TaxTMI 
TaxTMI 
2025 (8) TMI 423
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....on from taxation w.r.t the amount of waived working capital loan by bank which was offered as income chargeable to tax in the Return of Income ignoring the provisions of section 119(2)(b) of the Act wherein the CIT(A) has been specifically barred from entertaining or admitting any relief under the Act which was not claimed in the valid return of income." 3. "On the facts & in the circumstances of the case and in law, the Ld. CIT(A) has erred in admitting the additional claim of exemption of assessee without requiring and having sufficient 3 cause of genuine hardship on the part of the assessee in following the procedure laid down in section 119(2)(b) of the Act where the powers have been authorized by the Board to various Income Tax Authorities except to the CIT(A)." 4. "On the facts & in the circumstances of the case and in law, the Ld. CIT(A) has erred in treating the benefit earned by assessee from waiver of working capital loan, as a result of resolution passed by NCLT under IBC, out of purview of taxation by treating the same as capital receipt ignoring the ratio laid down by jurisdictional High Court in the case of Solid Containers Ltd." 5. On the f....
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.....1 That on the facts and circumstances of the case, the Ld. AO has erred in not mentioning that the claim of loss as determined in giving effect to the order of CIT(A) shall be carried forward to future assessment years and hence proper direction may kindly be given to carry forward and set off of the said losses in subsequent assessment years. 4. Thus, the Revenue in its various grounds of appeal has challenged, firstly, (vide ground nos. 1 to 3) the ld. CIT(A) has erred in law in admitting the additional claim of non-taxability of receipts by way of additional ground raised before the ld. CIT(A) in respect of amount of waiver of working capital loan by the bank which was offered to income chargeable to tax in the return of income and therefore, ld. CIT(A) could not have entertained or admitted the ground which was not claimed in the return. Secondly, from ground Nos.4 to 9, the department has challenged that the ld. CIT(A) has erred in treating the benefit received by the assessee from waiver of working capital loan of Rs. 3,55,240/- lakhs (Rs. 35.52 crores), as a result of resolution passed by NCLT under IBC out of purview taxation by treating the same as capital receipt. ....
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.... an "Exceptional Item" in the Statement of Profit & Loss Account. Among the total written-back loans Rs. 27,409/- lakhs corresponds to the write-off of a term loan Rs. 3,55,240/- lakhs pertains to the write-off of a working capital loan, and the remaining balance of Rs. 76,684/- lakhs relates to the write-off of interest on term and working capital loans. Apart from that it was submitted before the ld. CIT(A) that in relation to the written-back of working capital loan totaling Rs. 3,55,240/- lakhs, the assessee, due to inadvertent error, has included the same in total income and offered to tax the said amount while filing the return of Income. In this regard, it was stated that the assessee has not claimed the said amount in any preceding years as deduction and hence the same is not chargeable to tax. Thus, it was submitted that provision of Section 41(1) will not be applicable, because in the present case it is an admitted fact that assessee has not claimed any deduction in respect of principal amount of loan. The working loan write back could not have been treated as income of the year. In support reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Ma....
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....rom a qualified chartered accountant, it had verified the books of accounts as well as financials of the assessee after due verification and after satisfying the correctness of accounts, it had filed its return of income, Hence, the additional claim before you is nothing but change of opinion. 6.2.5 Further, in order to claim the waiver of working capital loan as capital receipt as per the ratio laid down by various judgements, the assessee should have claimed it by way of filing return or revised return, whereas the assessee has not claimed it in original return nor has it filed any revised return to claim such exemption. It is also pertinent to mention here that the Hon'ble Apex court in the case of Goetze (India) Limited vs. CIT (2006) 157 taxman 1 held that before the assessing officer the assessee cannot make a claim for deduction otherwise than by filing a return or revised return. And, in this case, the income offered for taxation is not subject to any deduction as per provision of the Act. 7. In view of the above, additional grounds raised by the assessee may not be admitted and should be rejected." 10. In response, assessee had also filed detailed ....
