.2006. The appeal of the assessee was allowed.Pronouncement:The order was pronounced in the open court on 18.06.2021.