The Hyderabad Bench of Income Tax Appellate Tribunal (ITAT) held that the waiver of the principal amount of Rs.14,89,99,689 which was taken for trading purposes and credited to the profit & loss account of the assessee, is considered as the income in the hands of the assessee and hence is taxable under Section 28(iv) of the Income Tax Act,1961.
The assessee, Share Microfin Ltd, borrowed a loan of Rs.25.92 crores from Citibank for which Blue Orchard Micro Finance, Luxembourg (BOMF) stood as guarantor. As the assessee was not meet the liabilities, Citibank invoked the BOMF and made the payment. The assessee and the BOMF arrived at a One-Time Settlement (OTS) for an amount of Rs.4.20 crores for principal and Rs.5.14 crores for interest.
It was found that out of the total principal of Rs.19.09 crores, the assessee paid an amount of Rs.4.20 crores, but the balance principal amount of Rs. 14,89,99,689/- which was waived was not brought to tax by treating the same as capital in nature.
During scrutiny and statutory notice under Sections 143(2) and 142(1) of the Income Tax Act, the Assessing Officer (AO) made an addition of the principal amount of Rs.14,89,99,689 to the total income of the assessee.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], which upheld the decision of AO by stating the addition made by the AO is sustained both under Section 28(iv) of the Income Tax Act and under Section the grounds of 2(24)(xviii) of the Income Tax Act. The assessee filed an appeal before ITAT.
The Authorised Representative A.G. Sitaraman contended that provisions of sec 28(iv) and 41(1)(a) of the Income Tax Act are not applicable to the facts of the present case in view of the decision of the Hon’ble Supreme Court in the case of CIT vs. Mahindra & Mahindra, the decision of the Vizag Bench of the Tribunal in the case of ITO vs. Sri Vasavi Polymers and the decision of the Coordinate Bench of the Tribunal in the case of TINI PHARMA Ltd vide ITA and various other decisions.
The Departmental Representative Jeevan Lal Lavidiya, relied on the order of the Assessing Officer and the CIT (A).
The Bench comprising R.K. Panda, Accountant Member and K. Narasimha Chary, Judicial Member observed that the waiver of the principal amount of Rs.14,89,99,689, which was taken for trading purposes and credited to the profit & loss account of the assessee, results in income in the hands of the assessee and falls under Section 28(iv) of the Income Tax Act being benefit arising from the business and accordingly would be taxable.
Hence the Tribunal stated that CIT (A) is fully justified in upholding the action of the Assessing Officer in bringing the same waivered principal amount to tax in the hands of the assessee.
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