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....1(1) as waiver of loan does not amount to cessation of trading liability" 29.8 Thus, Hon'ble Supreme Court held that for invoking the provision of section 41(1), it is sine-qua-non that allowance of deduction should be claimed by the Assessee in any assessment for any year, in respect of loss, expenditure or trading liability incurred by the Assessee and then subsequently, if the financial creditor remits or waives any such liability then assessee liable to pay tax u/s. 41 of the Act. Objective behind this section is to ensure that assessee does not get way with the double benefit. Here in this case the loan taken by the assessee was neither an expenditure waiver of such loan which otherwise nor trading liability and therefore waiver was capital in nature, the provision of section 41(1) cannot be invoked. Further, as held by the Hon'ble by the Supreme Court, section 28 (iv) also does not apply, as benefit on waiver of loan was not in the kind of money. i.e., cash receipt. 29.9 Similar view has been expressed by the Hon'ble Gujarat High Court in the case of PCIT-vs.- Gujarat State Financial Corporation [2020] 122 taxmann.com 101 (Guj) wherein it was hel....
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....f this Court in Mahindra & Mahindra would submit that Mr. Pinto's reliance on another Judgment of a Division Bench of this Court is not well-placed. Mr. Pinto had relied upon the Judgment in the case of Solid Containers Ltd. v. Dy. CIT [2009] 308 ITR 417/178 Taxman 192 (Bom.). 21. The Section 28(iv) of the I.T. Act reads as under- 28. Profits and gains of business or profession. The following income shall be chargeable to income tax under the head "Profits and gains of business or profession"- (1) to (iii) (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. Thus, a plain reading of the said section would reveal that the income and which has been sel out in the clauses shall be chargeable to income tax under the head, profits and gains of business or profession. Clause (iv) deals with the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. 22. Then, Section 41(1) was relied upon and it is a common ground that Section 41 deals with profits chargeable to tax. The su....
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....to benefit derived by the assessee as a result of extinguishment of liability to repay the loan and this benefit has certainly arisen from business and not from anywhere else. 26. In the case of Mahindra & Mahindra (supra), the Division Bench of this Court was concerned with somewhat identical demand. There, Mahindra and Mahindra was proceeded against on the facts which have been noted. The facts were that, whether a sum of Rs. 57,74,064/- due by the assessee-Mahindra and Mahindra to one Kaiser Jeep Corporation of America and written off by the lender constituted taxable income of the assessee? and whether, on the facts and circumstances of the case, the assessee having obtained deduction of a certain sum by way of depreciation on the cost of machinery and toolings, was taxable under Section 41(1) of the I.T. Act as the cost of the machinery/toolings being forgone by Kaiser Jeep Corporation during the Assessment Year 1976-77? Then the related questions to these were questions 3 and 4. 27. The facts were noted in detail by the Division Bench on pages 504 to 506 and the arguments from pages 507 to 509. Then the findings, as far as Section 28(iv) are concerned, were ....
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....such Judgments rendered earlier, Section 41 came to be enacted. The Division Bench held that the most fundamental fact that is to be borne in mind is that no deduction was given in the earlier years and, therefore, the loan waived could not be included as income under Section 41(1) of the I.T. Act. 31. In the case at hand, the only observation of the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals) is that writing off of the loans payable by the assessee due to one time settlement with Banks and financial institutions amounts to benefits obtained by the assessee arising out of business. Therefore, such benefit becomes the income of the assessee. 32. Mr. Pinto would rely upon the Judgment of the Division Bench of this Court in the case of Solid Containers (supra) Solid Containers involved the facts of addition made on the ground that the credit balance written back is the income of the assessee in view of the fact that it is a gain directly arising out of the business activity and the same was liable to tax under Section 28. Reliance was placed on Mahindra and Mahindra. However, the Division Bench, in Solid Containers, noted that a loan o....
