The Income Tax Appellate Tribunal (ITAT), Delhi bench held that waiver of loan for acquiring capital assets could not be taxed as perquisite under Section 28(iv) of the Income Tax Act, 1961.
The Revenue filed the appeal against the order of the CIT(A) by deleting the addition of Rs.3,70,00,000/- made by the Assessing Officer (AO) under Section 28(iv) of the Income Tax Act against the assessee company Meyer Apparel Pvt. Ltd.
During the appeal proceedings before the tribunal, V. K. Bindal, counsel for the revenue submitted that the assessee had taken a loan from Indian Overseas Bank against which FDR of Mr. Panchai Singh Sachthep was given as a guarantee. Since the assessee company could not repay the loan therefore the bank revoked the guarantee and adjusted the same against the amount of Rs.3.70 crores which was outstanding on account of loan against the assessee.
Mr. Panchai Singh Sachthep waived off the amount of loan of Rs,3,70 crores which was payable to him by the assessee company. The above waiver was treated as capital receipt by the assessee whereas it was a revenue receipt in the hands of the assessee, since it was a remission of liability.
Further, the revenue counsel argued that the amount was not given to the assessee as loan for acquiring capital assets.
Smita Singh, Counsel for assessee relied upon the decision of the Supreme Court in the case of CIT vs. Mahindra & Mahindra Ltd. submitted that waiver of loan for acquiring capital assets cannot be taxed as perquisite under section 28(iv) as receipt in hands of debtor/assessee are in form of cash/money and it also cannot be taxed as a remission/cessation of liability under section 41(1) as waiver of loan does not amount to cessation of trading liability
Further, pointing out the remand report of the Assessing officer, the counsel for the assesee argued that Assessing Officer in the remand report admitted a factual position by stating that it is evident that fixed deposit of Rs. 3.70 crores were provided by the guarantor as collateral security for the assessee to obtain an overdraft facility from the bank and thus it was not a trading liability and no deduction or claim was made by the assessee in its accounts.
After reviewing the facts and records, the two-member bench of Dr. B.R.R.Kumar (Accountant member) and C.M. Garg (Judicial Member) observed that waiver of loan for acquiring capital assets cannot be taxed as perquisite under section 28(iv) as receipt in hands of debtor/assessee are in form of cash/money.
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