TaxTMI 
TaxTMI 
2019 (11) TMI 753
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....lying on the sanction letter of the term loan issued by the SICOM without appreciating the fact that the loan was taken for the purpose of working capital' and not established the same was utilized for acquiring capital assets". 1.2 On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition made u/s 41(1) of the I.T. Act on account of utilization of working capital towards capital expenditure in respect of waiver of loans relying upon the decision of Padamaraje R. Kadam bande Vs CIT 195 ITR (SC) which is different to the fact of the assessee". 2. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition made on account of waiver of interest on borrowing on the basis of statement and submissions received from Dena Bank stating that the waiver of interest to the tune of 148.33 lacs unilaterally levied by the Dena Bank and company had not provided the same in the books of accounts". 2.1 Facts in brief are that the assessee being resident corporate assessee was assessed u/s 143(3) r.w.s. 263 on 16/08/2012 wherein the income of the assessee was determined at Rs. 809.....
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....t was submitted that total capital expenditure of Rs. 1880 Lacs was financed by utilizing the loans obtained in the shape of NCD & working capital loan from Dena Bank and term loan from SICOM Limited whereas the balance amount was financed by utilizing the funds available in the shape of unsecured loans / internal accruals etc. and all these funds were diverted for capital expansion. 2.4 To verify assessee's claim, notice u/s 133(6) was issued to Dena Bank who furnished the details of one-time settlement as follows: - Ledger Outstanding (including amount prudentially written off) amount pertains to working capital limits at our New Marine Lines Branch, Mumbai. Rs. 729.81 Lacs Investments (NCDs) Rs. 600.00 Lacs TOTAL Rs. 1329.81 Lacs Interest not charged from 30/03/1999 to 31/08/2005 on working capital limits 742.18 Lacs Interest not charged from 30/03/1999 to 31/08/2005 on NCDs 236.50 Lacs TOTAL 978.69 Lacs TOTAL DUES (Principal + Interest payable) 2308.49 Lacs Amount paid towards the above dues Rs. 669.00 Lacs Sacrifice by way of a) Write off Rs. 660.81 Lacs b) Waiver of Interest Rs. 978.68 La....
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....ell as working capital loans) were diverted for capital projects, the waiver thereof would constitute waiver-off of capital liability not taxable either u/s 28(iv) or u/s 41(1) as per the decision of Hon'ble Bombay High Court rendered in Mahindra & Mahindra Ltd. (2003 261 ITR 501). 3.2 Regarding addition of interest differential of Rs. 148.33 Lacs, the assessee submitted that the said amount was never provided for in the books of accounts and therefore, the question of claiming the deduction of the same would not arise. 3.3 The Ld. CIT(A), after considering factual matrix, concurred with assessee's submissions by observing as under: - 4.4 I have considered the facts and circumstances of the case, submissions of the appellant, the findings and discussion of the AO in the assessment order on this issue. The AO has made the addition for want of evidence for-utilization of loan funds, which are availed and related to be for capital expansion as claimed by the appellant. However it is noted by the AO that extracts of addition to fixed assets and increase in capital work-in-progress was furnished before him. The AO also wanted fund-flow statement in suppo....
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...., there is no material and evidence brought on record by AO to disprove the prima-facie nature of transaction that - (i)the One Time Settlement Scheme and waiver of loan by the bank was discretionary and compassionate thereby liable to be considered as Capital in the hands of the appellant which is non-taxable unless specifically provided under the provisions of the computation of 'Profit and gains of business or profession', u/s 41 of the I.T. Act, in reference to decisions of Hon. Apex Court cited above, (ii) The appellant has been able to provide the nature of loan which has been waived, which comprises of amounts for non-convertible debentures, cost of expansion/diversification for the manufacture of Ethyl in district Raigad. In fact, the further details contained in the annexure of the sanction letter of term loan of Rs. 270 Cr. from SICOM show that- "the company and such of the Directors and shareholders of the company as may be decided by the SICOM, shall undertake to arrange for additional funds by way of additional share capital/unsecured loans/deposits as may be decided by the SICOM, to cover any shortfall that may arise in financing the....
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....ot disputed and is accepted by AO, as noted in the assessment order also. 4.8 In context of addition made by AO in respect of principal amount of such loan, the other requirement is that "it must be proved that allowance or deduction was given in an earlier year in assessment. It, is not open to the-revenue to refer to section 41(1) for charging the tax on receipts". Tirunelveli Motor Bus Service Co. Pvt. Ltd. Vs. CIT 78 ITR (SC). Section 41(1) introduced a fiction and cannot be enlarged by introducing another fiction. This position is laid down in CIT Vs. Bharat Iron and Steel Industries 199 ITR (Guj) (FB); It is also obvious that AO has not brought on record any material to discharge the onus that amounts under question have been allowed and/or deducted from earlier assessment years as required under law in this behalf and laid down in decision in the case of Steel and General Mills Co. Ltd. Vs. CIT 96 ITR (Del.) In view of above discussion and for the reasons therein, the AO is directed to delete the addition. Accordingly, Ground No. 1 is allowed. 5. The appellant has contested addition of Rs. 1,48,33,000/- held by AO as relating to waiver of interest ....
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.... interest in profit and loss account and principal waiver is shown as capital reserve in the balance sheet. The assessing officer overlooked the facts and wrongly added difference in the interest based on bankers' letter and assessee's books of accounts. The balance in the company's books of accounts on account of Loans gets reduced to Zero after accounting for loan waivers and interest waiver. This clearly 'indicates that what is accounted as interest is only recorded as waivers in the Company's book. There is some misconception on the part of assessing officer which needs to be corrected and we are before you for the adjudication of this claim. We are enclosing guidance from Institute of Chartered Accountants in relation to accounting for interest for NPAs for perusal which will substantiate the discussion above. 5.2 I have considered the facts and circumstances of the case and the submissions of the appellant on this issue. The detailed discussion in respect of waiver of loan and interest thereon under the OTS, being in the nature of accrual/benefit on capital account, also being discretionary and as such not forming part of trading liabilit....
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.... documents placed in the paper-book and deliberated on various judicial pronouncements as cited before us. 5. Upon perusal of impugned order, we find that learned first appellate authority failed to clinch the issue in the correct perspective since it was the observation in the impugned order that discretionary payment on compassionate grounds would be capital in nature and therefore, not taxable in the hands of the assessee, which was not the case of revenue. It was also observed that the purpose of utilization of the funds were not, at all, relevant for the determination of the taxability of the waiver. Rather it is the prime argument of Ld. Sr. Counsel for assessee that since working capital loan was utilized for the purpose of capital expansion and therefore, the same would not constitute trading liability within the meaning of Sec.41(1). Further, the terms of term loan granted by SICOM were referred to while providing the relief, ignoring the fact that one-time settlement was done by the assessee with Dena Bank and the matter was related with determination of taxability of principal amount of working capital loan waived by Dena Bank. Further, nothing was brought on record t....