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....f account its liability towards interest and the payment of commission, expenses incurred and allowed as deduction in the earlier years. The Assessing Officer considered this unilateral action as remission or cessation of its liability and made additions for the assessment year concerned, including under Section 41(1). As in our case, the Tribunal deleted the addition. The Revenue was in appeal before the Rajasthan High Court. The Division Bench held that the act of remission was attributable to the creditor and it could not be unilaterally attributed to the debtor himself declaring that he would not pay. There was no material which suggested any act or omission on the part of the creditor which resulted in extinguishment of the liability of the assessee on its account. Writing off such liability in the books of account by the debtor only conveyed the intention of the assessee not to pay. The Revenue relied on the circumstances stated by the Income Tax Officer that claims had not been filed before the Board by Creditors However, as rightly observed by the Division Bench of the Rajasthan High Court that, there is no provision in the Sick Industrial Companies (Special Provisions) Act....
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....s, department is accepting it then, for admitting the third additional ground, department cannot take different stand. 14. We have heard rival submissions and perused the relevant finding given in the impugned order. As regards the grounds raised by the Revenue from 1 to 3 challenging the jurisdiction of the ld. CIT(A) to admit the additional ground, we find that the assessee has raised additional ground before the ld. CIT(A) stating that waiver of working capital loan write-back during the year in terms of resolution plan approved by the NCLT should be treated as capital receipt. The facts relating to waiver of such loan has been stated and elaborated before the ld. CIT(A) which we have discussed in the aforesaid paragraphs. On such claim made by the assessee the ld. CIT(A) in view of the notification of the CBDT vide Circular No.33 of 2023, called for the remand report and ld. AO's comment. Thus, ld. CIT(A) had forwarded this claim to the ld. AO to re-examine the issue. This has been done in view of the procedure for appeal laid down by the CBDT in its Circular which for the sake of ready reference reads as under:- "v) the appellant may file additional grounds of appe....
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....d. CIT(A) has admitted the additional ground following the binding principles laid down by the Hon'ble Jurisdictional High Court and Hon'ble Supreme Court. 16. We find that the Hon'ble Jurisdictional High Court in the case of Pruthvi Brokers and Shareholders Pvt. Ltd after considering the judgment of the Hon'ble Supreme Court in the case of Goetze India vs. CIT (157 Taxman 1) and judgment of the Hon'ble Supreme Court in the case of NTPC vs. CIT (supra) and various other judgments of the Hon'ble Supreme Court, held that there is a long line of authorities to establish that assessee is entitled to raise additional ground not merely in terms of legal submissions but also additional claims not made in the return of income filed by it. The Hon'ble High Court has also dealt with the judgment of the Hon'ble Supreme Court in the case of Gotze India Ltd. in the following manner:- "21 It was then submitted by Mr. Gupta that the Supreme Court had taken a different view in Goetze (India) Limited v. Commissioner of Income-tax, (2006) 157 Taxman 1. We are unable to agree. The decision was rendered by a Bench of two learned Judges and expressly refers to the judgment of the Bench of t....
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....mission in Commissioner of Income-tax v. Jai Parabolic Springs Limited, MANU/DE/0638/2008 (2008) 306 ITR 42. The Division Bench, in paragraph 17 of the judgment held that the Supreme Court dismissed the appeal making it clear that the decision was limited to the power of the assessing authority to entertain a claim for deduction otherwise than by a revised return and did not impinge on the powers of the Tribunal In paragraph 19, the Division Bench held that there was no prohibition on the powers of the Tribunal to entertain an additional ground which, according to the Tribunal, arises in the matter and for the just decision of the case." 17. Further the Hon'ble Supreme Court in the case of Wipro Finance Ltd. vs. CIT (2022) 137 taxmann.com 230, wherein fresh claim was made before the ITAT that loss arising out of forex fluctuation which was capitalised in the return of income was claimed as revenue expenses before the Tribunal. In this regard the Hon'ble Supreme Court rejecting the arguments raised by ld. ASG on behalf of the Revenue that, since assessee in its return of income has taken the conscious plea with regard to part of the claim, then it was not open for the assessee to....
