IN INCOME TAX APPELLATE TRIBUNAL D, BENCH MUMBAI BEFORE SHRI M.BALAGANESH, AM & SHRI AMARJIT SINGH, JM ITA No. 3634/Mum/2018 (Assessment Year 2010-11) Dy. Commissioner of Vs. M/s. Rama Industries Ltd Income Tax- 3(3)(1), 812, Raheja Chambers th Room No.609, 6 Floor Free Press Journal Marg Aayakar Bhavan Nariman Point M.K.Road, Mumbai 400 021 Mumbai 400 020 PAN/GIR No. AAACR5096C (Appellant) (Respondent) Revenue by Shri D.G. Pansari Assessee by None Date of Hearing 05/08/2019 Date of Pronouncement 21/08/2019 ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.3634/Mum/2018 for A.Y.2010-11 arises out of order by ld. Commissioner of Income Tax (Appeals)-8, Mumbai in appeal No.CIT-8/IT-31/12-13 dated 22/03/2018 (ld. CIT(A) in short) against order of assessment passed u/s.143(3) of Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/04/2012 by ld. Asst. Commissioner of Income Tax, Circle 3(3), Mumbai (hereinafter referred to as ld. AO). 2. only issue to be decided in this appeal is as to whether ld. CIT(A) was justified in deleting addition made in sum of 2 ITA No.3634/Mum/2018 M/s. Rama Industries Ltd., Rs.2,22,08,961/- on account of principal amount of loan waived by bank in facts and circumstances of case. 2.1. None appeared on behalf of assessee. Since issue is covered, we proceed to hear ld. DR and dispose off appeal based on materials available on record. 3. We find that assessee has been declared as sick industrial company by Board of Industrial and Financial Reconstruction (BIFR). assessee has been granted One Time Settlement Scheme for its working capital loan by Oriental Bank of Commerce wherein, interest portion waived has been duly offered to tax by assessee, on which there is no dispute. principal component of loan waived by bank worked out to Rs.2,22,08,961/-. This amount was not offered to tax by assessee in return of income on ground that it is capital in nature. ld. AO however, disagreed with view of assessee and added same to total income on ground that in assessee s own case for A.Y.2009-10 similar addition was made by him vide order passed u/s.143(3) of Act dated 14/03/2011. We find that in A.Y.2009-10, this addition was made by applying provisions of Section 41(1) and 28(iv) of Act. ld. CIT(A) had deleted addition for A.Y.2009-10. 3.1. We find that ld. CIT(A) had observed in A.Y.2009-10 that no deduction or benefit was claimed by assessee in respect of principal component of loan in earlier years and accordingly, provisions of Section 41(1) of Act cannot be made applicable to same. We find that ld. CIT(A) had also observed in A.Y.2009-10 that since assessee was not engaged in business of obtaining loans and hence, waiver of such loans by banks could not be construed as benefit 3 ITA No.3634/Mum/2018 M/s. Rama Industries Ltd., arising from such business and accordingly, same cannot be brought to tax u/s.28(iv) of Act. ld. CIT(A) thereafter, placed reliance on decision of Hon ble Jurisdictional High Court in case of Mahindra & Mahindra Ltd. vs. CIT reported in 128 Taxman 394 (BOM) and deleted addition. ld. CIT(A) for year under consideration i.e. A.Y.2010-11 had merely followed those directions and deleted addition towards waiver of principal component of loan by bank in sum of Rs.2,22,08,961/-. We find that decision of Hon ble Jurisdictional High Court in case of Mahindra & Mahindra Ltd., supra which was relied upon by ld. CIT(A) had been subsequently approved by Hon ble Supreme Court in case of CIT vs. Mahindra & Mahindra reported in 255 Taxman 305 (SC) wherein it was held as under:- term 'loan' generally refers to borrowing something, especially sum of cash that is to be paid back along with interest decided mutually by parties. In other terms, debtor is under liability to pay back principal amount along with agreed rate of interest within stipulated time It is well-settled principle that creditor or his successor may exercise their 'Right of Waiver' unilaterally to absolve debtor from his liability to repay. After such exercise, debtor is deemed to be absolved from liability of repayment of loan subject to conditions of waiver. waiver may be partly waiver i.e., waiver of part of principal or interest repayable, or complete waiver of both loan as well as interest amounts. Hence, waiver of