TaxTMI 
TaxTMI 
2019 (10) TMI 981
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.... the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 11,10,70,860/-made on account of waiver of principal loan by financial institutions, without appreciating the fact that waiver of loan taken for acquiring capital assets is to be treated as income as held in the order of Hon'ble High Court in the case of Solid Containers Ld Vs. DCIT (2O09) (308 ITR 417)." 4. Grounds of appeal assessment year 2011-12 :- 1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the fact that the amount of disallowance u/s 14A has to be computed as per Rule 8D when the computation of the assessee was not found to be correct and as held in the order of the Hon'ble High Court in the case of M/s Godrej & Boyce Mfg. Co. Ltd." 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 3,51,00,000/-made on account of waiver of principal loan by financial institutions, without appreciating the fact that waiver of loan taken for acquiring capital assets is to be treated as income as held in the order ....
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....records. 11. Learned departmental representative submitted that the issue involved is squarely covered in favour of the revenue by the decision of the honourable Abex court in the case of Mahindra and Mahindra. Learned departmental representative submitted that the said honourable Supreme Court decision had expounded that when the loan was granted for working capital finance purposes the waiver of the same becomes the income of the assessee as revenue income. He submitted that it is only the loan meant for capital asset acquisition, the waiver of the same was under the capital field. Learned departmental representative submitted that in the present case the bank loans were for working capital finance hence the waiver of the same has rightly been treated as the income of the assessee by the Assessing Officer. 12. Per Contra learned counsel of the assessee submitted that the provisions of section 41(1) are not applicable here in as much as no allowance or deduction has been claimed by the assessee in the past in respect of the bank loan. He further submitted that following case laws supports the proposition canvassed by him.  CIT Vs. Compaq Electric Ltd. (101 T....
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....ith regard to the addition of Rs. 6,86,071/-, the assessee company directly credited the amount to the reserves account considering the same as capital receipt. It was claimed by the learned counsel that the amount was not a deemed profit under section 41(1) of the Act. According to the learned counsel, this amount cannot be charged even under the provisions of section 28 of the Act as the amount earned is neither a revenue receipt nor intended for revenue account. In this connection, we would like to refer to the decision of the Honourable Supreme Court in the case of CIT vs. T.V. Sundaram Iyengar and Sons Ltd. (1996), 222 ITR 344 wherein the Honourable Supreme Court has laid down that "If the amount is received in the course of trading transactions, even though it is not taxable in the year of receipt as being of capital character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. Where the assessee received deposits in the course of trading transactions, the amount of such credit balances which were barred by limitations and which were written back....
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....money and taken the amount to its profit and loss account. There is no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was somebody else' s money. In fact, as Atkinson, J. pointed out that what the assessee did was the common sense way of dealing with the amounts." 3. The present appellant can hardly drive any advantage from the case of Mahindra & Mahindra Ltd. (supra). As in that case, a clear finding was recorded that the Assessee continued to pay interest at the rate of 6% for a period of 10 years and the agreement for purchase of toolings was entered into much prior to the approval of loan arrangement given by the reserve Bank of India. Therefore, the loan agreement, in its entirety, was not obliterated by such waiver. Secondly, the purchase consideration related to capital assets. The toolings were in the nature of dies and the Assessee was a manufacturer of heavy vehicles. The import was that of plant and machinery and the waiver could not constitute business. The facts of the present case are entirely different in as much as it was a loan taken for trading activity and ultimately, upon waiver the a....
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....Ltd." 16. Honourable jurisdictional High Court in the case of CIT versus Reliance industries Ltd (supra) was dealing with the situation when assessee issued foreign currency bonds in the year 1996-97 and later on assessee purchased bonds from the market and extinguishes them. In this process of buyback there was gain of Rs. 38.80 crores. The assessing officer treated such amount as assessee liable to tax under section 41(1). The honourable jurisdictional High Court in this regard held as under :- There is no error in the view taken by the Tribunal. Sub-section (1) of section 41 provides that where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently, during any previous year, such liability ceases, the same would be treated as the assessee's income chargeable to tax as income for previous year under which subject extinguishment took place. The foremost requirement for applicability of sub-section (1) of section 41, therefore, is that the assessee has claimed any allowance or deduction which has been granted in any year in respect of any loss, expenditure ....
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....l considered observation/obiter of the honourable Supreme Court. In the case of Oriental Insurance Co. Vs. Meena Varyal (5 SCC 428), Ho'ble Supreme Court has held that an obiter dictum of Supreme Court is binding upon subordinate courts in absence of direct pronouncement on that question by Supreme Court. When we examine the present case on the touchstone of above said case laws, we find that in the present case the loan which has been waived is a working capital loan. A working capital loan is a loan that is taken to finance a company's everyday operations. These loans are not used to buy long-term assets or investments and are, instead, used to provide the working capital that covers the company short-term operational needs. Those needs can include costs such as payroll, rent and rates payments stop in this way working capital loans are simply corporate that borrowings that are used by a company to finance its daily operations. If the working capital loan is used to finance working capital requirements, the bank finance used results in debit to the trading and profit & loss account for the concerned trading/working goods and services. In that case waiver of bank loan will not res....
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....officer, therefore, held that a sum of Rs. 57,74,064/- was taxable under section 28 of the Income Tax Act. The point for consideration before the Hon'ble Supreme Court was that "Whether in the present facts and circumstances of the case, the sum of Rs. 57,74,064/- due by the respondent to Keiser Jeep Corporation which later on waived-off by the lender constitute taxable income of the respondent or not ?. The Hon'ble Supreme Court after considering the issue in detail held that "in such circumstances, Section 28(iv) of the Income Tax Act is not applicable." The Ld. CIT(A) also in the present case held that "Section 28(iv) is not attracted in the present case". The Hon'ble Supreme Court in the case of Mahindra and Mahindra Ltd., (supra) also held that "Section 41(1) of the Income Tax Act does not apply since waiver of loan does not amount to cessation of trading liability. It is a matter on record that the respondent has not claimed any under section 36(1)(iii) of the Income Tax Act qua the payment of interest in any previous year". In the present case, the authorities below have not given any finding of fact whether the whole amount of loan had....