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....the Act. In other words, this decision is of no avail to the department." [Emphasis in bold added is ours] 18. Thus, there is no infirmity in the order of the ld. CIT(A) in admitting the additional claim but also here in this case the ld. CIT(A) had duly followed the process laid down by CBDT by asking the remand report from the ld. AO to examine the claim on merits. Accordingly, the order of the ld. CIT(A) admitting the additional ground is confirmed and the ground Nos.1 to 3 raised by the Revenue are dismissed. 19. In so far as merits are concerned, as noted above here in this case in pursuance of resolution plan approved by the NCLT, assessee has written-back Rs. 7,44,763/-, out which the assessee has written back the amount of Rs. 3,55,240/- pertained to the write-back of the working capital loan; and in so far as waiver of interest on such working capital loan, the same has been offered for taxation u/s.41(1). 20. The issue whether the write-back of working capital loan which was included as income and offered to tax while filing the return of income can be claimed as not taxable or not. Now it is a well settled law as discussed by the Hon'ble Supreme Court i....
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....unts. Hence, waiver of loan by the creditor results in the debtor having extra cash in his hand. It is receipt in the hands of the debtor/assessee. The short but cogent issue in the instant case arises whether waiver of loan by the creditor is taxable as a perquisite under section 28 (iv) of the IT Act or taxable as a remission of liability under section 41(1) of the IT Act. 12. The first issue is the applicability of section 28 (iv) of the IT Act in the present case. Before moving further, we deem it apposite to reproduce the relevant provision herein below- 28. Profits and gains of business or profession. The following income shall be chargeable to income-tax under the head "Profits and gains of business profession"- (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, 13. On a plain reading of section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of section 28 (iv) of the IT Act, the benefit which....
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....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 assets of the Respondent. It is important to note that the said purchase amount had not been debited to the trading account or to the profit or loss account in any of the assessment years. Here, we deem it proper to mention that there is....
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....he equipments at the rate of 6% interest repayable after 10 years in instalments. Subsequently, Kaiser Jeep Corporation was taken over by American Motor Corporation which agreed to waive off the principal loan amount advanced by Kaiser Jeep Corporation to Mahindra & Mahindra. It is in this factual background that the aforesaid provision first cropped up before the Bombay High Court and thereafter, travelled to the Supreme Court in consideration of the question as whether the loan amount which was waived off by the lender constituted taxable income of Mahindra & Mahindra. Supreme Court discussed the meaning of the term "loan" and also the right of the creditor to exercise its right of waiver. It was held as under :- "The term "loan" generally refers to borrowing something, especially a sum of cash that is to be paid back alongwith the interest decided mutually by the parties. In other terms, the debtor is under a liability to pay back the principal amount alongwith the agreed rate of interest within a stipulated time. It is a well-settled principle that the creditor or his successor may exercise their "right of waiver" unilaterally to absolve the debtor from his li....
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....n the shape of money was absent. Therefore, it was held that the said amount could not be taxed under section 28(iv) of the Act in no circumstances. 18 Facts and issue in the present case are identical to that in Mahindra & Mahindra (supra) Here also loan of Rs. 2.52 cores was given by the Karnataka Government to the assessee which was subsequently waived off. Therefore, this amount would be construed to be cash receipt in the hands of the assessee and cannot be taxed under section 28(/v). In view of the Supreme Court decision in Mahindra & Mahindra (supra), the earlier decision of this court in Protos Engineer Co. (P.) Ltd. (supra) would no longer hold good." 22. In another judgment of the Hon'ble Bombay High Court in the case of Graham Firth Steel Products (I) Ltd., wherein as per the BIFR order only principal amount is waived off by the banks. It was held that no addition can be made on such waiver of principal loan either u/s. 41(1) or u/s.28(iv). 23. The ld. CIT(A) has referred to various other Hon'ble High Court judgments, however, looking to the fact that there are direct judgment of the Hon'ble Jurisdictional High Court and Hon'ble Supreme Court; therefore, w....