loan by creditor results in debtor having extra cash in his hand. It is receipt in hands of debtor/assessee. short but cogent issue in instant case arises whether waiver of loan by creditor is taxable as perquisite under section 28(iv) or taxable as remission of liability under section 41(1). On plain reading of section 28(iv), prima facie, it appears that for applicability of said provision, income which can be taxed shall arise from business or profession. Also, in order to invoke provision of section 28(iv), benefit which is received has to be in some other form rather than in shape of money. In instant case, it is matter of record that amount of Rs.57.74 lakhs is having received as cash receipt due to waiver of loan. Therefore, very first condition of section 28(iv) which says any benefit or perquisite arising from business shall be in form of benefit or perquisite other than in shape of money, is not satisfied in instant case. Hence, in no circumstances, it can be said that amount of Rs 57.74 lakhs can be taxed under provisions of section 28(iv). 4 ITA No.3634/Mum/2018 M/s. Rama Industries Ltd., On perusal of section 41(1), it is evident that it is sine qua non that there should be allowance or deduction claimed by assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by assessee. Then, subsequently, during any previous year, if creditor remits or waives any such liability, then assessee is liable to pay tax under section 41. objective behind this section is simple. It is made to ensure that assessee does not get away with double benefit once by way of deduction and another by not being taxed on benefit received by him in later year with reference to deduction allowed earlier in case of remission of such liability. It is undisputed fact that assessee had been paying interest at 6 per cent per annum to KJC as per contract but assessee never claimed deduction for payment of interest under section 36(1)(iii). In case at hand, Commissioner(Appeals) relied upon section 41(1) and held that assessee had received amortization benefit. Amortization is accounting term that refers to process of allocating cost of asset over period of time, hence, it is nothing else than depreciation. Depreciation is reduction in value of asset over time, in particular, to wear and tear. Therefore, deduction claimed by assessee in previous assessment years was due to deprecation of machine and not on interest paid by it. Moreover, purchase effected from KJC is in respect of plant, machinery and tooling equipments which are capital assets of assessee. It is important to note that said purchase amount had not been debited to trading account or to profit or loss account in any of assessment years. It is to be noted that there is difference between 'trading liability' and 'other liability'. Section 41(1) particularly deals with remission of trading liability. Whereas in instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, there is no force in argument of revenue that case of assessee would fall under section 41(1). To sum up, judgment and order passed by High Court cannot be interfered with for following reasons: a) Section 28(iv) does not apply on present case since receipts of Rs 57.74 lakhs are in nature of cash or money. b) Section 41(1) does not apply since waiver of loan does not amount to cessation of trading liability. It is matter of record that assessee has not claimed any deduction under section 36(1)(iii) qua payment of interest in any previous year. c) In view of above discussion, appeals being devoid of merit are dismissed. 5 ITA No.3634/Mum/2018 M/s. Rama Industries Ltd., 3.2. Respectfully following same, we find no infirmity in order of ld. CIT(A) in deleting addition in sum of Rs.2,22,08,961/- towards waiver of principal amount of loan. Accordingly, grounds raised by revenue are dismissed. 4. In result, appeal of revenue is dismissed. Order pronounced in open court on this 21/08/2019 Sd/- Sd/- (AMARJIT SINGH) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 21/08/2019 KARUNA, sr.ps Copy of Order forwarded to 1. Appellant 2. Respondent. 3. CIT(A), Mumbai. 4. CIT DR, ITAT, Mumbai 5. 6. Guard file. BY ORDER, (Asstt. Registrar) ITAT, Mumbai Dy. Commissioner of Income-tax- 3(3)(1), Mumbai v. Rama Industries Ltd