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DCIT, Central Circle-14, New Delhi Vs. M/s Rollatainers Ltd., Lower Ground Floor, Lotus Tower, New Friends Colony, New Delhi
March, 30th 2015
                 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)

                               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
   (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



      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.
                                                            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
                                                           ITA No. 5469/Del /2011
                                                           & 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
                                                           ITA No. 5469/Del /2011
                                                           & C.O. No. 14/Del/2012

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.
                                                          ITA No. 5469/Del /2011
                                                          & 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
                                                          ITA No. 5469/Del /2011
                                                          & C.O. No. 14/Del/2012

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.
Copy forwarded to:
1.     Appellant
2.     Respondent
3.     CIT
4.     CIT(A)
5.     DR
                                               Asst. Registrar, ITAT, New Delhi
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