TaxTMI 
TaxTMI 
2022 (1) TMI 1399
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....ial credit and Development syndicate Limited (285 ITR 310 (Kar ). 4. On the facts and circumstances of the case The Learned CIT (Appeals ) ought to have appreciated that the Judgment of the Hon'ble Supreme Court in the case of T.V.Sundaram Iyengar and sons Limited reported in 222 ITR 344 had no application to the case of the 'Appellant and the Bombay High court in the case of Solid Containers Limited (308 ITR 417) was distinguishable and accordingly ought to have refrained from relying on these judgments. 5. Without prejudices the addition as made by the Assessing Authority is excessive, arbitrary 86 unreasonable 86 ought to be reduced substantially. 6. For these and other grounds that may be argued at the time of hearing of the appeal the Appellant prays that the appeal may be allowed. 2. The facts of the case are that The grounds of appeal 2 to 4 are argumentative in nature and relate to the common issue of addition of Rs.1,45,22,33,521/- made by the AO by holding that the principal amount of loan/borrowings taken by the assessee from banks and which were waived off by the banks, was income of the assessee. In brief, the assessment in the case of assessee was fi....
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....the case of TV Sundaram Iyengar & Sons Ltd. (supra) and the decision of Bombay High Court in the case of Solid Containers Ltd. (supra) and differed from a co-ordinate bench ruling in Iskraemeco Regent Ltd v. CIT (2011) 196 Taxmann 103 on the issue of taxability of waiver of loan taken for acquiring a capital asset, and held that waiver of principal portion of such loan would also fall within the purview of section 28(iv) of the Act and hence taxable as revenue receipt. The Hon'ble High Court thus rejected the argument that use of borrowed funds for capital purposes or revenue purposes would determine the taxability of the waiver. 5. We have heard the rival submissions and perused the materials available on record. The Ld. A.R. submitted that the issue is fairly covered by the earlier order of the Tribunal in ITA No.140/Bang/2020 dated 27.12.2021, wherein it was held as under: "11. We have heard both the parties and perused the material on record. In this case, the AO invoked the provisions of section 41(1) of the Act on the reason of principal loan written back by applying the ratio laid down in the case of T.V. Sundaram Iyengar and Sons Ltd. (supra). The AO observed that assess....
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.... trading liability may have been allowed as business deduction in the earlier year ceases to be in existence or if the assessee has changed on account of death of earlier assessee, the benefit received in subsequent year cannot be treated as income received by the assessee. 14. The Madras High Court in the case of Narayanan Chettiar Industries v. ITO, 277 ITR 426 (Mad) held that in respect of remission of liability, no addition can be made unless an allowance or deduction is allowed to the assessee in the previous year. After noting these facts, it was observed that from the records it was not clear whether any allowance or deduction was allowed to the assessee in the previous year. Hence the issue was remitted to be examined by the AO. 15. The Delhi High Court in CIT v. Tosha International Ltd. (331 ITR 440) (Bom) followed the judgment of Bombay High Court in the case of Mahindra & Mahindra Ltd. v. CIT, 261 ITR 501 (Bom) and held that the amount of loan and interest due by the assessee to banks and financial institutions having never been claimed by the assessee as deduction, waiver of interest or part of principal amount by banks/financial institutions did not give rise to ....
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....tted before us that the CIT categorically recorded in page 18 of his order that interest paid on loan is already offered to tax in the year of waiver and the contention of the AR is that is that this was not accounted by the AO either in the assessment order or the remand report dated 26.8.2019. 19. We have carefully gone through the judgment in the case of T.V. Sundaram Iyengar & Sons Limited (supra) wherein it was held as under:- "The assessee had received deposits in the course of its business which were originally treated as capital receipts. Some of the deposits were neither claimed by nor returned to the depositors. There is no dispute that the deposits were received in the course of the carrying on of the business of the assessee. The amounts were not in the nature of security deposits held by the assessee for performance of contract by its constituents. As it appears from the facts of the case, the amounts were depleted by adjustments made from time to time. The amounts were not given and retained as security to be retained till the fulfilment of the contract. There is no finding to that effect. The deposits were taken in the course of the trade and adjustments were m....
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....of CIT v. Mahindra & Mahindra Ltd., 404 ITR 1 (SC) where the Supreme Court held as follows:- "Held, dismissing the appeals, (i) that prima facie, for the applicability of section 28(iv) of the Act, , the income must arise from the business or profession. And the benefit which is received has to be in some other form rather than in the shape of money. The amount of Rs.57,74,064 was a cash receipt due to the waiver of loan. Therefore, the very first condition of section 28(iv) was not satisfied and the amount of Rs.57,74,064 could not be taxed under the provisions of section 28(iv) of the Act. (ii) That for the applicability of section 41(1) of the Act, it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under section 41. The assessee had been paying interest at 6 per cent per annum to the K in terms of the contract but never claimed deduction for payment of interest under section 36(1)(iii) of ....
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....d is not in the course of trading activity and it is not a surplus from trade so as to tax it. Being so, with regard to the principal term loan portion, it is a capital receipt only and waiver of the same is not taxable." Further, it was observed by the Tribunal in para 21 that "However, with regard to the interest portion, if it allowed as deduction in any earlier year on waiver of the same has to be considered as a trade receipt. The AO is required to verify with regard to interest waiver, if any, and if it is allowed as deduction in any earlier assessment year, then only the waiver can be treated as revenue receipt liable to tax. With these observations, we remit the issue with regard to interest waiver only to the file of the AO for reconsideration." 7. Being so, in our opinion, the Tribunal has given a finding that principal term loan portion is being a capital receipt and waiver of that portion would not amount to income either u/s 28(iv) or u/s 41(1) of the Act. Further, the expenditure, which was not allowed as a deduction in earlier year and waiver of the same cannot be treated as revenue receipt. To that extent, we have no hesitation in agreeing with the contentions of ....