TaxTMI 
TaxTMI 
2014 (7) TMI 1244
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....g fixed assets. Ground 2: The learned CIT (A) erred in upholding the disallowance of Rs. 5,75,925/- being part of the total gratuity fund contribution provision of Rs. 32,35,509/- that was disallowed and added back by the appellant in entirety in the preceding A.Y.2002-03 and therefore called for no disallowance once again in the impugned A.Y.2003-04. It is prayed that the disallowance of Rs. 5,75,925/- suffered by the appellant twice in the said years be deleted. Ground 3: The learned CIT (A) erred in confirming disallowance of Rs. 5,00,000/- made in the statement of Computation of Income by the appellant itself by way of abundant precaution and when no such amount was actually debited in the Profit & Loss account of the appellant for the impugned A.Y.2003-04. It is prayed that the ad hoc disallowance be deleted." 3. In brief, the background of the case is that the appellant is a company incorporated under the provisions of the Companies Act, 1956 and is primarily engaged in the business of manufacturing and sale of textile machines and components, like top rollers, conversion splinders and textile spinning machine spinders. The appellant is ....
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....he assessee before the Assessing Officer was that the aforesaid amount represented waiver of the principal amount of term loan and so far as the waiver of interest liability is concerned the same was offered to tax. The Assessing Officer agreed in-principle with the assessee that "waiver of the principal amount of loan can be considered as capital receipt". However, the Assessing Office did not allow the claim on the ground that sufficient details were not furnished by the assessee to justify that the impugned sum represented waiver of principal amount of term loan. The Assessing Officer has observed that the same "was not proved by the assessee by the 4 documentary evidence". Accordingly, the claim of the assessee was disallowed. 6. The assessee carried the matter in appeal before the CIT(A), who has since allowed partial relief. As per the CIT(A) in so far as the waiver granted by Corporation Bank is concerned, it related to the principal amount of term loan, which was availed for acquisition of capital assets. Accordingly, the CIT(A) directed the Assessing Officer to deleted the addition of Rs. 3,46,73,025/- (as against Rs. 5,22,94,853/- inadvertently claimed by the assessee ....
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....of fixed assets by way of plant & machinery from Spindle Fabrik Suessen, Germany, against which a liability of Rs. 32.75 crores was outstanding. The assessee company utilized the term loan raised from DEG for re-payment of such liability, which had arisen for acquisition of capital assets, namely, plant & machinery. It was, therefore, pointed out that the utilization of the term loan from DEG is towards acquisition of capital plant & machinery. The learned counsel further pointed out that there was no dispute to the factual position that the amount of Rs. 29,63,27,000/- represented waiver of principal amount of term loan by DEG and therefore, according to him, the CIT(A) ought to have deleted the impugned addition in the same manner as he deleted the addition with respect to the waiver of principal amount of term loan from Corporation Bank. Apart therefrom, the learned counsel has referred to a copy of the term loan agreement with DEG, Germany dated 11.11.1994 as also to the conditions stipulated by the Reserve Bank of India while permitting the raising of loan from DEG Ltd., a copy of which has been placed at page 75 of the Paper Book, to support his plea that the term loan was av....
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....efully considered the rival submissions. The crux of the controversy is whether the benefit obtained by the assessee from DEG, Germany on account of waiver based on OTS Scheme is liable to be treated as a revenue income or it constitutes a capital receipt not chargeable to tax. Ostensibly, assessee had raised term loan from DEG, Germany and at the time of OTS Scheme, the principal as well as interest accruing thereof was outstanding and assessee had defaulted in its re-payment commitments. There is no dispute to the proposition that waiver of the principal component of a loan taken for a trading activity, is liable to be considered as a revenue receipt, a proposition which is in line with the judgement of the Hon'ble Bombay High Court in the case of Solid Containers Ltd. (supra). So however, where the waiver is of the principal amount of loan taken for acquisition of capital assets and not for the purposes of trading activity, the same is to be understood as a capital receipt not chargeable to tax, a proposition which is consistent with the judgements of the Hon'ble Bombay High Court in the cases of Mahindra and Mahindra Ltd. (supra) and Softworks Computers Pvt. Ltd. (supra). There....
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....tually speaking, it is not in dispute that assessee has utilized the loan raised from DEG, Germany for payment of Rs. 32.75 crores to Spindle Fabrik Suessen, Germany, which was a liability outstanding against acquisition of fixed assets from the said concern. The Revenue contends that discharge of such liability of Spindle Fabrik Suessen, Germany cannot be treated as 9 utilization of term loan from DEG, Germany for acquisition of fixed assets, because the assets already stood acquired prior to that date. So however, it is undisputable that the liability towards payment for acquisition of assets was outstanding and assessee has utilized the loan from DEG, Germany to pay-off such liability. In our considered opinion, factually speaking, the payment made by the assessee to Spindle Fabrik Suessen, Germany towards outstanding liability against acquisition of fixed assets of Rs. 32.75 crores, which is out of the loan funds from DEG, Germany is to be understood as utilization of loan funds towards acquisition of capital assets. The inference of the CIT(A) to the contrary, in our view, is on account of misplaced appreciation of the facts. The CIT(A) is correct in saying that the "loan was ....
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....me. During the course of assessment proceedings, assessee submitted that the said disallowance was offered in lieu of probable adjustment on account of transfer pricing analysis. However, when finally no adverse addition was made on account of transfer pricing, assessee submitted before the Assessing Officer to delete such ad-hoc disallowance of Rs. 5,00,000/- suo-motu offered by the assessee in the return of income. The Assessing Officer and thereafter the CIT(A) have negated the plea of the assessee. 18. Before us, it is vehemently argued that the income-tax authorities are required to determine the total income as per the Provisions of the statute and 11 that it is evident from the impugned sum does not fall for consideration as income under any of the Provisions of the Act. 19. On the other hand, the learned Departmental Representative has supported the order of the authorities below by pointing out that the assessee had on its own, disallowed an amount of Rs. 5,00,000/- in the return of income. The learned Departmental Representative also pointed out that similar disallowance was made by the assessee in the preceding year too and that there was no justification for the p....