TaxTMI 
TaxTMI 
2023 (9) TMI 1016
X X X X Extracts X X X X
X X X X Extracts X X X X
....umstances of the case and in law, the Ld. Commissioner of income-tax (Appeals) has erred is not appreciating that floating Rates notes is a loan raised by the assessee for trading purpose and waiver thereof is taxable. 3. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in .deleting addition in violation of following judicial pronouncements. i) Solid Containers Ltd. V. Dy. CIT (178 Taxmann. 192- Bombay High Court) ii) Logitronics (P) Ltd. V. CIT [197 Taxmann. 394(Delhi HC)] iii) Rollatainers Ltd. V. CIT (339 ITR 54 Delhi HC)] iv) CIT V. Ramaniyam Homes (P) Ltd. [(239 Taxmann. 486 (Madras H.C)]. v) CIT V. T.V. Sundram Iyengar & Sons Ltd. [(222 ITR 344 (Supreme Court)]. 3. For these and such other reasons as may be urged at the time of hearing, the order of the Id. CIT (A) may be vacated and that of the Assessing Officer be restored. 4. The appellate craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the Hon'ble ITAT." 2. Brief Facts of the Case : The brief facts....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity of Rs. 143,71,02,003/- and the assessee company has credited the same to the capital reserve as per the audited balance sheet submitted as on 31-03-2014 for AY 2014-15. ......... 4.12 In view of the above the amount of waiver of loan of Rs. 143,71,02,003/- is held to be taxable under the provisions of Section 28(i)and 28(iv) and 41(1) of the Act.." 2.1 The Assessing Officer(AO) in the assessment order held that the amount of waiver of loan of Rs. 143,71,02,0038/- was taxable under section 28(i) and 28(iv) and 41(1) of the Act. Aggrieved by the order of the AO, the assessee filed appeal before the ld.CIT(A). 3. The ld.CIT(A) in para 5.3.12 and para 5.3.13 held as under "5.3.12 The Assessing Officer, in order to support the findings, relied on the decisions related to waiver of trading unsecured loan and forfeiture of business trade security deposit credited to P & L A/c, however, on the other hand, the appellant relied on various judgements which are directly related to redemption of debentures below Face Value. In the instant case, I am concerned with surplus on redemption of Floating rate notes which are similar to debentures, hence in my opini....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was not trading in money transactions. The FRN are redeemed with less face value and to that extent the liability of the Appellant reduced which the. Appellant accounted in the "Capital Reserve Account". Therefore, the facts involved in the present case are totally different in the facts involved in COMMISSIONER OF INCOME TAX v. SUNDARAM IYENGAR (T.V.) AND SONS LTD. There is no change of character with regard to the original receipt which was capital in nature. Section 28(iv) of the Income Tax Act speaks about the benefit or perquisite received in kind. Such a benefit or perquisite received in kind other than in cash would be an income as defined under Section 2(24) of the Income Tax Act. In other words, to any transaction which involves money, Section 28(iv) has got no application. Hence, Section 28(iv) has no application whatsoever. Therefore, the transaction in the present case being a redeemed value of FRN transaction having no application with respect to Section 28 (iv) of the Income Tax Act, the same cannot be termed as an income within the purview of Section 2(24) of the said Act. In other words, in as much as Section 28(iv) is not applicable to the transactions on hand, it....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... were credited to the Overseas Bank A/c at Singapore on the said date. 4] It may be clarified that FRNs are securitized debt instruments used to raise capital, which are akin to debentures. The FRNs in the present case had Face Value of $5,00,000 each. The same were redeemable within the period of 3 years to 6 years and interest at floating rate of LIBOR + 3.4% p.a. was payable on six monthly basis to the holder of these FR Notes. The FRNs bore an ISIN [International Securities Identification Number] and the same were freely transferable/ tradable by the Flolder upon completion of certain formalities. 4] The capital funds raised vide issuance of FRNs in international market on 30.01.2007, were utilized during F.Y.2007 - 08 for acquisition of 3 land parcels around Pune with the purpose of setting up three Integrated Township projects on such lands adm. more than 100 acres each. Apart therefrom, funds of Rs. 143.24 Crs. were utilized to give 'Advances for Development Activity etc.' and these advances were directly reflected in the Balance Sheet without debiting the same to the P&L A/c. This fact has also been stated in Note 39 of Tax Audit Report on page 241 of Pape....
X X X X Extracts X X X X
X X X X Extracts X X X X
....[125 ITR 118 (Bom)] 18-26 4 Graviss Hospitality Ltd. v. DCIT[67 SOT 184 (Mum)] 27-40 5 Jai Pal Gaba v. ITO [178 ITD 357 (Chd)/ 41-50 6 CIT v. Mahindra & Mahindra [404 ITR l(SC)j -" 51 - 56 7 Reliance Industries Ltd. v. ACIT[9 NYP TTJ1668 (Mum)][ 57-65 8 CIT v. Reliance Industries Ltd. (Bombay High Court) affirming ITAT decision 66-73 9 CITv. Industrial Credit & Development Syndicate Ltd. [285 ITR 310 (Ker)] 74-79 10 CITv. Phool Chand Jiwan Ram [131 ITR 37 (Del)] 80-81 11 Comfund Financial Services (I) Ltd.v. DCIT [67 ITD 304 (Bang)] 82-93 12 Govindbhai C. Patel v. DCIT [ITA No. 1675/Ahd/2009] 94 - 1L 13 PCITv. Gujarat State Financial Corporation [(2020) 426 ITR 47 (Guj)] 116- 12 14 ITO v. Sri Vasavi Polymers [(2020) 183 ITD 586 (Vizag)] 123-12 15 PCIT v. Colour Roof (India) Ltd. [ITA No. 896/2017][Bom HC[ 127-13 16 ITAT Mumbai decision in case of DCIT v. Colour Roof (India) Ltd. 133-13 Findings &Discussion : 7. We have heard both the parties and perused the records. There is no dispute in the facts that assessee company had issued Floating Rate Notes (FRN) o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tances and expected lower realization value of underlying security of Notes. Finally, vide agreement dated 25/09/2013 between DB Trustees (Hong Kong Ltd) and appellant, it was decided that all the Notes be redeemed at a value of Rs 135 Crores and thus on this date of redemption, in terms of Indian rupees, capital liability due under Notes as per Balance Sheet Rs. 278,71,02,003/- was reduced to Rs 135 Crores. The difference of Rs 143,71,02,003/- being Capital Receipt was created to Capital Reserve. There was no remission of Interest, it was remission of only Principal amount due under Notes so the captioned amount was not claimed as deduction/expenditure in any previous years. The AO has made addition of Rs 143,71,02,003/-." 10. Thus, it is a fact that assessee has repaid only Rs. 135 crores. The difference amount of Rs. 143,71,02,003/- was credited to Capital Reserve. The AO has taxed it under section 28 and 41 of the Act. 11. The Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs. Mahindra & Mahindra 404 ITR 001(SC) has decided the similar kind of issue as under : "13. On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. It is undisputed fact that the Respondent had been paying interest at 6 % per annum to the KJC as per the contract but the assessee never claimed deduction for payment of interest under Section 36 (1) (iii) of the IT Act. In the case at hand, learned CIT (A) relied upon Section 41 (1) of the IT Act and held that the Respondent had received amortization benefit. Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time, hence, it is nothing else than depreciation. Depreciation is a reduction in the value of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the Respondent in previous assessment years was due to the deprecation of the machine and not on the interest paid by it. 16. Moreover, the purchase effected from the Kaiser Jeep Corporation is in respect of plant, machinery and tooling equipments which are capital a....