AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 49
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.... Rama Phosphates Ltd. 30. 09. 2009 Nil 15/03/2011 Nil ITA/1859/Mum/2013: 2. First ground of appeal is about deleting the disallowance to the extent of Rs. 59, 373/- u/s. 14A of the Act. During the assessment proceedings, the AO observed that assessee had investment in shares, the income from such investment was exempt from tax, that it had been claiming expenditure on account of interest. He asked the assessee to give details of expenses incurred with respect to investment made and to explain as to why the expenses incurred and claimed in respect of investments should not be disallowed as per the provisions of section 14 A r. w. Rule 8D of the income-tax, rules, 1962(Rules). The assessee contended that no borrowed funds had been used for purpose of investment, that it had nil exempt income. After considering the submission of the assessee the AO held that assessee had made investment in shares from the interest-bearing funds, that it had failed to substantiate the claim of not incurring any expenditure in relation to exempt income. Invoking the provisions of rule 8D he made a disallowance of Rs. 59, 373/-. 2. 1. Aggreived by the order of the AO, the assessee preferred an app....
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....under: "The expression "does not form part of the total income" in section 14A of the Income-tax Act, 1961, envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the income. In other words, section 14A will not apply if no exempt income is received or receivable during the relevant previous year. " Respectfully following the above judgment, we decide first ground of appeal against the AO. 3. Second ground of appeal is about applicability of the provisions of section 41 (1)/28 of the Act. During the assessment proceedings, the AO found that for the year under consideration the assessee had derived the benefit of waiver of principal amounts in respect of the loans taken from State bank of Hyderabad (Rs. 1. 20 crores) and Unit Trust of India (Rs. 6. 25 crores). He observed that the assessee had taken loans from the banks in the normal course of the business, that for the year under appeal it got a benefit of waiver of such loans, that it had no liability to pay such loan. He directed the assessee to explain as to why the benef....
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....egard. After considering the submission of the assessee and the assessment order, the FAA referred to the provision of sections 41(1)and 28(iv) of the act and held that there had been no allowance or deduction in any of the preceding years, that there was no question of applying the provisions of the above mentioned two sections, it could not be said that the assessee was carrying on business of obtaining loans and the waiver of such loan by banks/financial institution was a benefit arising from such business. He referred to the case of Mahindra and Mahindra Ltd. (supra) and held that waiver of principal amount of debentures was a capital surplus arising out of waiver of principal liability was a capital receipt. 3. 2. Before us, the DR contended that facts of the case were similar to the facts of Solid Containers Ltd (supra), that there was cessation of liability, that the provisions of section 41 (1) were applicable. The AR argued that the FAA had rightly pointed out that facts of the case of Mahindra and Mahindra (supra) were similar to the facts of the case under consideration, that assessee had offered the interest portion of the waiver for taxation, that the waiver of princ....
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....vered in the case of Solid Containers Ltd. (supra), that in the case of Solid Containers Ltd. the court had distinguished the decision rendered in the matter of Mahindra and Mahindra Ltd. , that it was held that waiver of loan taken for trading activity would become the assessee's income and subject to tax. On behalf of the assessee it was argued that issue stood covered by the decision of the Hon'ble court in the matter of Mahindra and Mahindra Ltd. , that the judgment in the matter of Solid Containers was not applicable, that in that case loan was taken for business purposes and not for purchase of capital asset. Deciding the appeal, the Hon'ble High Court held as under: "8. We have considered the submissions. The issue arising in this case stand covered by the decision of this court in the matter of Mahindra and Mahindra (supra). The decision of this court in the matter of Solid Containers (supra) is on completely different facts and in applicable to this case. In the matter of Solid Containers (supra) the assessee therein had taken a loan for business purposes. In view of the considered terms arrived at, the amount of loan taken was waived by the lender. The case of the asses....
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.... other hand, if the loan was for trading purpose and was treated as such from the very beginning in the books of account the waiver thereof may result in income more so when it was transferred to the profit and loss account. We find that in the case under consideration, this very basic aspect has not been looked into by the AO or the FAA. Before the AO the assessee had stated that there was no reduction of liability and that it was a capital restructuring exercise. The assessee had not produced the documents with regard to sanction or waiver of the loan and the AO had not called for such details. The FAA also did not deliberate upon the issue as to whether the loan was in the field of capital asset or was trading liability. Nomenclature given by the assessee/AO do not decide the real nature of any transaction until and unless the relevant documents are examined and looked into. It is true that cases relied upon by the AO/FAA laid down certain principles. But, how those principles were applicable to the facts of the case under consideration has not been discussed either by the AO/FAA. We are of the opinion, that provisions of section 28 are not applicable to the facts of the case. B....