Mithi Software Technologies Private Limited Vs ITO (ITAT Pune)
Waiver of Debentures Not Taxable; Set-off of Losses Must Be Allowed — ITAT Pune
The Pune Bench of the ITAT allowed the assessee-company’s appeal for AY 2014-15, holding that waiver of non-convertible debentures of ₹75 lakh is a capital receipt not chargeable to tax, and further directed allowance of set-off of brought-forward business losses and unabsorbed depreciation.
On the first issue, the Tribunal noted that the debentures were long-term capital borrowings from SIDBI Venture Capital Ltd. and that no interest on such debentures had ever been claimed as a deduction in the Profit & Loss account. Relying squarely on the Supreme Court ruling in CIT v. Mahindra & Mahindra Ltd., the ITAT held that section 28(iv) is inapplicable to monetary receipts, and section 41(1) cannot apply in the absence of any earlier allowance or deduction in respect of the liability. The Tribunal also found fault with the CIT(A) for invoking sections 28(iv) and 41(1) interchangeably, despite their mutually exclusive conditions. Consequently, the addition of ₹75 lakh was directed to be deleted.
On the second issue, the ITAT observed that the Assessing Officer and the CIT(A) had failed to apply their minds to the assessee’s claim of carried-forward business losses and unabsorbed depreciation, despite these being clearly reflected in the return of income (Schedules CFL and UD). Holding that there was no justification to deny statutory set-off under sections 72 and 32(2), the Tribunal directed the Assessing Officer to allow the set-off as claimed.
