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TaxTMI 
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TaxTMI 
2022 (6) TMI 1028
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....ed and the deletion of addition made on account of cessation of bank liability to the extent of Rs.46.05 Crores, as ordered by the Commissioner of Income Tax (Appeals) vide order dated 25.5.2012, was set aside and the order passed by the Assessing Officer dated 13.12.2011 was affirmed. 4. The short issue, which falls for consideration, is as to whether the Tribunal had independently considered the correctness of the order passed by the Commissioner of Income Tax (Appeals) holding that there was a reduction on the liability in the hands of the assessee and the liability was on the transferee - the Special Purpose Vehicle (SPV), which is evident from Clause 5 of the agreement entered into between the parties. Thus, on a consideration of the terms and conditions stipulated in the tripartite agreement, the Commissioner of Income Tax (Appeals) held that there was no liability in thehands of the assessee, because the liability had been transferred to the SPV. 5. The reason for considering this issue arose on account of an earlier order passed by the Income Tax Appellate Tribunal in ITA.871/Mds/2011 dated 03.4.2012 in the assessee's own case. The said appeal was filed by the asses....
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....cordingly, the ground raised by the Revenue is allowed." 7. From the above extracted paragraph, it is evident that the Tribunal, after noting the finding rendered by the Assessing Officer, observed that the Commissioner of Income Tax (Appeals) held that there was no cessation of liability in the hands of the assessee and it was only in the hands of the SPV and that ifany cessation is to be considered, it has to be in the hands of the SPV. However, the Tribunal, while holding that the said finding of the Commissioner of Income Tax (Appeals) is not proper, did not render an independent finding, but was rather guided by the finding rendered by it in its earlier order dated03.4.2012 referred above. 8. On a reading of paragraph 13 of the earlier order, which we have extracted above, we find that the Tribunal did not render a final finding, but it was of the prima facie view that there is a remission of liability in favour of the assessee company and that this is the paramount issue, which the Assessing Officer has to examine. Thus, the Assessing Officer, having examined and held against the assessee, which decision was reversed by the Commissioner of Income Tax (Appeals), the Tribun....
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....8(iv) had no application to the case of the assessee. Having heard rival submissions and after due consideration of material facts including case laws as cited before us, our adjudication would be as given in succeeding paragraphs. Assessment Proceedings 4.1 The assessee being resident corporate assessee is stated to be engaged in the business of Hire Purchase, Leasing, Bill discounting, Money changing and forex advisory services. The original assessment as framed by Ld. AO was subjected to revision u/s 263 on 16.03.2011 wherein Ld. AO was directed to verify the taxability of remissions of bank liability to the extent of Rs.46.05 Crores under the relevant provisions of the Act including Section 41(1). 4.2 The material facts as noted in Tribunal order dated 11.08.2016 are that the assessee assigned its receivables and bank liabilities to a special purpose vehicle (SPV) i.e., M/s Unique Receivable Management Private Ltd. (URMPL) under tripartite agreement dated 28.06.2006 which was between the assessee, URMPL and consortium of 12banks who had advanced finances to assessee company. The bank had first and prior charge on the receivables of the assessee. During revision proceedings....
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....If the liability was valued at R.43 Crores the corresponding asset should also be valued at Rs.43 Crores and there is no benefit accruing on account of one-time settlement with the bank. In the alternative, loan given by the bank was in capital field and therefore any waiver could not be considered as income either u/s 41(1) or 28(iv). The amount of Rs.43 Crores was nothing but minimum guaranteed amount to be paid to the bank and the bank agreeing to accept whatever additional amount was recovered out of receivables. 4.4 However, the Ld. AO, after considering the vital terms of the agreement, noted that as per Clause-3, the dues of Rs.89.05 Crores were crystalized and fixed at Rs.43 Crores. As per Clause-18, the assessee agreed to sell all their receivables to the SPV. On the basis of above, Ld. AO held that there was remission of liability to the extent of Rs.46.05 Crores since the dues of Rs.89.05 Crores were crystalized at Rs.43 Crores. Appellate Proceedings 5.1 The Ld. CIT(A) noted that the assessee hived-off hire purchaseand leasing business to SPV and assigned corresponding receivables together with the connected bank liabilities to the SPV at book value. The same was und....
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....PV. Accordingly, the assessee did not have any assets or bank liabilities relating to the fund based activities in the book. Therefore, these was no reduction in the liability in the hands of the assessee as alleged by Ld. AO. The liabilities stood transferred to SPV and it was the responsibility of SPV to repay the bank liabilities. Further, any amount collected by SPV over and above the amount of Rs.43 Crores, was also to be paid to the banks. Thus, there was no waiver of loan or remission of bank liability in the hands of the assessee. It was not the case of Ld. AO that the agreement was not genuine. Regarding alternative contention that the waiver would be in capital field, it was held by Ld. CIT(A) that the loans were used to acquire capital assets which were given on hire / lease to customers. This was confirmed by the fact that the hire purchase and leasing transactions were hypothecated against bank liability and both were transferred together to SPV. In such a case, the ratio of decision of Hon'ble High Court of Madras in Iskraemeco Regent Ltd. (supra) was applicable to assessee's case. Therefore, the waiver, if any, would be in capital field. Regarding taxability u/s 28(....
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....uisite u/s 28(iv) nor taxable as remission / cessation of liability u/s 41(1) of the Act. Further, Sec.28(iv) would not apply to waiver of loan since the waiver could not be termed as income u/s 2(24). The cited decision of Hon'ble High Court of Madras has already distinguished the case law of Hon'ble Supreme court in the case of T.V. Sundaram Iyengar & Sons (222 ITR 344) since the said decision would apply in case of trading transactions which is not the case here. The decision in CIT V/s Ramaniyam Homes (P) Ltd. (22.04.2016), as referred to by ld. CIT-DR, has already been reversed by Hon'ble Supreme Court in the case of CIT V/s Mahindra & Mahindra Ltd. (404 ITR 1). 8. The last aspect of the matter is that the receivables of Rs.93.45 Crores have been liquidated at Rs.46.59 Crores (Rs.43 Crores of Bank Liability + Rs.3.59 Crores receivable by the assessee) and therefore, the balance amount of Rs.46.86 Crores was to be treated as bad-debts or business loss which would clearly be allowable as deduction to the assessee. 9. Therefore, on the facts and circumstances of the case, we are of the considered opinion that Ld. CIT(A) has capture the issue in correct perspective. The conclusi....
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....at Bank of Ceylon claimed bad debts of Rs.381.98 Lacs which was due from the assessee. However, the said amount was not admitted by the assessee in the return of Income. During the course of assessment proceedings, the assessee submitted that the liability due to Bank of Ceylon stood transferred to SPV in AY 2006-07 as per Tripartite agreement and therefore, no income was shown in the books in this year. However, Ld. AO added the amount of Rs.381.98 Lacs to the income of the assessee. 14. During appellate proceedings, the assessee reiterated that the Bank liability stood transferred to SPV and therefore, the issue of waiver should have been considered in the hands of URMPL. However, Ld. CIT(A), noticing that the Tribunal in AY 2006-07 had already confirmed the remission of liability as income in the hands of the assessee, rejected the plea of the assessee. Regarding assessee's submissions that the addition of Rs.46.05 Crores as made in AY 2006-07 already included this amount of Rs.381.98 Lacs, Ld. AO was directed to verify the same and delete the addition if the plea was found correct else the addition u/s 41(1) would stand confirmed as per the decision of Tribunal. Aggrieved, the....