IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : `F ' : NEW DELHI
BEFORE SH. R.S. SYAL, A.M. & SH. A.T. VARKEY, J.M.
ITA No. 5469/Del /2011
Assessment Year: 2008-09
DCIT, Central Circle-14, Vs. M/s Rollatainers Ltd.,
New Delhi Lower Ground Floor, Lotus Tower,
New Friends Colony, New Delhi
(PAN: AAACR0344K)
(Appellant) (Respondent)
And
C.O. No. 14/Del/2012
[In ITA No. 5469/Del /2011]
Assessment Year: 2008-09
M/s Rollatainers Ltd., Vs. DCIT, Central Circle-14
Lower Ground Floor, Lotus Tower, New Delhi
New Friends Colony, New Delhi
(PAN: AAACR0344K)
(Appellant) (Respondent)
Assessee by : Sh. Gaurav Jain, Adv.
Department by : Sh. Vikram Sahay, Sr. DR
Date of hearing: 26.03.2015
Date of pronouncement: 27.03.02015
ORDER
PER R.S. SYAL, A.M.:
This appeal by the Revenue and the Cross objection by the assessee arise
out of the order passed by the learned CIT(A) on 09.08.2011 in relation to the
assessment order 2008-09.
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ITA No. 5469/Del /2011
& C.O. No. 14/Del/2012
2. The only issue raised by the Revenue through various grounds is against
the deletion of addition of Rs. 52,45,912/- made by the Assessing Officer by
treating the amount of loan waived off by the banks as business income.
3. Briefly stated facts of the case are that the assessee got a loan and interest
waiver of Rs. 96.19 lakhs from ICICI and Federal Bank. The loan waiver under
OTS share was Rs. 52.45 lakhs. The interest waiver was offered as income by
the assessee subject to the provisions of Section 43B of the Income-tax Act,
1961 (for short "the Act"). On being called upon to explain as to why the waiver
of loan be not treated as assessee's income under Section 41(1) of the Act, the
assessee stated that the said loan was utilized for running its business. Without
prejudice to the above, it was also stated that the loans were taken `against
hypothecation of plant & machinery' and by considering the definition of actual
cost, the waiver amount would reduce the value of block of assets. Not
convinced with the assessee's submissions, the Assessing Officer added a sum
of Rs. 52,45,912/- to the total income. The learned CIT(A) treated this waiver of
loan as not constituting income as covered by the Tribunal order passed in the
assessee's own case for the A.Y. 2006-07 and accordingly deleted the addition.
4. We have heard the rival submissions and perused the relevant material on
record. It can be seen from the impugned order that the learned CIT(A) has
deleted the addition by relying on the order passed by the Tribunal in assessee's
own case for the A.Y. 2006-07. A copy of such order is available on pages 6
onwards of the paper book. The relevant discussion has been made by the
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& C.O. No. 14/Del/2012
tribunal on pages 17 and 19 of its order. After considering all the relevant facts,
the Tribunal has held that waiver of `Term loan' would not constitute income,
but the waiver of `Cash credit loans' would attract taxability. It is a matter of
record that both the assessee as well as the Revenue preferred their respective
appeals against the said Tribunal order. The Revenue albeit challenged the order
on other issues, but did not contest the relief allowed by the Tribunal insofar as
the waiver of `Term loan' not constituting income, is concerned. The assessee's
appeal against the waiver of `Cash credit limit' as constituting income, has been
dismissed by the Hon'ble Delhi High Court. A copy of judgment of the Hon'ble
Delhi High Court is available on record. The position, which ergo emerges, is
that the view taken by the tribunal in such order has attained finality. In other
words, whereas the waiver of `term loans' is not chargeable to tax, the waiver of
`Cash credit' loans calls for an addition.
5. When we peruse the assessment order, it can be seen that the assessee
contended vide its written submissions that the loans were utilized to run the
business of the assessee. In para 4.1.1, it has been mentioned by the assessee that
"it would be proper to note that the loans have been taken against hypothecation
of plant and machinery". Similar position was reiterated before the learned
CIT(A) as well, which is discernible from page 6 of the impugned order
recording the assessee's submission that "simply because loans were borrowed
against hypothecation plant and machinery, the same does not have any nexus
with acquisition of such assets". The learned CIT(A), while deleting the
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addition, appears to have been swayed by the factum of loan on account of
hypothecation of plant and machinery and in this process failed to properly
appreciate the line of distinction drawn by the Tribunal in its order for A.Y.
2006-07 between the waiver of term loan and cash credit loan. It goes without
saying that a loan borrowed against hypothecation of plant and machinery does
not per se assume the character of a term loan. On a specific query, the AR
could not place on record any document from the banks under which the waiver
of such loans was allowed for demonstrating if these were term loans or cash
credit loans. Under such circumstances, we set aside the impugned order on this
score and send the matter to the file of Assessing Officer for re-deciding this
issue in the light of our above observation that have been culled out from the
proceedings for the A.Y. 2006-07, as discussed above. In other words, the
Assessing Officer should find out the nature of loan which was waived by ICICI
and Federal Bank. If it turns out to be term loan, then its waiver should not
attract any taxation. On the other hand, if the waiver is found out to be of a loan
in the nature of cash credit, then the taxability to that extent has to be
maintained. The mere fact that some plant and machinery was hypothecated for
obtaining loan cannot be considered as a relevant criteria for determining the
nature of loan as to whether it is term loan or cash credit loan. Needless to say,
the assessee will be allowed a reasonable opportunity of being heard in such
fresh proceedings.
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& C.O. No. 14/Del/2012
6. The only issue raised by the assessee in its Cross objection is against the
sustenance of addition under Section 14A of the Act to the tune of Rs.
9,50,015/-, being ½ % of the average value of investment as per Rule 8D of the
Income-tax Rules, 1962.
7. Briefly stated facts of the case are that the assessee did not earn any
exempt income. The Assessing Officer applied Rule 8D of the Income-tax
Rules, 1962, to work out disallowance under Section 14A of the Act to the tune
of Rs. 27,23,703/-, comprising of disallowance on account of interest and ½%
of average value of investment amounting to Rs. 9,50,015/-. The learned CIT(A)
allowed relief on the question of disallowance of interest but sustained the
disallowance @ ½% of the average value of investment as per Rule 8D(2)(iii).
The assessee is aggrieved against the sustenance of this disallowance.
8. We have heard the rival submissions and perused the relevant material on
record. It can be seen from the assessment order itself that the assessee claimed
not to have earned any exempt income, which remained uncontroverted and the
Assessing Officer made disallowance under Section 14A by applying the Rule
8D. The learned AR has relied on the judgment of the Hon'ble Jurisdictional
High Court in the case of CIT Vs. Holcim India Pvt. Ltd., (2014)-90-CCH-081-
DEL-HC, in which it has been laid down that there can be no disallowance
under Section 14A in the absence of any exempt income. Similar view has been
taken by the Tribunal in certain other cases as well. In view of this clear
judgment coming from the Hon'ble Jurisdictional High Court, which has a
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binding force on us, it is apparent that there can be no disallowance under
Section 14A in the absence of any exempt income. Since the assessee admittedly
did not have any exempt income, there can be no question of sustenance of any
disallowance under Section 14A. This ground is allowed.
9. In the result, the appeal of the Revenue is allowed for statistical purposes
and the Cross objection of the assessee is allowed.
The decision is pronounced in the open court on 27th March, 2015.
Sd/- Sd/-
(A.T. Varkey) (R.S. Syal )
Judicial Member Accountant Member
Dated: 27th March, 2015.
RK/-
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi
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